[Title 42 CFR ]
[Code of Federal Regulations (annual edition) - October 1, 2004 Edition]
[From the U.S. Government Printing Office]



[[Page i]]



          42


          Part 430 to End

                         Revised as of October 1, 2004


          Public Health
          
          


________________________

          Containing a codification of documents of general 
          applicability and future effect

          As of October 1, 2004
          With Ancillaries
                    Published by
                    Office of the Federal Register
                    National Archives and Records
                    Administration
                    A Special Edition of the Federal Register

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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 42:
          Chapter IV--Centers for Medicare & Medicaid 
          Services, Department of Health and Human Services 
          (Continued)                                                3
          Chapter V--Office of Inspector General-Health Care 
          (HHS)                                                   1105
  Finding Aids:
      Material Approved for Incorporation by Reference........    1207
      Table of CFR Titles and Chapters........................    1209
      Alphabetical List of Agencies Appearing in the CFR......    1227
      Table of OMB Control Numbers............................    1237
      List of CFR Sections Affected...........................    1239

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                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 42 CFR 430.0 refers 
                       to title 42, part 430, 
                       section 0.

                     ----------------------------

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                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

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    To determine whether a Code volume has been amended since its 
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EFFECTIVE AND EXPIRATION DATES

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OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

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Many agencies have begun publishing numerous OMB control numbers as 
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OBSOLETE PROVISIONS

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INCORPORATION BY REFERENCE

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This material, like any other properly issued regulation, has the force 
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    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
material published in the Federal Register.
    (b) The matter incorporated is in fact available to the extent 
necessary to afford fairness and uniformity in the administrative 
process.
    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
    Properly approved incorporations by reference in this volume are 
listed in the Finding Aids at the end of this volume.
    What if the material incorporated by reference cannot be found? If 
you have any problem locating or obtaining a copy of material listed in 
the Finding Aids of this volume as an approved incorporation by 
reference, please contact the agency that issued the regulation 
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20408, or call (202) 741-6010.

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    An index to the text of ``Title 3--The President'' is carried within 
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    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

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REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
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                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

October 1, 2004.

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                               THIS TITLE

    Title 42--Public Health is composed of three volumes. The parts in 
these volumes are arranged in the following order: Parts 1-399, parts 
400-429 and part 430 to end. The first volume (parts 1-399) contains 
current regulations issued under chapter I--Public Health Service (HHS). 
The second volume (parts 400-429) includes regulations issued under 
chapter IV--Centers for Medicare & Medicaid Services (HHS) and the third 
volume (part 430 to end) contains the remaining regulations in chapter 
IV and the regulations issued under chapter V by the Office of Inspector 
General-Health Care (HHS). The contents of these volumes represent all 
current regulations codified under this title of the CFR as of October 
1, 2004.

    The OMB control numbers for the Centers for Medicare & Medicaid 
Services appear in Sec.  400.310 of chapter IV. For the convenience of 
the user, subpart C consisting of Sec. Sec.  400.300-400.310 is 
reprinted in the Finding Aids section of the third volume.

    For this volume, Ruth Green was Chief Editor. The Code of Federal 
Regulations publication program is under the direction of Frances D. 
McDonald, assisted by Alomha S. Morris.

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[[Page 1]]



                         TITLE 42--PUBLIC HEALTH




                            (Part 430 to End)

  --------------------------------------------------------------------
                                                                    Part

chapter iv-- Centers for Medicare & Medicaid Services, 
  Department of Health and Human Services (Continued).......         430

chapter v-- Office of Inspector General-Health Care, 
  Department of Health and Human Services...................        1000

[[Page 3]]



  CHAPTER IV--CENTERS FOR MEDICARE & MEDICAID SERVICES, DEPARTMENT OF 
                  HEALTH AND HUMAN SERVICES (CONTINUED)




  --------------------------------------------------------------------


  Editorial Note: Nomenclature changes to chapter IV appear at 66 FR 
39452, July 31, 2001; 67 FR 36540, May 24, 2002; and 69 FR 18803, Apr. 
9, 2004.

                SUBCHAPTER C--MEDICAL ASSISTANCE PROGRAMS
Part                                                                Page
430             Grants to States for Medical Assistance 
                    Programs................................           5
431             State organization and general 
                    administration..........................          19
432             State personnel administration..............          61
433             State fiscal administration.................          66
434             Contracts...................................         103
435             Eligibility in the States, District of 
                    Columbia, the Northern Mariana Islands, 
                    and American Samoa......................         106
436             Eligibility in Guam, Puerto Rico, and the 
                    Virgin Islands..........................         166
438             Managed care................................         193
440             Services: General provisions................         233
441             Services: Requirements and limits applicable 
                    to specific services....................         250
442             Standards for payment to nursing facilities 
                    and intermediate care facilities for the 
                    mentally retarded.......................         285
447             Payments for services.......................         291
455             Program integrity: Medicaid.................         317

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456             Utilization control.........................         324
    SUBCHAPTER D--STATE CHILDREN'S HEALTH INSURANCE PROGRAMS (SCHIPS)
457             Allotments and grants to States.............         361
   SUBCHAPTER E--PROGRAMS OF ALL-INCLUSIVE CARE FOR THE ELDERLY (PACE)
460             Programs of all-inclusive care for the 
                    elderly (PACE)..........................         412
             SUBCHAPTER F--QUALITY IMPROVEMENT ORGANIZATIONS
475             Quality improvement organizations...........         446
476             Utilization and quality control review......         449
478             Reconsiderations and appeals................         461
480             Acquisition, protection, and disclosure of 
                    quality improvement organization 
                    information.............................         467
                SUBCHAPTER G--STANDARDS AND CERTIFICATION
482             Conditions of participation for hospitals...         479
483             Requirements for States and long term care 
                    facilities..............................         502
484             Home health services........................         571
485             Conditions of participation: Specialized 
                    providers...............................         590
486             Conditions for coverage of specialized 
                    services furnished by suppliers.........         617
488             Survey, certification, and enforcement 
                    procedures..............................         647
489             Provider agreements and supplier approval...         932
491             Certification of certain health facilities..         961
493             Laboratory requirements.....................         967
494             [Reserved]
498             Appeals procedures for determinations that 
                    affect participation in the Medicare 
                    program and for determinations that 
                    affect the participation of ICFs/MR and 
                    certain NFs in the Medicaid program.....        1087

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                SUBCHAPTER C_MEDICAL ASSISTANCE PROGRAMS





PART 430_GRANTS TO STATES FOR MEDICAL ASSISTANCE PROGRAMS--Table of Contents




               Subpart A_Introduction; General Provisions

Sec.
430.0 Program description.
430.1 Scope of subchapter C.
430.2 Other applicable Federal regulations.
430.3 Appeals under Medicaid.
430.5 Definitions.

                          Subpart B_State Plans

430.10 The State plan.
430.12 Submittal of State plans and plan amendments.
430.14 Review of State plan material.
430.15 Basis and authority for action on State plan material.
430.16 Timing and notice of action on State plan material.
430.18 Administrative review of action on State plan material.
430.20 Effective dates of State plans and plan amendments.
430.25 Waivers of State plan requirements.

Subpart C_Grants; Reviews and Audits; Withholding for Failure To Comply; 
   Deferral and Disallowance of Claims; Reduction of Federal Medicaid 
                                Payments

430.30 Grants procedures.
430.32 Program reviews.
430.33 Audits.
430.35 Withholding of payment for failure to comply with Federal 
          requirements.
430.38 Judicial review.
430.40 Deferral of claims for FFP.
430.42 Disallowance of claims for FFP.
430.45 Reduction of Federal Medicaid payments.
430.48 Repayment of Federal funds by installments.

Subpart D_Hearings on Conformity of State Medicaid Plans and Practice to 
                          Federal Requirements

430.60 Scope.
430.62 Records to be public.
430.63 Filing and service of papers.
430.64 Suspension of rules.
430.66 Designation of presiding officer for hearing.
430.70 Notice of hearing or opportunity for hearing.
430.72 Time and place of hearing.
430.74 Issues at hearing.
430.76 Parties to the hearing.
430.80 Authority of the presiding officer.
430.83 Rights of parties.
430.86 Discovery.
430.88 Evidence.
430.90 Exclusion from hearing for misconduct.
430.92 Unsponsored written material.
430.94 Official transcript.
430.96 Record for decision.
430.100 Posthearing briefs.
430.102 Decisions following hearing.
430.104 Decisions that affect FFP.

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

    Source: 53 FR 36571, Sept. 21, 1988, unless otherwise noted.



               Subpart A_Introduction; General Provisions



Sec. 430.0  Program description.

    Title XIX of the Social Security Act, enacted in 1965, authorizes 
Federal grants to States for medical assistance to low-income persons 
who are age 65 or over, blind, disabled, or members of families with 
dependent children or qualified pregnant women or children. The program 
is jointly financed by the Federal and State governments and 
administered by States. Within broad Federal rules, each State decides 
eligible groups, types and range of services, payment levels for 
services, and administrative and operating procedures. Payments for 
services are made directly by the State to the individuals or entities 
that furnish the services.



Sec. 430.1  Scope of subchapter C.

    The regulations in subchapter C set forth State plan requirements, 
standards, procedures, and conditions for obtaining Federal financial 
participation (FFP). Each part (or subpart of section) in the subchapter 
describes the specific statutory basis for the regulation. However, 
where the basis is the Secretary's general authority to issue 
regulations for any program under the Act (section 1102 of the Act), or 
his general authority to prescribe State plan requirements needed for 
proper and efficient administration of the

[[Page 6]]

plan (section 1902(a)(4)), those statutory provisions are simply cited 
without further description.



Sec. 430.2  Other applicable Federal regulations.

    Other regulations applicable to State Medicaid programs include the 
following:
    (a) 5 CFR part 900, subpart F, Administration of the Standards for a 
Merit System of Personnel Administration.
    (b) The following HHS Regulations in 45 CFR subtitle A:

Part 16--Procedures of the Departmental Appeals Board.
Part 74--Administration of Grants.
Part 80--Nondiscrimination Under Programs Receiving Federal Assistance 
Through the Department of Health and Human Services: Effectuation of 
Title VI of the Civil Rights Act of 1964.
Part 81--Practice and Procedure for Hearings Under 45 CFR part 80.
Part 84--Nondiscrimination on the Basis of Handicap in Programs and 
Activities Receiving or Benefiting From Federal Financial Assistance.
Part 95--General Administration--grant programs (public assistance and 
medical assistance).

[53 FR 36571, Sept. 21, 1988, as amended at 56 FR 8845, Mar. 1, 1991]



Sec. 430.3  Appeals under Medicaid.

    Three distinct types of disputes may arise under Medicaid.
    (a) Compliance with Federal requirements. Disputes that pertain to 
whether a State's plan or proposed plan amendments, or its practice 
under the plan meet or continue to meet Federal requirements are subject 
to the hearing provisions of subpart D of this part.
    (b) FFP in Medicaid expenditures. Disputes that pertain to 
disallowances of FFP in Medicaid expenditures (mandatory grants) are 
heard by the Departmental Appeals Board (the Board) in accordance with 
procedures set forth in 45 CFR part 16.
    (c) Discretionary grants disputes. Disputes pertaining to 
discretionary grants, such as grants for special demonstration projects 
under sections 1110 and 1115 of the Act, which may be awarded to a 
Medicaid agency, are also heard by the Board. 45 CFR part 16, appendix 
A, lists all the types of disputes that the Board hears.

[53 FR 36571, Sept. 21, 1988, as amended at 56 FR 8845, Mar. 1, 1991]



Sec. 430.5  Definitions.

    As used in this subchapter, unless the context indicates otherwise--
    Contractor means any entity that contracts with the State agency, 
under the State plan, in return for a payment, to process claims, to 
provide or pay for medical services, or to enhance the State agency's 
capability for effective administration of the program.
    Representative has the meaning given the term by each State 
consistent with its laws, regulations, and policies.

[67 FR 41094, June 14, 2002]



                          Subpart B_State Plans



Sec. 430.10  The State plan.

    The State plan is a comprehensive written statement submitted by the 
agency describing the nature and scope of its Medicaid program and 
giving assurance that it will be administered in conformity with the 
specific requirements of title XIX, the regulations in this Chapter IV, 
and other applicable official issuances of the Department. The State 
plan contains all information necessary for CMS to determine whether the 
plan can be approved to serve as a basis for Federal financial 
participation (FFP) in the State program.



Sec. 430.12  Submittal of State plans and plan amendments.

    (a) Format. A State plan for Medicaid consists of preprinted 
material that covers the basic requirements, and individualized content 
that reflects the characteristics of the particular State's program.
    (b) Governor's review--(1) Basic rules. Except as provided in 
paragraph (b)(2) of this section--
    (i) The Medicaid agency must submit the State plan and State plan 
amendments to the State Governor or his designee for review and comment 
before submitting them to the CMS regional office.
    (ii) The plan must provide that the Governor will be given a 
specific period

[[Page 7]]

of time to review State plan amendments, long-range program planning 
projections, and other periodic reports on the Medicaid program, 
excluding periodic statistical, budget and fiscal reports.
    (iii) Any comments from the Governor must be submitted to CMS with 
the plan or plan amendment.
    (2) Exceptions. (i) Submission is not required if the Governor's 
designee is the head of the Medicaid agency.
    (ii) Governor's review is not required for preprinted plan 
amendments that are developed by CMS if they provide absolutely no 
options for the State.
    (c) Plan amendments. (1) The plan must provide that it will be 
amended whenever necessary to reflect--
    (i) Changes in Federal law, regulations, policy interpretations, or 
court decisions; or
    (ii) Material changes in State law, organization, or policy, or in 
the State's operation of the Medicaid program. For changes related to 
advance directive requirements, amendments must be submitted as soon as 
possible, but no later than 60 days from the effective date of the 
change to State law concerning advance directives.
    (2) Prompt submittal of amendments is necessary--
    (i) So that CMS can determine whether the plan continues to meet the 
requirements for approval; and
    (ii) To ensure the availability of FFP in accordance with Sec. 
430.20.

[53 FR 36571, Sept. 21, 1988, as amended at 60 FR 33293, June 27, 1995]



Sec. 430.14  Review of State plan material.

    CMS regional staff reviews State plans and plan amendments, 
discusses any issues with the Medicaid agency, and consults with central 
office staff on questions regarding application of Federal policy.



Sec. 430.15  Basis and authority for action on State plan material.

    (a) Basis for action. (1) Determinations as to whether State plans 
(including plan amendments and administrative practice under the plans) 
originally meet or continue to meet the requirements for approval are 
based on relevant Federal statutes and regulations.
    (2) Guidelines are furnished to assist in the interpretation of the 
regulations.
    (b) Approval authority. The Regional Administrator exercises 
delegated authority to approve the State plan and plan amendments on the 
basis of policy statements and precedents previously approved by the 
Administrator.
    (c) Disapproval authority. (1) The Administrator retains authority 
for determining that proposed plan material is not approvable or that 
previously approved material no longer meets the requirements for 
approval.
    (2) The Administrator does not make a final determination of 
disapproval without first consulting the Secretary.



Sec. 430.16  Timing and notice of action on State plan material.

    (a) Timing. (1) A State plan or plan amendment will be considered 
approved unless CMS, within 90 days after receipt of the plan or plan 
amendment in the regional office, sends the State--
    (i) Written notice of disapproval; or
    (ii) Written notice of any additional information it needs in order 
to make a final determination.
    (2) If CMS requests additional information, the 90-day period for 
CMS action on the plan or plan amendment begins on the day it receives 
that information.
    (b) Notice of final determination. (1) The Regional Administrator or 
the Administrator notifies the Medicaid agency of the approval of a 
State plan or plan amendment.
    (2) Only the Administrator gives notice of disapproval of a State 
plan or plan amendment.



Sec. 430.18  Administrative review of action on State plan material.

    (a) Request for reconsideration. Any State dissatisfied with the 
Administrator's action on plan material under Sec. 430.15 may, within 
60 days after receipt of the notice provided under Sec. 430.16(b), 
request that the Administrator reconsider the issue of whether the plan 
or plan amendment conforms to the requirements for approval.
    (b) Notice and timing of hearing. (1) Within 30 days after receipt 
of the request, the Administrator notifies the

[[Page 8]]

State of the time and place of the hearing.
    (2) The hearing takes place not less than 30 days nor more than 60 
days after the date of the notice, unless the State and the 
Administrator agree in writing on an earlier or later date.
    (c) Hearing procedures. The hearing procedures are set forth in 
subpart D of this part.
    (d) Decision. A decision affirming, modifying, or reversing the 
Administrator's original determination is made in accordance with Sec. 
430.102.
    (e) Effect of hearing decision. (1) Denial of Federal funds, if 
required by the Administrator's original determination, will not be 
delayed pending a hearing decision.
    (2) However, if the Administrator determines that his or her 
original decision was incorrect, CMS pays the State a lump sum equal to 
any funds incorrectly denied.



Sec. 430.20  Effective dates of State plans and plan amendments.

    For purposes of FFP, the following rules apply:
    (a) New plans. The effective date of a new plan--
    (1) May not be earlier than the first day of the quarter in which an 
approvable plan is submitted to the regional office; and
    (2) With respect to expenditures for medical assistance, may not be 
earlier than the first day on which the plan is in operation on a 
statewide basis.
    (b) Plan amendment. (1) For a plan amendment that provides 
additional services to individuals eligible under the approved plan, 
increases the payment amounts for services already included in the plan, 
or makes additional groups eligible for services provided under the 
approved plan, the effective date is determined in accordance with 
paragraph (a) of this section.
    (2) For a plan amendment that changes the State's payment method and 
standards, the rules of Sec. 447.256 of this chapter apply.
    (3) For other plan amendments, the effective date may be a date 
requested by the State if CMS approves it.

[53 FR 36571, Sept. 21, 1988, as amended at 56 FR 8845, Mar. 1, 1991]



Sec. 430.25  Waivers of State plan requirements.

    (a) Scope of section. This section describes the purpose and effect 
of waivers, identifies the requirements that may be waived and the other 
regulations that apply to waivers, and sets forth the procedures that 
CMS follows in reviewing and taking action on waiver requests.
    (b) Purpose of waivers. Waivers are intended to provide the 
flexibility needed to enable States to try new or different approaches 
to the efficient and cost-effective delivery of health care services, or 
to adapt their programs to the special needs of particular areas or 
groups of recipients. Waivers allow exceptions to State plan 
requirements and permit a State to implement innovative programs or 
activities on a time-limited basis, and subject to specific safeguards 
for the protection of recipients and the program. Detailed rules for 
waivers are set forth in subpart B of part 431, subpart A of part 440, 
and subpart G of part 441 of this chapter.
    (c) Effect of waivers. (1) Waivers under section 1915(b) allow a 
State to take the following actions:
    (i) Implement a primary care case-management system or a specialty 
physician system.
    (ii) Designate a locality to act as central broker in assisting 
Medicaid recipients to choose among competing health care plans.
    (iii) Share with recipients (through provision of additional 
services) cost-savings made possible through the recipients' use of more 
cost-effective medical care.
    (iv) Limit recipients' choice of providers (except in emergency 
situations and with respect to family planning services) to providers 
that fully meet reimbursement, quality, and utilization standards, which 
are established under the State plan and are consistent with access, 
quality, and efficient and economical furnishing of care.
    (2) A waiver under section 1915(c) of the Act allows a State to 
include as ``medical assistance'' under its plan home and community 
based services furnished to recipients who would otherwise need 
inpatient care that is furnished in a hospital, SNF, ICF, or ICF/

[[Page 9]]

MR, and is reimbursable under the State plan.
    (3) A waiver under section 1916 (a)(3) or (b)(3) of the Act allows a 
State to impose a deduction, cost-sharing or similar charge of up to 
twice the ``nominal charge'' established under the plan for outpatient 
services, if--
    (i) The outpatient services are received in a hospital emergency 
room but are not emergency services; and
    (ii) The State has shown that Medicaid recipients have actually 
available and accessible to them alternative services of nonemergency 
outpatient services.
    (d) Requirements that are waived. In order to permit the activities 
described in paragraph (c) of this section, one or more of the title XIX 
requirements must be waived, in whole or in part.
    (1) Under section 1915(b) of the Act, and subject to certain 
limitations, any of the State plan requirements of section 1902 of the 
Act may be waived to achieve one of the purposes specified in that 
section.
    (2) Under section 1915(c) of the Act, the following requirements may 
be waived:
    (i) Statewideness--section 1902(a)(1).
    (ii) Comparability of services--section 1902(a)(10)(B).
    (iii) Income and resource rules--section 1902(a)(10)(C)(i)(III).
    (3) Under section 1916 of the Act, paragraphs (a)(3) and (b)(3) 
require that any cost-sharing imposed on recipients be nominal in 
amount, and provide an exception for nonemergency services furnished in 
a hospital emergency room if the conditions of paragraph (c)(3) of this 
section are met.
    (e) Submittal of waiver request. The State Governor, the head of the 
Medicaid agency, or an authorized designee may submit the waiver 
request.
    (f) Review of waiver requests. (1) This paragraph applies to initial 
waiver requests and to requests for renewal or amendment of a previously 
approved waiver.
    (2) CMS regional and central office staff review waiver requests and 
submit a recommendation to the Administrator, who--
    (i) Has the authority to approve or deny waiver requests; and
    (ii) Does not deny a request without first consulting the Secretary.
    (3) A waiver request is considered approved unless, within 90 days 
after the request is received by CMS, the Administrator denies the 
request, or the Administrator or the Regional Administrator sends the 
State a written request for additional information necessary to reach a 
final decision. If additional information is requested, a new 90-day 
period begins on the day the response to the additional information 
request is received by the addressee.
    (g) Basis for approval--(1) Waivers under section 1915 (b) and (c). 
The Administrator approves waiver requests if the State's proposed 
program or activity meets the requirements of the Act and the 
regulations at Sec. 431.55 or subpart G of part 441 of this chapter.
    (2) Waivers under section 1916. The Administrator approves a waiver 
under section 1916 of the Act if the State shows, to CMS's satisfaction, 
that the Medicaid recipients have available and accessible to them 
sources, other than a hospital emergency room, where they can obtain 
necessary nonemergency outpatient services.
    (h) Effective date and duration of waivers--(1) Effective date. 
Waivers receive a prospective effective date determined, with State 
input, by the Administrator. The effective date is specified in the 
letter of approval to the State.
    (2) Duration of waivers--(i) Home and community-based services under 
section 1915(c). The initial waiver is for a period of three years and 
may be renewed thereafter for periods of five years.
    (ii) Waivers under sections 1915(b) and 1916. The initial waiver is 
for a period of two years and may be renewed for additional periods of 
up to two years as determined by the Administrator.
    (3) Renewal of waivers. (i) A renewal request must be submitted at 
least 90 days (but not more than 120 days) before a currently approved 
waiver expires, to provide adequate time for CMS review.
    (ii) If a renewal request for a section 1915(c) waiver proposes a 
change in services provided, eligible population, service area, or 
statutory sections

[[Page 10]]

waived, the Administrator may consider it a new waiver, and approve it 
for a period of three years.

[56 FR 8846, Mar. 1, 1991]



Subpart C_Grants; Reviews and Audits; Withholding for Failure To Comply; 
   Deferral and Disallowance of Claims; Reduction of Federal Medicaid 
                                Payments



Sec. 430.30  Grants procedures.

    (a) General provisions. (1) Once CMS has approved a State plan, it 
makes quarterly grant awards to the State to cover the Federal share of 
expenditures for services, training, and administration.
    (2) The amount of the quarterly grant is determined on the basis of 
information submitted by the State agency (in quarterly estimate and 
quarterly expenditure reports) and other pertinent documents.
    (b) Quarterly estimates. The Medicaid agency must submit Form CMS-25 
(Medicaid Program Budget Report; Quarterly Distribution of Funding 
Requirements) to the central office (with a copy to the regional office) 
45 days before the beginning of each quarter.
    (c) Expenditure reports. (1) The State must submit Form CMS-64 
(Quarterly Medicaid Statement of Expenditures for the Medical Assistance 
Program) to the central office (with a copy to the regional office) not 
later than 30 days after the end of each quarter.
    (2) This report is the State's accounting of actual recorded 
expenditures. The disposition of Federal funds may not be reported on 
the basis of estimates.
    (d) Grant award--(1) Computation by CMS. Regional office staff 
analyzes the State's estimates and sends a recommendation to the central 
office. Central office staff considers the State's estimates, the 
regional office recommendations and any other relevant information, 
including any adjustments to be made under paragraph (d)(2) of this 
section, and computes the grant.
    (2) Content of award. The grant award computation form shows the 
estimate of expenditures for the ensuring quarter, and the amounts by 
which that estimate is increased or decreased because of an 
underestimate or overestimate for prior quarters, or for any of the 
following reasons:
    (i) Penalty reductions imposed by law.
    (ii) Accounting adjustments.
    (iii) Deferrals or disallowances.
    (iv) Interest assessments.
    (v) Mandated adjustments such as those required by section 1914 of 
the Act.
    (3) Effect of award. The grant award authorizes the State to draw 
Federal funds as needed to pay the Federal share of disbursements.
    (4) Drawing procedure. The draw is through a commercial bank and the 
Federal Reserve system against a continuing letter of credit certified 
to the Secretary of the Treasury in favor of the State payee. (The 
letter of credit payment system was established in accordance with 
Treasury Department regulations--Circular No. 1075.)
    (e) General administrative requirements. With the following 
exceptions, the provisions of 45 CFR part 74, which establish uniform 
administrative requirements and cost principles, apply to all grants 
made to States under this subpart:

45 CFR part 74
Subpart G--Matching and Cost Sharing
Subpart I--Financial Report Requirements



Sec. 430.32  Program reviews.

    (a) Review of State and local administration. In order to determine 
whether the State is complying with the Federal requirements and the 
provisions of its plan, CMS reviews State and local administration 
through analysis of the State's policies and procedures, on-site review 
of selected aspects of agency operation, and examination of samples of 
individual case records.
    (b) Quality control program. The State itself is required to carry 
out a continuing quality control program as set forth in part 431, 
subpart P, of this chapter.
    (c) Action on review findings. If Federal or State reviews reveal 
serious problems with respect to compliance with any Federal 
requirement, the State must correct its practice accordingly.

[[Page 11]]



Sec. 430.33  Audits.

    (a) Purpose. The Department's Office of Inspector General (OIG) 
periodically audits State operations in order to determine whether--
    (1) The program is being operated in a cost-efficient manner; and
    (2) Funds are being properly expended for the purposes for which 
they were appropriated under Federal and State law and regulations.
    (b) Reports. (1) The OIG releases audit reports simultaneously to 
State officials and the Department's program officials.
    (2) The reports set forth OIG opinion and recommendations regarding 
the practices it reviewed, and the allowability of the costs it audited.
    (3) Cognizant officials of the Department make final determinations 
on all audit findings.
    (c) Action on audit exceptions--(1) Concurrence or clearance. The 
State agency has the opportunity of concurring in the exceptions or 
submitting additional facts that support clearance of the exceptions.
    (2) Appeal. Any exceptions that are not disposed of under paragraph 
(c)(1) of this section are included in a disallowance letter that 
constitutes the Department's final decision unless the State requests 
reconsideration by the Appeals Board. (Specific rules are set forth in 
Sec. 430.42.)
    (3) Adjustment. If the decision by the Board requires an adjustment 
of FFP, either upward or downward, a subsequent grant award promptly 
reflects the amount of increase or decrease.

[53 FR 36571, Sept. 21, 1988, as amended at 56 FR 8846, Mar. 1, 1991]



Sec. 430.35  Withholding of payment for failure to comply with Federal requirements.

    (a) Basis for withholding. CMS withholds payments to the State, in 
whole or in part, only if, after giving the agency reasonable notice and 
opportunity for a hearing in accordance with subpart D of this part, the 
Administrator finds--
    (1) That the plan no longer complies with the provisions of section 
1902 of the Act; or
    (2) That in the administration of the plan there is failure to 
comply substantially with any of those provisions.

(Hearings under subpart D are generally not called until a reasonable 
effort has been made to resolve the issues through conferences and 
discussions. These may be continued even if a date and place have been 
set for the hearing.)
    (b) Noncompliance of the plan. A question of noncompliance of a 
State plan may arise from an unapprovable change in the approved State 
plan or the failure of the State to change its approved plan to conform 
to a new Federal requirement for approval of State plans.
    (c) Noncompliance in practice. A question of noncompliance in 
practice may arise from the State's failure to actually comply with a 
Federal requirement, regardless of whether the plan itself complies with 
that requirement.
    (d) Notice and implementation of withholding. If the Administrator 
makes a finding of noncompliance under paragraph (a) of this section, 
the following rules apply:
    (1) The Administrator notifies the State:
    (i) That no further payments will be made to the State (or that 
payments will be made only for those portions or aspects of the program 
that are not affected by the noncompliance); and
    (ii) That the total or partial withholding will continue until the 
Administrator is satisfied that the State's plan and practice are, and 
will continue to be, in compliance with Federal requirements.
    (2) CMS withholds payments, in whole or in part, until the 
Administrator is satisfied regarding the State's compliance.



Sec. 430.38  Judicial review.

    (a) Right to judicial review. Any State dissatisfied with the 
Administrator's final determination on approvability of plan material 
(Sec. 430.18) or compliance with Federal requirements (Sec. 430.35) 
has a right to judicial review.
    (b) Petition for review. (1) The State must file a petition for 
review with the U.S. Court of Appeals for the circuit in which the State 
is located, within 60

[[Page 12]]

days after it is notified of the determination.
    (2) The clerk of the court will file a copy of the petition with the 
Administrator and the Administrator will file in the court the record of 
the proceedings on which the determination was based.
    (c) Court action. (1) The court is bound by the Administrator's 
findings of fact if they are supported by substantial evidence.
    (2) The court has jurisdiction to affirm the Administrator's 
decision, to set it aside in whole or in part, or, for good cause, to 
remand the case for additional evidence.
    (d) Response to remand. (1) If the court remands the case, the 
Administrator may make new or modified findings of fact and may modify 
his or her previous determination.
    (2) The Administrator will certify to the court the transcript and 
record of the further proceedings.
    (e) Review by the Supreme Court. The judgment of the appeals court 
is subject to review by the U.S. Supreme Court upon certiorari or 
certification, as provided in 28 U.S.C. 1254.



Sec. 430.40  Deferral of claims for FFP.

    (a) Requirements for deferral. Payment of a claim or any portion of 
a claim for FFP is deferred only if--
    (1) The Regional Administrator or the Administrator questions its 
allowability and needs additional information in order to resolve the 
question; and
    (2) CMS takes action to defer the claim (by excluding the claimed 
amount from the grant award) within 60 days after the receipt of a 
Quarterly Statement of Expenditures (prepared in accordance with CMS 
instructions) that includes that claim.
    (b) Notice of deferral and State's responsibility. (1) Within 15 
days of the action described in paragraph (a)(2) of this section, the 
Regional Administrator sends the State a written notice of deferral 
that--
    (i) Identifies the type and amount of the deferred claim and 
specifies the reason for deferral; and
    (ii) Requests the State to make available all the documents and 
materials the regional office then believes are necessary to determine 
the allowability of the claim.
    (2) It is the responsibility of the State to establish the 
allowability of a deferred claim.
    (c) Handling of documents and materials. (1) Within 60 days (or 
within 120 days if the State requests an extension) after receipt of the 
notice of deferral, the State must make available to the regional 
office, in readily reviewable form, all requested documents and 
materials except any that it identifies as not being available.
    (2) Regional office staff usually initiates review within 30 days 
after receipt of the documents and materials.
    (3) If the Regional Administrator finds that the materials are not 
in readily reviewable form or that additional information is needed, he 
or she promptly notifies the State that it has 15 days to submit the 
readily reviewable or additional materials.
    (4) If the State does not provide the necessary materials within 15 
days, the Regional Administrator disallows the claim.
    (5) The Regional Administrator has 90 days, after all documentation 
is available in readily reviewable form, to determine the allowability 
of the claim.
    (6) If the Regional Administrator cannot complete review of the 
material within 90 days, CMS pays the claim, subject to a later 
determination of allowability.
    (d) Effect of decision to pay a deferred claim. Payment of a 
deferred claim under paragraph (c)(6) of this section does not preclude 
a subsequent disallowance based on the results of an audit or financial 
review. (If there is a subsequent disallowance, the State may request 
reconsideration as provided in paragraph (e)(2) of this section.)
    (e) Notice and effect of decision on allowability. (1) The Regional 
Administrator or the Administrator gives the State written notice of his 
or her decision to pay or disallow a deferred claim.
    (2) If the decision is to disallow, the notice informs the State of 
its right to reconsideration in accordance with 45 CFR part 16.

[[Page 13]]



Sec. 430.42  Disallowance of claims for FFP.

    (a) Notice of disallowance and of right to reconsideration. When the 
Regional Administrator or the Administrator determines that a claim or 
portion of claim is not allowable, he or she promptly sends the State a 
disallowance letter that includes the following, as appropriate:
    (1) The date or dates on which the State's claim for FFP was made.
    (2) The time period during which the expenditures in question were 
made or claimed to have been made.
    (3) The date and amount of any payment or notice of deferral.
    (4) A statement of the amount of FFP claimed, allowed, and 
disallowed and the manner in which these amounts were computed.
    (5) Findings of fact on which the disallowance determination is 
based or a reference to other documents previously furnished to the 
State or included with the notice (such as a report of a financial 
review or audit) which contain the findings of fact on which the 
disallowance determination is based.
    (6) Pertinent citations to the law, regulations, guides and 
instructions supporting the action taken.
    (7) A request that the State make appropriate adjustment in a 
subsequent expenditure report.
    (8) Notice of the State's right to request reconsideration of the 
disallowance and the time allowed to make the request.
    (9) A statement indicating that the disallowance letter is the 
Department's final decision unless the State requests reconsideration 
under paragraph (b)(2) of this section.
    (b) Reconsideration of FFP disallowance. (1) The Departmental 
Appeals Board reviews disallowances of FFP under title XIX.
    (2) A State that wishes to request reconsideration must submit the 
request to the Chair, Departmental Appeals Board, within 30 days after 
receipt of the disallowance letter, and include--
    (i) A copy of the disallowance letter;
    (ii) A statement of the amount in dispute; and
    (iii) A brief statement of why the disallowance is wrong.
    (c) Reconsideration procedures. The reconsideration procedures are 
those set forth in 45 CFR part 16 for Medicaid and for many other 
programs administered by the Department.
    (d) Implementation of decisions. If the reconsideration decision 
requires an adjustment of FFP, either upward or downward, a subsequent 
grant award promptly reflects the amount of increase or decrease.

[53 FR 36571, Sept. 21, 1988, as amended at 56 FR 8846, Mar. 1, 1991]



Sec. 430.45  Reduction of Federal Medicaid payments.

    (a) Methods of reduction. CMS may reduce Medicaid payments to a 
State as required under the Act by reducing--
    (1) The Federal Medical Assistance Percentage;
    (2) The amount of State expenditures subject to FFP;
    (3) The rates of FFP; or
    (4) The amount otherwise payable to the State.
    (b) Right to reconsideration. A state that receives written final 
notice of a reduction under paragraph (a) of this section has a right to 
reconsideration. The provisions of Sec. 430.42 (b) and (c) apply.
    (c) Other applicable rules. Other rules regarding reduction of 
Medicaid payments are set forth in parts 433 and 447 of this chapter.



Sec. 430.48  Repayment of Federal funds by installments.

    (a) Basic conditions. When Federal payments have been made for 
claims that are later found to be unallowable, the State may repay the 
Federal Funds by installments if the following conditions are met:
    (1) The amount to be repaid exceeds 2\1/2\ percent of the estimated 
or actual annual State share for the Medicaid program; and
    (2) The State has given the Regional Administrator written notice, 
before total repayment was due, of its intent to repay by installments.
    (b) Annual State share determination. CMS determines whether the 
amount to be repaid exceeds 2\1/2\ percent of the annual State share as 
follows:
    (1) If the Medicaid program is ongoing, CMS uses the annual 
estimated

[[Page 14]]

State share of Medicaid expenditures. This is the sum of the estimated 
State shares for four consecutive quarters, beginning with the quarter 
in which the first installment is to be paid, as shown on the State's 
latest CMS-25 form.
    (2) If the Medicaid program has been terminated by Federal law or by 
the State, CMS uses the actual State share. The actual State share is 
that shown on the State's Statement of Expenditures reports for the last 
four quarters before the program was terminated.
    (c) Repayment amounts, schedules, and procedures--(1) Repayment 
amount. The repayment amount may not include any amount previously 
approved for installment repayment.
    (2) Repayment schedule. The number of quarters allowed for repayment 
is determined on the basis of the ratio of the repayment amount to the 
annual State share of Medicaid expenditures. The higher the ratio of the 
total repayment amount is to the annual State share, the greater the 
number of quarters allowed, as follows:

------------------------------------------------------------------------
                                                               Number of
   Total repayment amount as percentage of State share of      quarters
              annual expenditures for Medicaid                  to make
                                                               repayment
------------------------------------------------------------------------
2.5 pct. or less............................................           1
Greater than 2.5, but not greater than 5....................           2
Greater than 5, but not greater than 7.5....................           3
Greater than 7.5, but not greater than 10...................           4
Greater than 10, but not greater than 15....................           5
Greater than 15, but not greater than 20....................           6
Greater than 20, but not greater than 25....................           7
Greater than 25, but not greater than 30....................           8
Greater than 30, but not greater than 47.5..................           9
Greater than 47.5, but not greater than 65..................          10
Greater than 65, but not greater than 82.5..................          11
Greater than 82.5, but not greater than 100.................          12
------------------------------------------------------------------------

    (3) Quarterly repayment amounts. The quarterly repayment amounts for 
each of the quarters in the repayment schedule may not be less than the 
following percentages of the estimated State share of the annual 
expenditures for Medicaid:

------------------------------------------------------------------------
                                                              Repayment
                                                             installment
                                                              may not be
             For each of the following quarters               less than
                                                                these
                                                             percentages
------------------------------------------------------------------------
1 to 4.....................................................          2.5
5 to 8.....................................................          5.0
9 to 12....................................................         17.5
------------------------------------------------------------------------

    (4) Extended schedule. The repayment schedule may be extended beyond 
12 quarterly installments if the total repayment amount exceeds 100% of 
the estimated State share of annual expenditures. In these 
circumstances, paragraph (c)(2) of this section is followed for 
repayment of the amount equal to 100 percent of the annual State share. 
The remaining amount of the repayment is in quarterly amounts equal to 
not less than 17.5 percent of the estimated State share of annual 
expenditures.
    (5) Repayment process. Repayment is accomplished through adjustment 
in the quarterly grants over the period covered by the repayment 
schedule.

If the State chooses to repay amounts representing higher percentages 
during the early quarters, any corresponding reduction in required 
minimum percentages is applied first to the last scheduled payment, then 
to the next to the last payment, and so forth as neccessary.
    (6) Offsetting of retroactive claims. The amount of a retroactive 
claim to be paid a State will be offset against any amounts to be, or 
already being, repaid by the State in installments. Under this 
provision, the State may choose to:
    (i) Suspend payments until the retroactive claim due the State has, 
in fact, been offset; or
    (ii) Continue payments until the reduced amount of its debt 
(remaining after the offset), has been paid in full.

This second option would result in a shorter payment period.

A retroactive claim for the purpose of this regulation is a claim 
applicable to any period ending 12 months or more before the beginning 
of the quarter in which CMS would pay that claim.



Subpart D_Hearings on Conformity of State Medicaid Plans and Practice to 
                          Federal Requirements



Sec. 430.60  Scope.

    (a) This subpart sets forth the rules for hearings to States that 
appeal a decision to disapprove State plan material (under Sec. 430.18) 
or to withhold Federal funds (under Sec. 430.35), because the

[[Page 15]]

State plan or State practice in the Medicaid program is not in 
compliance with Federal requirements.
    (b) Nothing in this subpart is intended to preclude or limit 
negotiations between CMS and the State, whether before, during, or after 
the hearing to resolve the issues that are, or otherwise would be, 
considered at the hearing. Such negotiations and resolution of issues 
are not part of the hearing, and are not governed by the rules in this 
subpart except as expressly provided.



Sec. 430.62  Records to be public.

    All pleadings, correspondence, exhibits, transcripts of testimony, 
exceptions, briefs, decisions, and other documents filed in the docket 
in any proceeding may be inspected and copied in the office of the CMS 
Docket Clerk. Inquiries may be made to the Docket Clerk, Hearing Staff, 
Bureau of Eligibility, Reimbursment and Coverage, 300 East High Rise, 
6325 Security Boulevard, Baltimore, Maryland, 21207. Telephone: (301) 
594-8261.



Sec. 430.63  Filing and service of papers.

    (a) Filing. All papers in the proceedings are filed with the CMS 
Docket Clerk, in an original and two copies. Originals only of exhibits 
and transcripts of testimony need be filed.
    (b) Service. All papers in the proceedings are served on all parties 
by personal delivery or by mail. Service on the party's designated 
attorney is considered service upon the party.



Sec. 430.64  Suspension of rules.

    Upon notice to all parties, the Administrator or the presiding 
officer may modify or waive any rule in this subpart upon determination 
that no party will be unduly prejudiced and the ends of justice will 
thereby be served.



Sec. 430.66  Designation of presiding officer for hearing.

    (a) The presiding officer at a hearing is the Administrator or his 
designee.
    (b) The designation of the presiding officer is in writing. A copy 
of the designation is served on all parties.



Sec. 430.70  Notice of hearing or opportunity for hearing.

    The Administrator mails the State a notice of hearing or opportunity 
for hearing that--
    (a) Specifies the time and place for the hearing;
    (b) Specifies the issues that will be considered;
    (c) Identifies the presiding officer; and
    (d) Is published in the Federal Register.



Sec. 430.72  Time and place of hearing.

    (a) Time. The hearing is scheduled not less than 30 nor more than 60 
days after the date of notice to the State. The scheduled date may be 
changed by written agreement between CMS and the State.
    (b) Place. The hearing is conducted in the city in which the CMS 
regional office is located or in another place fixed by the presiding 
officer in light of the circumstances of the case, with due regard for 
the convenience and necessity of the parties or their representatives.



Sec. 430.74  Issues at hearing.

    The list of issues specified in the notice of hearing may be 
augmented or reduced as provided in this section.
    (a) Additional issues. (1) Before a hearing under Sec. 430.35, the 
Administrator may send written notice to the State listing additional 
issues to be considered at the hearing. That notice is published in the 
Federal Register.
    (2) If the notice of additional issues is furnished to the State 
less than 20 days before the scheduled hearing date, postponement is 
granted if requested by the State or any other party. The new date may 
be 20 days after the date of the notice, or a later date agreed to by 
the presiding officer.
    (b) New or modified issues. If, as a result of negotiations between 
CMS and the State, the submittal of plan amendment, a change in the 
State program, or other actions by the State, any issue is resolved in 
whole or in part, but new or modified issues are presented, as specified 
by the presiding officer, the hearing proceeds on the new or modified 
issues.

[[Page 16]]

    (c) Issues removed from consideration--(1) Basis for removal. If at 
any time before, during, or after the hearing, the presiding officer 
finds that the State has come into compliance with Federal requirements 
on any issue or part of an issue, he or she removes the appropriate 
issue or part of an issue from consideration. If all issues are removed, 
the hearing is terminated.
    (2) Notice to parties. Before removing any issue or part of an issue 
from consideration, the presiding officer provides all parties other 
than CMS and the State with--
    (i) A statement of the intent to remove and the reasons for removal; 
and
    (ii) A copy of the proposed State plan provision on which CMS and 
the State have agreed.
    (3) Opportunity for written comment. The notified parties have 15 
days to submit, for consideration by the presiding officer, and for the 
record, their views as to, or any information bearing upon, the merits 
of the proposed plan provision and the merits of the reasons for 
removing the issue from consideration.
    (d) Remaining issues. The issues considered at the hearing are 
limited to those issues of which the State is notified as provided in 
Sec. 430.70 and paragraph (a) of this section, and new or modified 
issues described in paragraph (b) of this section. They do not include 
issues or parts of issues removed in accordance with paragraph (c) of 
this section.



Sec. 430.76  Parties to the hearing.

    (a) CMS and the State. CMS and the State are parties to the hearing.
    (b) Other individuals--(1) Basis for participation. Other 
individuals or groups may be recognized as parties if the issues to be 
considered at the hearing have caused them injury and their interest is 
within the zone of interests to be protected by the governing Federal 
statute.
    (2) Petition for participation. Any individual or group wishing to 
participate as a party must, within 15 days after notice of hearing is 
published in the Federal Register, file with the CMS Docket Clerk, a 
petition that concisely states--
    (i) Petitioner's interest in the proceeding;
    (ii) Who will appear for petitioner;
    (iii) The issues on which petitioner wishes to participate; and
    (iv) Whether petitioner intends to present witnesses.

The petitioner must also serve a copy of the petition on each party of 
record at that time.
    (3) Comments on petition. Any party may, within 5 days of receipt of 
the copy of the petition, file comments on it.
    (4) Action on petition. (i) The presiding officer promptly 
determines whether each petitioner has the requisite interest in the 
proceedings and approves or denies participation accordingly.
    (ii) If petitions are made by more than one individual or group with 
common interests, the presiding officer may--
    (A) Request all those petitioners to designate a single 
representative; or
    (B) Recognize one or more of those petitioners to represent all of 
them.
    (iii) The presiding officer gives each petitioner written notice of 
the decision and, if the decision is to deny, briefly states the grounds 
for denial.
    (c) Amicus curiae (friend of the court)--(1) Petition for 
participation. Any person or organization that wishes to participate as 
amicus curiae must, before the hearing begins, file with the CMS Docket 
Clerk, a petition that concisely states--
    (i) The petitioners' interest in the hearing;
    (ii) Who will represent the petitioner; and
    (iii) The issues on which the petitioner intends to present 
argument.
    (2) Action on amicus curiae petition. The presiding officer may 
grant the petition if he or she finds that the petitioner has a 
legitimate interest in the proceedings, that such participation will not 
unduly delay the outcome and may contribute materially to the proper 
disposition of the issues.
    (3) Nature of amicus participation. An amicus curiae is not a party 
to the hearing but may participate by--
    (i) Submitting a written statement of position to the presiding 
officer before the beginning of the hearing;

[[Page 17]]

    (ii) Presenting a brief oral statement at the hearing, at the point 
in the proceedings specified by the presiding officer; and
    (iii) Submitting a brief or written statement when the parties 
submit briefs.

The amicus curiae must serve copies of any briefs or written statements 
on all parties.



Sec. 430.80  Authority of the presiding officer.

    (a) The presiding officer has the duty to conduct a fair hearing, to 
avoid delay, maintain order, and make a record of the proceedings. He or 
she has the authority necessary to accomplish those ends, including but 
not limited to authority to take the following actions:
    (1) Change the date, time, and place of the hearing after due notice 
to the parties. This includes authority to postpone or adjourn the 
hearing in whole or in part. In a hearing on disapproval of a State 
plan, or State plan amendments, changes in the date of the hearing are 
subject to the time limits imposed by section 1116(a)(2) of the Act.
    (2) Hold conferences to settle or simplify the issues, or to 
consider other matters that may aid in the expeditious disposition of 
the issues.
    (3) Regulate participation of parties and amici curiae and require 
parties and amici curiae to state their position with respect to the 
various issues in the proceeding.
    (4) Administer oaths and affirmations.
    (5) Rule on motions and other procedural items, including issuance 
of protective orders or other relief to a party against whom discovery 
is sought.
    (6) Regulate the course of the hearing and conduct of counsel.
    (7) Examine witnesses.
    (8) Receive, rule on, exclude or limit evidence or discovery.
    (9) Fix the time for filing motions, petitions, briefs, or other 
items.
    (10) If the presiding officer is the Administrator, make a final 
decision.
    (11) If the presiding officer is a designee of the Administrator, 
certify the entire record including recommended findings and proposed 
decision to the Administrator.
    (12) Take any action authorized by the rules in this subpart or in 
conformance with the provisions of 5 U.S.C. 551 through 559.
    (b) The presiding officer does not have authority to compel by 
subpoena the production of witnesses, papers, or other evidence.
    (c) If the presiding officer is a designee of the Administrator, his 
or her authority pertains to the issues of compliance by a State with 
Federal requirements, and does not extend to the question of whether, in 
case of any noncompliance, Federal payments will be denied in respect to 
the entire State plan or only for certain categories under, or parts of, 
the State plan affected by the noncompliance.



Sec. 430.83  Rights of parties.

    All parties may:
    (a) Appear by counsel or other authorized representative, in all 
hearing proceedings.
    (b) Participate in any prehearing conference held by the presiding 
officer.
    (c) Agree to stipulations as to facts which will be made a part of 
the record.
    (d) Make opening statements at the hearing.
    (e) Present relevant evidence on the issues at the hearing.
    (f) Present witnesses who then must be available for cross-
examination by all other parties.
    (g) Present oral arguments at the hearing.
    (h) Submit written briefs, proposed findings of fact, and proposed 
conclusions of law, after the hearing.



Sec. 430.86  Discovery.

    CMS and any party named in the notice issued under Sec. 430.70 has 
the right to conduct discovery (including depositions) against opposing 
parties. Rules 26-37 of the Federal Rules of Civil Procedures apply to 
such proceedings; there will be no fixed rule on priority of discovery. 
Upon written motion, the presiding officer promptly rules upon any 
objection to discovery action initiated under this section. The 
presiding officer also has the power to grant a

[[Page 18]]

protective order or relief to any party against whom discovery is sought 
and to restrict or control discovery so as to prevent undue delay in the 
conduct of the hearing. Upon the failure of any party to make discovery, 
the presiding officer may issue any order and impose any sanction (other 
than contempt orders) authorized by Rule 37 of the Federal Rules of 
Civil Procedure.



Sec. 430.88  Evidence.

    (a) Evidentiary purpose. The hearing is directed to receiving 
factual evidence and expert opinion testimony related to the issues 
involved in the proceeding. Argument is not received in evidence. It 
must be presented in statements, memoranda, or briefs, as determined by 
the presiding officer. Brief opening statements, concerning the party's 
position and what he or she intends to prove, may be made at hearings.
    (b) Testimony. Testimony is given orally under oath or affirmation 
by witnesses at the hearing. Witnesses are available at the hearing for 
cross-examination by all parties.
    (c) Stipulations and exhibits. Two or more parties may agree to 
stipulations of fact. Those stipulations, and any exhibit proposed by 
any party, are exchanged before the hearing if the presiding officer so 
requires.
    (d) Rules of evidence. (1) Technical rules of evidence do not apply 
to hearings conducted under this subpart. However, rules or principles 
designed to ensure production of the most credible evidence available 
and to subject testimony to test by cross-examination are applied by the 
presiding officer when reasonably necessary.
    (2) A witness may be cross-examined on any matter material to the 
proceeding without regard to the scope of his or her direct examination.
    (3) The presiding officer may exclude irrelevant, immaterial, or 
unduly repetitious evidence.
    (4) All documents and other evidence offered or taken for the record 
are open to examination by the parties and an opportunity is given to 
refute facts and arguments advanced on either side of the issues.



Sec. 430.90  Exclusion from hearing for misconduct.

    The presiding officer may immediately exclude from the hearing any 
person who--
    (a) Uses disrespectful, disorderly, or contumacious language or 
engages in contemptuous behavior;
    (b) Refuses to comply with directions; or
    (c) Uses dilatory tactics.



Sec. 430.92  Unsponsored written material.

    Letters expressing views or urging action and other unsponsored 
written material regarding matters in issue in a hearing are placed in 
the correspondence section of the docket of the proceeding. These data 
are not considered part of the evidence or record in the hearing.



Sec. 430.94  Official transcript.

    (a) Filing. The official transcripts of testimony, together with any 
stipulations, briefs, or memoranda of law, are filed with CMS.
    (b) Availability of transcripts. CMS designates an official reporter 
for each hearing. Transcripts of testimony in hearings may be obtained 
from the official reporter by the parties and the public at rates not in 
excess of the maximum rates fixed by the contract between CMS and the 
reporter.
    (c) Correction of transcript. Upon notice to all parties, the 
presiding officer may authorize corrections that affect substantive 
matters in the transcript.



Sec. 430.96  Record for decision.

    The transcript of testimony, exhibits, and all papers and requests 
filed in the proceedings, except the correspondence section of the 
docket, including rulings and any recommended or initial decision 
constitute the exclusive record for decision.



Sec. 430.100  Posthearing briefs.

    The presiding officer fixes the time for filing posthearing briefs, 
which may contain proposed findings of fact and conclusions of law. The 
presiding officer may also permit reply briefs.

[[Page 19]]



Sec. 430.102  Decisions following hearing.

    (a) Administrator presides. If the presiding officer is the 
Administrator, he or she issues the hearing decision within 60 days 
after expiration of the period for submission of posthearing briefs.
    (b) Administrator's designee presides. If the presiding officer is 
other than the Administrator, the procedure is as follows:
    (1) Upon expiration of the period allowed for submission of 
posthearing briefs, the presiding officer certifies the entire record, 
including his or her recommended findings and proposed decision, to the 
Administrator. The Administrator serves a copy of the recommended 
findings and proposed decision upon all parties and amici, if any.
    (2) Any party may, within 20 days, file with the Administrator 
exceptions to the recommended findings and proposed decision and a 
supporting brief or statement.
    (3) The Administrator reviews the recommended decision and, within 
60 days of its issuance, issues his or her own decision.
    (c) Effect of Administrator's decision. The decision of the 
Administrator under this section is the final decision of the Secretary 
and constitutes ``final agency action'' within the meaning of 5 U.S.C. 
704 and a ``final determination'' within the meaning of section 
1116(a)(3) of the Act and Sec. 430.38. The Administrator's decision is 
promptly served on all parties and amici.



Sec. 430.104  Decisions that affect FFP.

    (a) Scope of decisions. If the Administrator concludes that 
withholding of FFP is necessary because a State is out of compliance 
with Federal requirements, in accordance with Sec. 430.35, the decision 
also specifies--
    (1) Whether no further payments will be made to the State or whether 
payments will be limited to parts of the program not affected by the 
noncompliance; and
    (2) The effective date of the decision to withhold.
    (b) Consultation. The Administrator may ask the parties for 
recommendations or briefs or may hold conferences of the parties on the 
question of further payments to the State.
    (c) Effective date of decision. The effective date of a decision to 
withhold Federal funds will not be earlier than the date of the 
Administrator's decision and will not be later than the first day of the 
next calendar quarter. The provisions of this section may not be waived 
under Sec. 430.64.



PART 431_STATE ORGANIZATION AND GENERAL ADMINISTRATION--Table of Contents




Sec.
431.1 Purpose.

                      Subpart A_Single State Agency

431.10 Single State agency.
431.11 Organization for administration.
431.12 Medical care advisory committee.
431.15 Methods of administration.
431.16 Reports.
431.17 Maintenance of records.
431.18 Availability of agency program manuals.
431.20 Advance directives.

              Subpart B_General Administrative Requirements

431.40 Basis and scope.
431.50 Statewide operation.
431.51 Free choice of providers.
431.52 Payments for services furnished out of State.
431.53 Assurance of transportation.
431.54 Exceptions to certain State plan requirements.
431.55 Waiver of other Medicaid requirements.
431.56 Special waiver provisions applicable to American Samoa and the 
          Northern Mariana Islands.
431.57 Waiver of cost-sharing requirements.

        Subpart C_Administrative Requirements: Provider Relations

431.105 Consultation to medical facilities.
431.107 Required provider agreement.
431.108 Effective date of provider agreements.
431.110 Participation by Indian Health Service facilities.
431.115 Disclosure of survey information and provider or contractor 
          evaluation.
431.120 State requirements with respect to nursing facilities.

              Subpart D_Appeals Process for NFs and ICFs/MR

431.151 Scope and applicability.
431.152 State plan requirements.
431.153 Evidentiary hearing.

[[Page 20]]

431.154 Informal reconsideration for ICFs/MR.

          Subpart E_Fair Hearings for Applicants and Recipients

                           General Provisions

431.200 Basis and purpose.
431.201 Definitions.
431.202 State plan requirements.
431.205 Provision of hearing system.
431.206 Informing applicants and recipients.

                                 Notice

431.210 Content of notice.
431.211 Advance notice.
431.213 Exceptions from advance notice.
431.214 Notice in cases of probable fraud.

                            Right to Hearing

431.220 When a hearing is required.
431.221 Request for hearing.
431.222 Group hearings.
431.223 Denial or dismissal of request for a hearing.

                               Procedures

431.230 Maintaining services.
431.231 Reinstatement of services.
431.232 Adverse decision of local evidentiary hearing.
431.233 State agency hearing after adverse decision of local evidentiary 
          hearing.
431.240 Conducting the hearing.
431.241 Matters to be considered at the hearing.
431.242 Procedural rights of the applicant or recipient.
431.243 Parties in cases involving an eligibility determination.
431.244 Hearing decisions.
431.245 Notifying the applicant or recipient of a State agency decision.
431.246 Corrective action.

                     Federal Financial Participation

431.250 Federal financial participation.

     Subpart F_Safeguarding Information on Applicants and Recipients

431.300 Basis and purpose.
431.301 State plan requirements.
431.302 Purposes directly related to State plan administration.
431.303 State authority for safeguarding information.
431.304 Publicizing safeguarding requirements.
431.305 Types of information to be safeguarded.
431.306 Release of information.
431.307 Distribution of information materials.

Subparts G-L [Reserved]

                 Subpart M_Relations With Other Agencies

431.610 Relations with standard-setting and survey agencies.
431.615 Relations with State health and vocational rehabilitation 
          agencies and title V grantees.
431.620 Agreement with State mental health authority or mental 
          institutions.
431.621 State requirements with respect to nursing facilities.
431.625 Coordination of Medicaid with Medicare part B.
431.630 Coordination of Medicaid with QIOs.
431.635 Coordination of Medicaid with Special Supplemental Food Program 
          for Women, Infants, and Children (WIC).
431.636 Coordination of Medicaid with the State Children's Health 
          Insurance Program (SCHIP).

   Subpart N_State Programs for Licensing Nursing Home Administrators

431.700 Basis and purpose.
431.701 Definitions.
431.702 State plan requirement.
431.703 Licensing requirement.
431.704 Nursing homes designated by other terms.
431.705 Licensing authority.
431.706 Composition of licensing board.
431.707 Standards.
431.708 Procedures for applying standards.
431.709 Issuance and revocation of license.
431.710 Provisional licenses.
431.711 Compliance with standards.
431.712 Failure to comply with standards.
431.713 Continuing study and investigation.
431.714 Waivers.
431.715 Federal financial participation.

Subpart O [Reserved]

                        Subpart P_Quality Control

                           General Provisions

431.800 Scope of subpart.
431.802 Basis.
431.804 Definitions.
431.806 State plan requirements.
431.808 Protection of recipient rights.

           Medicaid Eligibility Quality Control (MEQC) Program

431.810 Basic elements of the Medicaid eligibility quality control 
          (MEQC) program.
431.812 Review procedures.
431.814 Sampling plan and procedures.
431.816 Case review completion deadlines and submittal of reports.
431.818 Access to records: MEQC program.
431.820 Corrective action under the MEQC program.
431.822 Resolution of differences in State and Federal case eligibility 
          or payment findings.

[[Page 21]]

   Medicaid Quality Control (MQC) Claims Processing Assessment System

431.830 Basic elements of the Medicaid quality control (MQC) claims 
          processing assessment system.
431.832 Reporting requirements for claims processing assessment systems.
431.834 Access to records: Claims processing assessment systems.
431.836 Corrective action under the MQC claims processing assessment 
          systems.

                     Federal Financial Participation

431.861-431.864 [Reserved]
431.865 Disallowance of Federal financial participation for erroneous 
          State payments (for annual assessment periods ending after 
          July 1, 1990).

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

    Source: 43 FR 45188, Sept. 29, 1978, unless otherwise noted.



Sec. 431.1  Purpose.

    This part establishes State plan requirements for the designation, 
organization, and general administrative activities of a State agency 
responsible for operating the State Medicaid program, directly or 
through supervision of local administering agencies.



                      Subpart A_Single State Agency



Sec. 431.10  Single State agency.

    (a) Basis and purpose. This section implements section 1902(a)(5) of 
the Act, which provides for designation of a single State agency for the 
Medicaid program.
    (b) Designation and certification. A State plan must--
    (1) Specify a single State agency established or designated to 
administer or supervise the administration of the plan; and
    (2) Include a certification by the State Attorney General, citing 
the legal authority for the single State agency to--
    (i) Administer or supervise the administration of the plan; and
    (ii) Make rules and regulations that it follows in administering the 
plan or that are binding upon local agencies that administer the plan.
    (c) Determination of eligibility. (1) The plan must specify whether 
the agency that determines eligibility for families and for individuals 
under 21 is--
    (i) The Medicaid agency; or
    (ii) The single State agency for the financial assistance program 
under title IV-A (in the 50 States or the District of Columbia), or 
under title I or XVI (AABD), in Guam, Puerto Rico, or the Virgin 
Islands.
    (2) The plan must specify whether the agency that determines 
eligibility for the aged, blind, or disabled is--
    (i) The Medicaid agency;
    (ii) The single State agency for the financial assistance program 
under title IV-A (in the 50 States or the District of Columbia) or under 
title I or XVI (AABD), in Guam, Puerto Rico, or the Virgin Islands; or
    (iii) The Federal agency administering the supplemental security 
income program under title XVI (SSI). In this case, the plan must also 
specify whether the Medicaid agency or the title IV-A agency determines 
eligibility for any groups whose eligibility is not determined by the 
Federal agency.
    (d) Agreement with Federal or State agencies. The plan must provide 
for written agreements between the Medicaid agency and the Federal or 
other State agencies that determine eligibility for Medicaid, stating 
the relationships and respective responsibilities of the agencies.
    (e) Authority of the single State agency. In order for an agency to 
qualify as the Medicaid agency--
    (1) The agency must not delegate, to other than its own officials, 
authority to--
    (i) Exercise administrative discretion in the administration or 
supervision of the plan, or
    (ii) Issue policies, rules, and regulations on program matters.
    (2) The authority of the agency must not be impaired if any of its 
rules, regulations, or decisions are subject to review, clearance, or 
similar action by other offices or agencies of the State.
    (3) If other State or local agencies or offices perform services for 
the Medicaid agency, they must not have the authority to change or 
disapprove any administrative decision of that agency, or otherwise 
substitute their judgment for that of the Medicaid agency with respect 
to the application of policies,

[[Page 22]]

rules, and regulations issued by the Medicaid agency.

[44 FR 17930, Mar. 23, 1979]



Sec. 431.11  Organization for administration.

    (a) Basis and purpose. This section, based on section 1902(a)(4) of 
the Act, prescribes the general organization and staffing requirements 
for the Medicaid agency and the State plan.
    (b) Medical assistance unit. A State plan must provide for a medical 
assistance unit within the Medicaid agency, staffed with a program 
director and other appropriate personnel who participate in the 
development, analysis, and evaluation of the Medicaid program.
    (c) Description of organization. (1) The plan must include--
    (i) A description of the organization and functions of the Medicaid 
agency and an organization chart;
    (ii) A description of the organization and functions of the medical 
assistance unit and an organization chart; and
    (iii) A description of the kinds and number of professional medical 
personnel and supporting staff used in the administration of the plan 
and their responsibilities.
    (d) Eligibility determined by other agencies. If eligibility is 
determined by State agencies other than the Medicaid agency or by local 
agencies under the supervision of other State agencies, the plan must 
include a description of the staff designated by those other agencies 
and the functions they perform in carrying out their responsibility.

[44 FR 17931, Mar. 23, 1979]



Sec. 431.12  Medical care advisory committee.

    (a) Basis and purpose. This section, based on section 1902(a)(4) of 
the Act, prescribes State plan requirements for establishment of a 
committee to advise the Medicaid agency about health and medical care 
services.
    (b) State plan requirement. A State plan must provide for a medical 
care advisory committee meeting the requirements of this section to 
advise the Medicaid agency director about health and medical care 
services.
    (c) Appointment of members. The agency director, or a higher State 
authority, must appoint members to the advisory committee on a rotating 
and continuous basis.
    (d) Committee membership. The committee must include--
    (1) Board-certified physicians and other representatives of the 
health professions who are familiar with the medical needs of low-income 
population groups and with the resources available and required for 
their care;
    (2) Members of consumers' groups, including Medicaid recipients, and 
consumer organizations such as labor unions, cooperatives, consumer-
sponsored prepaid group practice plans, and others; and
    (3) The director of the public welfare department or the public 
health department, whichever does not head the Medicaid agency.
    (e) Committee participation. The committee must have opportunity for 
participation in policy development and program administration, 
including furthering the participation of recipient members in the 
agency program.
    (f) Committee staff assistance and financial help. The agency must 
provide the committee with--
    (1) Staff assistance from the agency and independent technical 
assistance as needed to enable it to make effective recommendations; and
    (2) Financial arrangements, if necessary, to make possible the 
participation of recipient members.
    (g) Federal financial participation. FFP is available at 50 percent 
in expenditures for the committee's activities.



Sec. 431.15  Methods of administration.

    A State plan must provide for methods of administration that are 
found by the Secretary to be necessary for the proper and efficient 
operation of the plan.

(Sec. 1902(a)(4) of the Act)

[44 FR 17931, Mar. 23, 1979]



Sec. 431.16  Reports.

    A State plan must provide that the Medicaid agency will--
    (a) Submit all reports required by the Secretary;

[[Page 23]]

    (b) Follow the Secretary's instructions with regard to the form and 
content of those reports; and
    (c) Comply with any provisions that the Secretary finds necessary to 
verify and assure the correctness of the reports.

[44 FR 17931, Mar. 23, 1979]



Sec. 431.17  Maintenance of records.

    (a) Basis and purpose. This section, based on section 1902(a)(4) of 
the Act, prescribes the kinds of records a Medicaid agency must 
maintain, the retention period, and the conditions under which microfilm 
copies may be substituted for original records.
    (b) Content of records. A State plan must provide that the Medicaid 
agency will maintain or supervise the maintenance of the records 
necessary for the proper and efficient operation of the plan. The 
records must include--
    (1) Individual records on each applicant and recipient that contain 
information on--
    (i) Date of application;
    (ii) Date of and basis for disposition;
    (iii) Facts essential to determination of initial and continuing 
eligibility;
    (iv) Provision of medical assistance;
    (v) Basis for discontinuing assistance;
    (vi) The disposition of income and eligibility verification 
information received under Sec. Sec. 435.940 through 435.960 of this 
subchapter; and
    (2) Statistical, fiscal, and other records necessary for reporting 
and accountability as required by the Secretary.
    (c) Retention of records. The plan must provide that the records 
required under paragraph (b) of this section will be retained for the 
periods required by the Secretary.
    (d) Conditions for optional use of microfilm copies. The agency may 
substitute certified microfilm copies for the originals of 
substantiating documents required for Federal audit and review, if the 
conditions in paragraphs (d)(1) through (4) of this section are met.
    (1) The agency must make a study of its record storage and must show 
that the use of microfilm is efficient and economical.
    (2) The microfilm system must not hinder the agency's supervision 
and control of the Medicaid program.
    (3) The microfilm system must--
    (i) Enable the State to audit the propriety of expenditures for 
which FFP is claimed; and
    (ii) Enable the HHS Audit Agency and CMS to properly discharge their 
respective responsibilities for reviewing the manner in which the 
Medicaid program is being administered.
    (4) The agency must obtain approval from the CMS regional office 
indicating--
    (i) The system meets the conditions of paragraphs (d)(2) and (3) of 
this section; and
    (ii) The microfilming procedures are reliable and are supported by 
an adequate retrieval system.

[44 FR 17931, Mar. 23, 1979, as amended at 51 FR 7210, Feb. 28, 1986]



Sec. 431.18  Availability of agency program manuals.

    (a) Basis and purpose. This section, based on section 1902(a)(4) of 
the Act, prescribes State plan requirements for facilitating access to 
Medicaid rules and policies by individuals outside the State Medicaid 
agency.
    (b) State plan requirements. A State plan must provide that the 
Medicaid agency meets the requirements of paragraphs (c) through (g) of 
this section.
    (c) Availability in agency offices. (1) The agency must maintain, in 
all its offices, copies of its current rules and policies that affect 
the public, including those that govern eligibility, provision of 
medical assistance, covered services, and recipient rights and 
responsibilities.
    (2) These documents must be available upon request for review, 
study, and reproduction by individuals during regular working hours of 
the agency.
    (d) Availability through other entities. The agency must provide 
copies of its current rules and policies to--
    (1) Public and university libraries;
    (2) The local or district offices of the Bureau of Indian Affairs;
    (3) Welfare and legal services offices; and
    (4) Other entities that--
    (i) Request the material in order to make it accessible to the 
public;

[[Page 24]]

    (ii) Are centrally located and accessible to a substantial number of 
the recipient population they serve; and
    (iii) Agree to accept responsibility for filing all amendments or 
changes forwarded by the agency.
    (e) Availability in relation to fair hearings. The agency must make 
available to an applicant or recipient, or his representative, a copy of 
the specific policy materials necessary--
    (1) To determine whether to request a fair hearing; or
    (2) To prepare for a fair hearing.
    (f) Availability for other purposes. The agency must establish rules 
for making program policy materials available to individuals who request 
them for other purposes.
    (g) Charges for reproduction. The agency must make copies of its 
program policy materials available without charge or at a charge related 
to the cost of reproduction.

[44 FR 17931, Mar. 23, 1979]



Sec. 431.20  Advance directives.

    (a) Basis and purpose. This section, based on section 1902(a) (57) 
and (58) of the Act, prescribes State plan requirements for the 
development and distribution of a written description of State law 
concerning advance directives.
    (b) A State Plan must provide that the State, acting through a State 
agency, association, or other private nonprofit entity, develop a 
written description of the State law (whether statutory or as recognized 
by the courts of the State) concerning advance directives, as defined in 
Sec. 489.100 of this chapter, to be distributed by Medicaid providers 
and health maintenance organizations (as specified in section 
1903(m)(1)(A) of the Act) in accordance with the requirements under part 
489, subpart I of this chapter. Revisions to the written descriptions as 
a result of changes in State law must be incorporated in such 
descriptions and distributed as soon as possible, but no later than 60 
days from the effective date of the change in State law, to Medicaid 
providers and health maintenance organizations.

[57 FR 8202, Mar. 6, 1992, as amended at 60 FR 33293, June 27, 1995]



              Subpart B_General Administrative Requirements

    Source: 56 FR 8847, Mar. 1, 1991, unless otherwise noted.



Sec. 431.40  Basis and scope.

    (a) This subpart sets forth State plan requirements and exceptions 
that pertain to the following administrative requirements and provisions 
of the Act:
    (1) Statewideness--section 1902(a)(1);
    (2) Proper and efficient administration--section 1902(a)(4);
    (3) Comparability of services--section 1902(a)(10) (B)-(E);
    (4) Payment for services furnished outside the State--section 
1902(a)(16);
    (5) Free choice of providers--section 1902(a)(23);
    (6) Special waiver provisions applicable to American Samoa and the 
Northern Mariana Islands--section 1902(j); and
    (7) Exceptions to, and waiver of, State plan requirements--sections 
1915 (a)-(c) and 1916 (a)(3) and (b)(3).
    (b) Other applicable regulations include the following:
    (1) Section 430.25 Waivers of State plan requirements.
    (2) Section 440.250 Limits on comparability of services.



Sec. 431.50  Statewide operation.

    (a) Statutory basis. Section 1902(a)(1) of the Act requires a State 
plan to be in effect throughout the State, and section 1915 permits 
certain exceptions.
    (b) State plan requirements. A State plan must provide that the 
following requirements are met:
    (1) The plan will be in operation statewide through a system of 
local offices, under equitable standards for assistance and 
administration that are mandatory throughout the State.
    (2) If administered by political subdivisions of the State, the plan 
will be mandatory on those subdivisions.
    (3) The agency will ensure that the plan is continuously in 
operation in all local offices or agencies through--
    (i) Methods for informing staff of State policies, standards, 
procedures, and instructions;
    (ii) Systematic planned examination and evaluation of operations in 
local

[[Page 25]]

offices by regularly assigned State staff who make regular visits; and
    (iii) Reports, controls, or other methods.
    (c) Exceptions. (1) ``Statewide operation'' does not mean, for 
example, that every source of service must furnish the service State-
wide. The requirement does not preclude the agency from contracting with 
a comprehensive health care organization (such as an HMO or a rural 
health clinic) that serves a specific area of the State, to furnish 
services to Medicaid recipients who live in that area and chose to 
receive services from that HMO or rural health clinic. Recipients who 
live in other parts of the State may receive their services from other 
sources.
    (2) Other allowable exceptions and waivers are set forth in 
Sec. Sec. 431.54 and 431.55.

[56 FR 8847, Mar. 1, 1991; 56 FR 23022, May 20, 1991]



Sec. 431.51  Free choice of providers.

    (a) Statutory basis. This section is based on sections 1902(a)(23), 
1902(e)(2), and 1915(a) and (b) and 1932(a)(3) of the Act.
    (1) Section 1902(a)(23) of the Act provides that recipients may 
obtain services from any qualified Medicaid provider that undertakes to 
provide the services to them.
    (2) Section 1915(a) of the Act provides that a State shall not be 
found out of compliance with section 1902(a)(23) solely because it 
imposes certain specified allowable restrictions on freedom of choice.
    (3) Section 1915(b) of the Act authorizes waiver of the section 
1902(a)(23) freedom of choice of providers requirement in certain 
specified circumstances, but not with respect to providers of family 
planning services.
    (4) Section 1902(a)(23) of the Act provides that a recipient 
enrolled in a primary care case management system or Medicaid managed 
care organization (MCO) may not be denied freedom of choice of qualified 
providers of family planning services.
    (5) Section 1902(e)(2) of the Act provides that an enrollee who, 
while completing a minimum enrollment period, is deemed eligible only 
for services furnished by or through the MCO or PCCM, may, as an 
exception to the deemed limitation, seek family planning services from 
any qualified provider.
    (6) Section 1932(a) of the Act permits a State to restrict the 
freedom of choice required by section 1902(a)(23), under specified 
circumstances, for all services except family planning services.
    (b) State plan requirements. A State plan, except the plan for 
Puerto Rico, the Virgin Islands, or Guam, must provide as follows:
    (1) Except as provided under paragraph (c) of this section and part 
438 of this chapter, a recipient may obtain Medicaid services from any 
institution, agency, pharmacy, person, or organization that is--
    (i) Qualified to furnish the services; and
    (ii) Willing to furnish them to that particular recipient.

This includes an organization that furnishes, or arranges for the 
furnishing of, Medicaid services on a prepayment basis.
    (2) A recipient enrolled in a primary care case-management system, a 
Medicaid MCO, or other similar entity will not be restricted in freedom 
of choice of providers of family planning services.
    (c) Exceptions. Paragraph (b) of this section does not prohibit the 
agency from--
    (1) Establishing the fees it will pay providers for Medicaid 
services;
    (2) Setting reasonable standards relating to the qualifications of 
providers: or
    (3) Subject to paragraph (b)(2) of this section, restricting 
recipients' free choice of providers in accordance with one or more of 
the exceptions set forth in Sec. 431.54, or under a waiver as provided 
in Sec. 431.55.
    (d) Certification requirement. (1) Content of certification. If a 
State implements a project under one of the exceptions allowed under 
Sec. 431.54 (d), (e) or (f), it must certify to CMS that the statutory 
safeguards and requirements for an exception under section 1915(a) of 
the Act are met.
    (2) Timing of certification. (i) For an exception under Sec. 
431.54(d), the State may not institute the project until

[[Page 26]]

after it has submitted the certification and CMS has made the findings 
required under the Act, and so notified the State.
    (ii) For exceptions under Sec. 431.54 (e) or (f), the State must 
submit the certificate by the end of the quarter in which it implements 
the project.

[56 FR 8847, Mar. 1, 1991, as amended at 67 FR 41094, June 14, 2002]



Sec. 431.52  Payments for services furnished out of State.

    (a) Statutory basis. Section 1902(a)(16) of the Act authorizes the 
Secretary to prescribe State plan requirements for furnishing Medicaid 
to State residents who are absent from the State.
    (b) Payment for services. A State plan must provide that the State 
will pay for services furnished in another State to the same extent that 
it would pay for services furnished within its boundaries if the 
services are furnished to a recipient who is a resident of the State, 
and any of the following conditions is met:
    (1) Medical services are needed because of a medical emergency;
    (2) Medical services are needed and the recipient's health would be 
endangered if he were required to travel to his State of residence;
    (3) The State determines, on the basis of medical advice, that the 
needed medical services, or necessary supplementary resources, are more 
readily available in the other State;
    (4) It is general practice for recipients in a particular locality 
to use medical resources in another State.
    (c) Cooperation among States. The plan must provide that the State 
will establish procedures to facilitate the furnishing of medical 
services to individuals who are present in the State and are eligible 
for Medicaid under another State's plan.



Sec. 431.53  Assurance of transportation.

    A State plan must--
    (a) Specify that the Medicaid agency will ensure necessary 
transportation for recipients to and from providers; and
    (b) Describe the methods that the agency will use to meet this 
requirement.

(Sec. 1902(a)(4) of the Act)



Sec. 431.54  Exceptions to certain State plan requirements.

    (a) Statutory basis. Section 1915(a) of the Act provides that a 
State shall not be deemed to be out of compliance with the requirements 
of sections 1902(a) (1), (10), or (23) of the Act solely because it has 
elected any of the exceptions set forth in paragraphs (b) and (d) 
through (f) of this section.
    (b) Additional services under a prepayment system. If the Medicaid 
agency contracts on a prepayment basis with an organization that 
provides services additional to those offered under the State plan, the 
agency may restrict the provision of the additional services to 
recipients who live in the area served by the organization and wish to 
obtain services from it.
    (c) [Reserved]
    (d) Special procedures for purchase of medical devices and 
laboratory and X-ray tests. The Medicaid agency may establish special 
procedures for the purchase of medical devices or laboratory and X-ray 
tests (as defined in Sec. 440.30 of this chapter) through a competitive 
bidding process or otherwise, if the State assures, in the certification 
required under Sec. 431.51(d), and CMS finds, as follows:
    (1) Adequate services or devices are available to recipients under 
the special procedures.
    (2) Laboratory services are furnished through laboratories that meet 
the following requirements:
    (i) They are independent laboratories, or inpatient or outpatient 
hospital laboratories that provide services for individuals who are not 
hospital patients, or physician laboratories that process at least 100 
specimens for other physicians during any calendar year.
    (ii) They meet the requirements of subpart M of part 405 or part 482 
of this chapter.
    (iii) Laboratories that require an interstate license under 42 CFR 
part 74

[[Page 27]]

are licensed by CMS or receive an exemption from the licensing 
requirement by the College of American Pathologists. (Hospital and 
physician laboratories may participate in competitive bidding only with 
regard to services to non-hospital patients and other physicians' 
patients, respectively.)
    (3) Any laboratory from which a State purchases services under this 
section has no more than 75 percent of its charges based on services to 
Medicare beneficiaries and Medicaid recipients.
    (e) Lock-in of recipients who over-utilize Medicaid services. If a 
Medicaid agency finds that a recipient has utilized Medicaid services at 
a frequency or amount that is not medically necessary, as determined in 
accordance with utilization guidelines established by the State, the 
agency may restrict that recipient for a reasonable period of time to 
obtain Medicaid services from designated providers only. The agency may 
impose these restrictions only if the following conditions are met:
    (1) The agency gives the recipient notice and opportunity for a 
hearing (in accordance with procedures established by the agency) before 
imposing the restrictions.
    (2) The agency ensures that the recipient has reasonable access 
(taking into account geographic location and reasonable travel time) to 
Medicaid services of adequate quality.
    (3) The restrictions do not apply to emergency services furnished to 
the recipient.
    (f) Lock-out of providers. If a Medicaid agency finds that a 
Medicaid provider has abused the Medicaid program, the agency may 
restrict the provider, through suspension or otherwise, from 
participating in the program for a reasonable period of time.
    Before imposing any restriction, the agency must meet the following 
conditions:
    (1) Give the provider notice and opportunity for a hearing, in 
accordance with procedures established by the agency.
    (2) Find that in a significant number or proportion of cases, the 
provider has:
    (i) Furnished Medicaid services at a frequency or amount not 
medically necessary, as determined in accordance with utilization 
guidelines established by the agency; or
    (ii) Furnished Medicaid services of a quality that does not meet 
professionally recognized standards of health care.
    (3) Notify CMS and the general public of the restriction and its 
duration.
    (4) Ensure that the restrictions do not result in denying recipients 
reasonable access (taking into account geographic location: and 
reasonable travel time) to Medicaid services of adequate quality, 
including emergency services.



Sec. 431.55  Waiver of other Medicaid requirements.

    (a) Statutory basis. Section 1915(b) of the Act authorizes the 
Secretary to waive most requirements of section 1902 of the Act to the 
extent he or she finds proposed improvements or specified practices in 
the provision of services under Medicaid to be cost effective, 
efficient, and consistent with the objectives of the Medicaid program. 
Sections 1915 (f) and (h) prescribe how such waivers are to be approved, 
continued, monitored, and terminated. Section 1902(p)(2) of the Act 
conditions FFP in payments to an entity under a section 1915(b)(1) 
waiver on the State's provision for exclusion of certain entities from 
participation.
    (b) General requirements. (1) General requirements for submittal of 
waiver requests, and the procedures that CMS follows for review and 
action on those requests are set forth in Sec. 430.25 of this chapter.
    (2) In applying for a waiver to implement an approvable project 
under paragraph (c), (d), (e), or (f) of this section, a Medicaid agency 
must document in the waiver request and maintain data regarding:
    (i) The cost-effectiveness of the project;
    (ii) The effect of the project on the accessibility and quality of 
services;
    (iii) The anticipated impact of the project on the State's Medicaid 
program and;
    (iv) Assurances that the restrictions on free choice of providers do 
not apply to family planning services.

[[Page 28]]

    (3) No waiver under this section may be granted for a period longer 
than 2 years, unless the agency requests a continuation of the waiver.
    (4) CMS monitors the implementation of waivers granted under this 
section to ensure that requirements for such waivers are being met.
    (i) If monitoring demonstrates that the agency is not in compliance 
with the requirements for a waiver under this section, CMS gives the 
agency notice and opportunity for a hearing.
    (ii) If, after a hearing, CMS finds an agency to be out of 
compliance with the requirements of a waiver, CMS terminates the waiver 
and gives the agency a specified date by which it must demonstrate that 
it meets the applicable requirements of section 1902 of the Act.
    (5) The requirements of section 1902(s) of the Act, with regard to 
adjustments in payments for inpatient hospital services furnished to 
infants who have not attained age 1 and to children who have not 
attained age 6 and who receive these services in disproportionate share 
hospitals, may not be waived under a section 1915(b) waiver.
    (c) Case-management system. (1) Waivers of appropriate requirements 
of section 1902 of the Act may be authorized for a State to implement a 
primary care case-management system or specialty physician services 
system.
    (i) Under a primary care case-management system the agency assures 
that a specific person or persons or agency will be responsible for 
locating, coordinating, and monitoring all primary care or primary care 
and other medical care and rehabilitative services on behalf of a 
recipient. The person or agency must comply with the requirements set 
forth in part 438 of this chapter for primary care case management 
contracts and systems.
    (ii) A specialty physician services system allows States to restrict 
recipients of specialty services to designated providers of such 
services, even in the absence of a primary care case-management system.
    (2) A waiver under this paragraph (c) may not be approved unless the 
State's request assures that the restrictions--
    (i) Do not apply in emergency situations; and
    (ii) Do not substantially impair access to medically necessary 
services of adequate quality.
    (d) Locality as central broker. Waivers of appropriate requirements 
of section 1902 of the Act may be authorized for a State to allow a 
locality to act as a central broker to assist recipients in selecting 
among competing health care plans. States must ensure that access to 
medically necessary services of adequate quality is not substantially 
impaired.
    (1) A locality is any defined jurisdiction, e.g., district, town, 
city, borough, county, parish, or State.
    (2) A locality may use any agency or agent, public or private, 
profit or nonprofit, to act on its behalf in carrying out its central 
broker function.
    (e) Sharing of cost savings. (1) Waivers of appropriate requirements 
of section 1902 of the Act may be authorized for a State to share with 
recipients the cost savings resulting from the recipients' use of more 
cost-effective medical care.
    (2) Sharing is through the provision of additional services, 
including--
    (i) Services furnished by a plan selected by the recipient; and
    (ii) Services expressly offered by the State as an inducement for 
recipients to participate in a primary care case-management system, a 
competing health care plan or other system that furnishes health care 
services in a more cost-effective manner.
    (f) Restriction of freedom of choice--(1) Waiver of appropriate 
requirements of section 1902 of the Act may be authorized for States to 
restrict recipients to obtaining services from (or through) qualified 
providers or practitioners that meet, accept, and comply with the State 
reimbursement, quality and utilization standards specified in the 
State's waiver request.
    (2) An agency may qualify for a waiver under this paragraph (f) only 
if its applicable State standards are consistent with access, quality 
and efficient and economic provision of covered care and services and 
the restrictions it imposes--
    (i) Do not apply to recipients residing at a long-term care facility 
when a restriction is imposed unless the State

[[Page 29]]

arranges for reasonable and adequate recipient transfer.
    (ii) Do not discriminate among classes of providers on grounds 
unrelated to their demonstrated effectiveness and efficiency in 
providing those services; and
    (iii) Do not apply in emergency circumstances.
    (3) Demonstrated effectiveness and efficiency refers to reducing 
costs or slowing the rate of cost increase and maximizing outputs or 
outcomes per unit of cost.
    (4) The agency must make payments to providers furnishing services 
under a freedom of choice waiver under this paragraph (f) in accordance 
with the timely claims payment standards specified in Sec. 447.45 of 
this chapter for health care practitioners participating in the Medicaid 
program.
    (g) [Reserved]
    (h) Waivers approved under section 1915(b)(1) of the Act--(1) Basic 
rules. (i) An agency must submit, as part of it's waiver request, 
assurance that the entities described in paragraph (h)(2) of this 
section will be excluded from participation under an approved waiver.
    (ii) FFP is available in payments to an entity that furnishes 
services under a section 1915(b)(1) waiver only if the agency excludes 
from participation any entity described in paragraph (h)(2) of this 
section.
    (2) Entities that must be excluded. The agency must exclude an 
entity that meets any of the following conditions:
    (i) Could be excluded under section 1128(b)(8) of the Act as being 
controlled by a sanctioned individual.
    (ii) Has a substantial contractual relationship (direct or indirect) 
with an individual convicted of certain crimes, as described in section 
1128(b)(8)(B) of the Act.
    (iii) Employs or contracts directly or indirectly with one of the 
following:
    (A) Any individual or entity that, under section 1128 or section 
1128A of the Act, is precluded from furnishing health care, utilization 
review, medical social services, or administrative services.
    (B) Any entity described in paragraph (h)(2)(i) of this section.
    (3) Definitions. As used in this section, substantial contractual 
relationship means any contractual relationship that provides for one or 
more of the following services:
    (i) The administration, management, or provision of medical 
services.
    (ii) The establishment of policies, or the provision of operational 
support, for the administration, management, or provision of medical 
services.

[56 FR 8847, Mar. 1, 1991, as amended at 59 FR 4599, Feb. 1, 1994; 59 FR 
36084, July 15, 1994; 67 FR 41094, June 14, 2002]



Sec. 431.56  Special waiver provisions applicable to American Samoa and the Northern Mariana Islands.

    (a) Statutory basis. Section 1902(j) of the Act provides for waiver 
of all but three of the title XIX requirements, in the case of American 
Samoa and the Northern Mariana Islands.
    (b) Waiver provisions. American Samoa or the Northern Mariana 
Islands may request, and CMS may approve, a waiver of any of the title 
XIX requirements except the following:
    (1) The Federal medical assistance percentage specified in section 
1903 of the Act and Sec. 433.10(b) of this chapter.
    (2) The limit imposed by section 1108(c) of the Act on the amount of 
Federal funds payable to American Samoa or the Northern Mariana Islands 
for care and services that meet the section 1905(a) definition for 
Medicaid assistance.
    (3) The requirement that payment be made only with respect to 
expenditure made by American Samoa or the Northern Mariana Islands for 
care and services that meet the section 1905(a) definition of medical 
assistance.



Sec. 431.57  Waiver of cost-sharing requirements.

    (a) Sections 1916(a)(3) and 1916(b)(3) of the Act specify the 
circumstances under which the Secretary is authorized to waive the 
requirement that cost-sharing amounts be nominal.
    (b) For nonemergency services furnished in a hospital emergency 
room, the Secretary may by waiver permit a State to impose a copayment 
of up to double the ``nominal'' copayment amounts determined under Sec. 
447.54(a)(3) of this subchapter.

[[Page 30]]

    (c) Nonemergency services are services that do not meet the 
definition of emergency services at Sec. 447.53(b)(4) of this 
subchapter.
    (d) In order for a waiver to be approved under this section, the 
State must establish to the satisfaction of CMS that alternative sources 
of nonemergency, outpatient services are available and accessible to 
recipients.
    (e) Although, in accordance with Sec. 431.55(b)(3) of this part, a 
waiver will generally be granted for a 2-year duration, CMS will 
reevaluate waivers approved under this section if the State increases 
the nominal copayment amounts in effect when the waiver was approved.
    (f) A waiver approved under this section cannot apply to services 
furnished before the waiver was granted.

[59 FR 4600, Feb. 1, 1994]



        Subpart C_Administrative Requirements: Provider Relations



Sec. 431.105  Consultation to medical facilities.

    (a) Basis and purpose. This section implements section 1902(a)(24) 
of the Act, which requires that the State plan provide for consultative 
services by State agencies to certain institutions furnishing Medicaid 
services.
    (b) State plan requirements. A State plan must provide that health 
agencies and other appropriate State agencies furnish consultative 
services to hospitals, nursing homes, home health agencies, clinics, and 
laboratories in order to assist these facilities to--
    (1) Qualify for payments under the maternal and child health and 
crippled children's program (title V of the Act), Medicaid or Medicare;
    (2) Establish and maintain fiscal records necessary for the proper 
and efficient administration of the Act; and
    (3) Provide information needed to determine payments due under the 
Act for services furnished to recipients.
    (c) State plan option: Consultation to other facilities. The plan 
may provide that health agencies and other appropriate State agencies 
furnish consultation to other types of facilities if those facilities 
are specified in the plan and provide medical care to individuals 
receiving services under the programs specified in paragraph (b) of this 
section.



Sec. 431.107  Required provider agreement.

    (a) Basis and purpose. This section sets forth State plan 
requirements, based on sections 1902(a)(4), 1902(a)(27), 1902(a)(57), 
and 1902(a)(58) of the Act, that relate to the keeping of records and 
the furnishing of information by all providers of services (including 
individual practitioners and groups of practitioners).
    (b) Agreements. A State plan must provide for an agreement between 
the Medicaid agency and each provider or organization furnishing 
services under the plan in which the provider or organization agrees to:
    (1) Keep any records necessary to disclose the extent of services 
the provider furnishes to recipients;
    (2) On request, furnish to the Medicaid agency, the Secretary, or 
the State Medicaid fraud control unit (if such a unit has been approved 
by the Secretary under Sec. 455.300 of this chapter), any information 
maintained under paragraph (b)(1) of this section and any information 
regarding payments claimed by the provider for furnishing services under 
the plan;
    (3) Comply with the disclosure requirements specified in part 455, 
subpart B of this chapter; and
    (4) Comply with the advance directives requirements for hospitals, 
nursing facilities, providers of home health care and personal care 
services, hospices, and HMOs specified in part 489, subpart I, and Sec. 
417.436(d) of this chapter.

[44 FR 41644, July 17, 1979, as amended at 57 FR 8202, Mar. 6, 1992]



Sec. 431.108  Effective date of provider agreements.

    (a) Applicability--(1) General rule. Except as provided in paragraph 
(a)(2) of this section, this section applies to Medicaid provider 
agreements with entities that, as a basis for participation in 
Medicaid--
    (i) Are subject to survey and certification by CMS or the State 
survey agency; or

[[Page 31]]

    (ii) Are deemed to meet Federal requirements on the basis of 
accreditation by an accrediting organization whose program has CMS 
approval at the time of accreditation survey and accreditation decision.
    (2) Exception. A Medicaid provider agreement with a laboratory is 
effective only while the laboratory has in effect a valid CLIA 
certificate issued under part 493 of this chapter, and only for the 
specialty and subspecialty tests it is authorized to perform.
    (b) All requirements are met on the date of survey. The agreement is 
effective on the date the onsite survey (including the Life Safety Code 
survey if applicable) is completed, if on that date the provider meets--
    (1) All applicable Federal requirements as set forth in this 
chapter; and
    (2) Any other requirements imposed by the State for participation in 
the Medicaid program. (If the provider has a time-limited agreement, the 
new agreement is effective on the day following expiration of the 
current agreement.)
    (c) All requirements are not met on the date of survey. If on the 
date the survey is completed the provider fails to meet any of the 
requirements specified in paragraph (b) of this section, the following 
rules apply:
    (1) An NF provider agreement is effective on the date on which--
    (i) The NF is found to be in substantial compliance as defined in 
Sec. 488.301 of this chapter; and
    (ii) CMS or the State survey agency receives from the NF, if 
applicable, an approvable waiver request.
    (2) For an agreement with any other provider, the effective date is 
the earlier of the following:
    (i) The date on which the provider meets all requirements.
    (ii) The date on which a provider is found to meet all conditions of 
participation but has lower level deficiencies, and CMS or the State 
survey agency receives from the provider an acceptable plan of 
correction for the lower level deficiencies, or an approvable waiver 
request, or both. (The date of receipt is the effective date of the 
agreement, regardless of when CMS approves the plan of correction or 
waiver request, or both.)
    (d) Accredited provider requests participation in the Medicaid 
program--(1) General rule. If a provider is currently accredited by a 
national accrediting organization whose program had CMS approval at the 
time of accreditation survey and accreditation decision, and on the 
basis of accreditation, CMS has deemed the provider to meet Federal 
requirements, the effective date depends on whether the provider is 
subject to requirements in addition to those included in the accrediting 
organization's approved program.
    (i) Provider subject to additional requirements. For a provider that 
is subject to additional requirements, Federal or State, or both, the 
effective date is the date on which the provider meets all requirements, 
including the additional requirements.
    (ii) Provider not subject to additional requirements. For a provider 
that is not subject to additional requirements, the effective date is 
the date of the provider's initial request for participation if on that 
date the provider met all Federal requirements.
    (2) Special rule: Retroactive effective date. If the provider meets 
the requirements of paragraphs (d)(1) and (d)(1)(i) or (d)(1)(ii) of 
this section, the effective date may be retroactive for up to one year, 
to encompass dates on which the provider furnished, to a Medicaid 
recipient, covered services for which it has not been paid.

[62 FR 43935, Aug. 18, 1997]



Sec. 431.110  Participation by Indian Health Service facilities.

    (a) Basis. This section is based on section 1902(a)(4) of the Act, 
proper and efficient administration; 1902(a)(23), free choice of 
provider; and 1911, reimbursement of Indian Health Service facilities.
    (b) State plan requirements. A State plan must provide that an 
Indian Health Service facility meeting State requirements for Medicaid 
participation must be accepted as a Medicaid provider on the same basis 
as any other qualified provider. However, when State licensure is 
normally required, the facility need not obtain a license but must meet 
all applicable standards for licensure. In determining whether a

[[Page 32]]

facility meets these standards, a Medicaid agency or State licensing 
authority may not take into account an absence of licensure of any staff 
member of the facility.



Sec. 431.115  Disclosure of survey information and provider or contractor evaluation.

    (a) Basis and purpose. This section implements--
    (1) Section 1902(a)(36) of the Act, which requires a State plan to 
provide that the State survey agency will make publicly available the 
findings from surveys of health care facilities, laboratories, agencies, 
clinics, or organizations; and
    (2) Section 1106(d) of the Act, which places certain restrictions on 
the Medicaid agency's disclosure of contractor and provider evaluations.
    (b) Definition of State survey agency. The State survey agency 
referred to in this section means the agency specified under section 
1902(a)(9) of the Act as responsible for establishing and maintaining 
health standards for private or public institutions in which Medicaid 
recipients may receive services.
    (c) State plan requirements. A State plan must provide that the 
requirements of this section and Sec. 488.325 of this chapter are met.
    (d) Disclosure procedure. The Medicaid agency must have a procedure 
for disclosing pertinent findings obtained from surveys made by the 
State survey agency to determine if a health care facility, laboratory, 
agency, clinic or health care organization meets the requirements for 
participation in the Medicaid program.
    (e) Documents subject to disclosure. Documents subject to disclosure 
include--
    (1) Survey reports, except for Joint Commission on the Accreditation 
of Hospitals reports prohibited from disclosure under Sec. 
422.426(b)(2) of this chapter;
    (2) Official notifications of findings based on survey reports:
    (3) Pertinent parts of written documents furnished by the health 
care provider to the survey agency that relate to the reports and 
findings; and
    (4) Ownership and contract information as specified in Sec. 455.104 
of this subchapter.
    (f) Availability for inspection and copy of statements listing 
deficiencies. The disclosure procedure must provide that the State 
survey agency will--
    (1) Make statements of deficiencies based on the survey reports 
available for inspection and copying in both the public assistance 
office and the Social Security Administration district office serving 
the area where the provider is located; and
    (2) Submit to the Regional Medicaid Director, through the Medicaid 
agency, a plan for making those findings available in other public 
assistance offices in standard metropolitian statistical areas where 
this information would be helpful to persons likely to use the health 
care provider's services.
    (g) When documents must be made available. The disclosure procedure 
must provide that the State survey agency will--
    (1) Retain in the survey agency office and make available upon 
request survey reports and current and accurate ownership information; 
and
    (2) Make available survey reports, findings, and deficiency 
statements immediately upon determining that a health care provider is 
eligible to begin or continue participation in the Medicaid program, or 
within 90 days after completion of the survey, whichever occurs first.
    (h) Evaluation reports on providers and contractors. (1) If the 
Secretary sends the following reports to the Medicaid agency, the agency 
must meet the requirements of paragraphs (h) (2) and (3) of this section 
in releasing them:
    (i) Individual contractor performance reviews and other formal 
performance evaluations of carriers, intermediaries, and State agencies, 
including the reports of followup reviews;
    (ii) Comparative performance evaluations of those contractors, 
including comparisons of either overall performance or of any particular 
aspect of contractor operations; and
    (iii) Program validation survey reports and other formal performance 
evaluations of providers, including the reports of followup reviews.

[[Page 33]]

    (2) The agency must not make the reports public until--
    (i) The contractor or provider has had a reasonable opportunity, not 
to exceed 30 days, to comment on them; and
    (ii) Those comments have been incorporated in the report.
    (3) The agency must ensure that the reports contain no 
identification of individual patients, individual health care 
practitioners or other individuals.

[43 FR 45188, Sept. 29, 1978, as amended at 44 FR 41644, July 17, 1979; 
59 FR 56232, Nov. 10, 1994]



Sec. 431.120  State requirements with respect to nursing facilities.

    (a) State plan requirements. A State plan must--
    (1) Provide that the requirements of subpart D of part 483 of this 
chapter are met; and
    (2) Specify the procedures and rules that the State follows in 
carrying out the specified requirements, including review and approval 
of State-operated programs.
    (3) To an NF or ICF/MR that is dissatisfied with a determination as 
to the effective date of its provider agreement.
    (b) Basis and scope of requirements. The requirements set forth in 
part 483 of this chapter pertain to the following aspects of nursing 
facility services and are required by the indicated sections of the Act.
    (1) Nurse aide training and competency programs, and evaluation of 
nurse aide competency (1919(e)(1) of the Act).
    (2) Nurse aide registry (1919(e)(2) of the Act).

[56 FR 48918, Sept. 26, 1991, as amended at 62 FR 43935, Aug. 18, 1997]



              Subpart D_Appeals Process for NFs and ICFs/MR

    Source: 44 FR 9753, Feb. 15, 1979, unless otherwise noted.



Sec. 431.151  Scope and applicability.

    (a) General rules. This subpart sets forth the appeals procedures 
that a State must make available as follows:
    (1) To a nursing facility (NF) that is dissatisfied with a State's 
finding of noncompliance that has resulted in one of the following 
adverse actions:
    (i) Denial or termination of its provider agreement.
    (ii) Imposition of a civil money penalty or other alternative 
remedy.
    (2) To an intermediate care facility for the mentally retarded (ICF/
MR) that is dissatisfied with a State's finding of noncompliance that 
has resulted in the denial, termination, or nonrenewal of its provider 
agreement.
    (3) To an NF or ICF/MR that is dissatisfied with a determination as 
to the effective date of its provider agreement.
    (b) Special rules. This subpart also sets forth the special rules 
that apply in particular circumstances, the limitations on the grounds 
for appeal, and the scope of review during a hearing.

[61 FR 32348, June 24, 1996, as amended at 62 FR 43935, Aug. 18, 1997]



Sec. 431.152  State plan requirements.

    The State plan must provide for appeals procedures that, as a 
minimum, satisfy the requirements of Sec. Sec. 431.153 and 431.154.

[59 FR 56232, Nov. 10, 1994, as amended at 61 FR 32348, June 24, 1996]



Sec. 431.153  Evidentiary hearing.

    (a) Right to hearing. Except as provided in paragraph (b) of this 
section, and subject to the provisions of paragraphs (c) through (j) of 
this section, the State must give the facility a full evidentiary 
hearing for any of the actions specified in Sec. 431.151.
    (b) Limit on grounds for appeal. The following are not subject to 
appeal:
    (1) The choice of sanction or remedy.
    (2) The State monitoring remedy.
    (3) [Reserved]
    (4) The level of noncompliance found by a State except when a 
favorable final administrative review decision would affect the range of 
civil money penalty amounts the State could collect.
    (5) A State survey agency's decision as to when to conduct an 
initial survey of a prospective provider.

[[Page 34]]

    (c) Notice of deficiencies and impending remedies. The State must 
give the facility a written notice that includes:
    (1) The basis for the decision; and
    (2) A statement of the deficiencies on which the decision was based.
    (d) Request for hearing. The facility or its legal representative or 
other authorized official must file written request for hearing within 
60 days of receipt of the notice of adverse action.
    (e) Special rules: Denial, termination or nonrenewal of provider 
agreement. (1) Appeal by an ICF/MR. If an ICF/MR requests a hearing on 
denial, termination, or nonrenewal of its provider agreement--
    (i) The evidentiary hearing must be completed either before, or 
within 120 days after, the effective date of the adverse action; and
    (ii) If the hearing is made available only after the effective date 
of the action, the State must, before that date, offer the ICF/MR an 
informal reconsideration that meets the requirements of Sec. 431.154.
    (2) Appeal by an NF. If an NF requests a hearing on the denial or 
termination of its provider agreement, the request does not delay the 
adverse action and the hearing need not be completed before the 
effective date of the action.
    (f) Special rules: Imposition of remedies. If a State imposes a 
civil money penalty or other remedies on an NF, the following rules 
apply:
    (1) Basic rule. Except as provided in paragraph (f)(2) of this 
section (and notwithstanding any provision of State law), the State must 
impose all remedies timely on the NF, even if the NF requests a hearing.
    (2) Exception. The State may not collect a civil money penalty until 
after the 60-day period for request of hearing has elapsed or, if the NF 
requests a hearing, until issuance of a final administrative decision 
that supports imposition of the penalty.
    (g) Special rules: Dually participating facilities. If an NF is also 
participating or seeking to participate in Medicare as an SNF, and the 
basis for the State's denial or termination of participation in Medicaid 
is also a basis for denial or termination of participation in Medicare, 
the State must advise the facility that--
    (1) The appeals procedures specified for Medicare facilities in part 
498 of this chapter apply; and
    (2) A final decision entered under the Medicare appeals procedures 
is binding for both programs.
    (h) Special rules: Adverse action by CMS. If CMS finds that an NF is 
not in substantial compliance and either terminates the NF's Medicaid 
provider agreement or imposes alternative remedies on the NF (because 
CMS's findings and proposed remedies prevail over those of the State in 
accordance with Sec. 488.452 of this chapter), the NF is entitled only 
to the appeals procedures set forth in part 498 of this chapter, instead 
of the procedures specified in this subpart.
    (i) Required elements of hearing. The hearing must include at least 
the following:
    (1) Opportunity for the facility--
    (i) To appear before an impartial decision-maker to refute the 
finding of noncompliance on which the adverse action was based;
    (ii) To be represented by counsel or other representative; and
    (iii) To be heard directly or through its representative, to call 
witnesses, and to present documentary evidence.
    (2) A written decision by the impartial decision-maker, setting 
forth the reasons for the decision and the evidence on which the 
decision is based.
    (j) Limits on scope of review: Civil money penalty cases. In civil 
money penalty cases--
    (1) The State's finding as to a NF's level of noncompliance must be 
upheld unless it is clearly erroneous; and
    (2) The scope of review is as set forth in Sec. 488.438(e) of this 
chapter.

[61 FR 32348, June 24, 1996, as amended at 62 FR 43935, Aug. 18, 1997; 
64 FR 39937, July 23, 1999]



Sec. 431.154  Informal reconsideration for ICFs/MR.

    The informal reconsideration must, at a minimum, include--
    (a) Written notice to the facility of the denial, termination or 
nonrenewal and the findings upon which it was based;
    (b) A reasonable opportunity for the facility to refute those 
findings in writing, and

[[Page 35]]

    (c) A written affirmation or reversal of the denial, termination, or 
nonrenewal.

[44 FR 9753, Feb. 15, 1979, as amended at 59 FR 56233, Nov. 10, 1994; 61 
FR 32349, June 24, 1996]



          Subpart E_Fair Hearings for Applicants and Recipients

    Source: 44 FR 17932, Mar. 29, 1979, unless otherwise noted.

                           General Provisions



Sec. 431.200  Basis and scope.

    This subpart--
    (a) Implements section 1902(a)(3) of the Act, which requires that a 
State plan provide an opportunity for a fair hearing to any person whose 
claim for assistance is denied or not acted upon promptly;
    (b) Prescribes procedures for an opportunity for a hearing if the 
State agency or PAHP takes action, as stated in this subpart, to 
suspend, terminate, or reduce services, or an MCO or PIHP takes action 
under subpart F of part 438 of this chapter; and
    (c) Implements sections 1919(f)(3) and 1919(e)(7)(F) of the Act by 
providing an appeals process for any person who--
    (1) Is subject to a proposed transfer or discharge from a nursing 
facility; or
    (2) Is adversely affected by the pre-admission screening or the 
annual resident review that are required by section 1919(e)(7) of the 
Act.

[67 FR 41094, June 14, 2002]



Sec. 431.201  Definitions.

    For purposes of this subpart:
    Action means a termination, suspension, or reduction of Medicaid 
eligibility or covered services. It also means determinations by skilled 
nursing facilities and nursing facilities to transfer or discharge 
residents and adverse determinations made by a State with regard to the 
preadmission screening and annual resident review requirements of 
section 1919(e)(7) of the Act.
    Adverse determination means a determination made in accordance with 
sections 1919(b)(3)(F) or 1919(e)(7)(B) of the Act that the individual 
does not require the level of services provided by a nursing facility or 
that the individual does or does not require specialized services.
    Date of action means the intended date on which a termination, 
suspension, reduction, transfer or discharge becomes effective. It also 
means the date of the determination made by a State with regard to the 
preadmission screening and annual resident review requirements of 
section 1919(e)(7) of the Act.
    De novo hearing means a hearing that starts over from the beginning.
    Evidentiary hearing means a hearing conducted so that evidence may 
be presented.
    Notice means a written statement that meets the requirements of 
Sec. 431.210.
    Request for a hearing means a clear expression by the applicant or 
recipient, or his authorized representative, that he wants the 
opportunity to present his case to a reviewing authority.
    Service authorization request means a managed care enrollee's 
request for the provision of a service.

[44 FR 17932, Mar. 29, 1979, as amended at 57 FR 56505, Nov. 30, 1992; 
67 FR 41095, June 14, 2002]



Sec. 431.202  State plan requirements.

    A State plan must provide that the requirements of Sec. Sec. 
431.205 through 431.246 of this subpart are met.



Sec. 431.205  Provision of hearing system.

    (a) The Medicaid agency must be responsible for maintaining a 
hearing system that meets the requirements of this subpart.
    (b) The State's hearing system must provide for--
    (1) A hearing before the agency; or
    (2) An evidentiary hearing at the local level, with a right of 
appeal to a State agency hearing.
    (c) The agency may offer local hearings in some political 
subdivisions and not in others.
    (d) The hearing system must meet the due process standards set forth 
in Goldberg v. Kelly, 397 U.S. 254 (1970), and any additional standards 
specified in this subpart.

[[Page 36]]



Sec. 431.206  Informing applicants and recipients.

    (a) The agency must issue and publicize its hearing procedures.
    (b) The agency must, at the time specified in paragraph (c) of this 
section, inform every applicant or recipient in writing--
    (1) Of his right to a hearing;
    (2) Of the method by which he may obtain a hearing; and
    (3) That he may represent himself or use legal counsel, a relative, 
a friend, or other spokesman.
    (c) The agency must provide the information required in paragraph 
(b) of this section--(1) At the time that the individual applies for 
Medicaid;
    (2) At the time of any action affecting his or her claim;
    (3) At the time a skilled nursing facility or a nursing facility 
notifies a resident in accordance with Sec. 483.12 of this chapter that 
he or she is to be transferred or discharged; and
    (4) At the time an individual receives an adverse determination by 
the State with regard to the preadmission screening and annual resident 
review requirements of section 1919(e)(7) of the Act.

[44 FR 17932, Mar. 29, 1979, as amended at 57 FR 56505, Nov. 30, 1992; 
58 FR 25784, Apr. 28, 1993]

                                 Notice



Sec. 431.210  Content of notice.

    A notice required under Sec. 431.206 (c)(2), (c)(3), or (c)(4) of 
this subpart must contain--
    (a) A statement of what action the State, skilled nursing facility, 
or nursing facility intends to take;
    (b) The reasons for the intended action;
    (c) The specific regulations that support, or the change in Federal 
or State law that requires, the action;
    (d) An explanation of--
    (1) The individual's right to request an evidentiary hearing if one 
is available, or a State agency hearing; or
    (2) In cases of an action based on a change in law, the 
circumstances under which a hearing will be granted; and
    (e) An explanation of the circumstances under which Medicaid is 
continued if a hearing is requested.

[44 FR 17932, Mar. 29, 1979, as amended at 57 FR 56505, Nov. 30, 1992]



Sec. 431.211  Advance notice.

    The State or local agency must mail a notice at least 10 days before 
the date of action, except as permitted under Sec. Sec. 431.213 and 
431.214 of this subpart.



Sec. 431.213  Exceptions from advance notice.

    The agency may mail a notice not later than the date of action if--
    (a) The agency has factual information confirming the death of a 
recipient;
    (b) The agency receives a clear written statement signed by a 
recipient that--
    (1) He no longer wishes services; or
    (2) Gives information that requires termination or reduction of 
services and indicates that he understands that this must be the result 
of supplying that information;
    (c) The recipient has been admitted to an institution where he is 
ineligible under the plan for further services;
    (d) The recipient's whereabouts are unknown and the post office 
returns agency mail directed to him indicating no forwarding address 
(See Sec. 431.231 (d) of this subpart for procedure if the recipient's 
whereabouts become known);
    (e) The agency establishes the fact that the recipient has been 
accepted for Medicaid services by another local jurisdiction, State, 
territory, or commonwealth;
    (f) A change in the level of medical care is prescribed by the 
recipient's physician;
    (g) The notice involves an adverse determination made with regard to 
the preadmission screening requirements of section 1919(e)(7) of the 
Act; or
    (h) The date of action will occur in less than 10 days, in 
accordance with Sec. 483.12(a)(5)(ii), which provides exceptions to the 
30 days notice requirements of Sec. 483.12(a)(5)(i).

[44 FR 17932, Mar. 29, 1979, as amended at 57 FR 56505, Nov. 30, 1992; 
58 FR 25784, Apr. 28, 1993]

[[Page 37]]



Sec. 431.214  Notice in cases of probable fraud.

    The agency may shorten the period of advance notice to 5 days before 
the date of action if--
    (a) The agency has facts indicating that action should be taken 
because of probable fraud by the recipient; and
    (b) The facts have been verified, if possible, through secondary 
sources.

                            Right to Hearing



Sec. 431.220  When a hearing is required.

    (a) The State agency must grant an opportunity for a hearing to the 
following:
    (1) Any applicant who requests it because his claim for services is 
denied or is not acted upon with reasonable promptness.
    (2) Any recipient who requests it because he or she believes the 
agency has taken an action erroneously.
    (3) Any resident who requests it because he or she believes a 
skilled nursing facility or nursing facility has erroneously determined 
that he or she must be transferred or discharged.
    (4) Any individual who requests it because he or she believes the 
State has made an erroneous determination with regard to the 
preadmission and annual resident review requirements of section 
1919(e)(7) of the Act.
    (5) Any MCO or PIHP enrollee who is entitled to a hearing under 
subpart F of part 438 of this chapter.
    (6) Any PAHP enrollee who has an action as stated in this subpart.
    (7) Any enrollee who is entitled to a hearing under subpart B of 
part 438 of this chapter.
    (b) The agency need not grant a hearing if the sole issue is a 
Federal or State law requiring an automatic change adversely affecting 
some or all recipients.

[44 FR 17932, Mar. 29, 1979, as amended at 57 FR 56505, Nov. 30, 1992; 
67 FR 41095, June 14, 2002; 67 FR 65505, Oct. 25, 2002]



Sec. 431.221  Request for hearing.

    (a) The agency may require that a request for a hearing be in 
writing.
    (b) The agency may not limit or interfere with the applicant's or 
recipient's freedom to make a request for a hearing.
    (c) The agency may assist the applicant or recipient in submitting 
and processing his request.
    (d) The agency must allow the applicant or recipient a reasonable 
time, not to exceed 90 days from the date that notice of action is 
mailed, to request a hearings.



Sec. 431.222  Group hearings.

    The agency--
    (a) May respond to a series of individual requests for hearing by 
conducting a single group hearing;
    (b) May consolidate hearings only in cases in which the sole issue 
involved is one of Federal or State law or policy;
    (c) Must follow the policies of this subpart and its own policies 
governing hearings in all group hearings; and
    (d) Must permit each person to present his own case or be 
represented by his authorized representative.



Sec. 431.223  Denial or dismissal of request for a hearing.

    The agency may deny or dismiss a request for a hearing if--
    (a) The applicant or recipient withdraws the request in writing; or
    (b) The applicant or recipient fails to appear at a scheduled 
hearing without good cause.

                               Procedures



Sec. 431.230  Maintaining services.

    (a) If the agency mails the 10-day or 5-day notice as required under 
Sec. 431.211 or Sec. 431.214 of this subpart, and the recipient 
requests a hearing before the date of action, the agency may not 
terminate or reduce services until a decision is rendered after the 
hearing unless--
    (1) It is determined at the hearing that the sole issue is one of 
Federal or State law or policy; and
    (2) The agency promptly informs the recipient in writing that 
services are to be terminated or reduced pending the hearing decision.
    (b) If the agency's action is sustained by the hearing decision, the 
agency may institute recovery procedures against the applicant or 
recipient to recoup the cost of any services furnished the recipient, to 
the extent they

[[Page 38]]

were furnished solely by reason of this section.

[44 FR 17932, Mar. 29, 1979, as amended at 45 FR 24882, Apr. 11, 1980]



Sec. 431.231  Reinstatement of services.

    (a) The agency may reinstate services if a recipient requests a 
hearing not more than 10 days after the date of action.
    (b) The reinstated services must continue until a hearing decision 
unless, at the hearing, it is determined that the sole issue is one of 
Federal or State law or policy.
    (c) The agency must reinstate and continue services until a decision 
is rendered after a hearing if--
    (1) Action is taken without the advance notice required under Sec. 
431.211 or Sec. 431.214 of this subpart;
    (2) The recipient requests a hearing within 10 days of the mailing 
of the notice of action; and
    (3) The agency determines that the action resulted from other than 
the application of Federal or State law or policy.
    (d) If a recipient's whereabouts are unknown, as indicated by the 
return of unforwardable agency mail directed to him, any discontinued 
services must be reinstated if his whereabouts become known during the 
time he is eligible for services.



Sec. 431.232  Adverse decision of local evidentiary hearing.

    If the decision of a local evidentiary hearing is adverse to the 
applicant or recipient, the agency must--
    (a) Inform the applicant or recipient of the decision;
    (b) Inform the applicant or recipient that he has the right to 
appeal the decision to the State agency, in writing, within 15 days of 
the mailing of the notice of the adverse decision;
    (c) Inform the applicant or recipient of his right to request that 
his appeal be a de novo hearing; and
    (d) Discontinue services after the adverse decision.



Sec. 431.233  State agency hearing after adverse decision of local evidentiary hearing.

    (a) Unless the applicant or recipient specifically requests a de 
novo hearing, the State agency hearing may consist of a review by the 
agency hearing officer of the record of the local evidentiary hearing to 
determine whether the decision of the local hearing officer was 
supported by substantial evidence in the record.
    (b) A person who participates in the local decision being appealed 
may not participate in the State agency hearing decision.



Sec. 431.240  Conducting the hearing.

    (a) All hearings must be conducted--
    (1) At a reasonable time, date, and place;
    (2) Only after adequate written notice of the hearing; and
    (3) By one or more impartial officials or other individuals who have 
not been directly involved in the initial determination of the action in 
question.
    (b) If the hearing involves medical issues such as those concerning 
a diagnosis, an examining physician's report, or a medical review team's 
decision, and if the hearing officer considers it necessary to have a 
medical assessment other than that of the individual involved in making 
the original decision, such a medical assessment must be obtained at 
agency expense and made part of the record.



Sec. 431.241  Matters to be considered at the hearing.

    The hearing must cover--
    (a) Agency action or failure to act with reasonable promptness on a 
claim for services, including both initial and subsequent decisions 
regarding eligibility;
    (b) Agency decisions regarding changes in the type or amount of 
services;
    (c) A decision by a skilled nursing facility or nursing facility to 
transfer or discharge a resident; and
    (d) A State determination with regard to the preadmission screening 
and annual resident review requirements of section 1919(e)(7) of the 
Act.

[57 FR 56505, Nov. 30, 1992]



Sec. 431.242  Procedural rights of the applicant or recipient.

    The applicant or recipient, or his representative, must be given an 
opportunity to--

[[Page 39]]

    (a) Examine at a reasonable time before the date of the hearing and 
during the hearing:
    (1) The content of the applicant's or recipient's case file; and
    (2) All documents and records to be used by the State or local 
agency or the skilled nursing facility or nursing facility at the 
hearing;
    (b) Bring witnesses;
    (c) Establish all pertinent facts and circumstances;
    (d) Present an argument without undue interference; and
    (e) Question or refute any testimony or evidence, including 
opportunity to confront and cross-examine adverse witnesses.

[44 FR 17932, Mar. 29, 1979, as amended at 57 FR 56506, Nov. 30, 1992]



Sec. 431.243  Parties in cases involving an eligibility determination.

    If the hearing involves an issue of eligibility and the Medicaid 
agency is not responsible for eligibility determinations, the agency 
that is responsible for determining eligibility must participate in the 
hearing.



Sec. 431.244  Hearing decisions.

    (a) Hearing recommendations or decisions must be based exclusively 
on evidence introduced at the hearing.
    (b) The record must consist only of--
    (1) The transcript or recording of testimony and exhibits, or an 
official report containing the substance of what happened at the 
hearing;
    (2) All papers and requests filed in the proceeding; and
    (3) The recommendation or decision of the hearing officer.
    (c) The applicant or recipient must have access to the record at a 
convenient place and time.
    (d) In any evidentiary hearing, the decision must be a written one 
that--
    (1) Summarizes the facts; and
    (2) Identifies the regulations supporting the decision.
    (e) In a de novo hearing, the decision must--
    (1) Specify the reasons for the decision; and
    (2) Identify the supporting evidence and regulations.
    (f) The agency must take final administrative action as follows:
    (1) Ordinarily, within 90 days from the earlier of the following:
    (i) The date the enrollee filed an MCO or PIHP appeal, not including 
the number of days the enrollee took to subsequently file for a State 
fair hearing; or
    (ii) If permitted by the State, the date the enrollee filed for 
direct access to a State fair hearing.
    (2) As expeditiously as the enrollee's health condition requires, 
but no later than 3 working days after the agency receives, from the MCO 
or PIHP, the case file and information for any appeal of a denial of a 
service that, as indicated by the MCO or PIHP--
    (i) Meets the criteria for expedited resolution as set forth in 
Sec. 438.410(a) of this chapter, but was not resolved within the 
timeframe for expedited resolution; or
    (ii) Was resolved within the timeframe for expedited resolution, but 
reached a decision wholly or partially adverse to the enrollee.
    (3) If the State agency permits direct access to a State fair 
hearing, as expeditiously as the enrollee's health condition requires, 
but no later than 3 working days after the agency receives, directly 
from an MCO or PIHP enrollee, a fair hearing request on a decision to 
deny a service that it determines meets the criteria for expedited 
resolution, as set forth in Sec. 438.410(a) of this chapter.
    (g) The public must have access to all agency hearing decisions, 
subject to the requirements of subpart F of this part for safeguarding 
of information.

[44 FR 17932, Mar. 29, 1979, as amended at 67 FR 41095, June 14, 2002]



Sec. 431.245  Notifying the applicant or recipient of a State agency decision.

    The agency must notify the applicant or recipient in writing of--
    (a) The decision; and
    (b) His right to request a State agency hearing or seek judicial 
review, to the extent that either is available to him.



Sec. 431.246  Corrective action.

    The agency must promptly make corrective payments, retroactive to 
the date an incorrect action was taken, and, if appropriate, provide for 
admission or readmission of an individual to a facility if--

[[Page 40]]

    (a) The hearing decision is favorable to the applicant or recipient; 
or
    (b) The agency decides in the applicant's or recipient's favor 
before the hearing.

[57 FR 56506, Nov. 30, 1992]

                     Federal Financial Participation



Sec. 431.250  Federal financial participation.

    FFP is available in expenditures for--
    (a) Payments for services continued pending a hearing decision;
    (b) Payments made--
    (1) To carry out hearing decisions; and
    (2) For services provided within the scope of the Federal Medicaid 
program and made under a court order.
    (c) Payments made to take corrective action prior to a hearing;
    (d) Payments made to extend the benefit of a hearing decision or 
court order to individuals in the same situation as those directly 
affected by the decision or order;
    (e) Retroactive payments under paragraphs (b), (c), and (d) of this 
section in accordance with applicable Federal policies on corrective 
payments; and
    (f) Administrative costs incurred by the agency for--
    (1) Transportation for the applicant or recipient, his 
representative, and witnesses to and from the hearing;
    (2) Meeting other expenses of the applicant or recipient in 
connection with the hearing;
    (3) Carrying out the hearing procedures, including expenses of 
obtaining the additional medical assessment specified in Sec. 431.240 
of this subpart; and
    (4) Hearing procedures for Medicaid and non-Medicaid individuals 
appealing transfers, discharges and determinations of preadmission 
screening and annual resident reviews under part 483, subparts C and E 
of this chapter.

[44 FR 17932, Mar. 29, 1979, as amended at 45 FR 24882, Apr. 11, 1980; 
57 FR 56506, Nov. 30, 1992]



     Subpart F_Safeguarding Information on Applicants and Recipients

    Source: 44 FR 17934, Mar. 29, 1979, unless otherwise noted.



Sec. 431.300  Basis and purpose.

    (a) Section 1902(a)(7) of the Act requires that a State plan must 
provide safeguards that restrict the use or disclosure of information 
concerning applicants and recipients to purposes directly connected with 
the administration of the plan. This subpart specifies State plan 
requirements, the types of information to be safeguarded, the conditions 
for release of safeguarded information, and restrictions on the 
distribution of other information.
    (b) Section 1137 of the Act, which requires agencies to exchange 
information in order to verify the income and eligibility of applicants 
and recipients (see Sec. 435.940ff), requires State agencies to have 
adequate safeguards to assure that--
    (1) Information exchanged by the State agencies is made available 
only to the extent necessary to assist in the valid administrative needs 
of the program receiving the information, and information received under 
section 6103(l) of the Internal Revenue Code of 1954 is exchanged only 
with agencies authorized to receive that information under that section 
of the Code; and
    (2) The information is adequately stored and processed so that it is 
protected against unauthorized disclosure for other purposes.

[51 FR 7210, Feb. 28, 1986]



Sec. 431.301  State plan requirements.

    A State plan must provide, under a State statute that imposes legal 
sanctions, safeguards meeting the requirements of this subpart that 
restrict the use or disclosure of information concerning applicants and 
recipients to purposes directly connected with the administration of the 
plan.



Sec. 431.302  Purposes directly related to State plan administration.

    Purposes directly related to plan administration include--
    (a) Establishing eligibility;

[[Page 41]]

    (b) Determining the amount of medical assistance;
    (c) Providing services for recipients; and
    (d) Conducting or assisting an investigation, prosecution, or civil 
or criminal proceeding related to the administration of the plan.



Sec. 431.303  State authority for safeguarding information.

    The Medicaid agency must have authority to implement and enforce the 
provisions specified in this subpart for safeguarding information about 
applicants and recipients.



Sec. 431.304  Publicizing safeguarding requirements.

    (a) The agency must publicize provisions governing the confidential 
nature of information about applicants and recipients, including the 
legal sanctions imposed for improper disclosure and use.
    (b) The agency must provide copies of these provisions to applicants 
and recipients and to other persons and agencies to whom information is 
disclosed.



Sec. 431.305  Types of information to be safeguarded.

    (a) The agency must have criteria that govern the types of 
information about applicants and recipients that are safeguarded.
    (b) This information must include at least--
    (1) Names and addresses;
    (2) Medical services provided;
    (3) Social and economic conditions or circumstances;
    (4) Agency evaluation of personal information;
    (5) Medical data, including diagnosis and past history of disease or 
disability; and
    (6) Any information received for verifying income eligibility and 
amount of medical assistance payments (see Sec. 435.940ff). Income 
information received from SSA or the Internal Revenue Service must be 
safeguarded according to the requirements of the agency that furnished 
the data.
    (7) Any information received in connection with the identification 
of legally liable third party resources under Sec. 433.138 of this 
chapter.

[44 FR 17934, Mar. 29, 1979, as amended at 51 FR 7210, Feb. 28, 1986; 52 
FR 5975, Feb. 27, 1987]



Sec. 431.306  Release of information.

    (a) The agency must have criteria specifying the conditions for 
release and use of information about applicants and recipients.
    (b) Access to information concerning applicants or recipients must 
be restricted to persons or agency representatives who are subject to 
standards of confidentiality that are comparable to those of the agency.
    (c) The agency must not publish names of applicants or recipients.
    (d) The agency must obtain permission from a family or individual, 
whenever possible, before responding to a request for information from 
an outside source, unless the information is to be used to verify 
income, eligibility and the amount of medical assistance payment under 
section 1137 of this Act and Sec. Sec. 435.940 through 435.965 of this 
chapter.

If, because of an emergency situation, time does not permit obtaining 
consent before release, the agency must notify the family or individual 
immediately after supplying the information.
    (e) The agency's policies must apply to all requests for information 
from outside sources, including governmental bodies, the courts, or law 
enforcement officials.
    (f) If a court issues a subpoena for a case record or for any agency 
representative to testify concerning an applicant or recipient, the 
agency must inform the court of the applicable statutory provisions, 
policies, and regulations restricting disclosure of information.
    (g) Before requesting information from, or releasing information to, 
other agencies to verify income, eligibility and the amount of 
assistance under Sec. Sec. 435.940 through 435.965 of this chapter, the 
agency must execute data exchange agreements with those agencies, as 
specified in Sec. 435.945(f).
    (h) Before requesting information from, or releasing information to, 
other agencies to identify legally liable third party resources under 
Sec. 433.138(d)

[[Page 42]]

of this chapter, the agency must execute data exchanges agreements, as 
specified in Sec. 433.138(h)(2) of this chapter.

[44 FR 17934, Mar. 29, 1979, as amended at 51 FR 7210, Feb. 28, 1986; 52 
FR 5975, Feb. 27, 1987]



Sec. 431.307  Distribution of information materials.

    (a) All materials distributed to applicants, recipients, or medical 
providers must--
    (1) Directly relate to the administration of the Medicaid program;
    (2) Have no political implications except to the extent required to 
implement the National Voter Registration Act of 1993 (NVRA) Pub. L. 
103-931; for States that are exempt from the requirements of NVRA, voter 
registration may be a voluntary activity so long as the provisions of 
section 7(a)(5) of NVRA are observed;
    (3) Contain the names only of individuals directly connected with 
the administration of the plan; and
    (4) Identify those individuals only in their official capacity with 
the State or local agency.
    (b) The agency must not distribute materials such as ``holiday'' 
greetings, general public announcements, partisan voting information and 
alien registration notices.
    (c) The agency may distribute materials directly related to the 
health and welfare of applicants and recipients, such as announcements 
of free medical examinations, availability of surplus food, and consumer 
protection information.
    (d) Under NVRA, the agency must distribute voter information and 
registration materials as specified in NVRA.

[44 FR 17934, Mar. 29, 1979, as amended at 61 FR 58143, Nov. 13, 1996]

Subparts G-L [Reserved]



                 Subpart M_Relations With Other Agencies



Sec. 431.610  Relations with standard-setting and survey agencies.

    (a) Basis and purpose. This section implements--
    (1) Section 1902(a)(9) of the Act, concerning the designation of 
State authorities to be responsible for establishing and maintaining 
health and other standards for institutions participating in Medicaid; 
and
    (2) Section 1902(a)(33) of the Act, concerning the designation of 
the State licensing agency to be responsible for determining whether 
institutions and agencies meet requirements for participation in the 
State's Medicaid program.
    (3) Section 1919(g)(1)(A) of the Act, concerning responsibilities of 
the State for certifying the compliance of non-State operated NFs with 
requirements of participation in the State's Medicaid program.
    (b) Designated agency responsible for health standards. A State plan 
must designate, as the State authority responsible for establishing and 
maintaining health standards for private or public institutions that 
provide services to Medicaid recipients, the same State agency that is 
used by the Secretary to determine qualifications of institutions and 
suppliers of services to participate in Medicare (see 42 CFR 405.1902). 
The requirement for establishing and maintaining standards does not 
apply with respect to religious nonmedical institutions as defined in 
Sec. 440.170(b) of this chapter.
    (c) Designated agency responsible for standards other than health 
standards. The plan must designate the Medicaid agency or other 
appropriate State authority or authorities to be responsible for 
establishing and maintaining standards, other than those relating to 
health, for private or public institutions that provide services to 
Medicaid recipients.
    (d) Description and retention of standards. (1) The plan must 
describe the standards established under paragraphs (b) and (c) of this 
section.
    (2) The plan must provide that the Medicaid agency keeps these 
standards on file and makes them available to the Administrator upon 
request.
    (e) Designation of survey agency. The plan must provide that--
    (1) The agency designated in paragraph (b) of this section, or 
another State agency responsible for licensing

[[Page 43]]

health institutions in the State, determines for the Medicaid agency 
whether institutions and agencies meet the requirements for 
participation in the Medicaid program; and
    (2) The agency staff making the determination under paragraph (e)(1) 
of this section is the same staff responsible for making similar 
determinations for institutions or agencies participating under 
Medicare; and
    (3) The agency designated in paragraph (e)(1) of this section makes 
recommendations regarding the effective dates of provider agreements, as 
determined under Sec. 431.108.
    (f) Written agreement required. The plan must provide for a written 
agreement (or formal written intra-agency arrangement) between the 
Medicaid agency and the survey agency designated under paragraph (e) of 
this section, covering the activities of the survey agency in carrying 
out its responsibilities. The agreement must specify that--
    (1) Federal requirements and the forms, methods and procedures that 
the Administrator designates will be used to determine provider 
eligibility and certification under Medicaid;
    (2) Inspectors surveying the premises of a provider will--
    (i) Complete inspection reports;
    (ii) Note on completed reports whether or not each requirement for 
which an inspection is made is satisfied; and
    (iii) Document deficiencies in reports;
    (3) The survey agency will keep on file all information and reports 
used in determining whether participating facilities meet Federal 
requirements; and
    (4) The survey agency will make the information and reports required 
under paragraph (f)(3) of this section readily accessible to HHS and the 
Medicaid agency as necessary--
    (i) For meeting other requirements under the plan; and
    (ii) For purposes consistent with the Medicaid agency's effective 
administration of the program.
    (g) Responsibilities of survey agency. The plan must provide that, 
in certifying NFs and ICFs/MR, the survey agency designated under 
paragraph (e) of this section will--
    (1) Review and evaluate medical and independent professional review 
team reports obtained under part 456 of this subchapter as they relate 
to health and safety requirements;
    (2) Have qualified personnel perform on-site inspections 
periodically as appropriate based on the timeframes in the correction 
plan and--
    (i) At least once during each certification period or more 
frequently if there is a compliance question; and
    (ii) For non-State operated NFs, within the timeframes specified in 
Sec. 488.308 of this chapter.
    (3) Have qualified personnel perform on-site inspections--
    (i) At least once during each certification period or more 
frequently if there is a compliance question; and
    (ii) For intermediate care facilities with deficiencies as described 
in Sec. Sec. 442.112 and 442.113 of this subchapter, within 6 months 
after initial correction plan approval and every 6 months thereafter as 
required under those sections.
    (h) FFP for survey responsibilities. (1) FFP is available in 
expenditures that the survey agency makes to carry out its survey and 
certification responsibilities under the agreement specified in 
paragraph (f) of this section.
    (2) FFP is not available in any expenditures that the survey agency 
makes that are attributable to the State's overall responsibilities 
under State law and regulations for establishing and maintaining 
standards.

[43 FR 45188, Sept. 29, 1978, as amended at 45 FR 24883, Apr. 11, 1980; 
53 FR 20494, June 3, 1988; 57 FR 43923, Sept. 23, 1992; 59 FR 56233, 
Nov. 10, 1994; 62 FR 43936, Aug. 18, 1997; 64 FR 67052, Nov. 30, 1999]



Sec. 431.615  Relations with State health and vocational rehabilitation agencies and title V grantees.

    (a) Basis and purpose. This section implements section 1902(a)(11) 
and (22)(C) of the Act, by setting forth State plan requirements for 
arrangements and agreements between the Medicaid agency and--
    (1) State health agencies;
    (2) State vocational rehabilitation agencies; and

[[Page 44]]

    (3) Grantees under title V of the Act, Maternal and Child Health and 
Crippled Children's Services.
    (b) Definitions. For purposes of this section--
    ``Title V grantee'' means the agency, institution, or organization 
receiving Federal payments for part or all of the cost of any service 
program or project authorized by title V of the Act, including--
    (1) Maternal and child health services;
    (2) Crippled children's services;
    (3) Maternal and infant care projects;
    (4) Children and youth projects; and
    (5) Projects for the dental health of children.
    (c) State plan requirements. A state plan must--
    (1) Describe cooperative arrangements with the State agencies that 
administer, or supervise the administration of, health services and 
vocational rehabilitation services designed to make maximum use of these 
services;
    (2) Provide for arrangements with title V grantees, under which the 
Medicaid agency will utilize the grantee to furnish services that are 
included in the State plan;
    (3) Provide that all arrangements under this section meet the 
requirements of paragraph (d) of this section; and
    (4) Provide, if requested by the title V grantee in accordance with 
the arrangements made under this section, that the Medicaid agency 
reimburse the grantee or the provider for the cost of services furnished 
recipients by or through the grantee.
    (d) Content of arrangements. The arrangements referred to in 
paragraph (c) must specify, as appropriate--
    (1) The mutual objectives and responsibilities or each party to the 
arrangement;
    (2) The services each party offers and in what circumstances;
    (3) The cooperative and collaborative relationships at the State 
level;
    (4) The kinds of services to be provided by local agencies; and
    (5) Methods for--
    (i) Early identification of individuals under 21 in need of medical 
or remedial services;
    (ii) Reciprocal referrals;
    (iii) Coordinating plans for health services provided or arranged 
for recipients;
    (iv) Payment or reimbursement;
    (v) Exchange of reports of services furnished to recipients;
    (vi) Periodic review and joint planning for changes in the 
agreements;
    (vii) Continuous liaison between the parties, including designation 
of State and local liaison staff; and
    (viii) Joint evaluation of policies that affect the cooperative work 
of the parties.
    (e) Federal financial participation. FFP is available in 
expenditures for Medicaid services provided to recipients through an 
arrangement under this section.



Sec. 431.620  Agreement with State mental health authority or mental institutions.

    (a) Basis and purpose. This section implements section 
1902(a)(20)(A) of the Act, for States offering Medicaid services in 
institutions for mental diseases for recipients aged 65 or older, by 
specifying the terms of the agreement those States must have with other 
State authorities and institutions. (See part 441, subpart C of this 
chapter for regulations implementing section 1902(a)(20) (B) and (C).)
    (b) Definition. For purposes of this section, an ``institution for 
mental diseases'' means an institution primarily engaged in providing 
diagnosis, treatment, or care of persons with mental diseases. This 
includes medical attention, nursing care, and related services.
    (c) State plan requirement. A State plan that includes Medicaid for 
persons aged 65 or older in institutions for mental diseases must 
provide that the Medicaid agency has in effect a written agreement 
with--
    (1) The State authority or authorities concerned with mental 
diseases; and
    (2) Any institution for mental diseases that is not under the 
jurisdiction of those State authorities, and that provides services 
under Medicaid to recipients aged 65 or older.
    (d) Provisions required in an agreement. The agreement must specify 
the respective responsibilities of the agency

[[Page 45]]

and the authority or institution, including arrangements for--
    (1) Joint planning between the parties to the agreement;
    (2) Development of alternative methods of care;
    (3) Immediate readmission to an institution when needed by a 
recipient who is in alternative care;
    (4) Access by the agency to the institution, the recipient, and the 
recipient's records when necessary to carry out the agency's 
responsibilities;
    (5) Recording, reporting, and exchanging medical and social 
information about recipients; and
    (6) Other procedures needed to carry out the agreement.

[44 FR 17935, Mar. 23, 1979]



Sec. 431.621  State requirements with respect to nursing facilities.

    (a) Basis and purpose. This section implements sections 
1919(b)(3)(F) and 1919(e)(7) of the Act by specifying the terms of the 
agreement the State must have with the State mental health and mental 
retardation authorities concerning the operation of the State's 
preadmission screening and annual resident review (PASARR) program.
    (b) State plan requirement. The State plan must provide that the 
Medicaid agency has in effect a written agreement with the State mental 
health and mental retardation authorities that meets the requirements 
specified in paragraph (c) of this section.
    (c) Provisions required in an agreement. The agreement must specify 
the respective responsibilities of the agency and the State mental 
health and mental retardation authorities, including arrangements for)--
(1) Joint planning between the parties to the agreement;
    (2) Access by the agency to the State mental health and mental 
retardation authorities' records when necessary to carry out the 
agency's responsibilities;
    (3) Recording, reporting, and exchanging medical and social 
information about individuals subject to PASARR;
    (4) Ensuring that preadmission screenings and annual resident 
reviews are performed timely in accordance with Sec. Sec. 483.112(c) 
and 483.114(c) of this part;
    (5) Ensuring that, if the State mental health and mental retardation 
authorities delegate their respective responsibilities, these 
delegations comply with Sec. 483.106(e) of this part;
    (6) Ensuring that PASARR determinations made by the State mental 
health and mental retardation authorities are not countermanded by the 
State Medicaid agency, except through the appeals process, but that the 
State mental health and mental retardation authorities do not use 
criteria which are inconsistent with those adopted by the State Medicaid 
agency under its approved State plan;
    (7) Designating the independent person or entity who performs the 
PASARR evaluations for individuals with MI; and
    (8) Ensuring that all requirements of Sec. Sec. 483.100 through 
483.136 are met.

[57 FR 56506, Nov. 30, 1992; 58 FR 25784, Apr. 28, 1993]



Sec. 431.625  Coordination of Medicaid with Medicare part B.

    (a) Basis and purpose. (1) Section 1843(a) of the Act requires the 
Secretary to have entered into an agreement with any State that 
requested that agreement before January 1, 1970, or during calendar year 
1981, under which the State could enroll certain Medicare-eligible 
recipients under Medicare Part B and agree to pay their premiums.
    (2) Section 1902(a)(10) of the Act (in clause (II) following 
subparagraph (D)), allows the State to pay the premium, deductibles, 
cost sharing, and other charges for recipients enrolled under Medicare 
Part B without obligating itself to provide the range of Part B benefits 
to other recipients; and
    (3) Section 1903 (a)(1) and (b) of the Act authorizes FFP for State 
payment of Medicare Part B premiums for certain recipients.
    (4) This section--
    (i) Specifies the exception, relating to Part B coverage, from the 
requirement to provide comparable services to all recipients; and
    (ii) Prescribes FFP rules concerning State payment for Medicare 
premiums and for services that could have been covered under Medicare.

[[Page 46]]

    (5) Section 1902(a)(15) of the Act requires that if a State chooses 
to pay only a portion of deductibles, cost sharing or other charges for 
recipients enrolled under Medicare Part B, the portion that is to be 
paid by a Medicaid recipient must be reasonably related to the 
recipient's income and resources.
    (b) Exception from obligation to provide comparable services; State 
plan requirement. (1) The State's payment of premiums, deductibles, cost 
sharing, or similar charges under Part B does not obligate it to provide 
the full range of Part B services to recipients not covered by Medicare.
    (2) The State plan must specify this exception if it applies.
    (c) Effect of payment of premiums on State liability for cost 
sharing. (1) State payment of Part B premiums on behalf of a Medicaid 
recipient does not obligate it to pay on the recipient's behalf the Part 
B deductible and coinsurance amounts for those Medicare Part B services 
not covered in the Medicaid State plan.
    (2) If a State pays on a recipient's behalf any portion of the 
deductible or cost sharing amounts under Medicare Part B, the portion 
paid by a State must be reasonably related to the recipient's income and 
resources.
    (d) Federal financial participation: Medicare Part B premiums--(1) 
Basic rule. Except as provided in paragraph (d)(2) of this section, FFP 
is not available in State expenditures for Medicare Part B premiums for 
Medicaid recipients unless the recipients receive money payments under 
title I, IV-A, X, XIV, XVI (AABD or SSI) of the Act, or State 
supplements as permitted under section 1616(a) of the Act, or as 
required by section 212 of Pub. L. 93-66.
    (2) Exception. FFP is available in expenditures for Medicare Part B 
premiums for the following groups:
    (i) AFDC families required to be covered under Sec. Sec. 435.112 
and 436.116 of this subchapter, those eligible for continued Medicaid 
coverage despite increased income from employment;
    (ii) Recipients required to be covered under Sec. Sec. 435.114, 
435.134, and 436.112 of this subchapter, those eligible for continued 
Medicaid coverage despite increased income from monthly insurance 
benefits under title II of the Act;
    (iii) Recipients required to be covered under Sec. 435.135 of this 
subchapter, those eligible for continued Medicaid coverage despite 
increased income from cost-of-living increases under title II of the 
Act;
    (iv) Recipients of foster care maintenance payments or adoption 
assistance payments who, under Part E of title IV of the Act are 
considered as receiving AFDC;
    (v) Individuals required to be covered under Sec. 435.120 of this 
chapter, that is, blind or disabled individuals who, under section 
1619(b) of the Act, are considered to be receiving SSI;
    (vi) Individuals who, in accordance with Sec. Sec. 435.115 and 
436.114 of this chapter are, for purposes of Medicaid eligibility, 
considered to be receiving AFDC. These are participants in a work 
supplementation program, or individuals denied AFDC because the payment 
would be less than $10;
    (vii) Certain recipients of Veterans Administration pensions during 
the limited time they are, under section 310(b) of Pub. L. 96-272, 
considered as receiving SSI, mandatory State supplements, or AFDC;
    (viii) Disabled children living at home to whom the State provides 
Medicaid under section 1902(e)(3) of the Act;
    (ix) Individuals who become ineligible for AFDC because of the 
collection or increased collection of child or spousal support, but, in 
accordance with section 406(h) of the Act, remain eligible for Medicaid 
for four more months; and
    (x) Individuals who become ineligible for AFDC because they are no 
longer eligible for the disregard of earnings of $30 or of $30 plus one-
third of the remainder, but, in accordance with section 402(a)(37) of 
the Act, are considered as receiving AFDC for a period of 9 to 15 
months.
    (3) No FFP is available in State Medicaid expenditures that could 
have been paid for under Medicare Part B but were not because the person 
was not enrolled in Part B. This limit applies to all recipients 
eligible for enrollment under Part B, whether individually or through an 
agreement under section 1843(a) of the Act. However, FFP is available in 
expenditures required by

[[Page 47]]

Sec. Sec. 435.914 and 436.901 of this subchapter for retroactive 
coverage of recipients.

[43 FR 45188, Sept. 29, 1978, as amended at 44 FR 17935, Mar. 23, 1979; 
52 FR 47933, Dec. 17, 1987; 53 FR 657, Jan. 11, 1988]



Sec. 431.630  Coordination of Medicaid with QIOs.

    (a) The State plan may provide for the review of Medicaid services 
through a contract with a QIO designated under Part 462 of this chapter. 
Medicaid requirements for medical and utilization review are deemed to 
be met for those services or providers subject to review under the 
contract.
    (b) The State plan must provide that the contract with the QIO--
    (1) Meets the requirements of Sec. 434.6(a) of this part;
    (2) Includes a monitoring and evaluation plan by which the State 
ensures satisfactory performance by the QIO;
    (3) Identifies the services and providers subject to QIO review;
    (4) Ensures that the review activities performed by the QIO are not 
inconsistent with QIO review activities of Medicare services and 
includes a description of whether and to what extent QIO determinations 
will be considered conclusive for Medicaid payment purposes.

[50 FR 15327, Apr. 17, 1985]



Sec. 431.635  Coordination of Medicaid with Special Supplemental Food Program for Women, Infants, and Children (WIC).

    (a) Basis. This section implements sections 1902(a)(11)(C) and 
1902(a) (53) of the Act, which provide for coordination of Medicaid with 
the Special Supplemental Food Program for Women, Infants, and Children 
(WIC) under section 17 of the Child Nutrition Act of 1966.
    (b) Definitions. As used in this section, the terms breastfeeding 
women, postpartum women, and pregnant women mean women as defined in 
section 17 of the Child Nutrition Act of 1966 (42 U.S.C. 1786(b)).
    (c) State plan requirements. A State Plan must provide for--
    (1) Coordinating operation of the Medicaid program with the State's 
operation of the Special Supplemental Food Program for Women, Infants, 
and Children;
    (2) Providing timely written notice of the availability of WIC 
benefits to all individuals in the State who are determined to be 
eligible (including presumptively eligible) for Medicaid and who are:
    (i) Pregnant women;
    (ii) Postpartum women;
    (iii) Breastfeeding women; and
    (iv) Children under the age of 5.
    (3) Referring individuals described under paragraphs (c)(2) (i) 
through (iv) of this section to the local agency responsible for 
administering the WIC program.
    (d) Notification requirements. (1) The agency must give the written 
notice required under paragraph (c) of this section as soon as the 
agency identifies the individual (e.g., at the time of an eligibility 
determination for Medicaid) or immediately thereafter (e.g., at the time 
of notice of eligibility).
    (2) The agency, no less frequently than annually, must also provide 
written notice of the availability of WIC benefits, including the 
location and telephone number of the local WIC agency or instructions 
for obtaining further information about the WIC program, to all Medicaid 
recipients (including those found to be presumptively eligible) who are 
under age 5 or who are women who might be pregnant, postpartum, or 
breastfeeding as described in paragraphs (c)(2) (i) through (iv) of this 
section.
    (3) The agency must effectively inform those individuals who are 
blind or deaf or who cannot read or understand the English language.

[57 FR 28103, June 24, 1992]



Sec. 431.636  Coordination of Medicaid with the State Children's Health Insurance Program (SCHIP).

    (a) Statutory basis. This section implements--
    (1) Section 2102(b)(3)(B) of the Act, which provides that children 
who apply for coverage under a separate child health plan under title 
XXI, but are found to be eligible for medical assistance under the State 
Medicaid plan, must be enrolled in the State Medicaid plan; and
    (2) Section 2102(c)(2) of the Act, which requires coordination 
between a

[[Page 48]]

State child health program and other public health insurance programs.
    (b) Obligations of State Medicaid Agency. The State Medicaid agency 
must adopt procedures to facilitate the Medicaid application process 
for, and the enrollment of children for whom the Medicaid application 
and enrollment process has been initiated in accordance with Sec. 
457.350(f) of this chapter. The procedures must ensure that--
    (1) The applicant is not required to provide information or 
documentation that has been provided to the State agency responsible for 
determining eligibility under a separate child health program under 
title XXI and forwarded by such agency to the Medicaid agency on behalf 
of the child in accordance with Sec. 457.350(f) of this chapter;
    (2) Eligibility is determined in a timely manner in accordance with 
Sec. 435.911 of this chapter;
    (3) The Medicaid agency promptly notifies the State agency 
responsible for determining eligibility under a separate child health 
program when a child who was screened as potentially eligible for 
Medicaid is determined ineligible or eligible for Medicaid; and
    (4) The Medicaid agency adopts a process that facilitates enrollment 
in a State child health program when a child is determined ineligible 
for Medicaid at initial application or redetermination.

[66 FR 2666, Jan. 11, 2001]



   Subpart N_State Programs for Licensing Nursing Home Administrators



Sec. 431.700  Basis and purpose.

    This subpart implements sections 1903(a)(29) and 1908 of the Act 
which require that the State plan include a State program for licensing 
nursing home administrators.



Sec. 431.701  Definitions.

    Unless otherwise indicated, the following definitions apply for 
purposes of this subpart:
    Agency means the State agency responsible for licensing individual 
practitioners under the State's healing arts licensing act.
    Board means an appointed State board established to carry out a 
State program for licensing administrators of nursing homes, in a State 
that does not have a healing arts licensing act or an agency as defined 
in this section.
    Licensed means certified by a State agency or board as meeting all 
of the requirements for a licensed nursing home administrator specified 
in this subpart.
    Nursing home means any institution, facility, or distinct part of a 
hospital that is licensed or formally recognized as meeting nursing home 
standards established under State law, or that is determined under Sec. 
431.704 to be included under the requirements of this subpart. The term 
does not include--
    (a) A religious nonmedical institution as defined in Sec. 
440.170(b) of this chapter; or
    (b) A distinct part of a hospital, if the hospital meets the 
definition in Sec. 440.10 or Sec. 440.140 of this subchapter, and the 
distinct part is not licensed separately or formally approved as a 
nursing home by the State even though it is designated or certified as a 
skilled nursing facility.
    Nursing home administrator means any person who is in charge of the 
general administration of a nursing home whether or not the person--
    (a) Has an ownership interest in the home; or
    (b) Shares his functions and duties with one or more other persons.

[43 FR 45188, Sept. 29, 1978, as amended at 64 FR 67052, Nov. 30, 1999]



Sec. 431.702  State plan requirement.

    A State plan must provide that the State has a program for licensing 
administrators of nursing homes that meets the requirements of 
Sec. Sec. 431.703 through 431.713 of this subpart.



Sec. 431.703  Licensing requirement.

    The State licensing program must provide that only nursing homes 
supervised by an administrator licensed in accordance with the 
requirements of this subpart may operate in the State.

[[Page 49]]



Sec. 431.704  Nursing homes designated by other terms.

    If a State licensing law does not use the term ``nursing home,'' the 
CMS Administrator will determine the term or terms equivalent to 
``nursing home'' for purposes of applying the requirements of this 
subpart. To obtain this determination, the Medicaid agency must submit 
to the Regional Medicaid Director copies of current State laws that 
define institutional health care facilities for licensing purposes.



Sec. 431.705  Licensing authority.

    (a) The State licensing program must provide for licensing of 
nursing home administrators by--
    (1) The agency designated under the healing arts act of the State; 
or
    (2) A State licensing board.
    (b) The State agency or board must perform the functions and duties 
specified in Sec. Sec. 431.707 through 431.713 and the board must meet 
the membership requirements specified in Sec. 431.706 of this subpart.



Sec. 431.706  Composition of licensing board.

    (a) The board must be composed of persons representing professions 
and institutions concerned with the care and treatment of chronically 
ill or infirm elderly patients. However--
    (1) A majority of the board members may not be representative of a 
single profession or category of institution; and
    (2) Members not representative of institutions may not have a direct 
financial interest in any nursing home.
    (b) For purposes of this section, nursing home administrators are 
considered representatives of institutions.



Sec. 431.707  Standards.

    (a) The agency or board must develop, impose, and enforce standards 
that must be met by individuals in order to be licensed as a nursing 
home administrator.
    (b) The standards must be designed to insure that nursing home 
administrators are--
    (1) Of good character;
    (2) Otherwise suitable; and
    (3) Qualified to serve because of training or experience in 
institutional administration.



Sec. 431.708  Procedures for applying standards.

    The agency or board must develop and apply appropriate procedures 
and techniques, including examinations and investigations, for 
determining if a person meets the licensing standards.



Sec. 431.709  Issuance and revocation of license.

    Except as provided in Sec. 431.714 of this subpart, the agency or 
board must--
    (a) Issue licenses to persons who meet the agency's or board's 
standards; and
    (b) Revoke or suspend a license if the agency or board determines 
that the person holding the license substantially fails to meet the 
standards.



Sec. 431.710  Provisional licenses.

    To fill a position of nursing home administrator that unexpectedly 
becomes vacant, the agency or board may issue one provisional license, 
for a single period not to exceed 6 months. The license may be issued to 
a person who does not meet all of the licensing requirements established 
under Sec. 431.707 but who--
    (a) Is of good character and otherwise suitable; and
    (b) Meets any other standards established for provisional licensure 
by the agency or board.



Sec. 431.711  Compliance with standards.

    The agency or board must establish and carry out procedures to 
insure that licensed administrators comply with the standards in this 
subpart when they serve as nursing home administrators.



Sec. 431.712  Failure to comply with standards.

    The agency or board must investigate and act on all complaints it 
receives of violations of standards.



Sec. 431.713  Continuing study and investigation.

    The agency or board must conduct a continuing study of nursing homes 
and

[[Page 50]]

administrators within the State to improve--
    (a) Licensing standards; and
    (b) The procedures and methods for enforcing the standards.



Sec. 431.714  Waivers.

    The agency or board may waive any standards developed under Sec. 
431.707 of this subpart for any person who has served in the capacity of 
a nursing home administrator during all of the 3 calendar years 
immediately preceding the calendar year in which the State first meets 
the requirements in this subpart.



Sec. 431.715  Federal financial participation.

    No FFP is available in expenditures by the licensing board for 
establishing and maintaining standards for the licensing of nursing home 
administrators.

Subpart O [Reserved]



                        Subpart P_Quality Control

                           General Provisions

    Source: Sections 431.800 through 431.808 appear at 55 FR 22166, May 
31, 1990, unless otherwise noted.



Sec. 431.800  Scope of subpart.

    This subpart--
    (a) Establishes State plan requirements for a Medicaid eligibility 
quality control (MEQC) program designed to reduce erroneous expenditures 
by monitoring eligibility determinations and a claims processing 
assessment system that monitors claims processing operations.
    (b) Establishes rules and procedures for disallowing Federal 
financial participation (FFP) in erroneous Medicaid payments due to 
eligibility and recipient liability errors as detected through the MEQC 
program.



Sec. 431.802  Basis.

    This subpart implements the following sections of the Act, which 
establish requirements for State plans and for payment of Federal 
financial participation (FFP) to States:

    1902(a)(4) Administrative methods for proper and efficient operation 
of the State plan.
    1903(u) Limitation of FFP for erroneous medical assistance 
expenditures.



Sec. 431.804  Definitions.

    As used in this subpart--
    Active case means an individual or family determined to be currently 
authorized as eligible for Medicaid by the agency.
    Administrative period means the period of time recognized by the 
MEQC program for State agencies to reflect changes in case 
circumstances, i.e., a change in a common program area, during which no 
case error based on the circumstance change would be cited. This period 
consists of the review month and the month prior to the review month.
    Claims processing error means FFP has been claimed for a Medicaid 
payment that was made--
    (1) For a service not authorized under the State plan;
    (2) To a provider not certified for participation in the Medicaid 
program;
    (3) For a service already paid for by Medicaid; or
    (4) In an amount above the allowable reimbursement level for that 
service.
    Eligibility error means that Medicaid coverage has been authorized 
or payment has been made for a recipient or family under review who--
    (1) Was ineligible when authorized or when he received services; or
    (2) Was eligible for Medicaid but was ineligible for certain 
services he received; or
    (3) Had not met recipient liability requirements when authorized 
eligible for Medicaid; that is, he had not incurred medical expenses 
equal to the amount of his excess income over the State's financial 
eligibility level or he had incurred medical expenses that exceeded the 
amount of excess income over the State's financial eligibility level, or 
was making an incorrect amount of payment toward the cost of services.
    Negative case action means an action that was taken to deny or 
otherwise dispose of a Medicaid application without a determination of 
eligibility (for instance, because the application was withdrawn or 
abandoned) or an action

[[Page 51]]

to deny, suspend, or terminate an individual or family.
    State agency means either the State Medicaid agency or a State 
agency that is responsible for determining eligibility for Medicaid.



Sec. 431.806  State plan requirements.

    (a) MEQC program. A State plan must provide for operating a Medicaid 
eligibility quality control program that meets the requirements of 
Sec. Sec. 431.810 through 431.822 of this subpart.
    (b) Claims processing assessment system. Except in a State that has 
an approved Medicaid Management Information System (MMIS) under subpart 
C of part 433 of this subchapter, a State plan must provide for 
operating a Medicaid quality control claims processing assessment system 
that meets the requirements of Sec. Sec. 431.830 through 431.836 of 
this subpart.



Sec. 431.808  Protection of recipient rights.

    Any individual performing activities under the MEQC program or the 
claims processing assessment system specified in this subpart must do so 
in a manner that is consistent with the provisions of Sec. Sec. 435.902 
and 436.901 of this subchapter concerning the rights of recipients.

           Medicaid Eligibility Quality Control (MEQC) Program

    Source: Sections 431.810 through 431.822 appear at 55 FR 22167, May 
31, 1990, unless otherwise noted.



Sec. 431.810  Basic elements of the Medicaid eligibility quality control (MEQC) program.

    (a) General requirements. The agency must operate the MEQC program 
in accordance with this section and Sec. Sec. 431.812 through 431.822 
and other instructions established by CMS.
    (b) Review requirements. The agency must conduct MEQC reviews in 
accordance with the requirements specified in Sec. 431.812 and other 
instructions established by CMS.
    (c) Sampling requirements. The agency must conduct MEQC sampling in 
accordance with the requirements specified in Sec. 431.814 and other 
instructions established by CMS.



Sec. 431.812  Review procedures.

    (a) Active case reviews. (1) Except as provided in paragraph (a)(2) 
of this section, the agency must review all active cases selected from 
the State agency's lists of cases authorized eligible for the review 
month, to determine if the cases were eligible for services during all 
or part of the month under review, and, if appropriate, whether the 
proper amount of recipient liability was computed.
    (2) The agency is not required to conduct reviews of the following 
cases:
    (i) Supplemental Security Income (SSI) recipient cases in States 
with contracts under section 1634 of the Act for determining Medicaid 
eligibility;
    (ii) Foster care and adoption assistance cases under title IV-E of 
the Act found eligible for Medicaid; and
    (iii) Cases under programs that are 100 percent federally funded.
    (b) Negative case reviews. Except as provided in paragraph (c) of 
this section, the agency must review those negative cases selected from 
the State agency's lists of cases that are denied, suspended, or 
terminated in the review month to determine if the reason for the 
denial, suspension, or termination was correct and if requirements for 
timely notice of negative action were met. A State's negative case 
sample size is determined on the basis of the number of negative case 
actions in the universe.
    (c) Alternate systems of negative case reviews--(1) Basic provision. 
A State may be exempt from the negative case review requirements 
specified in paragraphs (b) and (e)(2) of this section and in Sec. 
431.814(d) upon CMS's approval of a plan for the use of a superior 
system.
    (2) Submittal of plan for alternate system. An agency must submit 
its plan for the use of a superior system to CMS for approval at least 
60 days before the beginning of the review period in which it is to be 
implemented. If a plan is unchanged from a previous period, the agency 
is not required to resubmit it.

The agency must receive approval for a plan before it can be 
implemented.
    (3) Requirement for alternate system. To be approved, the State's 
plan must--

[[Page 52]]

    (i) Clearly define the purpose of the system and demonstrate how the 
system is superior to the current negative case review requirements.
    (ii) Contain a methodology for identifying significant problem areas 
that could result in erroneous denials, suspensions, and terminations of 
applicants and recipients. Problem areas selected for review must 
contain at least as many applicants and recipients as were included in 
the negative case sample size previously required for the State.
    (iii) Provide a detailed methodology describing how the extent of 
the problem area will be measured through sampling and review 
procedures, the findings expected from the review, and planned 
corrective actions to resolve the problem.
    (iv) Include documentation supporting the use of the system 
methodology. Documentation must include the timeframes under which the 
system will be operated.
    (v) Provide a superior means of monitoring denials, terminations, 
and suspensions than that required under paragraph (b) of this section.
    (vi) Provide a statistically valid error rate that can be projected 
to the universe that is being studied.
    (d) Reviews for erroneous payments. The agency must review all 
claims for services furnished during the review month and paid within 4 
months of the review month to all members of each active case related in 
the sample to identify erroneous payments resulting from--
    (1) Ineligibility for Medicaid;
    (2) Ineligibility for certain Medicaid services; and
    (3) Recipient understated or overstated liability.
    (e) Reviews for verification of eligibility status. The agency must 
collect and verify all information necessary to determine the 
eligibility status of each individual included in an active case 
selected in the sample as of the review month and whether Medicaid 
payments were for services which the individual was eligible to receive.

The agency must apply the administrative period described in Sec. 
431.804 when considering the case circumstances and the case 
correctness. In order to verify eligibility information, the agency 
must--
    (1) Examine and analyze each case record for all cases under review 
to establish what information is available for use in determining 
eligibility in the review month;
    (2) Conduct field investigations including in-person recipient 
interviews for each case in the active case sample, and conduct in-
person interviews only when the correctness of the agency action cannot 
be determined by review of the case record with recipients for cases in 
the negative case action sample (unless this is otherwise addressed in a 
superior system provided for in paragraph (c)(1) of this section);
    (3) Verify all appropriate elements of eligibility for active cases 
through at least one primary source of evidence or two secondary sources 
of evidence as defined by CMS by documentation or by collateral contacts 
as required, or both, and fully record the information on the 
appropriate forms;
    (4) Determine the basis on which eligibility was established and the 
eligibility status of the active case and each case member;
    (5) Collect copies of State paid claims or recipient profiles for 
services delivered during the review month and, if indicated, any months 
prior to the review month in the agency's selected spenddown period, for 
all members of the active case under review;
    (6) Associate dollar values with eligibility status for each active 
case under review; and
    (7) Complete the payment, case, and review information for all 
individuals in the active case under review on the appropriate forms.



Sec. 431.814  Sampling plan and procedures.

    (a) Plan approval. The agency must submit a basic MEQC sampling plan 
(or revisions to a current plan) that meets the requirements of this 
section to the appropriate CMS regional office for approval at least 60 
days before the beginning of the review period in which it is to be 
implemented. If a plan is unchanged from a previous period, the agency 
is not required to resubmit the entire plan. Universe estimates and 
sampling intervals are required 2 weeks

[[Page 53]]

before the first monthly sample selection for each review period. The 
agency must receive approval for a plan before it can be implemented.
    (b) Plan requirements. The agency must have an approved sampling 
plan in effect for the full 6-month sampling period that includes the 
following:
    (1) The population to be sampled;
    (2) The list(s) from which the sample is selected and the following 
characteristics of the list(s):
    (i) Sources;
    (ii) All types of cases in the selection lists;
    (iii) Accuracy and completeness of sample lists in reference to the 
population(s) of interest;
    (iv) Whether or not the selection list was constructed by combining 
more than one list;
    (v) The form of the selection list (whether the list or part of the 
list is automated);
    (vi) Frequency and length of delays in updating the selection lists 
or their sources;
    (vii) Number of items on the lists and proportion of listed-in-error 
items:
    (viii) Methods of deleting unwanted items from the selection lists; 
and
    (ix) Structure of the selection lists.
    (3) The sample size, including the minimum number of reviews to be 
completed and the expected number of cases to be selected. Minimum 
sample sizes are based on the State's relative level of Medicaid annual 
expenditures for services for active cases, and on the total number of 
negative case actions in the universe for negative cases. When the 
sample is substratified, there can be no fewer than 75 cases in each 
substratum, except as provided in paragraph (c) of this section or as 
provided in an exception documented in an approved sampling plan which 
contains a statement accepting the precision and reliability of the 
reduced sample.
    (4) The sample selection procedure. Systematic random sampling is 
recommended. Alternative procedures must provide a representative 
sample, conform to principles of probability sampling, and yield 
estimates with the same or better precision than achieved in systematic 
random sampling.
    (5) Procedures used to identify amounts paid for services received 
in the review month.
    (6) Specification as to whether the agency chooses to--
    (i) Use billed amounts to offset recipient liability toward cost of 
care (No indication will be interpreted to mean that the agency will use 
paid claims); and
    (ii) Use denied claims to offset recipient liability toward cost of 
care in the payment review. (No indication will be interpreted to mean 
denied claims will not be used.)
    (7) Indication of whether the agency opts to drop or complete cases 
selected more than once in a sample period. (No indication will be 
interpreted to mean that the agency will complete cases selected more 
than once.)
    (c) Eligibility universe--active cases. The MEQC universe for active 
cases must be divided into two strata, the Aid to Families with 
Dependent Children (AFDC) stratum and the Medical Assistance Only (MAO) 
stratum.
    (1) All States must use the AFDC quality control sample for the AFDC 
stratum.
    (2) States must include in the MAO stratum all cases certified as 
eligible for Medicaid that are not in the AFDC stratum, excluding 
individuals specified in paragraph (c)(4) of this section.
    (3) States that do not have an agreement with the Social Security 
Administration under section 1634 of the Act and do not have more 
restrictive eligibility criteria under section 1902(f) of the Act but 
require a separate Medicaid application for recipients of SSI and 
determine Medicaid eligibility using SSI criteria must divide the MAO 
stratum into two substrata: MAO cases and SSI cash cases for the first 
review period beginning after July 1, 1990 and for review periods 
thereafter. The SSI substratum sample size must be 75 cases or one-half 
of the total MAO sample, whichever is smaller. The non-SSI MAO 
substratum sample will be the remainder of the MAO stratum cases.

States may be exempt from this requirement when implementing an approved 
sampling option that does not accommodate this stratification method.

[[Page 54]]

    (4) States must exclude from the MEQC universe SSI beneficiaries 
whose eligibility determinations were made exclusively by the Social 
Security Administration under an agreement under section 1634 of the 
Act, individuals in foster care or receiving adoption assistance whose 
eligibility is determined under title IV-E of the Act, and individuals 
receiving Medicaid under programs that are 100 percent federally funded.
    (d) Eligibility universe--negative cases. Unless the agency has an 
approved superior system under Sec. 431.812(c) that provides otherwise, 
the universe for negative Medicaid eligibility cases must consist of all 
denied applications, suspensions, and terminations occurring during the 
review month except transfers between counties without any break in 
eligibility, cases in which eligibility is exclusively determined by SSA 
under a section 1634 contract, cases determined eligible for foster care 
and adoption assistance under title IV-E of the Act, and cases under 
programs that are 100 percent federally funded.
    (e) Sampling procedures. The agency must document all sampling 
procedures used by the State agency, including 98 percent accuracy of 
program identifier codes used in the sampling frame to separate listed-
in-error cases from those in the population of interest, must make them 
available for review by CMS, and must be able to demonstrate the 
integrity of its sampling procedures in accordance with this section.
    (f) Sampling periods. The agency must use 6-month sampling periods, 
from April through September and from October through March.
    (g) Statistical samples. The agency must select statistically valid 
samples of both active and negative case actions.
    (h) Sample selection lists. The agency must submit to CMS monthly a 
list of cases selected in the sample to be reviewed, after the State's 
sample selection and before commencing MEQC reviews on the cases in the 
sample.
    (i) Universe estimates and sampling intervals. The agency must 
submit detailed universe estimates and sampling intervals to CMS for 
approval at least 2 weeks before the first sample selection of the 
review period if the estimates differ from the previous period. The 
sampling intervals must be used continuously throughout the sampling 
period unless otherwise specified in an approved sampling plan. Final 
universe counts based on the actual sampling universe must be determined 
and reported to CMS for each stratum/substratum designated in the 
sampling plan.

The agency also must submit universe counts for cases eligible for 
foster care and adoption assistance under title IV-E of the Act, and, 
for States with an agreement under section 1634 of the Act, for cases 
found eligible by the Social Security Administration.
    (j) Sample size and methodology options. The agency may select a 
sample size in accordance with the minimum established under paragraph 
(b)(3) of this section or use one of the methodologies specified in 
paragraph (j)(1) or (2) of this section.
    (1) Increase in size. The agency may, at its option, increase its 
sample size for a sampling period above the federally prescribed minimum 
sample size provided for under paragraph (b)(3) of this section, and 
receive FFP for any increased administrative costs the agency incurs by 
exercising this option.
    (2) Retrospective sampling. The agency may, at its option, implement 
retrospective sampling in which cases are stratified by dollar value of 
claims paid. If the agency selects retrospective sampling, it must--
    (i) Draw an initial case sample size each month that is no less than 
5 times the required sample size. The sample will be selected from the 
universe of cases that were certified eligible in the fourth month prior 
to the month of case selection;
    (ii) Identify claims paid for services furnished to all individuals 
during the review month (and, if indicated, any months prior to the 
review month in the agency's selected spenddown period) for these cases;
    (iii) Stratify the cases by dollar value of the claims into three 
strata; and
    (iv) Select a second statistically valid sample within each group 
subject

[[Page 55]]

to the sample size requirements specified in paragraph (b)(3) or (j)(1) 
of this section.



Sec. 431.816  Case review completion deadlines and submittal of reports.

    (a) The agency must complete case reviews and submit reports of 
findings to CMS as specified in paragraph (b) of this section in the 
form and at the time specified by CMS.
    (b) In addition to the reporting requirements specified in Sec. 
431.814 relating to sampling, the agency must complete case reviews and 
submit reports of findings to CMS in accordance with paragraphs (b)(1) 
through (6) of this section for review periods beginning after July 1, 
1990.The agency must not combine or otherwise integrate case findings 
from the MAO and AFDC strata to meet the case percentage deadlines as 
specified in paragraphs (b)(1) through (6) of this section.
    (1) Active case eligibility reviews--MAO stratum. (i) The agency 
must complete case eligibility reviews and report the findings 
electronically through the system prescribed by CMS for 90 percent of 
all active MAO cases within 105 days of the end of the review month for 
which those cases were reviewed, within 125 days for 95 percent of all 
active MAO cases, and within 150 days for 100 percent of all MAO active 
cases.
    (ii) The agency must submit a report on cases selected for the 
review month.
    (2) Active case eligibility reviews--AFDC stratum. (i) The agency 
must complete case eligibility reviews for AFDC ineligible and overpaid 
error cases caused by ineligible individuals and report the findings 
electronically through the system prescribed by CMS within 105 days of 
the end of the review month for which those cases were reviewed for 90 
percent of the total reviews; within 125 days of the end of the review 
month for which those cases were reviewed for 95 percent of the total 
reviews; and within 150 days of the end of the review month for which 
those cases were reviewed for 100 percent of the total reviews.
    (ii) The agency must report findings electronically through the 
system prescribed by CMS for 100 percent of the State agency-reported 
eligible individuals within 30 days after the final timeframe required 
by the AFDC program as specified in program regulations at 45 CFR 
205.40(b)(2)(ii).
    (3) Negative case eligibility reviews. The agency must submit a 
monthly progress report on negative case reviews completed during the 
month unless the agency has an approved superior system in effect. The 
agency must submit a report on its findings by June 30 of each year for 
the previous April-September sampling period and by December 31, for the 
October-March sampling period.
    (4) Payment reviews. (i) The agency must submit payment review 
findings electronically through the system prescribed by CMS.
    (ii) The agency must complete payment review findings for 100 
percent of the active case reviews in its sample and report the findings 
within 60 days after the first day of the month in which the claims 
collection process begins. The agency must wait 5 months after the end 
of each review month before associating the amount of claims paid for 
each case for services furnished during the review month unless 
retrospective sampling is elected.
    (iii) The agency must make any necessary corrections to claims 
payments during the month the claim is paid and the following month. CMS 
will take necessary action to reject any State adjustment adversely 
affecting the error rate, for example, by not paying claims on error 
cases.
    (5) Summary of reviews and findings. The agency must submit summary 
reports of the findings for all active cases in the 6-month sample by 
July 31 of each year for the previous April-September sampling period 
and by January 31 for the October-March sampling period. These summary 
reports must include findings changed in the Federal re-review process.
    (6) Other data and reports. The agency must report other requested 
data and reports in a manner prescribed by CMS.



Sec. 431.818  Access to records: MEQC program.

    (a) The agency, upon written request, must mail to the HHS staff all 
records, including complete local agency eligibility case files or 
legible copies and all other documents pertaining to its

[[Page 56]]

MEQC reviews to which the State has access, including information 
available under part 435, subpart I, of this chapter.
    (b) The agency must mail requested records within 10 working days of 
receipt of a request, unless the State has an alternate method of 
submitting these records that is approved by CMS or has received, on an 
as-needed basis, approval from CMS to extend this timeframe by 3 
additional working days to allow for exceptional circumstances.



Sec. 431.820  Corrective action under the MEQC program.

    The agency must--
    (a) Take action to correct any active or negative case action errors 
found in the sample cases;
    (b) Take administrative action to prevent or reduce the incidence of 
those errors; and
    (c) By September 15 each year, submit to CMS a report on its error 
rate analysis and a corrective action plan based on that analysis. The 
agency must submit revisions to the plan within 60 days of 
identification of additional error-prone areas, other significant 
changes in the error rate (that is, changes that the State experiences 
that increase or decrease its error rate and necessitate immediate 
corrective action or discontinuance of corrective actions that 
effectively control the cause of the error rate change), or changes in 
planned corrective action.



Sec. 431.822  Resolution of differences in State and Federal case eligibility or payment findings.

    (a) When a difference exists between State and Federal case 
eligibility or payment findings, the Regional Office will notify the 
agency by a difference letter.
    (b) The agency must return the difference letter to the Regional 
Office within 28 calendar days of the date of the letter indicating 
either agreement with the Federal finding or reasons for disagreement 
and if the agency desires a conference to resolve the difference. This 
period may be shortened if the Regional Office finds that it is 
necessary to do so in order to meet a case completion deadline, and the 
State still has a reasonable period of time in which to respond to the 
letter. If the agency fails to submit the difference letter indicating 
its agreement or disagreement with the Federal findings within the 28 
calendar days (or the shorter period designated as described above), the 
Federal findings will be sustained.
    (c) If the Regional Office disagrees with the agency's response, a 
difference conference will be scheduled within 20 days of the request of 
the agency. If a difference cannot be resolved, the State may request a 
direct presentation of its position to the Regional Administrator. The 
Regional Administrator has final authority for resolving the difference.

   Medicaid Quality Control (MQC) Claims Processing Assessment System

    Source: Sections 431.830 through 431.836 appear at 55 FR 22170, May 
31, 1990, unless otherwise noted.



Sec. 431.830  Basic elements of the Medicaid quality control (MQC) claims processing assessment system.

    An agency must--
    (a) Operate the MQC claims processing assessment system in 
accordance with the policies, sampling methodology, review procedures, 
reporting forms, requirements, and other instructions established by 
CMS.
    (b) Identify deficiencies in the claims processing operations.
    (c) Measure cost of deficiencies;
    (d) Provide data to determine appropriate corrective action;
    (e) Provide an assessment of the State's claims processing or that 
of its fiscal agent;
    (f) Provide for a claim-by-claim review where justifiable by data; 
and
    (g) Produce an audit trail that can be reviewed by CMS or an outside 
auditor.



Sec. 431.832  Reporting requirements for claims processing assessment systems.

    (a) The agency must submit reports and data specified in paragraph 
(b) of this section to CMS, in the form and at the time specified by 
CMS.
    (b) Except when CMS authorizes less stringent reporting, States must 
submit:

[[Page 57]]

    (1) A monthly report on claims processing reviews sampled and or 
claims processing reviews completed during the month;
    (2) A summary report on findings for all reviews in the 6-month 
sample to be submitted by the end of the 3rd month following the 
scheduled completion of reviews for that 6 month period; and
    (3) Other data and reports as required by CMS.



Sec. 431.834  Access to records: Claims processing assessment systems.

    The agency, upon written request, must provide HHS staff with access 
to all records pertaining to its MQC claims processing assessment system 
reviews to which the State has access, including information available 
under part 435, subpart J, of this chapter.



Sec. 431.836  Corrective action under the MQC claims processing assessment system.

    The agency must--
    (a) Take action to correct those errors identified through the 
claims processing assessment system review and, if cost effective, to 
recover those funds erroneously spent;
    (b) Take administrative action to prevent and reduce the incidence 
of those errors; and
    (c) By August 31 of each year, submit to CMS a report of its error 
analysis and a corrective action plan on the reviews conducted since the 
cut-off-date of the previous corrective action plan.

                     Federal Financial Participation



Sec. Sec. 431.861-431.864  [Reserved]



Sec. 431.865  Disallowance of Federal financial participation for erroneous State payments (for annual assessment periods ending after July 1, 1990).

    (a) Purpose and applicability--
    (1) Purpose. This section establishes rules and procedures for 
disallowing Federal financial participation (FFP) in erroneous medical 
assistance payments due to eligibility and beneficiary liability errors, 
as detected through the Medicaid eligibility quality control (MEQC) 
program required under Sec. 431.806 in effect on and after July 1, 
1990.
    (2) Applicability. This section applies to all States except Puerto 
Rico, Guam, the Virgin Islands, the Northern Mariana Islands, and 
American Samoa beginning July 1, 1990.
    (b) Definitions. For purposes of this section--
    Administrator means the Administrator, Centers for Medicare & 
Medicaid Services or his or her designee.
    Annual assessment period means the 12-month period October 1 through 
September 30 and includes two 6-month sample periods (October-March and 
April-September).
    Beneficiary liability means--
    (1) The amount of excess income that must be offset with incurred 
medical expenses to gain eligibility; or
    (2) The amount of payment a recipient must make toward the cost of 
services.
    Erroneous payments means the Medicaid payment that was made for an 
individual or family under review who--
    (1) Was ineligible for the review month or, if full month coverage 
is not provided, at the time services were received;
    (2) Was ineligible to receive a service provided during the review 
month; or
    (3) Had not properly met enrollee liability requirements prior to 
receiving Medicaid services.
    (4) The term does not include payments made for care and services 
covered under the State plan and furnished to children during a 
presumptive eligibility period as described in Sec. 435.1102 of this 
chapter.
    National mean error rate means the payment weighted average of the 
eligibility payment error rates for all States.
    National standard means a 3-percent eligibility payment error rate.
    State payment error rate means the ratio of erroneous payments for 
medical assistance to total expenditures for medical assistance (less 
payments to Supplemental Security Income beneficiaries in section 1634 
contract States and payments for children eligible for foster care and 
adoption assistance under title IV-E of the Act) for cases under review 
under the MEQC system for each assessment period.
    Technical error means an error in an eligibility condition that, if 
corrected,

[[Page 58]]

would not result in a difference in the amount of medical assistance 
paid. These errors include work incentive program requirements, 
assignment of social security numbers, the requirement for a separate 
Medicaid application, monthly reporting requirements, assignment of 
rights to third party benefits, and failure to apply for benefits for 
which the family or individual is not eligible. Errors other than those 
listed in this definition, identified by CMS in subsequent instructions, 
or approved by CMS are not technical errors.
    (c) Setting of State's payment error rate. (1) Each State must, for 
each annual assessment period, have a payment error rate no greater than 
3 percent or be subject to a disallowance of FFP.
    (2) A payment error rate for each State is determined by CMS for 
each annual assessment period by computing the statistical estimate of 
the ratio of erroneous payments for medical assistance made on behalf of 
individuals or cases in the sample for services received during the 
review month to total expenditures for medical assistance for that State 
made on behalf of individuals or cases in the sample for services 
received during the review month. This ratio incorporates the findings 
of a federally re-reviewed subsample of the State's review findings and 
is projected to the universe of total medical assistance payments for 
calculating the amount of disallowance under paragraph (d)6) of this 
section.
    (3) The State's payment error rate does not include payments made on 
behalf of individuals whose eligibility determinations were made 
exclusively by the Social Security Administration under an agreement 
under section 1634 of the Act or children found eligible for foster care 
and adoption assistance under title IV-E of the Act.
    (4) The amount of erroneous payments is determined as follows:
    (i) For ineligible cases resulting from excess resources, the amount 
of error is the lesser of--
    (A) The amount of the payment made on behalf of the family or 
individual for the review month; or
    (B) The difference between the actual amount of countable resources 
of the family or individual for the review month and the State's 
applicable resources standard.
    (ii) For ineligible cases resulting from other than excess 
resources, the amount of error is the total amount of medical assistance 
payments made for the individual or family under review for the review 
month.
    (iii) For erroneous payments resulting from failure to properly meet 
beneficiary liability, the amount of error is the lesser of--
    (A) The amount of payments made on behalf of the family or 
individual for the review month; or
    (B) The difference between the correct amount of beneficiary 
liability and the amount of beneficiary liability met by the individual 
or family for the review month.
    (iv) The amount of payments made for services provided during the 
review month for which the individual or family was not eligible.
    (5) In determining the amount of erroneous payments, errors caused 
by technical errors are not included.
    (6) If a State fails to cooperate in completing a valid MEQC sample 
or individual reviews in a timely and appropriate fashion as required, 
CMS will establish the State's payment error rate based on either--
    (i) A special sample or audit;
    (ii) The Federal subsample; or
    (iii) Other arrangements as the Administrator may prescribe.
    (7) When it is necessary for CMS to exercise the authority in 
paragraph (c)(6) of this section, the amount that would otherwise be 
payable to the State under title XIX of the Act is reduced by the full 
costs incurred by CMS in making these determinations. CMS may make these 
determinations either directly or under contractual or other 
arrangements.
    (d) Computation of anticipated error rate. (1) Before the beginning 
of each quarter, CMS will project the anticipated medical assistance 
payment error rate for each State for that quarter. The anticipated 
error rate is the lower of the weighted average error rate of the two 
most recent 6-month review periods or the error rate of the most recent 
6-month review period. In either case, cases in the review periods must 
have been completed by the State

[[Page 59]]

and CMS. If a State fails to provide CMS with information needed to 
project anticipated excess erroneous expenditures, CMS will assign the 
State an error rate as prescribed in paragraph (c)(6) of this section.
    (2) If the State believes that the anticipated error rate 
established in accordance with paragraph (d)(1) of this section is based 
on erroneous data, the State may submit evidence that demonstrates the 
data were erroneous. If the State satisfactorily demonstrates that CMS's 
data were erroneous, the State's anticipated error rate will be adjusted 
accordingly. Submittal of evidence is subject to the following 
conditions:
    (i) The State must inform CMS of its intent to submit evidence at 
least 70 days prior to the beginning of the quarter.
    (ii) The State may request copies of data that CMS used to compute 
its anticipated error rate within 7 days of receiving notification of 
its projected error rate.
    (iii) The State has up to 40 days before the quarter begins to 
present the evidence.
    (iv) The evidence is restricted to documentation of suspected CMS 
data entry errors, processing errors, and resolutions of Federal 
subsample difference cases subsequent to calculation of the error rate 
projection as contained in the original notice to the State.
    (v) The State may not submit other evidence, such as that consisting 
of revisions to State errors as a result of changes to the original 
State review findings submitted to CMS.
    (vi) The State may not submit evidence challenging the error rate 
computational methodology.
    (3) Based on the anticipated error rate established in paragraph 
(d)(1) or (d)(2) of this section, CMS reduces its estimate of the 
State's requirements for FFP for medical assistance for the quarter by 
the percentage by which the anticipated payment error rate exceeds the 
3-percent national standard. This reduction is applied against CMS's 
total estimate of FFP for medical assistance expenditures (less payments 
to Supplemental Security Income beneficiaries in 1634 contract States 
and payments to children found eligible for foster care and adoption 
assistance under title IV-E of the Act) prior to any other required 
reductions. The reduction is noted on the State's grant award for the 
quarter and does not constitute a disallowance, and, therefore, is not 
appealable.
    (4) After the end of each quarter, an adjustment to the reduction 
will be made based on the State's actual expenditures.
    (5) After the actual payment error rate has been established for 
each annual assessment period, CMS will compute the actual amount of the 
disallowance and adjust the FFP payable to each State based on the 
difference between the amounts previously withheld for each of the 
quarters during the appropriate assessment period and the amount that 
should have been withheld based on the State's actual final error rate. 
If CMS determines that the amount withheld for the period exceeds the 
amount of the actual disallowance, the excess amount withheld will be 
returned to the States through the normal grant awards process within 30 
days of the date the actual disallowance is calculated.
    (6) CMS will compute the amount to be withheld or disallowed as 
follows:
    (i) Subtract the 3-percent national standard from the State's 
anticipated or actual payment error rate percentage.
    (ii) If the difference is greater than zero, the Federal medical 
assistance funds for the period, excluding payments for those 
individuals whose eligibility for Medicaid was determined exclusively by 
the Social Security Administration under a section 1634 agreement and 
children found eligible for foster care and adoption assistance under 
title IV-E of the Act, are multiplied by that percentage. This product 
is the amount of the disallowance or withholding.
    (7) A State's payment error rate for an annual assessment period is 
the weighted average of the payment error rates in the two 6-month 
review periods comprising the annual assessment period.
    (8) The weights are established as the percent of the total annual 
payments,

[[Page 60]]

excluding payments for those individuals whose eligibility for Medicaid 
was determined exclusively by the Social Security Administration under a 
section 1634 agreement and children found eligible for foster care and 
adoption assistance under title IV-E of the Act, that occur in each of 
the 6-month periods.
    (e) Notice to States and showing of good faith. (1) When the actual 
payment error rate data are finalized for each annual assessment period 
ending after July 1, 1990, CMS will establish each State's error rate 
and the amount of any disallowance. States that have error rates above 
the national standard will be notified by letter of their error rates 
and the amount of the disallowance.
    (i) The State has 65 days from the date of receipt of this 
notification to show that this disallowance should not be made because 
it failed to meet the national standard despite a good faith effort to 
do so.
    (ii) If CMS is satisfied that the State did not meet the national 
standard despite a good faith effort, CMS may reduce the funds being 
disallowed in whole or in part as it finds appropriate under the 
circumstances shown by the State.
    (iii) A finding that a State did not meet the national standard 
despite a good faith effort will be limited to extraordinary 
circumstances.
    (iv) The burden of establishing that a good faith effort was made 
rests entirely with the State.
    (2) Some examples of circumstances under which CMS may find that a 
State did not meet the national standard despite a good faith effort 
are--
    (i) Disasters such as fire, flood, or civil disorders that--
    (A) Require the diversion of significant personnel normally assigned 
to Medicaid eligibility administration; or
    (B) Destroyed or delayed access to significant records needed to 
make or maintain accurate eligibility determinations;
    (ii) Strikes of State staff or other government or private personnel 
necessary to the determination of eligibility or processing of case 
changes;
    (iii) Sudden and unanticipated workload changes that result from 
changes in Federal law and regulation, or rapid, unpredictable caseload 
growth in excess of, for example, 15 percent for a 6-month period;
    (iv) State actions resulting from incorrect written policy 
interpretations to the State by a Federal official reasonably assumed to 
be in a position to provide that interpretation; and
    (v) The State has taken the action it believed was needed to meet 
the national standard, but the national standard was not met. CMS will 
consider request for a waiver under this criterion only if a State has 
achieved an error rate for the sample period that (after reducing the 
error rate by taking into account the cases determined by CMS to be in 
error as a result of conditions listed in paragraphs (e)(2) (i) through 
(iv) of this section) is less than its error rate for the preceding 
sample year and does not exceed the national mean error rate for the 
sample period under review (unless that national mean error rate is at 
or below the 3-percent national standard). If the agency has met this 
error reduction requirement or had error rates of 3 percent or below for 
the prior two review periods, and its error rate for the review period 
under consideration is less than one-third above the national standard, 
CMS will evaluate a request for a good faith waiver based on the 
following factors:
    (A) The State has fully met the performance standards in the 
operation of a quality control system in accordance with Federal 
regulations and CMS guidelines (e.g., adherence to Federal case 
completion timeliness requirements and verification standards).
    (B) The State has achieved substantial performance in the 
formulation of error reduction initiatives based on the following 
processes:
    (1) Performance of an accurate and thorough statistical and program 
analysis for error reduction which utilized quality control and other 
data:
    (2) The translation of such analysis into specific and appropriate 
error reduction practices for major error elements; and
    (3) The use of monitoring systems to verify that the error reduction 
initiatives were implemented at the local office level.

[[Page 61]]

    (C) The State has achieved substantial performance in the operation 
of the following systems supported by evidence of the timely utilization 
of their outputs in the determination of case eligibility:
    (1) The operation of the Income and Eligibility Verification System 
in accordance with the requirements of parts 431 and 435 of this 
chapter, and
    (2) The operation of systems that interface with Social Security 
data and, where State laws do not restrict agency access, records from 
agencies responsible for motor vehicles, vital statistics, and State or 
local income and property taxes (where these taxes exist).
    (D) The State has achieved substantial performance in the use of the 
following accountability mechanisms to ensure that agency staff adhere 
to error reduction initiatives. The following are minimum requirements:
    (1) Accuracy of eligibility and liability determinations and timely 
processing of case actions are used as quantitative measures of employee 
performance and reflected in performance standards and appraisal forms:
    (2) Selective second-party case reviews are conducted. The second-
party review results are periodically reported to higher level 
management, as well as supervisors and workers and are used in 
performance standards and appraisal forms; and
    (3) Regular operational reviews of local offices are performed by 
the State to evaluate the offices' effectiveness in meeting error 
reduction goals with periodic monitoring to ensure that review 
recommendations have been implemented.
    (vi) A State that meets the performance standards specified in 
paragraphs (e)(2)(v) (A) through (D) of this section will be considered 
for a full or partial waiver of its disallowance amount. The State must 
submit only specific documentation that verifies that the necessary 
actions were accomplished. For example, a State could submit worker 
performance standards reflecting timeliness and case accuracy as 
quantitative measures of performance.
    (3) The failure of a State to act upon necessary legislative changes 
or to obtain budget authorization for needed resources is not a basis 
for finding that a State failed to meet the national standard despite a 
good faith effort.
    (f) Disallowance subject to appeal. (1) If a State does not agree 
with a disallowance imposed under paragraph (e) of this section, it may 
appeal to the Departmental Appeals Board within 30 days from the date of 
the final disallowance notice from CMS. The regular procedures for an 
appeal of a disallowance will apply, including review by the Appeals 
Board under 45 CFR part 16.
    (2) This appeal provision, as it applies to MEQC disallowances, is 
not applicable to the Administrator's decision on a State's waiver 
request provided for under paragraph (e) of this section.

[55 FR 22171, May 31, 1990, as amended at 61 FR 38398, July 24, 1996; 66 
FR 2666, Jan. 11, 2001]



PART 432_STATE PERSONNEL ADMINISTRATION--Table of Contents




                      Subpart A_General Provisions

Sec.
432.1 Basis and purpose.
432.2 Definitions.
432.10 Standards of personnel administration.

   Subpart B_Training Programs; Subprofessional and Volunteer Programs

432.30 Training programs: General requirements.
432.31 Training and use of subprofessional staff.
432.32 Training and use of volunteers.

              Subpart C_Staffing and Training Expenditures

432.45 Applicability of provisions in subpart.
432.50 FFP: Staffing and training costs.
432.55 Reporting training and administrative costs.

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

    Source: 43 FR 45199, Sept. 29, 1978, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 432.1  Basis and purpose.

    This part prescribes regulations to implement section 1902(a)(4) of 
the Act, which relates to a merit system of

[[Page 62]]

State personnel administration and training and use of subprofessional 
staff and volunteers in State Medicaid programs, and section 1903(a), 
rates of FFP for Medicaid staffing and training costs. It also 
prescribes regulations, based on the general administrative authority in 
section 1902(a)(4), for State training programs for all staff.



Sec. 432.2  Definitions.

    As used in this part--
    Community service aides means subprofessional staff, employed in a 
variety of positions, whose duties are an integral part of the agency's 
responsibility for planning, administration, and for delivery of health 
services.
    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.
    Fringe benefits means the employer's share of premiums for workmen's 
compensation, employees' retirement, unemployment compensation, health 
insurance, and similar expenses.
    Full-time training means training that requires employees to be 
relieved of all responsibility for performance of current agency work to 
participate in a training program.
    Part-time training means training that allows employees to continue 
full-time in their agency jobs or requires only partial reduction of 
work activities to participate in the training activity.
    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 an 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.
    Subprofessional staff means persons performing tasks that demand 
little or no formal education; a high school diploma; or less than 4 
years of college.
    Supporting staff means secretarial, stenographic, clerical, and 
other subprofessional staff whose activities are directly necessary to 
the carrying out of the functions which are the responsibility of 
skilled professional medical personnel, as defined in this section.
    Training program means a program of educational activities based on 
the agency's training needs and aimed at insuring that agency staff 
acquire the knowledge and skills necessary to perform their jobs.
    Volunteer means a person who contributes personal service to the 
community through the agency's program but is not a replacement or 
substitute for paid staff.

[43 FR 45199, Sept. 29, 1978, as amended at 50 FR 46663, Nov. 12, 1985; 
50 FR 49389, Dec. 2, 1985]



Sec. 432.10  Standards of personnel administration.

    (a) State plan requirement. A State plan must provide that the 
requirements of paragraphs (c) through (h) of this section are met.
    (b) Terms. In this section, ``standards'' refer to those specified 
in paragraph (c) of this section.
    (c) Methods of personnel administration. Methods of personnel 
administration must be established and maintained, in the Medicaid 
agency and in local agencies administering the propgram, in conformity 
with:
    (1) [Reserved]
    (2) 5 CFR part 900, subpart F, Administration of the Standards for 
Merit System of Personnel Administration.
    (d) Compliance of local jurisdictions. The Medicaid agency must have 
in effect methods to assure compliance with the standards by local 
jurisdictions included in the plan.
    (e) Review and adequacy of State laws, regulations, and policies. 
The agency must--

[[Page 63]]

    (1) Assure that the U.S. Civil Service Commission has determined the 
adequacy of current State laws, regulations, and policy statements that 
effect methods of personnel administration in conformity with the 
standards, and
    (2) Submit any changes in them to the Commission for review.
    (f) Statements of acceptance by local agencies. If the Medicaid 
agency changes from a State-administered to a State-supervised, locally 
administered program, it must obtain statements of acceptance of the 
standards from the local agencies.
    (g) Affirmative action plan. The Medicaid agency must have in effect 
an affirmative action plan for equal employment opportunity, that 
includes specific action steps and timetables to assure that 
opportunity, and meets all other requirements of 45 CFR 70.4.\1\
---------------------------------------------------------------------------

    \1\ Editorial Note: The regulations formerly contained in 45 CFR 
70.4 were revised and reissued by the Office of Personnel Management at 
5 CFR Part 900, (Subpart F).
---------------------------------------------------------------------------

    (h) Submittal of requested materials. The Medicaid agency must 
submit to HHS, upon request, copies of the affirmative action plan and 
of the State and local materials that assure compliance with the 
standards.

[43 FR 45199, Sept. 29, 1978, as amended at 45 FR 24883, Apr. 11, 1980]



   Subpart B_Training Programs; Subprofessional and Volunteer Programs



Sec. 432.30  Training programs: General requirements.

    (a) A State plan must provide for a program of training for Medicaid 
agency personnel. (See also Sec. Sec. 432.31 and 432.32 for training 
programs for subprofessional staff and for volunteers.)
    (b) The program must--
    (1) Include initial inservice training for newly appointed staff, 
and continuing training opportunities to improve the operation of the 
program;
    (2) Be related to job duties performed or to be performed by the 
persons trained; and
    (3) Be consistent with the program objectives of the agency.



Sec. 432.31  Training and use of subprofessional staff.

    (a) State plan requirement. A State plan must provide for the 
training and effective use of subprofessional staff as community service 
aides, in accordance with the requirements of this section.
    (b) Recruitment and selection. The Medicaid agency must have methods 
of recruitment and selection that afford opportunity for full-time or 
part-time employment of persons of low income, including:
    (1) Young, middle-aged, and older persons;
    (2) Physically and mentally disabled; and
    (3) Recipients.
    (c) Merit system. Subprofessional positions must be subject to merit 
system requirements except where special exemption is approved on the 
basis of a State alternative plan for employment of disadvantaged 
persons.
    (d) Staffing plan. The agency staffing plan must include the kinds 
of jobs that subprofessional staff can perform.
    (e) Career service. The agency must have a career service program 
that allows persons:
    (1) To enter employment at the subprofessional level; and
    (2) To progress to positions of increasing responsibility and 
reward:
    (i) In accordance with their abilities; and
    (ii) Through work experience and pre-service and in-service 
training.
    (f) Training, supervision and supportive services. The agency must 
have an organized training program, supervision, and supportive services 
for subprofessional staff.
    (g) Progressive expansion. The agency must provide for annual 
increase in the number of subprofessional staff until:
    (1) An appropriate ratio of subprofessional and professional staff 
has been achieved; and
    (2) There is maximum use of subprofessional staff as community aides 
in the operation of the program.



Sec. 432.32  Training and use of volunteers.

    (a) State plan requirement. A State plan must provide for the 
training and

[[Page 64]]

use of non-paid or partially paid volunteers in accordance with the 
requirements of this section.
    (b) Functions of volunteers. The Medicaid agency must make use of 
volunteers in:
    (1) Providing services to applicants and recipients; and
    (2) Assisting any advisory committees established by the agency.

As used in this paragraph, ``partially paid volunteers'' means 
volunteers who are reimbursed only for actual expenses incurred in 
giving service, without regard to the value of the service or the time 
required to provide it.
    (c) Staffing. The agency must designate a position whose incumbent 
is responsible for:
    (1) The development, organization, and administration of the 
volunteer program; and
    (2) Coordination of the program with related functions.
    (d) Recruitment, selection, training, and supervision. The agency 
must have:
    (1) Methods of recruitment and selection that assure participation 
of volunteers of all income levels, in planning capacities and service 
provision; and
    (2) A program of organized training and supervision of volunteers.
    (e) Reimbursement of expenses. The agency must--
    (1) Reimburse volunteers for actual expenses incurred in providing 
services; and
    (2) Assure that no volunteer is deprived of the opportunity to serve 
because of the expenses involved.
    (f) Progressive expansion. The agency must provide for annual 
increase in the number of volunteers used until the volunteer program is 
adequate for the achievement of the agency's service goals.



              Subpart C_Staffing and Training Expenditures



Sec. 432.45  Applicability of provisions 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)(33)(B) 
of the Act.

[50 FR 46663, Nov. 12, 1985; 50 FR 49389, Dec. 2, 1985]



Sec. 432.50  FFP: Staffing and training costs.

    (a) Availability of FFP. FFP is available in expenditures for salary 
or other compensation, fringe benefits, travel, per diem, and training, 
at rates determined on the basis of the individual's position, as 
specified in paragraph (b) of this section.
    (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 Sec. 432.2), the rate is 75 percent.
    (2) For personnel engaged directly in the operation of mechanized 
claims processing and information retrieval systems, the rate is 75 
percent.
    (3) For personnel engaged in the design, development, or 
installation of mechanized claims processing and information retrieval 
systems, the rate is 50 percent for training and 90 percent for all 
other costs specified in paragraph (a) of this section.
    (4) [Reserved]
    (5) For personnel administering family planning services and 
supplies, the rate is 90 percent.
    (6) For all other staff of the Medicaid agency or other public 
agencies providing services to the Medicaid agency, and for training and 
other expenses of volunteers, the rate is 50 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 CMS.
    (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

[[Page 65]]

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, subchapter C, of this chapter.

[43 FR 45199, Sept. 29, 1978, as amended at 46 FR 48566, Oct. 1, 1981; 
50 FR 46663, Nov. 12, 1985]



Sec. 432.55  Reporting training and administrative costs.

    (a) Scope. This section identifies activities and costs to be 
reported as training or administrative costs on quarterly estimate and 
expenditure reports to CMS.
    (b) Activities and costs to be reported on training expenditures. 
(1) For fulltime training (with no assigned agency duties): Salaries, 
fringe benefits, dependency allowances, travel, tuition, books, and 
educational supplies.
    (2) For part-time training: Travel, per diem, tuition, books and 
educational supplies.
    (3) For State and local Medicaid agency staff development personnel 
(including supporting staff) assigned fulltime training functions: 
Salaries, fringe benefits, travel, and per diem. Costs for staff 
spending less than full time on training for the Medicaid program must 
be allocated between training and administration in accordance with 
Sec. 433.34 of this subchapter.
    (4) For experts engaged to develop or conduct special programs: 
Salary, fringe benefits, travel, and per diem.
    (5) For agency training activities directly related to the program: 
Use of space, postage, teaching supplies, and purchase or development of 
teaching materials and equipment, for example, books and audiovisual 
aids.
    (6) For field instruction in Medicaid: Instructors' salaries and 
fringe benefits, rental of space, travel, clerical assistance, teaching 
materials and equipment such as books and audiovisual aids.

[[Page 66]]

    (c) Activities and costs not to be reported as training 
expenditures. The following activities are to be reported as 
administrative costs:
    (1) Salaries of supervisors (day-to-day supervision of staff is not 
a training activity); and
    (2) Cost of employing students on a temporary basis, for instance, 
during summer vacation.

[43 FR 45199, Sept. 29, 1978, as amended at 44 FR 17935, Mar. 23, 1979]



PART 433_STATE FISCAL ADMINISTRATION--Table of Contents




Sec.
433.1 Purpose.

    Subpart A_Federal Matching and General Administration Provisions

433.8 [Reserved]
433.10 Rates of FFP for program services.
433.11 Enhanced FMAP rate for children.
433.15 Rates of FFP for administration.
433.32 Fiscal policies and accountability.
433.34 Cost allocation.
433.35 Equipment--Federal financial participation.
433.36 Liens and recoveries.
433.37 Reporting provider payments to Internal Revenue Service.
433.38 Interest charge on disallowed claims for FFP.
433.40 Treatment of uncashed or cancelled (voided) Medicaid checks.

     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.

Subpart C_Mechanized Claims Processing and Information Retrieval Systems

433.110 Basis, purpose, and applicability.
433.111 Definitions.
433.112 FFP for design, development, installation or enhancement of 
          mechanized claims processing and information retrieval 
          systems.
433.113 Reduction of FFP for failure to operate a system and obtain 
          initial approval.
433.114 Procedures for obtaining initial approval; notice of decision.
433.116 FFP for operation of mechanized claims processing and 
          information retrieval systems.
433.117 Initial approval of replacement systems.
433.119 Conditions for reapproval; notice of decision.
433.120 Procedures for reduction of FFP after reapproval review.
433.121 Reconsideration of the decision to reduce FFP after reapproval 
          review.
433.122 Reapproval of a disapproved system.
433.123 Notification of changes in system requirements, performance 
          standards or other conditions for approval or reapproval.
433.127 Termination of FFP for failure to provide access to claims 
          processing and information retrieval systems.
433.130 Waiver of conditions of initial operation and approval.
433.131 Waiver for noncompliance with conditions of approval and 
          reapproval.

                     Subpart D_Third Party Liability

433.135 Basis and purpose.
433.136 Definitions.
433.137 State plan requirements.
433.138 Identifying liable third parties.
433.139 Payment of claims.
433.140 FFP and repayment of Federal share.

                    Assignment of Rights to Benefits

433.145 Assignment of rights to benefits--State plan requirements.
433.146 Rights assigned; assignment method.
433.147 Cooperation in establishing paternity and in obtaining medical 
          support and payments and in identifying and providing 
          information to assist in pursuing third parties who may be 
          liable to pay.
433.148 Denial or termination of eligibility.

[[Page 67]]

              Cooperative Agreements and Incentive Payments

433.151 Cooperative agreements and incentive payments--State plan 
          requirements.
433.152 Requirements for cooperative agreements for third party 
          collections.
433.153 Incentive payments to States and political subdivisions.
433.154 Distribution of collections.

Subpart E [Reserved]

    Subpart F_Refunding of Federal Share of Medicaid Overpayment to 
                                Providers

433.300 Basis.
433.302 Scope of subpart.
433.304 Definitions.
433.310 Applicability of requirements.
433.312 Basic requirements for refunds.
433.316 When discovery of overpayment occurs and its significance.
433.318 Overpayments involving providers who are bankrupt or out of 
          business.
433.320 Procedures for refunds to CMS.
433.322 Maintenance of records.

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

    Source: 43 FR 45201, Sept. 29, 1978, unless otherwise noted.



Sec. 433.1  Purpose.

    This part specifies the rates of FFP for services and 
administration, and prescribes requirements, prohibitions, and FFP 
conditions relating to State fiscal activities.



    Subpart A_Federal Matching and General Administration Provisions



Sec. 433.8  [Reserved]



Sec. 433.10  Rates of FFP for program services.

    (a) Basis. Sections 1903(a)(1), 1903(g), and 1905(b) provide for 
payments to States, on the basis of a Federal medical assistance 
percentage, for part of their expenditures for services under an 
approved State plan.
    (b) Federal medical assistance percentage (FMAP)--Computations. The 
FMAP is determined by the formula described in section 1905(b) of the 
Act. Under the formula, if a State's per capita income is equal to the 
national average per capita income, the Federal share is 55 percent. If 
a State's per capita income exceeds the national average, the Federal 
share is lower, with a statutory minimum of 50 percent. If a State's per 
capita income is lower than the national average, the Federal share is 
increased, with a statutory maximum of 83 percent. The formula used in 
determining the State and Federal share is as follows:

State Share = [(State per capita income) \2\/(National per capita 
    income) \2\] x 45 percent
Federal share=100 percent minus the State share (with a minimum of 50 
    percent and a maximum of 83 percent)


The formula provides for squaring both the State and national average 
per capita incomes; this procedure magnifies any difference between the 
State's income and the national average. Consequently, Federal matching 
to lower income States is increased, and Federal matching to higher 
income States is decreased, within the statutory 50-83 percent limits. 
The FMAP for Puerto Rico, the Virgin Islands, Guam, the Northern Mariana 
Islands, and American Samoa is set by statute at 50 percent and is 
subject to dollar limitations specified in section 1108 of the Act.
    (c) Special provisions. (1) Under section 1903(a)(5) of the Act, the 
Federal share of State expenditures for family planning services is 90 
percent.
    (2) Under section 1905(b), the Federal share of State expenditures 
for services provided through Indian Health Service facilities is 100 
percent.
    (3) Under section 1903(g), the FMAP is reduced if the State does not 
have an effective program to control use of institutional services.
    (4) Under section 1905(b) of the Social Security Act, the Federal 
share of State expenditures described in Sec. 433.11(a) for services 
provided to children, is the enhanced FMAP rate determined in accordance 
with Sec. 457.622(b) of this chapter, subject to the conditions 
explained in Sec. 433.11(b).

[43 FR 45201, Sept. 29, 1978, as amended at 46 FR 48559, Oct. 1, 1981; 
51 FR 41350, Nov. 14, 1986; 54 FR 21066, May 16, 1989; 66 FR 2666, Jan. 
11, 2001]

[[Page 68]]



Sec. 433.11  Enhanced FMAP rate for children.

    (a) Subject to the conditions in paragraph (b) of this section, the 
enhanced FMAP determined in accordance with Sec. 457.622 of this 
chapter will be used to determine the Federal share of State 
expenditures, except any expenditures pursuant to section 1923 of the 
Act for payments to disproportionate share hospitals for--
    (1) Services provided to optional targeted low-income children 
described in Sec. 435.4 or Sec. 436.3 of this chapter; and
    (2) Services provided to children born before October 1, 1983, with 
or without group health coverage or other health insurance coverage, who 
would be described in section 1902(l)(1)(D) of the Act (poverty-level-
related children's groups) if--
    (i) They had been born on or after that date; and
    (ii) They would not qualify for medical assistance under the State 
plan in effect on March 31, 1997.
    (b) Enhanced FMAP is not available if--
    (1) A State adopts income and resource standards and methodologies 
for purposes of determining a child's eligibility under the Medicaid 
State plan that are more restrictive than those applied under policies 
of the State plan (as described in the definition of optional targeted 
low-income children at Sec. 435.4 of this chapter) in effect on June 1, 
1997; or
    (2) No funds are available in the State's title XXI allotment, as 
determined under part 457, subpart F of this chapter for the quarter 
enhanced FMAP is claimed; or
    (3) The State fails to maintain a valid method of identifying 
services provided on behalf of children listed in paragraph (a) of this 
section.

[66 FR 2666, Jan. 11, 2001]



Sec. 433.15  Rates of FFP for administration.

    (a) Basis. Section 1903(a) (2) through (5) and (7) of the Act 
provide for payments to States, on the basis of specified percentages, 
for part of their expenditures for administration of an approved State 
plan.
    (b) Activities and rates. (1) [Reserved]
    (2) Administration of family planning services: 90 percent. (Section 
1903 (a)(5); 42 CFR 432.50(b)(5).)
    (3) Design, development, or installation of mechanized claims 
processing and information retrieval systems: 90 percent. (Section 
1903(a)(3)(A)(i); 42 CFR part 433, subpart C, and Sec. 432.50 (b)(3).)
    (4) Operation of mechanized claims processing and information 
retrieval systems: 75 percent. (Section 1903(a) (3)(B); 42 CFR part 433, 
subpart C and Sec. 432.50(b)(2).)
    (5) Compensation and training of skilled professional medical 
personnel and staff directly supporting those personnel if the criteria 
specified in Sec. 432.50 (c) and (d) are met: 75 percent. (Section 
1903(a)(2); 42 CFR 432.50(b)(1).)
    (6)(i) Funds expended for the performance of medical and utilization 
review by a QIO under a contract entered into under section 1902(d) of 
the Act: 75 percent (section 1903(a)(3)(C) of the Act).
    (ii) If a State contracts for medical and utilization review with 
any individual or organization not designated under Part B of Title XI 
of the Act, funds expended for such review will be reimbursed as 
provided in paragraph (b)(7) of this section.
    (7) All other activities the Secretary finds necessary for proper 
and efficient administration of the State plan: 50 percent. (Section 
1903(a)(7).) (See also Sec. 455.300 of this subchapter for FFP at 90 
percent for State Medicaid fraud control units under section 
1903(a)(6).)
    (8) Nurse aide training and competency evaluation programs and 
competency evaluation programs described in 1919(e)(1) of the Act: for 
calendar quarters beginning on or after July 1, 1988 and before July 1, 
1990: The lesser of 90% or the Federal medical assistance percentage 
plus 25 percentage points; for calendar quarters beginning on or after 
October 1, 1990: 50%. (Section 1903(a)(2)(B) of the Act.)
    (9) Preadmission screening and annual resident review (PASARR) 
activities conducted by the State: 75 percent. (Sections 1903(a)(2)(C) 
and 1919(e)(7); 42 CFR part 483, subparts C and E.)
    (10) Funds expended for the performance of external quality review 
or the related activities described in Sec. 438.358

[[Page 69]]

of this chapter when they are performed by an external quality review 
organization as defined in Sec. 438.320 of this chapter: 75 percent.

[43 FR 45201, Sept. 29, 1978, as amended at 46 FR 48566, Oct. 1, 1981; 
46 FR 54744, Nov. 4, 1981; 50 FR 15327, Apr. 17, 1985; 50 FR 46664, Nov. 
12, 1985; 56 FR 48918, Sept. 26, 1991; 57 FR 56506, Nov. 30, 1992; 68 FR 
3635, Jan. 24, 2003]



Sec. 433.32  Fiscal policies and accountability.

    A State plan must provide that the Medicaid agency and, where 
applicable, local agencies administering the plan will--
    (a) Maintain an accounting system and supporting fiscal records to 
assure that claims for Federal funds are in accord with applicable 
Federal requirements;
    (b) Retain records for 3 years from date of submission of a final 
expenditure report;
    (c) Retain records beyond the 3-year period if audit findings have 
not been resolved; and
    (d) Retain records for nonexpendable property acquired under a 
Federal grant for 3 years from the date of final disposition of that 
property.

[44 FR 17935, Mar. 23, 1979]



Sec. 433.34  Cost allocation.

    A State plan under Title XIX of the Social Security Act must provide 
that the single or appropriate Agency will have an approved cost 
allocation plan on file with the Department in accordance with the 
requirements contained in subpart E of 45 CFR part 95. Subpart E also 
sets forth the effect on FFP if the requirements contained in that 
subpart are not met.

[47 FR 17490, Apr. 23, 1982]



Sec. 433.35  Equipment--Federal financial participation.

    Claims for Federal financial participation in the cost of equipment 
under the Medicaid Program are determined in accordance with subpart G 
of 45 CFR part 95. Requirements concerning the management and 
disposition of equipment under the Medicaid Program are also prescribed 
in subpart G of 45 CFR part 95.

[47 FR 41564, Sept. 21, 1982]



Sec. 433.36  Liens and recoveries.

    (a) Basis and purpose. This section implements sections 1902(a)(18) 
and 1917(a) and (b) of the Act, which describe the conditions under 
which an agency may impose a lien against a recipient's property, and 
when an agency may make an adjustment or recover funds in satisfaction 
of the claim against the individual's estate or real property.
    (b) Definition of property. For purposes of this section, 
``property'' includes the homestead and all other personal and real 
property in which the recipient has a legal interest.
    (c) State plan requirement. If a State chooses to impose a lien 
against an individual's real property (or as provided in paragraph 
(g)(1) of this section, personal property), the State plan must provide 
that the provisions of paragraphs (d) through (i) of this section are 
met.
    (d) Procedures. The State plan must specify the process by which the 
State will determine that an institutionalized individual cannot 
reasonably be expected to be discharged from the medical institution and 
return home as provided in paragraph (g)(2)(ii) of this section. The 
description of the process must include the type of notice to be given 
the individual, the process by which the individual will be given the 
opportunity for a hearing, the hearing procedures, and by whom and on 
what basis the determination that the individual cannot reasonably be 
expected to be discharged from the institution will be made. The notice 
to the individual must explain what is meant by the term lien, and that 
imposing a lien does not mean that the individual will lose ownership of 
the home.
    (e) Definitions. The State plan must define the following terms used 
in this section:
    (1) Individual's home.
    (2) Equity interest in home.
    (3) Residing in the home for at least 1 (or 2) year(s).
    (4) On a continuing basis.
    (5) Discharge from the medical institution and return home.
    (6) Lawfully residing.
    (f) Exception. The State plan must specify the criteria by which a 
son or daughter can establish to the agency's

[[Page 70]]

satisfaction that he or she has been providing care which permitted the 
individual to reside at home rather than in an institution, as provided 
in paragraph (h)(2)(iii)(B) of this section.
    (g) Lien provisions--(1) Incorrect payments. The agency may place a 
lien against an individual's property, both personal and real, before 
his or her death because of Medicaid claims paid or to be paid on behalf 
of that individual following a court judgement which determined that 
benefits were incorrectly paid for that individual.
    (2) Correct payments. Except as provided in paragraph (g)(3) of this 
section, the agency may place a lien against the real property of an 
individual at any age before his or her death because of Medicaid claims 
paid or to be paid for that individual when--
    (i) An individual is an inpatient of a medical institution and must, 
as a condition of receiving services in the institution under the State 
plan, apply his or her income to the cost of care as provided in 
Sec. Sec. 435.725, 435.832 and 436.832; and
    (ii) The agency determines that he or she cannot reasonably be 
expected to be discharged and return home. The agency must notify the 
individual of its intention to make that determination and provide an 
opportunity for a hearing in accordance with State established 
procedures before the determination is made. The notice to an individual 
must include an explanation of liens and the effect on an individual's 
ownership of property.
    (3) Restrictions on placing liens. The agency may not place a lien 
on an individual's home under paragraph (g)(2) of this section if any of 
the following individuals is lawfully residing in the home:
    (i) The spouse;
    (ii) The individual's child who is under age 21 or blind or disabled 
as defined in the State plan; or
    (iii) The individual's sibling (who has an equity interest in the 
home, and who was residing in the individual's home for at least one 
year immediately before the date the individual was admitted to the 
medical institution).
    (4) Termination of lien. Any lien imposed on an individual's real 
property under paragraph (g)(2) of this section will dissolve when that 
individual is discharged from the medical institution and returns home.
    (h) Adjustments and recoveries. (1) The agency may make an 
adjustment or recover funds for Medicaid claims correctly paid for an 
individual as follows:
    (i) From the estate of any individual who was 65 years of age or 
older when he or she received Medicaid; and
    (ii) From the estate or upon sale of the property subject to a lien 
when the individual is institutionalized as described in paragraph 
(g)(2) of this section.
    (2) The agency may make an adjustment or recovery under paragraph 
(h)(1) of this section only:
    (i) After the death of the individual's surviving spouse; and
    (ii) When the individual has no surviving child under age 21 or 
blind or disabled as defined in the State plan; and
    (iii) In the case of liens placed on an individual's home under 
paragraph (g)(2) of this section, when there is no--
    (A) Sibling of the individual residing in the home, who has resided 
there for at least one year immediately before the date of the 
individual's admission to the institution, and has resided there on a 
continuous basis since that time; or
    (B) Son or daughter of the individual residing in the home, who has 
resided there for at least two years immediately before the date of the 
individual's admission to the institution, has resided there on a 
continuous basis since that time, and can establish to the agency's 
satisfaction that he or she has been providing care which permitted the 
individual to reside at home rather than in an institution.
    (i) Prohibition of reduction of money payments. No money payment 
under another program may be reduced as a means of recovering Medicaid 
claims incorrectly paid.

[43 FR 45201, Sept. 29, 1978, as amended at 47 FR 43647, Oct. 1, 1982; 
47 FR 49847, Nov. 3, 1982]

[[Page 71]]



Sec. 433.37  Reporting provider payments to Internal Revenue Service.

    (a) Basis and purpose. This section, based on section 1902(a)(4) of 
the Act, prescribes requirements concerning--
    (1) Identification of providers; and
    (2) Compliance with the information reporting requirements of the 
Internal Revenue Code.
    (b) Identification of providers. A State plan must provide for the 
identification of providers by--
    (1) Social security number if--
    (i) The provider is in solo practice; or
    (ii) The provider is not in solo practice but billing is by the 
individual practitioner; or
    (2) Employer identification number for all other providers.
    (c) Compliance with section 6041 of the Internal Revenue Code. The 
plan must provide that the Medicaid agency complies with the information 
reporting requirements of section 6041 of the Internal Revenue Code (26 
U.S.C. 6041). Section 6041 requires the filing of annual information 
returns showing amounts paid to providers, who are identified by name, 
address, and social security number or employer identification number.



Sec. 433.38  Interest charge on disallowed claims for FFP.

    (a) Basis and scope. This section is based on section 1903(d)(5) of 
the Act, which requires that the Secretary charge a State interest on 
the Federal share of claims that have been disallowed but have been 
retained by the State during the administrative appeals process under 
section 1116(d) of the Act and the Secretary later recovers after the 
administrative appeals process has been completed. This section does not 
apply to--
    (1) Claims that have been deferred by the Secretary and disallowed 
within the time limits of Sec. 430.40 of this chapter. Deferral of 
claims for FFP; or
    (2) Claims for expenditures that have never been paid on a grant 
award; or
    (3) Disallowances of any claims for services furnished before 
October 1, 1980, regardless of the date of the claim submitted to CMS.
    (b) General principles. (1) CMS will charge a State interest on FFP 
when--
    (i) CMS has notified the Medicaid agency under 45 CFR 74.304 that a 
State claim for FFP is not allowable;
    (ii) The agency has appealed the disallowance to the Grant Appeals 
Board under 45 CFR Part 16 and has chosen to retain the FFP during the 
administrative appeals process in accordance with paragraph (c)(2) of 
this section; and
    (iii)(A) The Board has made a final determination upholding part or 
all of the disallowance; (B) the agency has withdrawn its appeal on all 
or part of the disallowance; or (C) the agency has reversed its decision 
to retain the funds without withdrawing its appeal and the Board upholds 
all or part of the disallowance.
    (2) If the courts overturn, in whole or in part, a Board decision 
that has sustained a disallowance, CMS will return the principal and the 
interest collected on the funds that were disallowed, upon the 
completion of all judicial appeals.
    (3) Unless an agency decides to withdraw its appeal on part of the 
disallowance and therefore returns only that part of the funds on which 
it has withdrawn its appeal, any decision to retain or return disallowed 
funds must apply to the entire amount in dispute.
    (4) If the agency elects to have CMS recover the disputed amount, it 
may not reverse that election.
    (c) State procedures. (1) If the Medicaid agency has appealed a 
disallowance to the Board and wishes to retain the disallowed funds 
until the Board issues a final determination, the agency must notify the 
CMS Regional Administrator in writing of its decision to do so.
    (2) The agency must mail its notice to the CMS Regional 
Administrator within 30 days of the date of receipt of the notice of the 
disallowance, as established by the certified mail receipt accompanying 
the notices.
    (3) If the agency withdraws either its decision to retain the FFP or 
its appeal on all or part of the FFP or both, the agency must notify CMS 
in writing.
    (4) If the agency does not notify the CMS Regional Administrator 
within the time limit set forth in paragraph (c)(2) of this section. CMS 
will recover the amount of the disallowed funds

[[Page 72]]

from the next possible Medicaid grant award to the State.
    (d) Amount of interest charged. (1) If the agency retains funds that 
later become subject to an interest charge under paragraph (b) of this 
section, CMS will offset from the next Medicaid grant award to the State 
the amount of the funds subject to the interest charge, plus interest on 
that amount.
    (2) The interest charge is at the rate CMS determines to be the 
average of the bond equivalent of the weekly 90-day Treasury bill 
auction rates during the period for which interest will be charged.
    (e) Duration of interest. (1) The interest charge on the amount of 
disallowed FFP retained by the agency will begin on the date of the 
disallowance notice and end--
    (i) On the date of the final determination by the Board;
    (ii) On the date CMS receives written notice from the State that it 
is withdrawing its appeal on all of the disallowed funds; or
    (iii) If the agency withdraws its appeal on part of the funds, on 
(A) the date CMS receives written notice from the agency that it is 
withdrawing its appeal on a specified part of the disallowed funds for 
the part on which the agency withdraws its appeal; and (B) the date of 
the final determination by the Board on the part for which the agency 
pursues its appeal; or
    (iv) The date CMS receives written notice from the agency that it no 
longer chooses to retain the funds.
    (2) CMS will not charge interest on FFP retained by an agency for 
more than 12 months for disallowances of FFP made between October 1, 
1980 and August 13, 1981.

[48 FR 29485, June 27, 1983]



Sec. 433.40  Treatment of uncashed or cancelled (voided) Medicaid checks.

    (a) Purpose. This section provides the rules to ensure that States 
refund the Federal portion of uncashed or cancelled (voided) checks 
under title XIX.
    (b) Definitions. As used in this section--
    Cancelled (voided) check means a Medicaid check issued by a State or 
fiscal agent which prior to its being cashed is cancelled (voided) by 
the State or fiscal agent, thus preventing disbursement of funds.
    Check means a check or warrant that a State or local agency uses to 
make a payment.
    Fiscal agent means an entity that processes or pays vendor claims 
for the Medicaid State agency.
    Uncashed check means a Medicaid check issued by a State or fiscal 
agent which has not been cashed by the payee.
    Warrant means an order by which the State agency or local agency 
without the authority to issue checks recognizes a claim. Presentation 
of a warrant by the payee to a State officer with authority to issue 
checks will result in release of funds due.
    (c) Refund of Federal financial participation (FFP) for uncashed 
checks--(1) General provisions. If a check remains uncashed beyond a 
period of 180 days from the date it was issued; i.e., the date of the 
check, it will no longer be regarded as an allowable program 
expenditure. If the State has claimed and received FFP for the amount of 
the uncashed check, it must refund the amount of FFP received.
    (2) Report of refund. At the end of each calendar quarter, the State 
must identify those checks which remain uncashed beyond a period of 180 
days after issuance. The State agency must refund all FFP that it 
received for uncashed checks by adjusting the Quarterly Statement of 
Expenditures for that quarter. If an uncashed check is cashed after the 
refund is made, the State may file a claim. The claim will be considered 
to be an adjustment to the costs for the quarter in which the check was 
originally claimed. This claim will be paid if otherwise allowed by the 
Act and the regulations issued pursuant to the Act.
    (3) If the State does not refund the appropriate amount as specified 
in paragraph (c)(2) of this section, the amount will be disallowed.
    (d) Refund of FFP for cancelled (voided) checks--(1) General 
provision. If the State has claimed and received FFP for the amount of a 
cancelled (voided) check, it must refund the amount of FFP received.

[[Page 73]]

    (2) Report of refund. At the end of each calendar quarter, the State 
agency must identify those checks which were cancelled (voided). The 
State must refund all FFP that it received for cancelled (voided) checks 
by adjusting the Quarterly Statement of Expenditures for that quarter.
    (3) If the State does not refund the appropriate amount as specified 
in paragraph (d)(2) of this section, the amount will be disallowed.

[51 FR 36227, Oct. 9, 1986]



     Subpart B_General Administrative Requirements State Financial 
                              Participation

    Source: 57 FR 55138, Nov. 24, 1992, unless otherwise noted.



Sec. 433.50  Basis, scope, and applicability.

    (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]



Sec. 433.51  Public funds as the State share of financial participation.

    (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]



Sec. 433.52  General definitions.

    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

[[Page 74]]

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.



Sec. 433.53  State plan requirements.

    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]



Sec. 433.54  Bona fide donations.

    (a) A bona fide donation means a provider-related donation, as 
defined in Sec. 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

[[Page 75]]

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.



Sec. 433.55  Health care-related taxes defined.

    (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.



Sec. 433.56  Classes of health care services and providers defined.

    (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

[[Page 76]]

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]



Sec. 433.57  General rules regarding revenues from provider-related donations and health care-related taxes.

    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 
Sec. 433.58, except for certain revenue received during a specified 
transition period;
    (b) Permissible provider-related donations, as specified in Sec. 
433.66(b); or
    (c) Health care-related taxes, as specified in Sec. 433.68(b).



Sec. 433.58  Provider-related donations and health care-related taxes during a State's transition period.

    (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 Sec. 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 Sec. 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 Sec. 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

[[Page 77]]

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 Sec. 433.60(a).
    (g) Health care-related taxes during the transition period. (1) 
Subject to the limitations specified in Sec. 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 
Sec. 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 Sec. 
433.68(f).

[57 FR 55138, Nov. 24, 1992; 58 FR 6095, Jan. 26, 1993, as amended at 58 
FR 43180, Aug. 13, 1993]



Sec. 433.60  Limitations on level of FFP in State expenditures from provider-related donations and health care-related taxes during the transition period.

    (a) Maximum amounts. The maximum amount of total provider-related 
donations, as specified in Sec. 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 Sec. 
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).

[[Page 78]]

    (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 Sec. 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 Sec. 
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]



Sec. 433.66  Permissible provider-related donations after the transition period.

    (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 Sec. 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 
Sec. 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 Sec. 
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]



Sec. 433.67  Limitations on level of FFP for permissible provider-related donations.

    (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 Sec. 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 Sec. 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 Sec. 433.70.

[[Page 79]]

    (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 Sec. 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]



Sec. 433.68  Permissible health care-related taxes after the transition period.

    (a) General rule. Beginning on the day after a State's transition 
period, as defined in Sec. 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 Sec. 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 Sec. 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

[[Page 80]]

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 Sec. 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 Sec. 412.62(f)(1)(ii) of this chapter);
    (4) Sole community hospitals as defined in Sec. 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:

[[Page 81]]

    (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 Sec. 
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 Sec. 433.68(c)) nor 
uniform (as specified in Sec. 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 Sec. 412.62(f)(1)(ii) of this chapter;
    (4) Sole community hospitals as defined in Sec. 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

[[Page 82]]

(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]



Sec. 433.70  Limitations on level of FFP for revenues from health care-related taxes after the transition period.

    (a) Limitations. (1) Subsequent to the end of a State's transition 
period (as defined in Sec. 433.58(b)), and extending through September 
30, 1995, the maximum amount of health care-related taxes specified in 
Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 433.68 and 
any health care-related taxes in excess of the limits specified in 
paragraph (a)(1) of this section.

[[Page 83]]



Sec. 433.72  Waiver provisions applicable to health care-related taxes.

    (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 
Sec. 433.68c); and/or
    (ii) The tax is not imposed uniformly but meets the criteria 
specified in Sec. 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 Sec. 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 Sec. 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]



Sec. 433.74  Reporting requirements.

    (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.



Subpart C_Mechanized Claims Processing and Information Retrieval Systems



Sec. 433.110  Basis, purpose, and applicability.

    (a) This subpart implements the following sections of the Act:
    (1) Section 1903(a)(3) of the Act, which provides for FFP in State 
expenditures for the design, development, or installation of mechanized 
claims processing and information retrieval

[[Page 84]]

systems and for the operation of certain systems. Additional HHS 
regulations and CMS procedures for implementing these regulations are in 
45 CFR part 74, 45 CFR part 95, subpart F, and part 11, State Medicaid 
Manual; and
    (2) Section 1903(r) of the Act, which--(i) Requires reductions in 
FFP otherwise due a State under section 1903(a) if a State fails to meet 
certain deadlines for operating a mechanized claims processing and 
information retrieval system or if the system fails to meet certain 
conditions of approval or conditions of reapproval;
    (ii) Requires a Federal performance review at least every three 
years of the mechanized claims processing and information retrieval 
systems; and
    (iii) Allows waivers of conditions of approval, conditions of 
reapproval, and FFP reductions under certain circumstances.
    (b) The requirements under section 1903(r) of the Act do not apply 
to Puerto Rico, Guam, the Virgin Islands, American Samoa and the 
Northern Mariana Islands.

[50 FR 30846, July 30, 1985, as amended at 54 FR 41973, Oct. 13, 1989]



Sec. 433.111  Definitions.

    For purposes of this section:
    (a) The following terms are defined at 45 CFR part 95, subpart F 
Sec. 95.605:

``Advance Planning Document''; ``Design'' or ``System Design''; 
``Development''; ``Enhancement''; ``Hardware''; ``Installation''; 
``Operation''; and, ``Software''.

    (b) ``Mechanized claims processing and information retrieval 
system'' or ``system'' means the system of software and hardware used to 
process Medicaid claims from providers of medical care and services for 
the medical care and services furnished to recipients under the medical 
assistance program and to retrieve and produce service utilization and 
management information required by the Medicaid single State agency and 
Federal Government for program administration and audit purposes. The 
system consists of
    (1) Required subsystems specified in the State Medicaid Manual;
    (2) Required changes to the required system or subsystem that are 
published in accordance with Sec. 433.123 of this subpart and specified 
in the State Medicaid Manual; and
    (3) Approved enhancements to the system. Eligibility determination 
systems are not part of mechanized claims processing and information 
retrieval systems or enhancements to those systems.

[51 FR 45330, Dec. 18, 1986, as amended at 54 FR 41973, Oct. 13, 1989]



Sec. 433.112  FFP for design, development, installation or enhancement of mechanized claims processing and information retrieval systems.

    (a) FFP is available at the 90 percent rate in State expenditures 
for the design, development, installation, or enhancement of a 
mechanized claims processing and information retrieval system only if 
the APD is approved by CMS prior to the State's expenditure of funds for 
these purposes.
    (b) CMS will approve the system described in the APD if the 
following conditions are met:
    (1) CMS determines the system is likely to provide more efficient, 
economical, and effective administration of the State plan.
    (2) The system meets the system requirements and performance 
standards in Part 11 of the State Medicaid Manual, as periodically 
amended.
    (3) The system is compatible with the claims processing and 
information retrieval systems used in the administration of Medicare for 
prompt eligibility verification and for processing claims for persons 
eligible for both programs.
    (4) The system supports the data requirements of quality improvement 
organizations established under Part B of title XI of the Act.
    (5) The State owns any software that is designed, developed, 
installed or improved with 90 percent FFP.
    (6) The Department has a royalty free, non-exclusive, and 
irrevocable license to reproduce, publish, or otherwise use and 
authorize others to use, for Federal Government purposes, software, 
modifications to software, and documentation that is designed, 
developed, installed or enhanced with 90 percent FFP.

[[Page 85]]

    (7) The costs of the system are determined in accordance with 45 CFR 
74.171.
    (8) The Medicaid agency agrees in writing to use the system for the 
period of time specified in the advance planning document approved by 
CMS or for any shorter period of time that CMS determines justifies the 
Federal funds invested.
    (9) The agency agrees in writing that the information in the system 
will be safeguarded in accordance with subpart F, part 431 of this 
subchapter.
    (c) Eligibility determination systems are not part of mechanized 
claims processing and information retrieval systems and are not eligible 
for 75 percent FFP under this subpart. These systems are also not 
eligible for 90 percent FFP for any APD approved after November 13, 
1989.

[43 FR 45201, Sept. 29, 1978, as amended at 44 FR 17937, Mar. 23, 1979; 
45 FR 14213, Mar. 5, 1980; 50 FR 30846, July 30, 1985; 51 FR 45330, Dec. 
18, 1986; 54 FR 41973, Oct. 13, 1989; 55 FR 1820, Jan. 19, 1990; 55 FR 
4375, Feb. 7, 1990]



Sec. 433.113  Reduction of FFP for failure to operate a system and obtain initial approval.

    (a) Except as waived under Sec. 433.130 or 433.131, FFP will be 
reduced as specified in paragraph (b) of this section unless the 
Medicaid agency has in continuous operation a mechanized claims 
processing and information retrieval system that meets the following 
conditions:
    (1) The APD for the system was approved by CMS;
    (2) The system is operational by September 30, 1985; and
    (3) The system is initially approved by the last day of the fourth 
quarter that begins after the date the system became operational as 
determined by CMS.
    (b) CMS will reduce FFP in expenditures for compensation and 
training of skilled professional medical personnel and support staff 
under section 1903(a)(2) of the Act, and for general administration 
under section 1903(a)(7) of the Act, by the following increments applied 
separately to those two categories of expenditures:
    (1) Five percentage points for the first two quarters beginning 
after a deadline in paragraph (a) of this section;
    (2) An additional five percentage points during each additional two-
quarter period, through the quarter in which the State achieves 
compliance with the conditions for initial operation or initial approval 
of an operating system. FFP reductions will not exceed 25 percentage 
points for each type of reduction.
    (c) The amount of FFP (determined under section 1903(a)(3)(B)) that 
would be available retroactively for operating a system that later 
receives initial approval will be reduced by CMS by the same percentage 
points for the identical periods of time described in subparagraph 
(b)(1) of this section, until the system is initially approved. No 
reduction will be made after the first quarter during which the system 
is initially approved.

[50 FR 30847, July 30, 1985, as amended at 54 FR 41973, Oct. 13, 1989]



Sec. 433.114  Procedures for obtaining initial approval; notice of decision.

    (a) To obtain initial approval, the Medicaid agency must inform CMS 
in writing that the system meets the conditions specified in Sec. 
433.116(c) through (h).
    (b) If CMS disapproves the system, or determines that the system met 
requirements for initial approval on a date later than the date required 
under Sec. 433.113(a)(3), the notice will include--
    (1) The findings of fact upon which the determination was made; and
    (2) The procedures for appeal of the determination in the context of 
a reconsideration of the resulting disallowance, to the Departmental 
Appeals Board.

[50 FR 30847, July 30, 1985, as amended at 54 FR 41973, Oct. 13, 1989]



Sec. 433.116  FFP for operation of mechanized claims processing and information retrieval systems.

    (a) Subject to 42 CFR 433.113(c), FFP is available at 75 percent of 
expenditures for operation of a mechanized claims processing and 
information retrieval system approved by CMS, from the first day of the 
calendar quarter

[[Page 86]]

after the date the system met the conditions of initial approval, as 
established by CMS (including a retroactive adjustment of FFP if 
necessary to provide the 75 percent rate beginning on the first day of 
that calendar quarter). Subject to 45 CFR 95.611(a), the State shall 
obtain prior written approval from CMS when it plans to acquire ADP 
equipment or services, when it anticipates the total acquisition costs 
will exceed thresholds, and meets other conditions of the subpart.
    (b) CMS will approve the system operation if the conditions 
specified in paragraphs (c) through (h) of this section are met.
    (c) The conditions of Sec. 433.112(b) (1) through (4) and (7) 
through (9), as periodically modified under Sec. 433.112(b)(2), must be 
met.
    (d) The system must have been operating continuously during the 
period for which FFP is claimed.
    (e) The system must provide individual notices, within 45 days of 
the payment of claims, to all or a sample group of the persons who 
received services under the plan.
    (f) The notice required by paragraph (e) of this section--
    (1) Must specify--
    (i) The service furnished;
    (ii) The name of the provider furnishing the service;
    (iii) The date on which the service was furnished; and
    (iv) The amount of the payment made under the plan for the service; 
and
    (2) Must not specify confidential services (as defined by the State) 
and must not be sent if the only service furnished was confidential.
    (g) The system must provide both patient and provider profiles for 
program management and utilization review purposes.
    (h) If the State has a Medicaid fraud control unit certified under 
section 1903(q) of the Act and Sec. 455.300 of this chapter, the 
Medicaid agency must have procedures to assure that information on 
probable fraud or abuse that is obtained from, or developed by, the 
system is made available to that unit. (See Sec. 455.21 of this chapter 
for State plan requirements.)

[45 FR 14213, Mar. 5, 1980. Redesignated and amended at 50 FR 30847, 
July 30, 1985; 55 FR 4375, Feb. 7, 1990]



Sec. 433.117  Initial approval of replacement systems.

    (a) A replacement system must meet all conditions of initial 
approval of a mechanized claims processing and information retrieval 
system.
    (b) The agency must submit a APD that includes--
    (1) The date the replacement system will be in operation; and
    (2) A plan for orderly transition from the system being replaced to 
the replacement system.
    (c) FFP is available at--
    (1) 90 percent in expenditures for design, development, and 
installation in accordance with the provisions of Sec. 433.112; and
    (2) 75 percent in expenditures for operation of an approved 
replacement system in accordance with the provisions of Sec. 433.116(b) 
through (h), from the date that the system met the conditions of initial 
approval, as established by CMS.
    (d) FFP is available at 75 percent in expenditures for the operation 
of an approved system that is being replaced (or at a reduced rate 
determined under Sec. 433.120 of this subpart for a system that has 
been disapproved) until the replacement system is in operation and 
approved.

[50 FR 30847, July 30, 1985]



Sec. 433.119  Conditions for reapproval; notice of decision.

    (a) CMS will review at least once every three years each system 
operation initially approved under Sec. 433.114 and reapprove it for 
FFP at 75 percent of expenditures if the following conditions are met:
    (1) The system meets the conditions of Sec. 433.112(b) (1), (3), 
(4), and (7) through (9).
    (2) The system meets the conditions of Sec. 433.116 (d) through 
(h).
    (3) The system meets the performance standards for reapproval and 
the system requirements in part 11 of the State Medicaid Manual as 
periodically amended.

[[Page 87]]

    (4) Automated eligibility determination systems approved or 
operating on or before November 13, 1989, will not qualify for FFP at 75 
percent of expenditures after November 13, 1989.
    (b) CMS may review an entire system operation or focus its review on 
parts of the operation. However, at a minimum, CMS will review 
standards, system requirements and other conditions of reapproval that 
have demonstrated weakness in a previous review or reviews.
    (c) CMS will issue to each Medicaid agency, by the end of the first 
quarter after the review period, a written notice informing the agency 
whether its system is reapproved or disapproved. If the system is 
disapproved, the notice will also include--
    (1) CMS's decision to reduce FFP for system operations, and the 
percentage to which it is reduced, beginning with the next calender 
quarter;
    (2) The findings of fact upon which the determination was made; and
    (3) A statement that State claims in excess of the reduced FFP rate 
will be disallowed and that any such disallowance will be appealable to 
the Departmental Appeals Board.

[54 FR 41973, Oct. 13, 1989; 55 FR 1820, Jan. 19, 1990]



Sec. 433.120  Procedures for reduction of FFP after reapproval review.

    (a) If CMS determines after the reapproval review that the system no 
longer meets the conditions of reapproval in Sec. 433.119, CMS will 
reduce FFP for system operations for at least four quarters. However, no 
system will be subject to reduction of FFP for at least the first four 
quarters after the quarter in which the system is initially approved as 
eligible for 75 percent FFP.
    (b) CMS will reduce FFP in expenditures for system operations from 
75 percent to no more than 70 percent and no less than 50 percent; 
however, CMS will not reduce FFP by more than 10 percentage points in 
any four-quarter period. The percentage to which the FFP is reduced will 
depend primarily on the following criteria:
    (1) The number of conditions judged unsatisfactory;
    (2) The extent to which conditions were not met;
    (3) The significance of the unsatisfactory conditions in overall 
mechanized claims processing and information retrieval system 
operations; and
    (4) The actual and potential program impact attributable to the 
unsatisfactory conditions.

[50 FR 30848, July 30, 1985, as amended at 54 FR 41974, Oct. 13, 1989]



Sec. 433.121  Reconsideration of the decision to reduce FFP after reapproval review.

    (a) The agency may appeal to the Departmental Appeals Board under 45 
CFR part 16, a disallowance concerning a reduction in FFP claimed for 
system operation caused by a disapproval of the State's system. If the 
Board finds such a disallowance to be appropriate, the discretionary 
determination to reduce FFP by a particular percentage amount (instead 
of by a lesser percentage) is not subject to review by the Board unless 
the percentage reduction exceeds the range authorized by section 
1903(r)(4)(B) of the Act.
    (b) The decisions concerning whether to restore any FFP 
retroactively and the actual number of quarters for which FFP will be 
restored under Sec. 433.122 of this subpart are not subject to 
administrative appeal to the Departmental Appeals Board under 45 CFR 
part 16.
    (c) An agency's request for a reconsideration before the Board under 
paragraph (a) of this section does not delay implementation of the 
reduction in FFP. However, any reduction is subject to retroactive 
adjustment if required by the Board's determination on reconsideration.

[50 FR 30848, July 30, 1985, as amended at 54 FR 41974, Oct. 13, 1989; 
55 FR 1820, Jan. 19, 1990]



Sec. 433.122  Reapproval of a disapproved system.

    When FFP has been reduced under Sec. 433.120(a), and CMS determines 
upon subsequent review that the system meets all current performance 
standards, system requirements and other conditions of reapproval, the 
following provisions apply:
    (a) CMS will resume FFP in expenditures for system operations at the 
75

[[Page 88]]

percent level beginning with the quarter following the review 
determination that the system again meets conditions of reapproval.
    (b) CMS may retroactively waive a reduction of FFP in expenditures 
for system operations if CMS determines that the waiver could improve 
the administration of the State Medicaid plan. However, CMS cannot waive 
this reduction for any quarter before the fourth quarter immediately 
preceding the quarter in which CMS issues the determination (as part of 
the review process) stating that the system is reapproved.

[54 FR 41974, Oct. 13, 1989]



Sec. 433.123  Notification of changes in system requirements, performance standards or other conditions for approval or reapproval.

    (a) Whenever CMS modifies system requirements or other conditions 
for approval under Sec. 433.112 or Sec. 433.116, CMS will--
    (1) Publish a notice in the Federal Register making available the 
proposed changes for public comment;
    (2) Respond in a subsequent Federal Register notice to comments 
received; and
    (3) Issue the new or modified requirements or conditions in the 
State Medicaid Manual.
    (b) For changes in system requirements or other conditions for 
approval, CMS will allow an appropriate period for Medicaid agencies to 
meet the requirement determining this period on the basis of the 
requirement's complexity and other relevant factors.
    (c) Whenever CMS modifies performance standards and other conditions 
for reapproval under Sec. 433.119, CMS will notify Medicaid agencies at 
least one calendar quarter before the review period to which the new or 
modified standards or conditions apply.

[57 FR 38782, Aug. 27, 1992]



Sec. 433.127  Termination of FFP for failure to provide access to claims processing and information retrieval systems.

    CMS will terminate FFP at any time if the Medicaid agency fails to 
provide State and Federal representatives with full access to the 
system, including on-site inspection. CMS may request such access at any 
time to determine whether the conditions in this subpart are being met.

[43 FR 45201, Sept. 29, 1978. Redesignated and amended at 50 FR 30847 
and 30848, July 30, 1985]



Sec. 433.130  Waiver of conditions of initial operation and approval.

    (a) CMS will waive requirements for initial operation and approval 
of systems under Sec. 433.113 for a State meeting the requirements of 
paragraph (b) of this section and that had a 1976 population of less 
than one million and made total Federal and State Medicaid expenditures 
of less than $100 million in fiscal year 1976. Population figures are 
those reported by the Bureau of the Census. Expenditures for fiscal year 
1976 are those reported by the State for that year.
    (b) To be eligible for this waiver, the agency must submit its 
reasons to CMS in writing and demonstrate to CMS's satisfaction that a 
system will not significantly improve the efficiency of the 
administration of the State plan.
    (c) If CMS denies the waiver request, the notice of denial will 
include--
    (1) The findings of fact upon which the denial was made; and
    (2) The procedures for appeal of the denial.
    (d) If CMS determines, after granting a waiver, that a system would 
significantly improve the administration of the State Medicaid program, 
CMS may withdraw the waiver and require that a State obtain initial 
approval of a system within two years of the date of waiver withdrawal.

[50 FR 30848, July 30, 1985, as amended at 54 FR 41974, Oct. 13, 1989]



Sec. 433.131  Waiver for noncompliance with conditions of approval and reapproval.

    If a State is unable to comply with the conditions of approval or of 
reapproval and the noncompliance will cause a percentum reduction in 
FFP, CMS will waive the FFP reduction in the following circumstances:
    (a) Good cause. If CMS determines that good cause existed, CMS will 
waive the FFP reduction attributable to those items for which the good 
cause

[[Page 89]]

existed. A waiver of FFP consequences of the failure to meet the 
conditions of approval or reapproval based upon good cause will not 
extend beyond two consecutive quarters.
    (b) Circumstances beyond the control of a State. The State must 
satisfactorily explain the circumstances that are beyond its control. 
When CMS grants the waiver, CMS will also defer all other system 
deadlines for the same length of time that the waiver applies.

[50 FR 30848, July 30, 1985, as amended at 54 FR 41974, Oct. 13, 1989]



                     Subpart D_Third Party Liability

    Source: 45 FR 8984, Feb. 11, 1980, unless otherwise noted.



Sec. 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.

[50 FR 46664, Nov. 12, 1985]



Sec. 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 or services, including self-insured and self-funded plans.
    Third party means any individual, entity or program that is or may 
be liable to pay all or part of the expenditures for medical assistance 
furnished under a State plan.
    Title IV-D agency means the organizational unit in the State that 
has the responsibility for administering or supervising the 
administration of a State plan for child support enforcement under title 
IV-D of the Act.

[49 FR 8984, Feb. 11, 1980, as amended at 50 FR 46664, Nov. 12, 1985; 50 
FR 49389, Dec. 2, 1985]



Sec. 433.137  State plan requirements.

    (a) A State plan must provide that the requirements of Sec. Sec. 
433.138 and 433.139 are met for identifying third parties liable for 
payment of services under the plan and for payment of claims involving 
third parties.
    (b) A State plan must provide that--
    (1) The requirements of Sec. Sec. 433.145 through 433.148 are met 
for assignment of rights to benefits, cooperation with the agency in 
obtaining medical support or payments, and cooperation in identifying 
and providing information to assist the State in pursuing any liable 
third parties; and
    (2) The requirements of Sec. Sec. 433.151 through 433.154 are met 
for cooperative agreements and incentive payments for third party 
collections.
    (c) The requirements of paragraph (b)(1) of this section relating to 
assignment of rights to benefits and cooperation in obtaining medical 
support or payments and paragraph (b)(2) of this section are effective 
for medical assistance furnished on or after October 1, 1984. The 
requirements of paragraph (b)(1) of this section relating to cooperation 
in identifying and providing information to assist the State in pursuing 
liable third parties are effective for medical assistance furnished on 
or after July 1, 1986.

[50 FR 46665, Nov. 12, 1985, as amended at 55 FR 48606, Nov. 21, 1990; 
55 FR 52130, Dec. 19, 1990; 60 FR 35502, July 10, 1995]



Sec. 433.138  Identifying liable third parties.

    (a) Basic provisions. The agency must take reasonable measures to 
determine the legal liability of the third parties

[[Page 90]]

who are liable to pay for services furnished under the plan. At a 
minimum, such measures must include the requirements specified in 
paragraphs (b) through (k) of this section, unless waived under 
paragraph (l) of this section.
    (b) Obtaining health insurance information: Initial application and 
redetermination processes for Medicaid eligibility. (1) If the Medicaid 
agency determines eligibility for Medicaid, it must, during the initial 
application and each redetermination process, obtain from the applicant 
or recipient such health insurance information as would be useful in 
identifying legally liable third party resources so that the agency may 
process claims under the third party liability payment procedures 
specified in Sec. 433.139 (b) through (f). Health insurance information 
may include, but is not limited to, the name of the policy holder, his 
or her relationship to the applicant or recipient, the social security 
number (SSN) of the policy holder, and the name and address of insurance 
company and policy number.
    (2) If Medicaid eligibility is determined by the Federal agency 
administering the supplemental security income program under title XVI 
in accordance with a written agreement under section 1634 of the Act, 
the Medicaid agency must take the following action. It must enter into 
an agreement with CMS or must have, prior to February 1, 1985, executed 
a modified section 1634 agreement that is still in effect to provide 
for--
    (i) Collection, from the applicant or recipient during the initial 
application and each redetermination process, of health insurance 
information in the form and manner specified by the Secretary; and
    (ii) Transmittal of the information to the Medicaid agency.
    (3) If Medicaid eligibility is determined by any other agency in 
accordance with a written agreement, the Medicaid agency must modify the 
agreement to provide for--
    (i) Collection, from the applicant or recipient during the initial 
application and each redetermination process, of such health insurance 
information as would be useful in identifying legally liable third party 
resources so that the Medicaid agency may process claims under the third 
party liability payment procedures specified in Sec. 433.139 (b) 
through (f). Health insurance information may include, but is not 
limited to, those elements described in paragraph (b)(1) of this 
section; and
    (ii) Transmittal of the information to the Medicaid agency.
    (c) Obtaining other information. Except as provided in paragraph (l) 
of this section, the agency must, for the purpose of implementing the 
requirements in paragraphs (d)(1)(ii) and (d)(4)(i) of this section, 
incorporate into the eligibility case file the names and SSNs of absent 
or custodial parents of Medicaid recipients to the extent such 
information is available.
    (d) Exchange of data. Except as provided in paragraph (l) of this 
section, to obtain and use information for the purpose of determining 
the legal liability of the third parties so that the agency may process 
claims under the third party liability payment procedures specified in 
Sec. 433.139(b) through (f), the agency must take the following 
actions:
    (1) Except as specified in paragraph (d)(2) of this section, as part 
of the data exchange requirements under Sec. 435.945 of this chapter, 
from the State wage information collection agency (SWICA) defined in 
Sec. 435.4 of this chapter and from the SSA wage and earnings files 
data as specified in Sec. 435.948(a)(2) of this chapter, the agency 
must--
    (i) Use the information that identifies Medicaid recipients that are 
employed and their employer(s); and
    (ii) Obtain and use, if their names and SSNs are available to the 
agency under paragraph (c) of this section, information that identifies 
employed absent or custodial parents of recipients and their 
employer(s).
    (2) If the agency can demonstrate to CMS that it has an alternate 
source of information that furnishes information as timely, complete and 
useful as the SWICA and SSA wage and earnings files in determining the 
legal liability of third parties, the requirements of paragraph (d)(1) 
of this section are deemed to be met.
    (3) The agency must request, as required under Sec. 
435.948(a)(6)(i), from the State title IV-A agency, information

[[Page 91]]

not previously reported that identifies those Medicaid recipients that 
are employed and their employer(s).
    (4) Except as specified in paragraph (d)(5) of this section, the 
agency must attempt to secure agreements (to the extent permitted by 
State law) to provide for obtaining--
    (i) From State Workers' Compensation or Industrial Accident 
Commission files, information that identifies Medicaid recipients and, 
(if their names and SSNs were available to the agency under paragraph 
(c) of this section) absent or custodial parents of Medicaid recipients 
with employment-related injuries or illnesses; and
    (ii) From State Motor Vehicle accident report files, information 
that identifies those Medicaid recipients injured in motor vehicle 
accidents, whether injured as pedestrians, drivers, passengers, or 
bicyclists.
    (5) If unable to secure agreements as specified in paragraph (d)(4) 
of this section, the agency must submit documentation to the regional 
office that demonstrates the agency made a reasonable attempt to secure 
these agreements. If CMS determines that a reasonable attempt was made, 
the requirements of paragraph (d)(4) of this section are deemed to be 
met.
    (e) Diagnosis and trauma code edits. (1) Except as specified under 
paragraph (e)(2) or (l) of this section, or both, the agency must take 
action to identify those paid claims for Medicaid recipients that 
contain diagnosis codes 800 through 999 International Classification of 
Disease, 9th Revision, Clinical Modification, Volume 1 (ICD-9-CM) 
inclusive, for the purpose of determining the legal liability of third 
parties so that the agency may process claims under the third party 
liability payment procedures specified in Sec. 433.139(b) through (f).
    (2) The agency may exclude code 994.6, Motion Sickness, from the 
edits required under paragraph (e)(1) of this section.
    (f) Data exchanges and trauma code edits: Frequency. Except as 
provided in paragraph (l) of this section, the agency must conduct the 
data exchanges required in paragraphs (d)(1) and (d)(3) of this section 
in accordance with the intervals specified in Sec. 435.948 of this 
chapter, and diagnosis and trauma edits required in paragraphs (d)(4) 
and (e) of this section on a routine and timely basis. The State plan 
must specify the frequency of these activities.
    (g) Followup procedures for identifying legally liable third party 
resources. Except as provided in paragraph (l) of this section, the 
State must meet the requirements of this paragraph.
    (1) SWICA, SSA wage and earnings files, and title IV-A data 
exchanges. With respect to information obtained under paragraphs (d)(1) 
through (d)(3) of this section--
    (i) Except as specified in Sec. 435.952(d) of this chapter, within 
45 days, the agency must followup (if appropriate) on such information 
in order to identify legally liable third party resources and 
incorporate such information into the eligibility case file and into its 
third party data base and third party recovery unit so the agency may 
process claims under the third party liability payment procedures 
specified in Sec. 433.139 (b) through (f); and
    (ii) The State plan must describe the methods the agency uses for 
meeting the requirements of paragraph (g)(1)(i) of this section.
    (2) Health insurance information and workers' compensation data 
exchanges. With respect to information obtained under paragraphs (b) and 
(d)(4)(i) of this section--
    (i) Within 60 days, the agency must followup on such information (if 
appropriate) in order to identify legally liable third party resources 
and incorporate such information into the eligibility case file and into 
its third party data base and third party recovery unit so the agency 
may process claims under the third party liability payment procedures 
specified in Sec. 433.139 (b) through (f); and
    (ii) The State plan must describe the methods the agency uses for 
meeting the requirements of paragraph (g)(2)(i) of this section.
    (3) State motor vehicle accident report file data exchanges. With 
respect to information obtained under paragraph (d)(4)(ii) of this 
section--
    (i) The State plan must describe the methods the agency uses for 
following up on such information in order to

[[Page 92]]

identify legally liable third party resources so the agency may process 
claims under the third party liability payment procedures specified in 
Sec. 433.139 (b) through (f);
    (ii) After followup, the agency must incorporate all information 
that identifies legally liable third party resources into the 
eligibility case file and into its third party data base and third party 
recovery unit; and
    (iii) The State plan must specify timeframes for incorporation of 
the information.
    (4) Diagnosis and trauma code edits. With respect to the paid claims 
identified under paragraph (e) of this section--
    (i) The State plan must describe the methods the agency uses to 
follow up on such claims in order to identify legally liable third party 
resources so the agency may process claims under the third party 
liability payment procedures specified in Sec. 433.139 (b) through (f) 
(Methods must include a procedure for periodically identifying those 
trauma codes that yield the highest third party collections and giving 
priority to following up on those codes.);
    (ii) After followup, the agency must incorporate all information 
that identifies legally liable third party resources into the 
eligibility case file and into its third party data base and third party 
recovery unit; and
    (iii) The State plan must specify the timeframes for incorporation 
of the information.
    (h) Obtaining other information and data exchanges: Safeguarding 
information. (1) The agency must safeguard information obtained from and 
exchanged under this section with other agencies in accordance with the 
requirements set forth in part 431, subpart F of this chapter.
    (2) Before requesting information from, or releasing information to 
other agencies to identify legally liable third party resources under 
paragraph (d) of this section the agency must execute data exchange 
agreements with those agencies. The agreements, at a minimum, must 
specify--
    (i) The information to be exchanged;
    (ii) The titles of all agency officials with the authority to 
request third party information;
    (iii) The methods, including the formats to be used, and the timing 
for requesting and providing the information;
    (iv) The safeguards limiting the use and disclosure of the 
information as required by Federal or State law or regulations; and
    (v) The method the agency will use to reimburse reasonable costs of 
furnishing the information if payment is requested.
    (i) Reimbursement. The agency must, upon request, reimburse an 
agency for the reasonable costs incurred in furnishing information under 
this section to the Medicaid agency.
    (j) Reports. The agency must provide such reports with respect to 
the data exchanges and trauma code edits set forth in paragraphs (d)(1) 
through (d)(4) and paragraph (e) of this section, respectively, as the 
Secretary prescribes for the purpose of determining compliance under 
Sec. 433.138 and evaluating the effectiveness of the third party 
liability identification system. However, if the State is not meeting 
the provisions of paragraph (e) of this section because it has been 
granted a waiver of those provisions under paragraph (l) of this 
section, it is not required to provide the reports required in this 
paragraph.
    (k) Integration with the State mechanized claims processing and 
information retrieval system. Basic requirement--Development of an 
action plan. (1) If a State has a mechanized claims processing and 
information retrieval system approved by CMS under subpart C of this 
part, the agency must have an action plan for pursuing third party 
liability claims and the action plan must be integrated with the 
mechanized claims processing and information retrieval system.
    (2) The action plan must describe the actions and methodologies the 
State will follow to--
    (i) Identify third parties;
    (ii) Determine the liability of third parties;
    (iii) Avoid payment of third party claims as required in Sec. 
433.139;
    (iv) Recover reimbursement from third parties after Medicaid claims 
payment as required in Sec. 433.139; and,
    (v) Record information and actions relating to the action plan.

[[Page 93]]

    (3) The action plan must be consistent with the conditions for 
reapproval set forth in Sec. 433.119. The portion of the plan which is 
integrated with MMIS is monitored in accordance with those conditions 
and if the conditions are not met; it is subject to FFP reduction in 
accordance with procedures set forth in Sec. 433.120. The State is not 
subject to any other penalty as a result of other monitoring, quality 
control, or auditing requirements for those items in the action plan.
    (4) The agency must submit its action plan to the CMS Regional 
Office within 120 days from the date CMS issues implementing 
instructions for the State Medicaid Manual. If a State does not have an 
approved MMIS on the date of issuance of the State Medicaid Manual but 
subsequently implements an MMIS, the State must submit its action plan 
within 90 days from the date the system is operational. The CMS Regional 
Office approves or disapproves the action plan.
    (l) Waiver of requirements. (1) The agency may request initial and 
continuing waiver of the requirements to determine third party liability 
found in paragraphs (c), (d)(4), (d)(5), (e), (f), (g)(1), (g)(2), 
(g)(3), and (g)(4) of this section if the State determines the activity 
to be not cost-effective. An activity would not be cost-effective if the 
cost of the required activity exceeds the third party liability 
recoupment and the required activity accomplishes, at the same or at a 
higher cost, the same objective as another activity that is being 
performed by the State.
    (i) The agency must submit a request for waiver of the requirement 
in writing to the CMS regional office.
    (ii) The request must contain adequate documentation to establish 
that to meet a requirement specified by the agency is not cost-
effective. Examples of documentation are claims recovery data and a 
State analysis documenting a cost-effective alternative that 
accomplished the same task.
    (iii) The agency must agree, if a waiver is granted, to notify CMS 
of any event that occurs that changes the conditions upon which the 
waiver was approved.
    (2) CMS will review a State's request to have a requirement 
specified under paragraph (l)(1) of this section waived and will request 
additional information from the State, if necessary. CMS will notify the 
State of its approval or disapproval determination within 30 days of 
receipt of a properly documented request.
    (3) CMS may rescind a waiver at any time that it determines that the 
agency no longer meets the criteria for approving the waiver. If the 
waiver is rescinded, the agency has 6 months from the date of the 
rescission notice to meet the requirement that had been waived.

[52 FR 5975, Feb. 27, 1987, as amended at 54 FR 8741, Mar. 2, 1989; 55 
FR 1432, Jan. 16, 1990; 55 FR 5118, Feb. 13, 1990; 60 FR 35502, July 10, 
1995]



Sec. 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 CMS Regional Office.
    (b) Probable liability is established at the time claim is filed. 
Except as provided in paragraph (e) of this section--
    (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

[[Page 94]]

then seek reimbursement from any liable third party to the limit of 
legal liability if the claim is for labor and delivery and postpartum 
care. (Costs associated with the inpatient hospital stay for labor and 
delivery and postpartum care must be cost-avoided.)
    (3) The agency must pay the full amount allowed under the agency's 
payment schedule for the claim and seek reimbursement from any liable 
third party to the limit of legal liability (and for purposes of 
paragraph (b)(3)(ii) of this section, from a third party, if the third 
party liability is derived from an absent parent whose obligation to pay 
support is being enforced by the State title IV-D agency), consistent 
with paragraph (f) of this section if--
    (i) The claim is prenatal care for pregnant women, or preventive 
pediatric services (including early and periodic screening, diagnosis 
and treatment services provided for under part 441, subpart B of this 
chapter), that is covered under the State plan; or
    (ii) The claim is for a service covered under the State plan that is 
provided to an individual on whose behalf child support enforcement is 
being carried out by the State title IV-D agency. The agency prior to 
making any payment under this section must assure that the following 
requirements are met:
    (A) The State plan specifies whether or not providers are required 
to bill the third party.
    (B) The provider certifies that before billing Medicaid, if the 
provider has billed a third party, the provider has waited 30 days from 
the date of the service and has not received payment from the third 
party.
    (C) The State plan specifies the method used in determining the 
provider's compliance with the billing requirements.
    (c) Probable liability is not established or benefits are not 
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. (1) If the agency has an approved 
waiver under paragraph (e) of this section to pay a claim in which the 
probable existence of third party liability has been established and 
then seek reimbursement, 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 unless the agency 
has a waiver of the 60-day requirement under paragraph (e) of this 
section.
    (2) Except as provided in paragraph (e) of this section, if the 
agency learns of the existence of a liable third party after a claim is 
paid, or benefits become available from a third party after a claim is 
paid, the agency must seek recovery of reimbursement within 60 days 
after the end of the month it learns of the existence of the liable 
third party or benefits become available.
    (3) Reimbursement must be sought unless the agency determines that 
recovery would not be cost effective in accordance with paragraph (f) of 
this section.
    (e) Waiver of requirements. (1) The agency may request initial and 
continuing waiver of the requirements in paragraphs (b)(1), (d)(1), and 
(d)(2) of this section, if it determines that the requirement is not 
cost-effective. An activity would not be cost-effective if the cost of 
the required activity exceeds the third party liability recoupment and 
the required activity accomplishes, at the same or at a higher cost, the 
same objective as another activity that is being performed by the State.
    (i) The agency must submit a request for waiver of the requirement 
in writing to the CMS regional office.
    (ii) The request must contain adequate documentation to establish 
that to meet a requirement specified by the agency is not cost-
effective. Examples of documentation are costs associated with billing, 
claims recovery data, and a State analysis documenting a cost-effective 
alternative that accomplishes the same task.
    (iii) The agency must agree, if a waiver is granted, to notify CMS 
of any event that occurs that changes the

[[Page 95]]

conditions upon which the waiver was approved.
    (2) CMS will review a State's request to have a requirement 
specified under paragraph (e)(1) of this section waived and will request 
additional information from the State, if necessary. CMS will notify the 
State of its approval or disapproval determination within 30 days of 
receipt of a properly documented request.
    (3) CMS may rescind the waiver at any time that it determines that 
the State no longer meets the criteria for approving the waiver. If the 
waiver is rescinded, the agency has 6 months from the date of the 
rescission notice to meet the requirement that had been waived.
    (4) An agency requesting a waiver of the requirements specifically 
concerning either the 60-day limit in paragraph (d)(1) or (d)(2) of this 
section must submit documentation of written agreement between the 
agency and the third party, including Medicare fiscal intermediaries and 
carriers, that extension of the billing requirement is agreeable to all 
parties.
    (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.

[50 FR 46665, Nov. 12, 1985, as amended at 51 FR 16319, May 2, 1986; 60 
FR 35503, July 10, 1995; 62 FR 23140, Apr. 29, 1997]



Sec. 433.140  FFP and repayment of Federal share.

    (a) FFP is not available in Medicaid payments if--
    (1) The agency failed to fulfill the requirements of Sec. Sec. 
433.138 and 433.139 with regard to establishing liability and seeking 
reimbursement from a third party;
    (2) The agency received reimbursement from a liable third party; or
    (3) A private insurer would have been obligated to pay for the 
service except that its insurance contract limits or excludes payments 
if the individual is eligible for Medicaid.
    (b) FFP is available at the 50 percent rate for the agency's 
expenditures in carrying out the requirements of this subpart.
    (c) If the State receives FFP in Medicaid payments for which it 
receives third party reimbursement, the State must pay the Federal 
government a portion of the reimbursement determined in accordance with 
the FMAP for the State. This payment may be reduced by the total amount 
needed to meet the incentive payment in Sec. 433.153.

                    Assignment of Rights to Benefits



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

    (a) A State plan must provide that, as a condition of eligibility, 
each legally able applicant or recipient is required to:
    (1) Assign to the Medicaid agency his or her rights, or the rights 
of any other individual eligible under the plan for whom he or she can 
legally make an assignment, to medical support and to payment for 
medical care from any third party;
    (2) Cooperate with the agency in establishing paternity and in 
obtaining medical support and payments, unless the individual 
establishes good cause for not cooperating, and except for individuals 
described in section 1902(l)(1)(A) of the Act (poverty level pregnant 
women), who are exempt from cooperating in establishing paternity and 
obtaining medical support and payments from, or derived from, the father 
of the child born out of wedlock; and

[[Page 96]]

    (3) Cooperate in identifying and providing information to assist the 
Medicaid agency in pursuing third parties who may be liable to pay for 
care and services under the plan, unless the individual establishes good 
cause for not cooperating.
    (b) A State plan must provide that the requirements for assignments, 
cooperation in establishing paternity and obtaining support, and 
cooperation in identifying and providing information to assist the State 
in pursuing any liable third party under Sec. Sec. 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.

[55 FR 48606, Nov. 21, 1990, as amended at 58 FR 4907, Jan. 19, 1993]



Sec. 433.146  Rights assigned; assignment method.

    (a) Except as specified in paragraph (b) of this section, the agency 
must require the individual to assign to the State--
    (1) His own rights to any medical care support available under an 
order of a court or an administrative agency, and any third party 
payments for medical care; and
    (2) The rights of any other individual eligible under the plan, for 
whom he can legally make an assignment.
    (b) Assignment of rights to benefits may not include assignment of 
rights to Medicare benefits.
    (c) If assignment of rights to benefits is automatic because of 
State law, the agency may substitute such an assignment for an 
individual executed assignment, as long as the agency informs the 
individual of the terms and consequences of the State law.



Sec. 433.147  Cooperation in establishing paternity and in obtaining medical support and payments and in identifying and providing information to assist in 
          pursuing third parties who may be liable to pay.

    (a) Scope of requirement. The agency must require the individual who 
assigns his or her rights to cooperate in--
    (1) Establishing paternity of a child born out of wedlock and 
obtaining medical support and payments for himself or herself and any 
other person for whom the individual can legally assign rights, except 
that individuals described in section 1902(l)(1)(A) of the Act (poverty 
level pregnant women) are exempt from these requirements involving 
paternity and obtaining medical support and payments from, or derived 
from, the father of the child born out of wedlock; and
    (2) Identifying and providing information to assist the Medicaid 
agency in pursuing third parties who may be liable to pay for care and 
services under the plan.
    (b) Essentials of cooperation. As part of a cooperation, the agency 
may require an individual to--
    (1) Appear at a State or local office designated by the agency to 
provide information or evidence relevant to the case;
    (2) Appear as a witness at a court or other proceeding;
    (3) Provide information, or attest to lack of information, under 
penalty of perjury;
    (4) Pay to the agency any support or medical care funds received 
that are covered by the assignment of rights; and
    (5) Take any other reasonable steps to assist in establishing 
paternity and securing medical support and payments, and in identifying 
and providing information to assist the State in pursuing any liable 
third party.
    (c) Waiver of cooperation for good cause. The agency must waive the 
requirements in paragraphs (a) and (b) of this section if it determines 
that the individual has good cause for refusing to cooperate.
    (1) With respect to establishing paternity of a child born out of 
wedlock or obtaining medical care support and payments, or identifying 
or providing information to assist the State in pursuing any liable 
third party for a child for whom the individual can legally assign 
rights, the agency must find the cooperation is against the best 
interests of the child, in accordance with factors specified for the 
Child Support Enforcement Program at 45 CFR part 232. If the State title 
IV-A agency has made a finding that good cause for refusal to cooperate 
does or does not

[[Page 97]]

exist, the Medicaid agency must adopt that finding as its own for this 
purpose.
    (2) With respect to obtaining medical care support and payments for 
an individual and identifying and providing information to assist in 
pursuing liable third parties in any case not covered by paragraph 
(c)(1) of this section, the agency must find that cooperation is against 
the best interests of the individual or the person to whom Medicaid is 
being furnished because it is anticipated that cooperation will result 
in reprisal against, and cause physical or emotional harm to, the 
individual or other person.
    (d) Procedures for waiving cooperation. With respect to establishing 
paternity, obtaining medical care support and payments, or identifying 
and providing information to assist the State in pursuing liable third 
parties for a child for whom the individual can legally assign rights, 
the agency must use the procedures specified for the Child Support 
Enforcement Program at 45 CFR part 232. With respect to obtaining 
medical care support and payments or to identifying and providing 
information to assist the State in pursuing liable third parties for any 
other individual, the agency must adopt procedures similar to those 
specified in 45 CFR part 232, excluding those procedures applicable only 
to children.

[45 FR 8984, Feb. 11, 1980, as amended at 55 FR 48606, Nov. 21, 1990; 58 
FR 4907, Jan. 19, 1993]



Sec. 433.148  Denial or termination of eligibility.

    In administering the assignment of rights provision, the agency 
must:
    (a) Deny or terminate eligibility for any applicant or recipient 
who--
    (1) Refuses to assign his own rights or those of any other 
individual for whom he can legally make an assignment; or
    (2) Refuses to cooperate as required under Sec. 433.147(a) unless 
cooperation has been waived;
    (b) Provide Medicaid to any individual who--
    (1) Cannot legally assign his own rights; and
    (2) Would otherwise be eligible for Medicaid but for the refusal, by 
a person legally able to assign his rights, to assign his rights or to 
cooperate as required by this subpart; and
    (c) In denying or terminating eligibility, comply with the notice 
and hearing requirements of part 431, subpart E of this subchapter.

              Cooperative Agreements and Incentive Payments



Sec. 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 any State, and appropriate courts 
and law enforcement officials. The agreements must be in accordance with 
the provisions of Sec. 433.152.
    (b) A State plan must provide that the requirements for making 
incentive payments and for distributing third party collections 
specified in Sec. Sec. 433.153 and 433.154 are met.

[50 FR 46665, Nov. 12, 1985; 50 FR 49389, Dec. 2, 1985]



Sec. 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.

[50 FR 46666, Nov. 12, 1985]

[[Page 98]]



Sec. 433.153  Incentive payments to States and political subdivisions.

    (a) When payments are required. The agency must make an incentive 
payment to a political subdivision, a legal entity of the subdivision 
such as a prosecuting or district attorney or a friend of the court, or 
another State that enforces and collects medical support and payments 
for the agency.
    (b) Amount and source of payment. The incentive payment must equal 
15 percent of the amount collected, and must be made from the Federal 
share of that amount.
    (c) Payment to two or more jurisdictions. If more than one State or 
political subdivision is involved in enforcing and collecting support 
and payments:
    (1) The agency must pay all of the incentive payment to the 
political subdivision, legal entity of the subdivision, or another State 
that collected medical support and payments at the request of the 
agency.
    (2) The political subdivision, legal entity or other State that 
receives the incentive payment must then divide the incentive payment 
equally with any other political subdivisions, legal entities, or other 
States that assisted in the collection, unless an alternative allocation 
is agreed upon by all jurisdictions involved.



Sec. 433.154  Distribution of collections.

    The agency must distribute collections as follows--
    (a) To itself, an amount equal to State Medicaid expenditures for 
the individual on whose right the collection was based.
    (b) To the Federal Government, the Federal share of the State 
Medicaid expenditures, minus any incentive payment made in accordance 
with Sec. 433.153.
    (c) To the recipient, any remaining amount. This amount must be 
treated as income or resources under part 435 or part 436 of this 
subchapter, as appropriate.

Subpart E [Reserved]



    Subpart F_Refunding of Federal Share of Medicaid Overpayments to 
                                Providers

    Source: 54 FR 5460, Feb. 3, 1989, unless otherwise noted.



Sec. 433.300  Basis.

    This subpart implements--
    (a) Section 1903(d)(2)(A) of the Act, which directs that quarterly 
Federal payments to the States under title XIX (Medicaid) of the Act are 
to be reduced or increased to make adjustment for prior overpayments or 
underpayments that the Secretary determines have been made.
    (b) Section 1903(d)(2) (C) and (D) of the Act, which provides that a 
State has 60 days from discovery of an overpayment for Medicaid services 
to recover or attempt to recover the overpayment from the provider 
before adjustment in the Federal Medicaid payment to the State is made; 
and that adjustment will be made at the end of the 60 days, whether or 
not recovery is made, unless the State is unable to recover from a 
provider because the overpayment is a debt that has been discharged in 
bankruptcy or is otherwise uncollectable.
    (c) Section 1903(d)(3) of the Act, which provides that the Secretary 
will consider the pro rata Federal share of the net amount recovered by 
a State during any quarter to be an overpayment.



Sec. 433.302  Scope of subpart.

    This subpart sets forth the requirements and procedures under which 
States have 60 days following discovery of overpayments made to 
providers for Medicaid services to recover or attempt to recover that 
amount before the States must refund the Federal share of these 
overpayments to CMS, with certain exceptions.



Sec. 433.304  Definitions.

    As used in this subpart--
    Abuse (in accordance with Sec. 455.2) means provider practices that 
are inconsistent with sound fiscal, business, or medical practices, and 
result in an unnecessary cost to the Medicaid program, or in 
reimbursement for services

[[Page 99]]

that are not medically necessary or that fail to meet professionally 
recognized standards for health care.
    Discovery (or discovered) means identification by any State Medicaid 
agency official or other State official, the Federal Government, or the 
provider of an overpayment, and the communication of that overpayment 
finding or the initiation of a formal recoupment action without notice 
as described in Sec. 433.316.
    Fraud (in accordance with Sec. 455.2) means an intentional 
deception or misrepresentation made by a person with the knowledge that 
the deception could result in some unauthorized benefit to himself or 
some other person. It includes any act that constitutes fraud under 
applicable Federal or State law.
    Overpayment means the amount paid by a Medicaid agency to a provider 
which is in excess of the amount that is allowable for services 
furnished under section 1902 of the Act and which is required to be 
refunded under section 1903 of the Act.
    Provider (in accordance with Sec. 400.203) means any individual or 
entity furnishing Medicaid services under a provider agreement with the 
Medicaid agency.
    Recoupment means any formal action by the State or its fiscal agent 
to initiate recovery of an overpayment without advance official notice 
by reducing future payments to a provider.
    Third party (in accordance with Sec. 433.136) means an individual, 
entity, or program that is or may be liable to pay for all or part of 
the expenditures for medical assistance furnished under a State plan.

[54 FR 5460, Feb. 3, 1989; 54 FR 8435, Feb. 28, 1989]



Sec. 433.310  Applicability of requirements.

    (a) General rule. Except as provided in paragraphs (b) and (c) of 
this section, the provisions of this subpart apply to--
    (1) Overpayments made to providers that are discovered by the State;
    (2) Overpayments made to providers that are initially discovered by 
the provider and made known to the State agency; and
    (3) Overpayments that are discovered through Federal reviews.
    (b) Third party payments and probate collections. The requirements 
of this subpart do not apply to--
    (1) Cases involving third party liability because, in these 
situations, recovery is sought for a Medicaid payment that would have 
been made had another party not been legally responsible for payment; 
and
    (2) Probate collections from the estates of deceased Medicaid 
recipients, as they represent the recovery of payments properly made 
from resources later determined to be available to the State.
    (c) Unallowable costs paid under rate-setting systems. (1) 
Unallowable costs for a prior year paid to an institutional provider 
under a rate-setting system that a State recovers through an adjustment 
to the per diem rate for a subsequent period do not constitute 
overpayments that are subject to the requirements of this subpart.
    In such cases, the State is not required to refund the Federal share 
explicitly related to the original overpayment in accordance with the 
regulations in this subpart. Refund of the Federal share occurs when the 
State claims future expenditures made to the provider at a reduced rate.
    (2) Unallowable costs for a prior year paid to an institutional 
provider under a rate-setting system that a State seeks to recover in a 
lump sum, by an installment repayment plan, or through reduction of 
future payments to which the provider would otherwise be entitled 
constitute overpayments that are subject to the requirements of this 
subpart.
    (d) Recapture of depreciation upon gain on the sale of assets. 
Depreciation payments are considered overpayments for purposes of this 
subpart if a State requires their recapture in a discrete amount(s) upon 
gain on the sale of assets.



Sec. 433.312  Basic requirements for refunds.

    (a) Basic rules. (1) Except as provided in paragraph (b) of this 
section, the Medicaid agency has 60 days from the date of discovery of 
an overpayment to a provider to recover or seek to recover the 
overpayment before the Federal share must be refunded to CMS.

[[Page 100]]

    (2) The agency must refund the Federal share of overpayments at the 
end of the 60-day period following discovery in accordance with the 
requirements of this subpart, whether or not the State has recovered the 
overpayment from the provider.
    (b) Exception. The agency is not required to refund the Federal 
share of an overpayment made to a provider when the State is unable to 
recover the overpayment amount because the provider has been determined 
bankrupt or out of business in accordance with Sec. 433.318.
    (c) Applicability. (1) The requirements of this subpart apply to 
overpayments made to Medicaid providers that occur and are discovered in 
any quarter that begins on or after October 1, 1985.
    (2) The date upon which an overpayment occurs is the date upon which 
a State, using its normal method of reimbursement for a particular class 
of provider (e.g., check, interfund transfer), makes the payment 
involving unallowable costs to a provider.



Sec. 433.316  When discovery of overpayment occurs and its significance.

    (a) General rule. The date on which an overpayment is discovered is 
the beginning date of the 60-calendar day period allowed a State to 
recover or seek to recover an overpayment before a refund of the Federal 
share of an overpayment must be made to CMS.
    (b) Requirements for notification. Unless a State official or fiscal 
agent of the State chooses to initiate a formal recoupment action 
against a provider without first giving written notification of its 
intent, a State Medicaid agency official or other State official must 
notify the provider in writing of any overpayment it discovers in 
accordance with State agency policies and procedures and must take 
reasonable actions to attempt to recover the overpayment in accordance 
with State law and procedures.
    (c) Overpayments resulting from situations other than fraud or 
abuse. An overpayment resulting from a situation other than fraud or 
abuse is discovered on the earliest of--
    (1) The date on which any Medicaid agency official or other State 
official first notifies a provider in writing of an overpayment and 
specifies a dollar amount that is subject to recovery;
    (2) The date on which a provider initially acknowledges a specific 
overpaid amount in writing to the medicaid agency; or
    (3) The date on which any State official or fiscal agent of the 
State initiates a formal action to recoup a specific overpaid amount 
from a provider without having first notified the provider in writing.
    (d) Overpayments resulting from fraud or abuse. An overpayment that 
results from fraud or abuse is discovered on the date of the final 
written notice of the State's overpayment determination that a Medicaid 
agency official or other State official sends to the provider.
    (e) Overpayments identified through Federal reviews. If a Federal 
review at any time indicates that a State has failed to identify an 
overpayment or a State has identified an overpayment but has failed to 
either send written notice of the overpayment to the provider that 
specified a dollar amount subject to recovery or initiate a formal 
recoupment from the provider without having first notified the provider 
in writing, CMS will consider the overpayment as discovered on the date 
that the Federal official first notifies the State in writing of the 
overpayment and specifies a dollar amount subject to recovery.
    (f) Effect of changes in overpayment amount. Any adjustment in the 
amount of an overpayment during the 60-day period following discovery 
(made in accordance with the approved State plan, Federal law and 
regulations governing Medicaid, and the appeals resolution process 
specified in State administrative policies and procedures) has the 
following effect on the 60-day recovery period:
    (1) A downward adjustment in the amount of an overpayment subject to 
recovery that occurs after discovery does not change the original 60-day 
recovery period for the outstanding balance.
    (2) An upward adjustment in the amount of an overpayment subject to 
recovery that occurs during the 60-day period following discovery does 
not change the 60-day recovery period for

[[Page 101]]

the original overpayment amount. A new 60-day period begins for the 
incremental amount only, beginning with the date of the State's written 
notification to the provider regarding the upward adjustment.
    (g) Effect of partial collection by State. A partial collection of 
an overpayment amount by the State from a provider during the 60-day 
period following discovery does not change the 60-day recovery period 
for the original overpayment amount due to CMS.
    (h) Effect of administrative or judicial appeals. Any appeal rights 
extended to a provider do not extend the date of discovery.

[54 FR 5460, Feb. 3, 1989; 54 FR 8435, Feb. 28, 1989]



Sec. 433.318  Overpayments involving providers who are bankrupt or out of business.

    (a) Basic rules. (1) The agency is not required to refund the 
Federal share of an overpayment made to a provider as required by Sec. 
433.312(a) to the extent that the State is unable to recover the 
overpayment because the provider has been determined bankrupt or out of 
business in accordance with the provisions of this section.
    (2) The agency must notify the provider that an overpayment exists 
in any case involving a bankrupt or out-of-business provider and, if the 
debt has not been determined uncollectable, take reasonable actions to 
recover the overpayment during the 60-day recovery period in accordance 
with policies prescribed by applicable State law and administrative 
procedures.
    (b) Overpayment debts that the State need not refund. Overpayments 
are considered debts that the State is unable to recover within the 60-
day period following discovery if the following criteria are met:
    (1) The provider has filed for bankruptcy, as specified in paragraph 
(c) of this section; or
    (2) The provider has gone out of business and the State is unable to 
locate the provider and its assets, as specified in paragraph (d) of 
this section.
    (c) Bankruptcy. The agency is not required to refund to CMS the 
Federal share of an overpayment at the end of the 60-day period 
following discovery, if--
    (1) The provider has filed for bankruptcy in Federal court at the 
time of discovery of the overpayment or the provider files a bankruptcy 
petition in Federal court before the end of the 60-day period following 
discovery; and
    (2) The State is on record with the court as a creditor of the 
petitioner in the amount of the Medicaid overpayment.
    (d) Out of business. (1) The agency is not required to refund to CMS 
the Federal share of an overpayment at the end of the 60-day period 
following discovery if the provider is out of business on the date of 
discovery of the overpayment or if the provider goes out of business 
before the end of the 60-day period following discovery.
    (2) A provider is considered to be out of business on the effective 
date of a determination to that effect under State law. The agency 
must--
    (i) Document its efforts to locate the party and its assets. These 
efforts must be consistent with applicable State policies and 
procedures; and
    (ii) Make available an affidavit or certification from the 
appropriate State legal authority establishing that the provider is out 
of business and that the overpayment cannot be collected under State law 
and procedures and citing the effective date of that determination under 
State law.
    (3) A provider is not out of business when ownershp is transferred 
within the State unless State law and procedures deem a provider that 
has transferred ownership to be out of business and preclude collection 
of the overpayment from the provider.
    (e) Circumstances requiring refunds. If the 60-day recovery period 
has expired before an overpayment is found to be uncollectable under the 
provisions of this section, if the State recovers an overpayment amount 
under a court-approved discharge of bankruptcy, or if a bankruptcy 
petition is denied, the agency must refund the Federal share of the 
overpayment in accordance with the procedures specified in Sec. 
433.320.

[54 FR 5460, Feb. 3, 1989; 54 FR 8435, Feb. 28, 1989]

[[Page 102]]



Sec. 433.320  Procedures for refunds to CMS.

    (a) Basic requirements. (1) The agency must refund the Federal share 
of overpayments that are subject to recovery to CMS through a credit on 
its Quarterly Statement of Expenditures (Form CMS-64).
    (2) The Federal share of overpayments subject to recovery must be 
credited on the Form CMS-64 report submitted for the quarter in which 
the 60-day period following discovery, established in accordance with 
Sec. 433.316, ends.
    (3) A credit on the Form CMS-64 must be made whether or not the 
overpayment has been recovered by the State from the provider.
    (b) Effect of reporting collections and submitting reduced 
expenditure claims. (1) The State is not required to refund the Federal 
share of an overpayment when the State reports a collection or submits 
an expenditure claim reduced by a discrete amount to recover an 
overpayment prior to the end of the 60-day period following discovery.
    (2) The State is not required to report on the Form CMS-64 any 
collections made on overpayment amounts for which the Federal share has 
been refunded previously.
    (3) If a State has refunded the Federal share of an overpayment as 
required under this subpart and the State subsequently makes recovery by 
reducing future provider payments by a discrete amount, the State need 
not reflect that reduction in its claim for Federal financial 
participation.
    (c) Reclaiming overpayment amounts previously refunded to CMS. If 
the amount of an overpayment is adjusted downward after the agency has 
credited CMS with the Federal share, the agency may reclaim the amount 
of the downward adjustment on the Form CMS-64. Under this provision--
    (1) Downward adjustment to an overpayment amount previously credited 
to CMS is allowed only if it is properly based on the approved State 
plan, Federal law and regulations governing Medicaid, and the appeals 
resolution processes specified in State administrative policies and 
procedures.
    (2) The 2-year filing limit for retroactive claims for Medicaid 
expenditures does not apply. A downward adjustment is not considered a 
retroactive claim but rather a reclaiming of costs previously claimed.
    (d) Expiration of 60-day recovery period. If an overpayment has not 
been determined uncollectable in accordance with the requirements of 
Sec. 433.318 at the end of the 60-day period following discovery of the 
overpayment, the agency must refund the Federal share of the overpayment 
to CMS in accordance with the procedures specified in paragraph (a) of 
this section.
    (e) Court-approved discharge of bankruptcy. If the State recovers 
any portion of an overpayment under a court-approved discharge of 
bankruptcy, the agency must refund to CMS the Federal share of the 
overpayment amount collected on the next quarterly expenditure report 
that is due to CMS for the period that includes the date on which the 
collection occurs.
    (f) Bankruptcy petition denied. If a provider's petition for 
bankruptcy is denied in Federal court, the agency must credit CMS with 
the Federal share of the overpayment on the later of--
    (1) The Form CMS-64 submission due to CMS immediately following the 
date of the decision of the court; or
    (2) The Form CMS-64 submission for the quarter in which the 60-day 
period following discovery of the overpayment ends.
    (g) Reclaim of refunds. (1) If a provider is determined bankrupt or 
out of business under this section after the 60-day period following 
discovery of the overpayment ends and the State has not been able to 
make complete recovery, the agency may reclaim the amount of the Federal 
share of any unrecovered overpayment amount previously refunded to CMS. 
CMS allows the reclaim of a refund by the agency if the agency submits 
to CMS documentation that it has made reasonable efforts to obtain 
recovery.
    (2) If the agency reclaims a refund of the Federal share of an 
overpayment--
    (i) In bankruptcy cases, the agency must submit to CMS a statement 
of its efforts to recover the overpayment during the period before the 
petition for bankruptcy was filed; and

[[Page 103]]

    (ii) In out-of-business cases, the agency must submit to CMS a 
statement of its efforts to locate the provider and its assets and to 
recover the overpayment during any period before the provider is found 
to be out of business in accordance with Sec. 433.318.
    (h) Supporting reports. The agency must report the following 
information to support each Quarterly Statement of Expenditures Form 
CMS-64:
    (1) Amounts of overpayments not collected during the quarter but 
refunded because of the expiration of the 60-day period following 
discovery;
    (2) Upward and downward adjustments to amounts credited in previous 
quarters;
    (3) Amounts of overpayments collected under court-approved 
discharges of bankruptcy;
    (4) Amounts of previously reported overpayments to providers 
certified as bankrupt or out of business during the quarter; and
    (5) Amounts of overpayments previously credited and reclaimed by the 
State.



Sec. 433.322  Maintenance of records.

    The Medicaid agency must maintain a separate record of all 
overpayment activities for each provider in a manner that satisfies the 
retention and access requirements of 45 CFR part 74, subpart D.



PART 434_CONTRACTS--Table of Contents




                      Subpart A_General Provisions

Sec.
434.1 Basis and scope.
434.2 Definitions.
434.4 State plan requirement.
434.6 General requirements for all contracts and subcontracts.

     Subpart B_Contracts with Fiscal Agents and Private Nonmedical 
                              Institutions

434.10 Contracts with fiscal agents.
434.12 Contracts with private nonmedical institutions.
434.14 [Reserved]

Subpart C [Reserved]

         Subpart D_Contracts With Health Insuring Organizations

434.40 Contract requirements.

Subpart E [Reserved]

                Subpart F_Federal Financial Participation

434.70 Conditions for Federal Financial Participation (FFP).
434.76 Costs under fiscal agent contracts.
434.78 Right to reconsideration of disallowance.

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

    Source: 48 FR 54020, Nov. 30, 1983, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 434.1  Basis and scope.

    (a) Statutory basis. This part is based on section 1902(a)(4) of the 
Act, which requires that the State plan provide for methods of 
administration that the Secretary finds necessary for the proper and 
efficient operation of the plan.
    (b) Scope. This part sets forth the requirements for contracts with 
certain organizations for furnishing Medicaid services or processing or 
paying Medicaid claims, or enchancing the agency's capability for 
effective administration of the program.

[48 FR 54020, Nov. 30, 1983; 48 FR 55128, Dec. 9, 1983, as amended at 67 
FR 41095, June 14, 2002]



Sec. 434.2  Definitions.

    As used in this part, unless the context indicates otherwise--
    Fiscal agent means an entity that processes or pays vendor claims 
for the agency.
    Health care projects grant center means an entity that--
    (a) Is supported in whole or in part by Federal project grant 
financial assistance; and
    (b) Provides or arranges for medical services to recipients.
    Private nonmedical institution means an institution (such as a 
child-care facility or a maternity home) that--
    (a) Is not, as a matter of regular business, a health insuring 
organization or a community health care center;
    (b) Provides medical care to its residents through contracts or 
other arrangements with medical providers; and
    (c) Receives capitation payments from the Medicaid agency, under a

[[Page 104]]

nonrisk contract, for its residents who are eligible for Medicaid.
    Professional management service or consultant firm means a firm that 
performs management services such as auditing or staff training, or 
carries out studies or provides consultation aimed at improving State 
Medicaid operations, for example, with respect to reimbursement formulas 
or accounting systems.

[48 FR 54020, Nov. 30, 1983; 48 FR 55128, Dec. 9, 1983, as amended at 52 
FR 22322, June 11, 1987; 55 FR 51295, Dec. 13, 1990; 67 FR 41095, June 
14, 2002]



Sec. 434.4  State plan requirement.

    If the State plan provides for contracts of the types covered by 
this part, the plan must also provide for meeting the applicable 
requirements of this part.



Sec. 434.6  General requirements for all contracts and subcontracts.

    (a) Contracts. All contracts under this part must--
    (1) Include provisions that define a sound and complete procurement 
contract, as required by 45 CFR part 74;
    (2) Identify the population covered by the contract;
    (3) Specify any procedures for enrollment or reenrollment of the 
covered population;
    (4) Specify the amount, duration, and scope of medical services to 
be provided or paid for;
    (5) Provide that the agency and HHS may evaluate through inspection 
or other means, the quality, appropriateness and timeliness of services 
performed under the contract;
    (6) Specify procedures and criteria for terminating the contract, 
including a requirement that the contractor promptly supply all 
information necessary for the reimbursement of any outstanding Medicaid 
claims;
    (7) Provide that the contractor maintains an appropriate record 
system for services to enrolled recipients;
    (8) Provide that the contractor safeguards information about 
recipients as required by part 431, subpart F of this chapter;
    (9) Specify any activities to be performed by the contractor that 
are related to third party liability requirements in part 433, subpart D 
of this chapter;
    (10) Specify which functions may be subcontracted; and
    (11) Provide that any subcontracts meet the requirements of 
paragraph (b) of this section.
    (b) Subcontracts. All subcontracts must be in writing and fulfill 
the requirements of this part that are appropriate to the service or 
activity delegated under the subcontract.
    (c) Continued responsibility of contractor. No subcontract 
terminates the legal responsibility of the contractor to the agency to 
assure that all activities under the contract are carried out.

[48 FR 54020, Nov. 30, 1983, as amended at 67 FR 41095, June 14, 2002]



     Subpart B_Contracts with Fiscal Agents and Private Nonmedical 
                              Institutions



Sec. 434.10  Contracts with fiscal agents.

    Contracts with fiscal agents must--
    (a) Meet the requirements of Sec. 434.6;
    (b) Include termination procedures that require the contractors to 
supply promptly all material necessary for continued operation of 
payment and related systems. This material includes--
    (1) Computer programs;
    (2) Data files;
    (3) User and operation manuals, and other documentation;
    (4) System and program documentation; and
    (5) Training programs for Medicaid agency staff, their agents or 
designated representatives in the operation and maintenance of the 
system;
    (c) Offer to the State one or both of the following options, if the 
fiscal agent or the fiscal agent's subcontractor has a proprietary right 
to material specified in paragraph (b) of this section:
    (1) Purchasing the material; or
    (2) Purchasing the use of the material through leasing or other 
means; and
    (d) State that payment to providers will be made in accordance with 
part 447 of this chapter.

[[Page 105]]



Sec. 434.12  Contracts with private nonmedical institutions.

    Contracts with private nonmedical institutions must--
    (a) Meet the requirements of Sec. 434.6;
    (b) Specify a capitation fee based on the cost of the services 
provided, in accordance with the reimbursement requirements prescribed 
in part 447 of this chapter; and
    (c) Specify when the capitation fee must be paid.



Sec. 434.14  [Reserved]

Subpart C [Reserved]



         Subpart D_Contracts With Health Insuring Organizations



Sec. 434.40  Contract requirements.

    (a) Contracts with health insuring organizations that are not 
subject to the requirements in section 1903(m)(2)(A) must:
    (1) Meet the general requirements for all contracts and subcontracts 
specified in Sec. 434.6;
    (2) Specify that the contractor assumes at least part of the 
underwriting risk and;
    (i) If the contractor assumes the full underwriting risk, specify 
that payment of the capitation fees to the contractor during the 
contract period constitutes full payment by the agency for the cost of 
medical services provided under the contract;
    (ii) If the contractor assumes less than the full underwriting risk, 
specify how the risk is apportioned between the agency and the 
contractor;
    (3) Specify whether the contractor returns to the agency part of any 
savings remaining after the allowable costs are deducted from the 
capitations fees, and if savings are returned, the apportionment between 
agency and the contractor; and
    (4) Specify the extent, if any, to which the contractor may obtain 
reinsurance of a portion of the underwriting risk.
    (b) The contract must--
    (1) Specify that the capitation fee will not exceed the limits set 
forth under part 447 of this chapter.
    (2) Specify that, except as permitted under paragraph (b) of this 
section, the capitation fee paid on behalf of each recipient may not be 
renegotiated--
    (i) During the contract period if the contract period is 1 year or 
less; or
    (ii) More often than annually if the contract period is for more 
than 1 year.
    (3) Specify that the capitation fee will not include any amount for 
recoupment of any specific losses suffered by the contractor for risks 
assumed under the same contract or a prior contract with the agency; and
    (4) Specify the actuarial basis for computation of the capitation 
fee.
    (c) The capitation fee may be renegotiated more frequently than 
annually for recipients who are not enrolled at the time of 
renegotiation or if the renegotiation is required by changes in Federal 
or State law.

[55 FR 51295, Dec. 13, 1990]

Subpart E [Reserved]



                Subpart F_Federal Financial Participation

    Source: 48 FR 54020, Nov. 20, 1983, unless otherwise noted. 
Redesignated at 55 FR 51295, Dec. 13, 1990.



Sec. 434.70  Conditions for Federal Financial Participation (FFP).

    (a) Basic requirements. FFP is available only for periods during 
which the contract--
    (1) Meets the requirements of this part;
    (2) Meets the applicable requirements of 45 CFR part 74; and
    (3) Is in effect.
    (b) Basis for withholding. CMS may withhold FFP for any period 
during which the State fails to meet the State plan requirements of this 
part.

[67 FR 41095, June 14, 2002]



Sec. 434.76  Costs under fiscal agent contracts.

    Under each contract with a fiscal agent--
    (a) The amount paid to the provider of medical services is a medical 
assistance cost; and
    (b) The amount paid to the contractor for performing the agreed-upon 
functions is an administrative cost.

[[Page 106]]



Sec. 434.78  Right to reconsideration of disallowance.

    A Medicaid agency dissatisfied with a disallowance of FFP under this 
subpart may request and will be granted reconsideration in accordance 
with 45 CFR part 16.



PART 435_ELIGIBILITY IN THE STATES, DISTRICT OF COLUMBIA, THE NORTHERN MARIANA ISLANDS, AND AMERICAN SAMOA--Table of Contents




              Subpart A_General Provisions and Definitions

Sec.
435.2 Purpose and applicability.
435.3 Basis.
435.4 Definitions and use of terms.
435.10 State plan requirements.

         Subpart B_Mandatory Coverage of the Categorically Needy

435.100 Scope.

               Mandatory Coverage of Families and Children

435.110 Individuals receiving aid to families with dependent children.
435.112 Families terminated from AFDC because of increased earnings or 
          hours of employment.
435.113 Individuals who are ineligible for AFDC because of requirements 
          that do not apply under title XIX of the Act.
435.114 Individuals who would be eligible for AFDC except for increased 
          OASDI income under Pub. L. 92-336 (July 1, 1972).
435.115 Individuals deemed to be receiving AFDC.

  Mandatory Coverage of Pregnant Women, Children under 8, and Newborn 
                                Children

435.116 Qualified pregnant women and children who are not qualified 
          family members.
435.117 Newborn children.

             Mandatory Coverage of Qualified Family Members

435.119 Qualified family members.

           Mandatory Coverage of the Aged, Blind, and Disabled

435.120 Individuals receiving SSI.
435.121 Individuals in States using more restrictive requirements for 
          Medicaid than the SSI requirements.
435.122 Individuals who are ineligible for SSI or optional State 
          supplements because of requirements that do not apply under 
          title XIX of the Act.
435.130 Individuals receiving mandatory State supplements.
435.131 Individuals eligible as essential spouses in December 1973.
435.132 Institutionalized individuals who were eligible in December 
          1973.
435.133 Blind and disabled individuals eligible in December 1973.
435.134 Individuals who would be eligible except for the increase in 
          OASDI benefits under Pub. L. 92-336 (July 1, 1972).
435.135 Individuals who become ineligible for cash assistance as a 
          result of OASDI cost-of-living increases received after April 
          1977.
435.136 State agency implementation requirements for one-time notice and 
          annual review system.
435.137 Disabled widows and widowers who would be eligible for SSI 
          except for the increase in disability benefits resulting from 
          elimination of the reduction under Pub. L. 98-31.
435.138 Disabled widows and widowers aged 60 through 64 who would be 
          eligible for SSI benefits except for receipt of early social 
          security benefits.

                  Mandatory Coverage of Certain Aliens

435.139 Coverage for certain aliens.

   Mandatory Coverage of Adoption Assistance and Foster Care Children

435.145 Children for whom adoption assistance or foster care maintenance 
          payments are made.

                  Mandatory Coverage of Special Groups

435.170 Pregnant women eligible for extended coverage.

          Subpart C_Options for Coverage as Categorically Needy

435.200 Scope.
435.201 Individuals included in optional groups.

 Options for Coverage of Families and Children and the Aged, Blind, and 
                                Disabled

435.210 Individuals who meet the income and resource requirements of the 
          cash assistance programs.
435.211 Individuals who would be eligible for cash assistance if they 
          were not in medical institutions.
435.212 Individuals who would be ineligible if they were not enrolled in 
          an MCO or PCCM.
435.217 Individuals receiving home and community-based services.

[[Page 107]]

              Options for Coverage of Families and Children

435.220 Individuals who would meet the income and resource requirements 
          under AFDC if child care costs were paid from earnings.
435.221 [Reserved]
435.222 Individuals under age 21 who meet the income and resource 
          requirements of AFDC.
435.223 Individuals who would be eligible for AFDC if coverage under the 
          State's AFDC plan were as broad as allowed under title IV-A.
435.225 Individuals under age 19 who would be eligible for Medicaid if 
          they were in a medical institution.
435.227 Individuals under age 21 who are under State adoption assistance 
          agreements.
435.229 Optional targeted low-income children.

          Options for Coverage of the Aged, Blind, and Disabled

435.230 Aged, blind, and disabled individuals in States that use more 
          restrictive requirements for Medicaid than SSI requirements: 
          Optional coverage.
435.232 Individuals receiving only optional State supplements.
435.234 Individuals receiving only optional State supplements in States 
          using more restrictive eligibility requirements than SSI and 
          certain States using SSI criteria.
435.236 Individuals in institutions who are eligible under a special 
          income level.

           Subpart D_Optional Coverage of the Medically Needy

435.300 Scope.
435.301 General rules.
435.308 Medically needy coverage of individuals under age 21.
435.310 Medically needy coverage of specified relatives.
435.320 Medically needy coverage of the aged in States that cover 
          individuals receiving SSI.
435.322 Medically needy coverage of the blind in States that cover 
          individuals receiving SSI.
435.324 Medically needy coverage of the disabled in States that cover 
          individuals receiving SSI.
435.326 Individuals who would be ineligible if they were not enrolled in 
          an MCO or PCCM.
435.330 Medically needy coverage of the aged, blind, and disabled in 
          States using more restrictive eligibility requirements for 
          Medicaid than those used under SSI.
435.340 Protected medically needy coverage for blind and disabled 
          individuals eligible in December 1973.
435.350 Coverage for certain aliens.

               Subpart E_General Eligibility Requirements

435.400 Scope.
435.401 General rules.
435.402 [Reserved]
435.403 State residence.
435.404 Applicant's choice of category.
435.406 Citizenship and alienage.
435.408 Categories of aliens who are permanently residing in the United 
          States under color of law.

           Subpart F_Categorical Requirements for Eligibility

435.500 Scope.

                               Dependency

435.510 Determination of dependency.

                                   Age

435.520 Age requirements for the aged.
435.522 Determination of age.

                                Blindness

435.530 Definition of blindness.
435.531 Determinations of blindness.

                               Disability

435.540 Definition of disability.
435.541 Determinations of disability.

    Subpart G_General Financial Eligibility Requirements and Options

435.600 Scope.
435.601 Application of financial eligibility methodologies.
435.602 Financial responsibility of relatives and other individuals.
435.604 [Reserved]
435.606 [Reserved]
435.608 Applications for other benefits.
435.610 Assignment of rights to benefits.
435.622 Individuals in institutions who are eligible under a special 
          income level.
435.631 General requirements for determining income eligibility in 
          States using more restrictive requirements for Medicaid than 
          SSI.
435.640 Protected Medicaid eligibility for individuals eligible in 
          December 1973.

   Subpart H_Specific Post-Eligibility Financial Requirements for the 
                           Categorically Needy

435.700 Scope.
435.725 Post-eligibility treatment of income of institutionalized 
          individuals in SSI

[[Page 108]]

          States: Application of patient income to the cost of care.
435.726 Post-eligibility treatment of income of individuals receiving 
          home and community-based services furnished under a waiver: 
          Application of patient income to the cost of care.
435.733 Post-eligibility treatment of income of institutionalized 
          individuals in States using more restrictive requirements than 
          SSI: Application of patient income to the cost of care.
435.735 Post-eligibility treatment of income and resources of 
          individuals receiving home and community-based services 
          furnished under a waiver: Application of patient income to the 
          cost of care.

     Subpart I_Specific Eligibility and Post-Eligibility Financial 
                  Requirements for the Medically Needy

435.800 Scope.

                     Medically Needy Income Standard

435.811 Medically needy income standard: General requirements.
435.814 Medically needy income standard: State plan requirements.

                   Medically Needy Income Eligibility

435.831 Income eligibility.
435.832 Post-eligibility treatment of income of institutionalized 
          individuals: Application of patient income to the cost of 
          care.

                    Medically Needy Resource Standard

435.840 Medically needy resource standard: General requirements.
435.843 Medically needy resource standard: State plan requirements.

            Determining Eligibility on the Basis of Resources

435.845 Medically needy resource eligibility.
435.850-435.852 [Reserved]

      Subpart J_Eligibility in the States and District of Columbia

435.900 Scope.

                    General Methods of Administration

435.901 Consistency with objectives and statutes.
435.902 Simplicity of administration.
435.903 Adherence of local agencies to State plan requirements.
435.904 Establishment of outstation locations to process applications 
          for certain low-income eligibility groups.

                              Applications

435.905 Availability of program information.
435.906 Opportunity to apply.
435.907 Written application.
435.908 Assistance with application.
435.909 Automatic entitlement to Medicaid following a determination of 
          eligibility under other programs.
435.910 Use of social security number.

                  Determination of Medicaid Eligibility

435.911 Timely determination of eligibility.
435.912 Notice of agency's decision concerning eligibility.
435.913 Case documentation.
435.914 Effective date.

                Redeterminations of Medicaid Eligibility

435.916 Periodic redeterminations of Medicaid eligibility.
435.919 Timely and adequate notice concerning adverse actions.
435.920 Verification of SSNs.

                           Furnishing Medicaid

435.930 Furnishing Medicaid.

            Income and Eligibility Verification Requirements

435.940 Basis and scope.
435.945 General requirements.
435.948 Requesting information.
435.952 Use of information.
435.953 Identifying items of information to use.
435.955 Additional requirements regarding information released by a 
          Federal agency.
435.960 Standardized formats for furnishing and obtaining information to 
          verifying income and eligibility.
435.965 Delay of effective date.

                Subpart K_Federal Financial Participation

435.1000 Scope.

 FFP in Expenditures for Determining Eligibility and Providing Services

435.1001 FFP for administration.
435.1002 FFP for services.
435.1003 FFP for redeterminations.
435.1004 Recipients overcoming certain conditions of eligibility.

                           Limitations on FFP

435.1005 Recipients in institutions eligible under a special income 
          standard.
435.1006 Recipients of optional State supplements only.
435.1007 Categorically needy, medically needy, and qualified Medicare 
          beneficiaries.
435.1008 Institutionalized individuals.
435.1009 Definitions relating to institutional status.

[[Page 109]]

                   Requirements for State Supplements

435.1010 Requirement for mandatory State supplements.
435.1011 Requirement for maintenance of optional State supplement 
          expenditures.

             Subpart L_Option for Coverage of Special Groups

435.1100 Basis and scope.

                  Presumptive Eligibility for Children

435.1101 Definitions related to presumptive eligibility for children.
435.1102 General rules.

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

    Source: 43 FR 45204, Sept. 29, 1978, unless otherwise noted.



              Subpart A_General Provisions and Definitions



Sec. 435.2  Purpose and applicability.

    This part sets forth, for the 50 States, the District of Columbia, 
the Northern Mariana Islands, and American Samoa--
    (a) The eligibility provisions that a State plan must contain;
    (b) The mandatory and optional groups of individuals to whom 
Medicaid is provided under a State plan;
    (c) The eligibility requirements and procedures that the Medicaid 
agency must use in determining and redetermining eligibility, and 
requirements it may not use;
    (d) The availability of FFP for providing Medicaid and for 
administering the eligibility provisions of the plan; and
    (e) Other requirements concerning eligibility determinations, such 
as use of an institutionalized individual's income for the cost of care.

[43 FR 45204, Sept. 29, 1978, as amended at 44 FR 17937, Mar. 23, 1979; 
51 FR 41350, Nov. 14, 1986]



Sec. 435.3  Basis.

    (a) This part implements the following sections of the Act and 
public laws that mandate eligibility requirements and standards:

402(a)(22) Eligibility of deemed recipients of AFDC who receive zero 
payments because of recoupment of overpayments.
402(a)(37) Eligibility of individuals who lose AFDC eligibility due to 
increased earnings.
414(g) Eligibility of certain individuals participating in work 
supplementation programs.
473(b) Eligibility of children in foster care and adopted children who 
are deemed AFDC recipients.
1619(b) Benefits for blind individuals or those with disabling 
impairments whose income equals or exceeds a specific SSI limit.
1634(b) Preservation of benefit status for disabled widows and widowers 
who lost SSI benefits because of 1983 changes in actuarial reduction 
formula.
1634(d) Individuals who lose eligibility for SSI benefits due to 
entitlement to early widow's or widower's social security disability 
benefits under section 202(e) or (f) of the Act.
1902(a)(8) Opportunity to apply; assistance must be furnished promptly.
1902(a)(10) Required and optional groups.
1902(a)(12) Determination of blindness.
1902(a)(17) Standards for determining eligibility: flexibility in the 
application of income eligibility standards.
1902(a)(19) Safeguards for simplicity of administration and best 
interests of recipients.
1902(a)(34) Three-month retroactive eligibility.
1902(a) (second paragraph after (47)) Eligibility despite increased 
monthly insurance benefits under title II.
1902(a)(55) Mandatory use of outstation locations other than welfare 
offices to receive and initially process applications of certain low-
income pregnant women, infants, and children under age 19.
1902(b) Prohibited conditions for eligibility: Age requirement of more 
that 65 years;
    State residence requirements excluding individuals who reside in the 
state; and
    Citizenship requirement excluding United States citizens.
1902(e) Four-month continued eligibility for families ineligible because 
of increased hours or income from employment.
1902(e)(2) Minimum eligibility period for recipient enrolled in an HMO.
1902(e)(3) Optional coverage of certain disabled children being cared 
for at home.
1902(e)(4) Eligibility of newborn children of Medicaid eligible women.
1902(e)(5) Eligibility of pregnant woman for extended coverage for 
specified postpartum period after pregnancy ends.
1902(f) State option to restrict Medicaid eligibility for aged, blind, 
or disabled individuals to those who would have been eligible under 
State plan in effect in January 1972.
1902(j) Medicaid program in American Samoa.

[[Page 110]]

1903(f) Income limitations for medically needy and individuals covered 
by State supplement eligibility requirements.
1903(v) Payment for emergency services under Medicaid provided to 
aliens.
1905(a) (clause following (21)) Prohibitions against providing Medicaid 
to certain institutionalized individuals.
1905(a) (second sentence) Definition of essential person.
1905(a)(i)-(viii) List of eligible individuals.
1905(d)(2) Definition of resident of an intermediate care facility for 
the mentally retarded.
1905(j) Definition of State supplementary payment.
1905(k) Eligibility of essential spouses of eligible individuals.
1905(n) Definition of qualified pregnant woman and child.
1912(a) Conditions of eligibility.
1915(c) Home or community-based services.
1915(d) Home or community-based services for individuals age 65 or 
older.
412(e)(5) of Immigration and Nationality Act--Eligibility of certain 
refugees.
Pub. L. 93-66, section 230 Deemed eligibility of certain essential 
persons.
Pub. L. 93-66, section 231 Deemed eligibility of certain persons in 
medical institutions.
Pub. L. 93-66, section 232 Deemed eligibility of certain blind and 
disabled medically indigent persons.
Pub. L. 93-233, section 13(c) Deemed eligibility of certain individuals 
receiving mandatory State supplementary payments.
Pub. L. 94-566, section 503 Deemed eligibility of certain individuals 
who would be eligible for supplemental security income benefits but for 
cost-of-living increases in social security benefits.
Pub. L. 96-272, section 310(b)(1) Continued eligibility of certain 
recipients of Veterans Administration pensions.
Pub. L. 99-509, section 9406 Payment for emergency medical services 
provided to aliens.
Pub. L. 99-603, section 201 Aliens granted legalized status under 
section 245A of the Immigration and Nationality Act (8 U.S.C. 1255a) may 
under certain circumstances be eligible for Medicaid.
Pub. L. 99-603, section 302 Aliens granted legalized status under 
section 210 of the Immigration and Nationality Act may under certain 
circumstances be eligible for Medicaid (8 U.S.C. 1160).
Pub. L. 99-603, section 303 Aliens granted legal status under section 
210A of the Immigration and Nationality Act may under certain 
circumstances be eligible for Medicaid (8 U.S.C. 1161).

    (b) This part implements the following other provisions of the Act 
or public laws that establish additional State plan requirements:

1618 Requirement for operation of certain State supplementation 
programs.
Pub. L. 93-66, section 212(a) Required mandatory minimum State 
supplementation of SSI benefits programs.

[52 FR 43071, Nov. 9, 1987; 52 FR 48438, Dec. 22, 1987, as amended at 55 
FR 36819, Sept. 7, 1990; 55 FR 48607, Nov. 21, 1990; 57 FR 29155, June 
30, 1992; 59 FR 48809, Sept. 23, 1994]



Sec. 435.4  Definitions and use of terms.

    As used in this part--
    AABD means aid to the aged, blind, and disabled under title XVI of 
the Act;
    AB means aid to the blind under title X of the Act;
    AFDC means aid to families with dependent children under title IV-A 
of the Act;
    APTD means aid to the permanently and totally disabled under title 
XIV of the Act;
    Categorically needy refers to families and children, aged, blind, or 
disabled individuals, and pregnant women, described under subparts B and 
C of this part who are eligible for Medicaid. Subpart B of this part 
describes the mandatory eligibility groups who, generally, are receiving 
or deemed to be receiving cash assistance under the Act. These mandatory 
groups are specified in sections 1902(a)(10)(A)(i), 1902(e), 1902(f), 
and 1928 of the Act. Subpart C of this part describes the optional 
eligibility groups of individuals who, generally, meet the categorical 
requirements or income or resource requirements that are the same as or 
less restrictive than those of the cash assistance programs and who are 
not receiving cash payments. These optional groups are specified in 
sections 1902(a)(10)(A)(ii), 1902(e), and 1902(f) of the Act.
    Families and children refers to eligible members of families with 
children who are financially eligible under AFDC or medically needy 
rules and who are deprived of parental support or care as defined under 
the AFDC program (see 45 CFR 233.90, 233.100). In addition, this group 
includes individuals under age 21 who are not deprived of parental 
support or care but are financially eligible under AFDC rules or 
medically needy rules (see optional coverage group, Sec. 435.222). It 
does not include individuals under age 21 whose eligibility for

[[Page 111]]

Medicaid is based on blindness or disability--for these individuals, SSI 
rules govern;
    Mandatory State supplement means a cash payment a State is required 
to make under section 212, Pub. L. 93-66 (July 9, 1973) to an aged, 
blind, or disabled individual. Its purpose is to provide an individual 
with the same amount of cash assistance he was receiving under OAA, AB, 
APTD, or AABD if his SSI payment is less than that amount;
    Medically needy refers to families, children, aged, blind, or 
disabled individuals, and pregnant women listed under subpart D of this 
part who are not listed in subparts B and C of this part as 
categorically needy but who may be eligible for Medicaid under this part 
because their income and resources are within limits set by the State 
under its Medicaid plan (including persons whose income and resources 
fall within these limits after their incurred expenses for medical or 
remedial care are deducted) (Specific financial requirements for 
determining eligibility of the medically needy appear in subpart I of 
this part.);
    OAA means old age assistance under title I of the Act;
    OASDI means old age, survivors, and disability insurance under title 
II of the Act;
    Optional State supplement means a cash payment made by a State, 
under section 1616 of the Act, to an aged, blind, or disabled 
individual;
    Optional targeted low-income child means a child under age 19 who 
meets the financial and categorical standards described below.
    (1) Financial need. An optional targeted low-income child:
    (i) Has a family income at or below 200 percent of the Federal 
poverty line for a family of the size involved; and
    (ii) Resides in a State with no Medicaid applicable income level (as 
defined at Sec. 457.10 of this chapter); or
    (iii) Resides in a State that has a Medicaid applicable income level 
(as defined at Sec. 457.10 of this chapter) and has family income that 
either:
    (A) Exceeds the Medicaid applicable income level for the age of such 
child, but not by more than 50 percentage points; or
    (B) Does not exceed the income level specified for such child to be 
eligible for medical assistance under the policies of the State plan 
under title XIX on June 1, 1997.
    (2) No other coverage and State maintenance of effort. An optional 
targeted low-income child is not covered under a group health plan or 
health insurance coverage, or would not be eligible for Medicaid under 
the policies of the State plan in effect on March 31, 1997; except that, 
for purposes of this standard--
    (i) A child shall not be considered to be covered by health 
insurance coverage based on coverage offered by the State under a 
program in operation prior to July 1, 1997 if that program received no 
Federal financial participation;
    (ii) A child shall not be considered to be covered under a group 
health plan or health insurance coverage if the child did not have 
reasonable geographic access to care under that coverage.
    (3) For purposes of this section, policies of the State plan a under 
title XIX plan include policies under a Statewide demonstration project 
under section 1115(a) of the Act other than a demonstration project that 
covered an expanded group of eligible children but that either--
    (i) Did not provide inpatient hospital coverage; or
    (ii) Limited eligibility to children previously enrolled in 
Medicaid, imposed premiums as a condition of initial or continued 
enrollment, and did not impose a general time limit on eligibility.
    SSI means supplemental security income under title XVI of the Act.
    SWICA means the State Wage Information Collection Agency under 
section 1137(a) of the Act. It is the State agency administering the 
State unemployment compensation law; a separate agency administering a 
quarterly wage reporting system; or a State agency administering an 
alternative system which has been determined by the Secretary of Labor, 
in consultation with the Secretary of Agriculture and the Secretary of 
Health and Human Services, to be as effective and timely in

[[Page 112]]

providing employment related income and eligibility data.

[43 FR 45204, Sept. 29, 1978, as amended at 45 FR 24883, Apr. 11, 1980; 
46 FR 6909, Jan. 22, 1981; 46 FR 47984, Sept. 30, 1981; 51 FR 7211, Feb. 
28, 1986; 58 FR 4925, Jan. 19, 1993; 66 FR 2666, Jan. 11, 2001]



Sec. 435.10  State plan requirements.

    A State plan must--
    (a) Provide that the requirements of this part are met; and
    (b) Specify the groups to whom Medicaid is provided, as specified in 
subparts B, C, and D of this part, and the conditions of eligibility for 
individuals in those groups.



         Subpart B_Mandatory Coverage of the Categorically Needy



Sec. 435.100  Scope.

    This subpart prescribes requirements for coverage of categorically 
needy individuals.

               Mandatory Coverage of Families and Children



Sec. 435.110  Individuals receiving aid to families with dependent children.

    (a) A Medicaid agency must provide Medicaid to individuals receiving 
AFDC.
    (b) For purposes of this section, an individual is receiving AFDC if 
his needs are included in determining the amount of the AFDC payment. 
This includes an individual whose presence in the home is considered 
essential to the well-being of a recipient (see 45 CFR 233.20(a)(2)(vi)) 
and who could be a recipient under the State's AFDC plan if that plan 
were as broad as allowed under the Act for FFP.



Sec. 435.112  Families terminated from AFDC because of increased earnings or hours of employment.

    (a) If a family loses AFDC solely because of increased income from 
employment or increased hours of employment, the agency must continue to 
provide Medicaid for 4 months to all members of the family if--
    (1) The family received AFDC in any 3 or more months during the 6-
month period immediately before the month in which it became ineligible 
for AFDC; and
    (2) At least one member of the family is employed throughout the 4-
month period, although this need not be the same member for the whole 
period.
    (b) The 4 calendar month period begins on the date AFDC is 
terminated. If AFDC benefits are terminated retroactively, the 4 
calendar month period also begins retroactively with the first month in 
which AFDC was erroneously paid.

[43 FR 45204, Sept. 29, 1978, as amended at 45 FR 24883, Apr. 11, 1980]



Sec. 435.113  Individuals who are ineligible for AFDC because of requirements that do not apply under title XIX of the Act.

    The agency must provide Medicaid to:
    (a) Individuals denied AFDC solely because of policies requiring the 
deeming of income and resources of the following individuals who are not 
included as financially responsible relatives under section 
1902(a)(17)(D) of the Act;
    (1) Stepparents who are not legally liable for support of 
stepchildren under a State law of general applicability;
    (2) Grandparents;
    (3) Legal guardians;
    (4) Alien sponsors who are not organizations; and
    (5) Siblings.
    (b) [Reserved]

[58 FR 4926, Jan. 19, 1993, as amended at 59 FR 43052, Aug. 22, 1994]



Sec. 435.114  Individuals who would be eligible for AFDC except for increased OASDI income under Pub. L. 92-336 (July 1, 1972).

    The agency must provide Medicaid to individuals who meet the 
following conditions:
    (a) In August 1972, the individual was entitled to OASDI and--
    (1) He was receiving AFDC; or
    (2) He would have been eligible for AFDC if he had applied, and the 
Medicaid plan covered this optional group; or
    (3) He would have been eligible for AFDC if he were not in a medical 
institution or intermediate care facility,

[[Page 113]]

and the Medicaid plan covered this optional group.
    (b) The individual would currently be eligible for AFDC except that 
the increase in OASDI under Pub. L. 92-336 raised his income over the 
limit allowed under AFDC. This includes an individual who--
    (1) Meets all current AFDC requirements except for the requirement 
to file an application; or
    (2) Would meet all current AFDC requirements if he were not in a 
medical institution or intermediate care facility, and the current 
Medicaid plan covers this optional group.



Sec. 435.115  Individuals deemed to be receiving AFDC.

    (a) The Medicaid agency must provide Medicaid to individuals deemed 
to be receiving AFDC, as specified in this section.
    (b) The State must deem individuals to be receiving AFDC who are 
denied a cash payment from the title IV-A State agency solely because 
the amount of the AFDC payment would be less than $10.
    (c) The State may deem participants in a work supplementation 
program to be receiving AFDC under section 414(g) of the Act. This 
section permits States, for purposes of title XIX, to deem an individual 
and any child or relative of the individual (or other individual living 
in the same household) to be receiving AFDC, if the individual--
    (1) Participates in a State-operated work supplementation program 
under section 414 of the Act; and
    (2) Would be eligible for an AFDC cash payment if the individual 
were not participating in the work supplementation program.
    (d) The State must deem to be receiving AFDC those individuals who 
are denied AFDC payments from the title IV-A State agency solely because 
that agency is recovering an overpayment.
    (e) The State must deem to be receiving AFDC individuals described 
in section 473(a)(1) of the Act--
    (1) For whom an adoption assistance agreement is in effect under 
title IV-E of the Act, whether or not adoption assistance is being 
provided or an interlocutory or other judicial decree of adoption has 
been issued; or
    (2) For whom foster care maintenance payments are made under title 
IV-E of the Act.
    (f) The State must deem an individual to be receiving AFDC if a new 
collection or increased collection of child or spousal support under 
title IV-D of the Social Security Act results in the termination of AFDC 
eligibility in accordance with section 406(h) of the Social Security 
Act. States must continue to provide Medicaid for four consecutive 
calendar months, beginning with the first month of AFDC ineligibility, 
to each dependent child and each relative with whom such a child is 
living (including the eligible spouse of such relative as described in 
section 406(b) of the Social Security Act) who:
    (1) Becomes ineligible for AFDC on or after August 16, 1984; and
    (2) Has received AFDC for at least three of the six months 
immediately preceding the month in which the individual becomes 
ineligible for AFDC; and
    (3) Becomes ineligible for AFDC wholly or partly as a result of the 
initiation of or an increase in the amount of the child or spousal 
support collection under title IV-D.
    (g)(1) Except as provided in paragraph (g)(2) of this section, 
individuals who are eligible for extended Medicaid lose this coverage if 
they move to another State during the 4-month period. However, if they 
move back to and reestablish residence in the State in which they have 
extended coverage, they are eligible for any of the months remaining in 
the 4-month period in which they are residents of the State.
    (2) If a State has chosen in its State plan to provide Medicaid to 
non-residents, the State may continue to provide the 4-month extended 
benefits to individuals who have moved to another State.
    (h) For purposes of paragraph (f) of this section:
    (1) The new collection or increased collection of child or spousal 
support results in the termination of AFDC eligibility when it actively 
causes or contributes to the termination. This occurs when:
    (i) The change in support collection in and of itself is sufficient 
to cause ineligibility. This rule applies even if the

[[Page 114]]

support collection must be added to other, stable income. It also 
applies even if other independent factors, alone or in combination with 
each other, might simultaneously cause ineligibility; or
    (ii) The change in support contributes to ineligibility but does not 
by itself cause ineligibility. Ineligibility must result when the change 
in support is combined with other changes in income or changes in other 
circumstances and the other changes in income or circumstances cannot 
alone or in combination result in termination without the change in 
support.
    (2) In cases of increases in the amounts of both support collections 
and earned income, eligibility under this section does not preclude 
eligibility under 45 CFR 233.20(a)(14) or section 1925 of the Social 
Security Act (which was added by section 303(a) of the Family Support 
Act of 1988 (42 U.S.C. 1396r-6)). Extended periods resulting from both 
an increase in the amount of the support collection and from an increase 
in earned income must run concurrently.

[46 FR 47985, Sept. 30, 1981, as amended at 52 FR 43071, Nov. 9, 1987; 
55 FR 48607, Nov. 21, 1990; 59 FR 59376, Nov. 17, 1994]

  Mandatory Coverage of Pregnant Women, Children Under 8, and Newborn 
                                Children



Sec. 435.116  Qualified pregnant women and children who are not qualified family members.

    (a) The agency must provide Medicaid to a pregnant woman whose 
pregnancy has been medically verified and who--
    (1) Would be eligible for an AFDC cash payment (or would be eligible 
for an AFDC cash payment if coverage under the State's AFDC plan 
included an AFDC-unemployed parents program) if her child had been born 
and was living with her in the month of payment;
    (2) Is a member of a family that would be eligible for an AFDC cash 
payment if the State's AFDC plan included an AFDC-unemployed parents 
program; or
    (3) Meets the income and resource requirements of the State's 
approved AFDC plan. In determining whether the woman meets the AFDC 
income and resource requirements, the unborn child or children are 
considered members of the household, and the woman's family is treated 
as though deprivation exists.
    (b) The provisions of paragraphs (a) (1) and (2) of this section are 
effective October 1, 1984. The provisions of paragraph (a)(3) of this 
section are effective July 1, 1986.
    (c) The agency must provide Medicaid to children who meet all of the 
following criteria:
    (1) They are born after September 30, 1983;
    (2) Effective October 1, 1988, they are under age 6 (or if 
designated by the State, any age that exceeds age 6 but does not exceed 
age 8), and effective October 1, 1989, they are under age 7 (or if 
designated by the State, any age that exceeds age 7 but does not exceed 
age 8); and
    (3) They meet the income and resource requirements of the State's 
approved AFDC plan.

[52 FR 43071, Nov. 9, 1987, as amended at 55 FR 48607, Nov. 21, 1990; 58 
FR 48614, Sept. 17, 1993]



Sec. 435.117  Newborn children.

    (a) The agency must provide categorically needy Medicaid eligibility 
to a child born to a woman who is eligible as categorically needy and is 
receiving Medicaid on the date of the child's birth. The child is deemed 
to have applied and been found eligible for Medicaid on the date of 
birth and remains eligible as categorically needy for one year so long 
as the woman remains eligible as categorically needy and the child is a 
member of the woman's household. If the mother's basis of eligibility 
changes to medically needy, the child is eligible as medically needy 
under Sec. 435.301(b)(1)(iii).
    (b) The requirements under paragraph (a) of this section apply to 
children born on or after October 1, 1984.

[52 FR 43071, Nov. 9, 1987]

[[Page 115]]

             Mandatory Coverage of Qualified Family Members



Sec. 435.119  Qualified family members.

    (a) Definition. A qualified family member is any member of a family, 
including pregnant women and children eligible for Medicaid under Sec. 
435.116 of this subpart, who would be receiving AFDC cash benefits on 
the basis of the unemployment of the principal wage earner under section 
407 of the Act had the State not chosen to place time limits on those 
benefits as permitted under section 407(b)(2)(B)(i) of the Act.
    (b) State plan requirement. The State plan must provide that the 
State makes Medicaid available to any individual who meets the 
definition of ``qualified family member'' as specified in paragraph (a) 
of this section.
    (c) Applicability. The provisions in this section are applicable in 
the 50 States and the District of Columbia from October 1, 1990, through 
September 30, 1998. The provisions are applicable in American Samoa from 
October 1, 1992, through September 30, 1998.

[58 FR 48614, Sept. 17, 1993]

           Mandatory Coverage of the Aged, Blind, and Disabled



Sec. 435.120  Individuals receiving SSI.

    Except as allowed under Sec. 435.121, the agency must provide 
Medicaid to aged, blind, and disabled individuals or couples who are 
receiving or are deemed to be receiving SSI. This includes individuals 
who are--
    (a) Receiving SSI pending a final determination of blindness or 
disability;
    (b) Receiving SSI under an agreement with the Social Security 
Administration to dispose of resources that exceed the SSI dollar limits 
on resources; or
    (c) Receiving benefits under section 1619(a) of the Act or in 
section 1619(b) status (blind individuals or those with disabling 
impairments whose income equals or exceeds a specific Supplemental 
Security Income limit). (Regulations at 20 CFR 416.260 through 416.269 
contain requirements governing determinations of eligibility under this 
provision.) For purposes of this paragraph (c), this mandatory 
categorically needy group of individuals includes those qualified 
severely impaired individuals defined in section 1905(q) of the Act.

[55 FR 33705, Aug. 17, 1990]



Sec. 435.121  Individuals in States using more restrictive requirements for Medicaid than the SSI requirements.

    (a) Basic eligibility group requirements. (1) If the agency does not 
provide Medicaid under Sec. 435.120 to aged, blind, and disabled 
individuals who are SSI recipients, the agency must provide Medicaid to 
aged, blind, and disabled individuals who meet eligibility requirements 
that are specified in this section.
    (2) Except to the extent provided in paragraph (a)(3) of this 
section, the agency may elect to apply more restrictive eligibility 
requirements to the aged, blind, and disabled that are more restrictive 
than those of the SSI program. The more restrictive requirements may be 
no more restrictive than those requirements contained in the State's 
Medicaid plan in effect on January 1, 1972. If any of the State's 1972 
Medicaid plan requirements were more liberal than of the SSI program, 
the State must use the SSI requirement instead of the more liberal 
requirements, except to the extent the State elects to use more liberal 
criteria under Sec. 435.601.
    (3) The agency must not apply a more restrictive requirement under 
the provisions of paragraph (a)(2) of this section if:
    (i) The requirement conflicts with the requirements of section 1924 
of the Act, which governs the eligibility and post-eligibility treatment 
of income and resources of institutionalized individuals with community 
spouses;
    (ii) The requirement conflicts with a more liberal requirement which 
the agency has elected to use under Sec. 435.601; or
    (iii) The more restrictive requirement conflicts with a more liberal 
requirement the State has elected to use under Sec. 435.234(c) in 
determining eligibility for State supplementary payments.
    (b) Mandatory coverage. If the agency chooses to apply more 
restrictive requirements than SSI to aged, blind, or disabled 
individuals, it must provide Medicaid to:

[[Page 116]]

    (1) Individuals who meet the requirements of section 1619(b)(3) of 
the Act even though they may not continue to meet the requirements of 
this section; and
    (2) Qualified Medicare beneficiaries described in section 1905(p) of 
the Act and qualified working disabled individuals described in section 
1905(s) of the Act without consideration of the more restrictive 
eligibility requirements specified in this section.
    (3) Individuals who:
    (i) Qualify for benefits under section 1619(a) or are in eligibility 
status under section 1619(b)(1) of the Act as determined by SSA; and
    (ii) Were eligible for Medicaid under the more restrictive criteria 
in the State's approved Medicaid plan in the reference month--the month 
immediately preceding the first month in which they became eligible 
under section 1619(a) or (b)(1) of the Act. ``Were eligible for 
Medicaid'' means that individuals were issued Medicaid cards by the 
State for the reference month. Under this provision, the reference month 
for determining Medicaid eligibility for all individuals under section 
1619 of the Act is the month immediately preceding the first month of 
the most recent period of eligibility under section 1619 of the Act.
    (c) Group composition. The agency may apply more restrictive 
requirements only to the aged, to the blind, to the disabled, or to any 
combination of these groups. For example, the agency may apply more 
restrictive requirements to the aged and disabled under this provision 
and provide Medicaid to all blind individuals who are SSI recipients.
    (d) Nonfinancial conditions. The agency may apply more restrictive 
requirements that are nonfinancial conditions of eligibility. For 
example, the agency may use a more restrictive definition of disability 
or may limit eligibility of the disabled to individuals age 18 and 
older, or both. If the agency limits eligibility of disabled individuals 
to individuals age 18 or older, it must provide Medicaid to individuals 
under age 18 who receive SSI benefits and who would be eligible to 
receive AFDC under the State's approved plan if they did not receive 
SSI. If the agency imposed an age limit for disabled individuals under 
its 1972 approved State plan but does not use that limit, it must apply 
the same nonfinancial requirement to individuals under age 18 that it 
applies to disabled individuals age 18 and older.
    (e) Financial conditions. (1) The agency may apply more restrictive 
requirements that are financial conditions of eligibility.
    (2) Any income eligibility standards that the agency applies must:
    (i) Equal the income standard (or Federal Benefit Rate (FBR)) that 
would be used under SSI based on an individual's living arrangement; or
    (ii) Be a more restrictive standard which is no more restrictive 
than that under the approved State's January 1, 1972 Medicaid plan.
    (3) If the categorically needy income standard established under 
paragraph (e)(2) of this section is less than the optional categorically 
needy standard established under Sec. 435.230, the agency must provide 
Medicaid to all aged, blind, and disabled individuals who have income 
equal to or below the higher standard.
    (4) In a State that does not have a medically needy program that 
covers aged, blind, and disabled individuals, the agency must allow 
individuals to deduct from income incurred medical and remedial expenses 
(that is, spend down) to become eligible under this section. However, 
individuals with income above the categorically needy standards may only 
spend down to the standard selected by the State under paragraph (e)(2) 
of this section which applies to the individual's living arrangement.
    (5) In a State that elects to provide medically needy coverage to 
aged, blind, and disabled individuals, the agency must allow individuals 
to deduct from income incurred medical and remedial care expenses (spend 
down) to become categorically needy when they are SSI recipients 
(including individuals deemed to be SSI recipients under Sec. Sec. 
435.135, 435.137, and 435.138), eligible spouses of SSI recipients, 
State supplement recipients, and individuals who are eligible for a 
supplement but who do not receive supplementary payments. Such persons 
may only spend

[[Page 117]]

down to the standard selected by the State under paragraph (e)(2) of 
this section. Individuals who are not SSI recipients, eligible spouses 
of SSI recipients, State supplement recipients, or individuals who are 
eligible for a supplement must spend down to the State's medically needy 
income standards for aged, blind, and disabled individuals in order to 
become Medicaid eligible.
    (f) Deductions from income. (1) In addition to any income disregards 
specified in the approved State plan in accordance with Sec. 
435.601(b), the agency must deduct from income:
    (i) SSI payments;
    (ii) State supplementary payments that meet the conditions specified 
in Sec. Sec. 435.232 and 435.234; and
    (iii) Expenses incurred by the individual or financially responsible 
relatives for necessary medical and remedial services that are 
recognized under State law and are not subject to payment by a third 
party, unless the third party is a public program of a State or 
political subdivision of a State. These expenses include Medicare and 
other health insurance premiums, deductions and coinsurance charges, and 
copayments or deductibles imposed under Sec. 447.51 or Sec. 447.53 of 
this chapter. The agency may set reasonable limits on the amounts of 
incurred medical expenses that are deducted.
    (2) For purposes of counting income with respect to individuals who 
are receiving benefits under section 1619(a) f the Act or are in section 
1619(b)(1) of the Act status but who do not meet the requirements of 
paragraph (b)(3)(ii) of this section, the agency may disregard some or 
all of the amount of the individual's income that is in excess of the 
SSI Federal benefit rate under section 1611(b) of the Act.

[58 FR 4926, Jan. 19, 1993]



Sec. 435.122  Individuals who are ineligible for SSI or optional State supplements because of requirements that do not apply under title XIX of the Act.

    If an agency provides Medicaid to aged, blind, or disabled 
individuals receiving SSI or optional State supplements, it must provide 
Medicaid to individuals who would be eligible for SSI or optional State 
supplements except for an eligibility requirement used in those programs 
that is specifically prohibited under title XIX.

[47 FR 43648, Oct. 1, 1982; 47 FR 49847, Nov. 3, 1982]



Sec. 435.130  Individuals receiving mandatory State supplements.

    The agency must provide Medicaid to individuals receiving mandatory 
State supplements.



Sec. 435.131  Individuals eligible as essential spouses in December 1973.

    (a) The agency must provide Medicaid to any person who was eligible 
for Medicaid in December 1973 as an essential spouse of an aged, blind, 
or disabled individual who was receiving cash assistance, if the 
conditions in paragraph (b) of this section are met. An ``essential 
spouse'' is defined in section 1905(a) of the Act as one who is living 
with the individual; whose needs were included in determining the amount 
of cash payment to the individual under OAA, AB, APTD, or AABD; and who 
is determined essential to the individual's well-being.
    (b) The agency must continue Medicaid if--
    (1) The aged, blind, or disabled individual continues to meet the 
December 1973 eligibility requirements of the applicable State cash 
assistance plan; and
    (2) The essential spouse continues to meet the conditions that were 
in effect in December 1973 under the applicable cash assistance plan for 
having his needs included in computing the payment to the aged, blind, 
or disabled individual.



Sec. 435.132  Institutionalized individuals who were eligible in December 1973.

    The agency must provide Medicaid to individuals who were eligible 
for Medicaid in December 1973, or any part of that month, as inpatients 
of medical institutions or residents of intermediate care facilities 
that were participating in the Medicaid program and who--
    (a) For each consecutive month after December 1973--
    (1) Continue to meet the requirements for Medicaid eligibility that

[[Page 118]]

were in effect under the State's plan in December 1973 for 
institutionalized individuals; and
    (2) Remain institutionalized; and
    (b) Are determined by the State or a professional standards review 
organization to continue to need institutional care.



Sec. 435.133  Blind and disabled individuals eligible in December 1973.

    The agency must provide Medicaid to individuals who--
    (a) Meet all current requirements for Medicaid eligibility except 
the criteria for blindness or disability;
    (b) Were eligible for Medicaid in December 1973 as blind or disabled 
individuals, whether or not they were receiving cash assistance in 
December 1973; and
    (c) For each consecutive month after December 1973, continue to meet 
the criteria for blindness or disability and the other conditions of 
eligibility used under the Medicaid plan in December 1973.



Sec. 435.134  Individuals who would be eligible except for the increase in OASDI benefits under Pub. L. 92-336 (July 1, 1972).

    The agency must provide Medicaid to individuals who meet the 
following conditions:
    (a) In August 1972, the individual was entitled to OASDI and--
    (1) He was receiving OAA, AB, APTD, or AABD; or
    (2) He would have been eligible for one of those programs except 
that he had not applied, and the Medicaid plan covered this optional 
group; or
    (3) He would have been eligible for one of those programs if he were 
not in a medical institution or intermediate care facility, and the 
Medicaid plan covered this optional group.
    (b) The individual would currently be eligible for SSI or a State 
supplement except that the increase in OASDI under Pub. L. 92-336 raised 
his income over the limit allowed under SSI. This includes an individual 
who--
    (1) Meets all current SSI requirements except for the requirement to 
file an application; or
    (2) Would meet all current SSI requirements if he were not in a 
medical institution or intermediate care facility, and the State's 
Medicaid plan covers this optional group.

[43 FR 45204, Sept. 29, 1978, as amended at 45 FR 24883, Apr. 11, 1980]



Sec. 435.135  Individuals who become ineligible for cash assistance as a result of OASDI cost-of-living increases received after April 1977.

    (a) If an agency provides Medicaid to aged, blind, or disabled 
individuals receiving SSI or State supplements, it must provide Medicaid 
to individuals who--
    (1) Are receiving OASDI;
    (2) Were eligible for and receiving SSI or State supplements but 
became ineligible for those payments after April 1977; and
    (3) Would still be eligible for SSI or State supplements if the 
amount of OASDI cost-of-living increases paid under section 215(i) of 
the Act, after the last month after April 1977 for which those 
individuals were both eligible for and received SSI or a State 
supplement and were entitled to OASDI, were deducted from current OASDI 
benefits.
    (b) Cost-of-living increases include the increases received by the 
individual or his or her financially responsible spouse or other family 
member (e.g., a parent).
    (c) If the agency adopts more restrictive eligibility requirements 
than those under SSI, it must provide Medicaid to individuals specified 
in paragraph (a) of this section on the same basis as Medicaid is 
provided to individuals continuing to receive SSI or State supplements. 
If the individual incurs enough medical expenses to reduce his or her 
income to the financial eligibility standard for the categorically 
needy, the agency must cover that individual as categorically needy. In 
determining the amount of his or her income, the agency may deduct the 
cost-of-living increases paid under section 215(i) after the last month 
after April 1977 for which that individual was both eligible for and 
received SSI or a State supplement and was entitled to OASDI, up to the 
amount that made him or her ineligible for SSI.

[51 FR 12330, Apr. 10, 1986]

[[Page 119]]



Sec. 435.136  State agency implementation requirements for one-time notice and annual review system.

    An agency must--
    (a) Provide a one-time notice of potential Medicaid eligibility 
under Sec. 435.135 to all individuals who meet the requirements of 
Sec. 435.135 (a) or (c) who were not receiving Medicaid as of March 9, 
1984; and
    (b) Establish an annual review system to identify individuals who 
meet the requirements of Sec. 435.135 (a) or (c) and who lose 
categorically needy eligibility for Medicaid because of a loss of SSI. 
States without medically needy programs must send notices of potential 
eligibility for Medicaid to these individuals for 3 consecutive years 
following their identification through the annual review system.

[51 FR 12330, Apr. 10, 1986]



Sec. 435.137  Disabled widows and widowers who would be eligible for SSI except for the increase in disability benefits resulting from elimination of the 
          reduction factor under Pub. L. 98-21.

    (a) If the agency provides Medicaid to aged, blind, or disabled 
individuals receiving SSI or State supplements, the agency much provide 
Medicaid to disabled widows and widowers who--
    (1) Became ineligible for SSI or a mandatory or optional State 
supplement as a result of the elimination of the additional reduction 
factor for disabled widows and widowers under age 60 required by section 
134 of Pub. L. 98-21, and for purposes of title XIX, are deemed to be 
title XVI payment recipients under section 1634(b) of the Social 
Security Act; and
    (2) Meet the conditions of paragraphs (b) and (e) of this section.
    (b) The individuals must meet the following conditions:
    (1) They were entitled to monthly OASDI benefits under title II of 
the Act for December 1983:
    (2) They were entitled to and received widow's or widower's 
disability benefits under section 202(e) or (f) of the Act for January 
1984;
    (3) They became ineligible for SSI or a mandatory or optional State 
supplement in the first month in which the increase under Pub. L. 98-21 
was paid (and in which a retroactive payment for that increase for prior 
months was not made);
    (4) They have been continously entitled to widow's or widower's 
disability benefits under section 202(e) or (f) from the first month 
that the increase under Pub. L. 98-21 was received; and
    (5) They would be eligible for SSI benefits or a mandatory or 
optional State supplement if the amount of the increase under Pub. L. 
98-21 and subsequent cost-of-living adjustments in widow's or widower's 
benefits under section 215(i) of the Act were deducted from their 
income.
    (c) If the agency adopts more restrictive requirements than those 
under SSI, it must provide Medicaid to individuals specified in 
paragraph (a) of this section on the same basis as Medicaid is provided 
to individuals continuing to receive SSI or a mandatory or optional 
State supplement. The State must consider the individuals specified in 
paragraph (a) of this section to have no more income than the SSI 
Federal benefit rate if the individual was eligible for SSI in the month 
prior to the first month in which the increase under Public Law 98-21 
was paid (and in which retroactive payments for that increase for prior 
months was not being made), and the individual would be eligible for SSI 
except for the amount of the increase under Public Law 98-21 and 
subsequent cost-of-living adjustments in his or her widow's or widower's 
benefits under section 215(i) of the Act. The State must consider 
individuals who qualify under paragraph (a) of this section on the basis 
of loss of a mandatory or optional State supplementary payment, rather 
than the loss of SSI, to have no more income than the relevant SSP rate. 
If the State's income eligibility level is lower than the SSP or SSI 
Federal benefit rates, individuals qualifying under paragraph (a) of 
this section who are deemed to have income at either the SSP rate or the 
SSI Federal benefit rate may further reduce their countable income by 
incurring medical expenses in the amount by which their income exceeds 
the State's income eligibility standard. When the individual has reduced 
his or her income by this

[[Page 120]]

amount, he or she will be eligible for Medicaid as categorically needy.
    (d) The agency must notify each individual who may be eligible for 
Medicaid under this section of his or her potential eligibility, in 
accordance with instructions issued by the Secretary.
    (e)(1) Except as provided in paragraph (e)(2) of this section, the 
provisions of this section apply only to those individuals who filed a 
written application for Medicaid on or before June 30, 1988, to obtain 
protected Medicaid coverage.
    (2) Individuals who may be eligible under this section residing in 
States that use a more restrictive income standard than that of the SSI 
program, under section 1902(f) of the Act, have up to six months after 
the State sends notice pursuant to the District Court's order in Darling 
v. Bowen (685 F. Supp. 1125 (W.D.Mo. 1988) to file a written application 
to obtain protected Medicaid coverage.

[55 FR 48607, Nov. 21, 1990]



Sec. 435.138  Disabled widows and widowers aged 60 through 64 who would be eligible for SSI except for early receipt of social security benefits.

    (a) If the agency provides Medicaid to aged, blind, or disabled 
individuals receiving SSI or State supplements, the agency must provide 
Medicaid to disabled widows and widowers who--
    (1) Are at least age 60;
    (2) Are not entitled to hospital insurance benefits under Medicare 
Part A; and
    (3) Become ineligible for SSI or a State supplement because of 
mandatory application (under section 1611(e)(2)) for and receipt of 
widow's or widower's social security disability benefits under section 
202(e) or (f) (or any other provision of section 202 if they are also 
eligible for benefits under subsections (e) or (f)) of the Act.
    For purposes of title XIX, individuals who meet these requirements 
are deemed to be title XVI payment recipients under section 1634(d) of 
the Act.
    (b) If the agency adopts more restrictive eligibility requirements 
than those under SSI, it must provide Medicaid to individuals specified 
in paragraph (a) of this section on the same basis as Medicaid is 
provided to individuals continuing to receive SSI or a mandatory or 
optional State supplement. If the individual incurs enough medical 
expenses to reduce his or her income to the financial eligibility 
standard for the categorically needy under the State's more restrictive 
eligibility criteria, the agency must cover the individual as 
categorically needy. In determining the amount of his or her income, the 
agency may deduct all, part, or none of the amount of the social 
security disability benefits that made him or her ineligible for SSI or 
a State supplement, up to the amount that made him or her ineligible for 
SSI.
    (c) Individuals who may be eligible under this section must file a 
written application for Medicaid. Medicaid coverage may begin no earlier 
than July 1, 1988.
    (d) The agency must determine whether individuals may be eligible 
for Medicaid under this section.

[55 FR 48608, Nov. 21, 1990]

                  Mandatory Coverage of Certain Aliens



Sec. 435.139  Coverage for certain aliens.

    The agency must provide services necessary for the treatment of an 
emergency medical condition, as defined in Sec. 440.255(c) of this 
chapter, to those aliens described in Sec. 435.406(c) of this subpart.

[55 FR 36819, Sept. 7, 1990]

   Mandatory Coverage of Adoption Assistance and Foster Care Children



Sec. 435.145  Children for whom adoption assistance or foster care maintenance payments are made.

    The agency must provide Medicaid to children for whom adoption 
assistance or foster care maintenance payments are made under title IV-E 
of the Act.

[47 FR 28665, July 1, 1982. Redesignated at 55 FR 48607, Nov. 21, 1990. 
Redesignated at 58 FR 48614, Sept. 17, 1993]

[[Page 121]]

                  Mandatory Coverage of Special Groups



Sec. 435.170  Pregnant women eligible for extended coverage.

    (a) The agency must provide categorically needy Medicaid eligibility 
for an extended period following termination of pregnancy to women who, 
while pregnant, applied for, were eligible for, and received Medicaid 
services on the day that their pregnancy ends. This period extends from 
the last day of pregnancy through the end of the month in which a 60-day 
period, beginning on the last day of the pregnancy, ends. Eligibility 
must be provided regardless of changes in the woman's financial 
circumstances that may occur within this extended period. These women 
are eligible for the extended period for all services under the plan 
that are pregnancy-related (as defined in Sec. 440.210(c)(1) of this 
subchapter).
    (b) The provisions of paragraph (a) of this section apply to 
Medicaid furnished on or after April 7, 1986.

[55 FR 48608, Nov. 21, 1990]



          Subpart C_Options for Coverage as Categorically Needy



Sec. 435.200  Scope.

    This subpart specifies options for coverage of individuals as 
categorically needy.



Sec. 435.201  Individuals included in optional groups.

    (a) The agency may choose to cover as optional categorically needy 
any group or groups of the following individuals who are not receiving 
cash assistance and who meet the appropriate eligibility criteria for 
groups specified in the separate sections of this subpart:
    (1) Aged individuals (65 years of age of older);
    (2) Blind individuals (as defined in Sec. 435.530);
    (3) Disabled individuals (as defined in Sec. 435.541);
    (4) Individuals under age 21 (or, at State option, under age 20, 19, 
or 18) or reasonable classifications of these individuals;
    (5) Specified relatives under section 406(b)(1) of the Act who have 
in their care an individual who is determined to be dependent (or would, 
if needy, be dependent) as specified in Sec. 435.510; and
    (6) Pregnant women.
    (b) If the agency provides Medicaid to any individual in an optional 
group specified in paragraph (a) of this section, the agency must 
provide Medicaid to all individuals who apply and are found eligible to 
be members of that group.
    (c) States that elect to use more restrictive eligibility 
requirements for Medicaid than the SSI requirements for any group or 
groups of aged, blind, and disabled individuals under Sec. 435.121 must 
apply the specific requirements of Sec. 435.230 in establishing 
eligibility of these groups of individuals as optional categorically 
needy.

[58 FR 4927, Jan. 19, 1993]

 Options for Coverage of Families and Children and the Aged, Blind, and 
                                Disabled



Sec. 435.210  Individuals who meet the income and resource requirements of the cash assistance programs.

    The agency may provide Medicaid to any group or groups of 
individuals specified in Sec. 435.201 (a)(1) through (a)(3) and (a)(5) 
and (a)(6) who are not mandatory categorically needy, who meet the 
income and resource requirements of the appropriate cash assistance 
program for their status (that is, the State's approved AFDC plan or 
SSI, or optional State supplements in States that provide Medicaid to 
optional State supplement recipients).

[58 FR 4927, Jan. 19, 1993]



Sec. 435.211  Individuals who would be eligible for cash assistance if they were not in medical institutions.

    The agency may provide Medicaid to any group or groups of 
individuals specified in Sec. 435.201(a) who are in title XIX 
reimbursable medical institutions and who:
    (a) Are ineligible for the cash assistance program appropriate for 
their status (that is, AFDC or SSI, or optional

[[Page 122]]

State supplements in States that provide Medicaid to optional State 
supplement recipients) because of lower income standards used under the 
program to determine eligibility for institutionalized individuals; but
    (b) Would be eligible for aid or assistance under the State's 
approved AFDC plan, SSI, or an optional State supplement as specified in 
Sec. Sec. 435.232 and 435.234 if they were not institutionalized.

[58 FR 4927, Jan. 19, 1993]



Sec. 435.212  Individuals who would be ineligible if they were not enrolled in an MCO or PCCM.

    The State agency may provide that a recipient who is enrolled in an 
MCO or PCCM and who becomes ineligible for Medicaid is considered to 
continue to be eligible--
    (a) For a period specified by the agency, ending no later than 6 
months from the date of enrollment; and
    (b) Except for family planning services (which the recipient may 
obtain from any qualified provider) only for services furnished to him 
or her as an MCO enrollee.

[56 FR 8849, Mar. 1, 1991, as amended at 67 FR 41095, June 14, 2002]



Sec. 435.217  Individuals receiving home and community-based services.

    The agency may provide Medicaid to any group or groups of 
individuals in the community who meet the following requirements:
    (a) The group would be eligible for Medicaid if institutionalized.
    (b) In the absence of home and community-based services under a 
waiver granted under part 441--
    (1) Subpart G of this subchapter, the group would otherwise require 
the level of care furnished in a hospital, NF, or an ICF/MR; or
    (2) Subpart H of this subchapter, the group would otherwise require 
the level of care furnished in an NF and are age 65 or older.
    (c) The group receives the waivered services.

[57 FR 29155, June 30, 1992]

              Options for Coverage of Families and Children



Sec. 435.220  Individuals who would meet the income and resource requirements under AFDC if child care costs were paid from earnings.

    (a) The agency may provide Medicaid to any group or groups of 
individuals specified under Sec. 435.201 (a)(4), (a)(5), and (a)(6) who 
would meet the income and resource requirements under the State's 
approved AFDC plan if their work-related child care costs were paid from 
their earnings rather than by a State agency as a service expenditure.
    (b) The agency may use this option only if the State's AFDC plan 
deducts work-related child care costs from income to determine the 
amount of AFDC.

[43 FR 45204, Sept. 29, 1978, as amended at 58 FR 4927, Jan. 19, 1993]



Sec. 435.221  [Reserved]



Sec. 435.222  Individuals under age 21 who meet the income and resource requirements of AFDC.

    (a) The agency may provide Medicaid to individuals under age 21 (or, 
at State option, under age 20, 19, or 18); or reasonable categories of 
these individuals as specified in paragraph (b) of this section, who are 
not receiving cash assistance under any program but who meet the income 
and resource requirements of the State's approved AFDC plan.
    (b) The agency may cover all individuals described in paragraph (a) 
of this section or reasonable classifications of those individuals. 
Examples of reasonable classifications are as follows:
    (1) Individuals in foster homes or private institutions for whom a 
public agency is assuming a full or partial financial responsibility. If 
the agency covers these individuals, it may also provide Medicaid to 
individuals of the same age placed in foster homes or private 
institutions by private nonprofit agencies.
    (2) Individuals in adoptions subsidized in full or in part by a 
public agency.
    (3) Individuals in nursing facilities when nursing facility services 
are provided under the plan to individuals within the age group selected 
under

[[Page 123]]

this provision. If the agency covers these individuals, it may also 
provide Medicaid to individuals in intermediate care facilities for the 
mentally retarded.
    (4) Individuals under age 21 receiving active treatment as 
inpatients in pyschiatric facilities or programs, if inpatient 
psychiatric services for individuals under 21 are provided under the 
plan.

[46 FR 47985, Sept. 30, 1981; 46 FR 54743, Nov. 4, 1981, as amended at 
58 FR 4927, Jan. 19, 1993]



Sec. 435.223  Individuals who would be eligible for AFDC if coverage under the State's AFDC plan were as broad as allowed under title IV-A.

    (a) The agency may provide Medicaid to any group or groups of 
individuals specified under Sec. 435.210 (a)(4), (a)(5), and (a)(6) 
who:
    (1) Would be eligible for AFDC if the State's AFDC plan included 
individuals whose coverage under title IV-A is optional (for example, 
Medicaid may be provided to members of families with an unemployed 
parent even though AFDC is not available to them under the State's AFDC 
plan); or
    (2) Would be eligible for AFDC if the State's AFDC plan did not 
contain eligibility requirements more restrictive than, or in addition 
to, those required under title IV-A.
    (b) The agency may cover any AFDC optional group without covering 
all such groups.

[46 FR 47985, Sept. 30, 1981, as amended at 58 FR 4927, Jan. 19, 1993]



Sec. 435.225  Individuals under age 19 who would be eligible for Medicaid if they were in a medical institution.

    (a) The agency may provide Medicaid to children 18 years of age or 
younger who qualify under section 1614(a) of the Act, who would be 
eligible for Medicaid if they were in a medical institution, and who are 
receiving, while living at home, medical care that would be provided in 
a medical institution.
    (b) If the agency elects the option provided by paragraph (a) of 
this section, it must determine, in each case, that the following 
conditions are met:
    (1) The child requires the level of care provided in a hospital, 
SNF, or ICF.
    (2) It is appropriate to provide that level of care outside such an 
institution.
    (3) The estimated Medicaid cost of care outside an institution is no 
higher than the estimated Medicaid cost of appropriate institutional 
care.
    (c) The agency must specify in its State plan the method by which it 
determines the cost-effectiveness of caring for disabled children at 
home.

[55 FR 48608, Nov. 21, 1990]



Sec. 435.227  Individuals under age 21 who are under State adoption assistance agreements.

    (a) The agency may provide Medicaid to individuals under the age of 
21 (or, at State option, age 20, 19, or 18)--
    (1) For whom an adoption agreement (other than an agreement under 
title IV-E) between the State and the adoptive parent(s) is in effect;
    (2) Who, the State agency responsible for adoption assistance, has 
determined cannot be placed with adoptive parents without Medicaid 
because the child has special needs for medical or rehabilitative care; 
and
    (3) Who meet either of the following:
    (i) Were eligible for Medicaid under the State plan before the 
adoption agreement was entered into; or
    (ii) Would have been eligible for Medicaid before the adoption 
agreement was entered into, if the eligibility standards and 
methodologies of the title IV-E foster care program were used without 
employing the threshold title IV-A eligibility determination.
    (b) For adoption assistance agreements entered into before April 7, 
1986--
    (1) The agency must deem the requirements of paragraphs (a)(1) and 
(2) of this section to be met if the State adoption assistance agency 
determines that--
    (i) At the time of the adoption placement, the child had special 
needs for medical or rehabilitative care that made the child difficult 
to place; and
    (ii) There is in effect an adoption assistance agreement between the 
State and the adoptive parent(s).

[[Page 124]]

    (2) The agency must deem the requirements of paragraph (a)(3) of 
this section to be met if the child was found by the State to be 
eligible for Medicaid before the adoption assistance agreement was 
entered into.

[55 FR 48608, Nov. 21, 1990]



Sec. 435.229  Optional targeted low-income children.

    The agency may provide Medicaid to--
    (a) All individuals under age 19 who are optional targeted low-
income children as defined in Sec. 435.4; or
    (b) Reasonable categories of these individuals.

[66 FR 2667, Jan. 11, 2001]

          Options for Coverage of the Aged, Blind, and Disabled



Sec. 435.230  Aged, blind, and disabled individuals in States that use more restrictive requirements for Medicaid than SSI requirements: Optional coverage.

    (a) Basic optional coverage rule. If the agency elects the option 
under Sec. 435.121 to provide mandatory eligibility for aged, blind, 
and disabled SSI recipients using more restrictive requirements than 
those used under SSI, the agency may provide eligibility as optional 
categorically needy to additional individuals who meet the requirements 
of this section.
    (b) Group composition. Subject to the conditions specified in 
paragraphs (d) and (e) of this section, the agency may provide Medicaid 
to individuals who:
    (1) Meet the nonfinancial criteria that the State has elected to 
apply under Sec. 435.121;
    (2) Meet the resource requirements that the State has elected to 
apply under Sec. 435.121; and
    (3) Meet the income eligibility standards specified in paragraph (c) 
of this section.
    (c) Criteria for income standards. The agency may provide Medicaid 
to the following individuals who meet the requirements of paragraphs 
(b)(1) and (b)(2) of this section:
    (1) Individuals who are financially eligible for but not receiving 
SSI benefits and who, before deduction of incurred medical and remedial 
expenses, meet the State's more restrictive eligibility requirements 
described in Sec. 435.121;
    (2) Individuals who meet the income standards of the following 
eligibility groups:
    (i) Individuals who would be eligible for cash assistance except for 
institutional status described in Sec. 435.211;
    (ii) Individuals who are enrolled in an HMO or other entity and who 
are deemed to continue to be Medicaid eligible for a period specified by 
the agency up to 6 months from the date of enrollment and who became 
ineligible during the specified enrollment period, as described in Sec. 
435.212;
    (iii) Individuals receiving home and community-based waiver services 
described in Sec. 435.217;
    (iv) Individuals receiving only optional State supplements described 
in Sec. 435.234;
    (v) Institutionalized individuals with income below a special income 
level described in Sec. 435.236;
    (vi) Aged and disabled individuals who have income below 100 percent 
of the Federal poverty level described in section 1905(m) of the Act.
    (3) Individuals who qualify for special status under Sec. Sec. 
435.135 and 435.138, and with respect to whom the State elects to 
disregard some or the maximum amount of title II payments permitted to 
be disregarded under those sections.
    (d) Use of more liberal methods. The agency may elect to apply more 
liberal methods of counting income and resources that are approved for 
this eligibility group under the provisions of Sec. 435.601.

[58 FR 4928, Jan. 19, 1993]



Sec. 435.232  Individuals receiving only optional State supplements.

    (a) If the agency provides Medicaid to individuals receiving SSI 
under Sec. 435.120, it may provide Medicaid, in one or more of the 
following classifications, to individuals who receive only an optional 
State supplement that meets the conditions specified in paragraph (b) of 
this section and who would be eligible for SSI except for the level of 
their income.
    (1) All aged individuals.
    (2) All blind individuals.
    (3) All disabled individuals.

[[Page 125]]

    (4) Only aged individuals in domiciliary facilities or other group 
living arrangements as defined under SSI.
    (5) Only blind individuals in domiciliary facilities or other group 
living arrangements as defined under SSI.
    (6) Only disabled individuals in domiciliary facilities or other 
group living arrangements as defined under SSI.
    (7) Individuals receiving a federally administered optional State 
supplement that meets the conditions specified in this section.
    (8) Individuals in additional classifications specified by the 
Secretary for federally administered supplementary payments under 20 CFR 
416.2020(d).
    (9) Reasonable groups of individuals, as specified by the State, 
receiving State-administered supplementary payments.
    (b) Payments under the optional supplement program must be--
    (1) Based on need and paid in cash on a regular basis;
    (2) Equal to the difference between the individual's countable 
income and the income standard used to determine eligibility for 
supplement. Countable income is income remaining after deductions 
required under SSI or, at State option, more liberal deductions are made 
(see Sec. 435.1006 for limitations on FFP in Medicaid expenditures for 
individuals receiving optional State supplements); and
    (3) Available to all individuals in each classification in paragraph 
(a) of this section and available on a statewide basis. However, the 
plan may provide for variations in the income standard by political 
subdivision according to cost-of-living differences.

[43 FR 45204, Sept. 29, 1978. Redesignated and amended at 58 FR 4928, 
Jan. 19, 1993]



Sec. 435.234  Individuals receiving only optional State supplements in States using more restrictive eligibility requirements than SSI and certain States using 
          SSI criteria.

    (a) In States using more restrictive eligibility requirements than 
SSI or in States that use SSI criteria but do not have section 1616 or 
1634 agreements with the Social Security Administration for eligibility 
determinations, the agency may provide Medicaid to individuals specified 
in paragraph (b) of this section who receive only a State supplement if 
the State supplement meets the conditions specified in paragraph (c) of 
this section.
    (b) The agency may provide Medicaid to all individuals receiving 
only State supplements if, except for their income, the individuals meet 
the more restrictive eligibility requirements under Sec. 435.121 or SSI 
criteria, or to one or more of the following classifications of 
individuals who meet these criteria:
    (1) All aged individuals.
    (2) All blind individuals.
    (3) All disabled individuals.
    (4) Only aged individuals in domiciliary facilities or other group 
living arrangements as defined under SSI.
    (5) Only blind individuals in domiciliary facilities or other group 
living arrangements as defined under SSI.
    (6) Only disabled individuals in domiciliary facilities or other 
group living arrangements as defined under SSI.
    (7) Individuals receiving a Federally-administered optional State 
supplement that meets the conditions specified in this section.
    (8) Individuals in additional classifications specified by the 
Secretary.
    (9) Reasonable groups of individuals, as specified by the State, 
receiving State-administered supplementary payments.
    (c) Payments under the optional supplement program must be:
    (1) Based on need and paid in cash on a regular basis;
    (2) Equal to the difference between the individual's countable 
income and the income standard used to determine eligibility for 
supplements. Countable income is income remaining after deductions are 
applied. The income deductions may be more restrictive than required 
under SSI (see Sec. 435.1006 for limitations on FFP in Medicaid 
expenditures for individuals receiving optional State supplements); and
    (3) Available to all individuals in each classification in paragraph 
(b) of this section and available on a statewide basis. However, the 
plan may provide for variations in the income standard by political 
subdivision according to cost-of-living differences.

[58 FR 4928, Jan. 19, 1993]

[[Page 126]]



Sec. 435.236  Individuals in institutions who are eligible under a special income level.

    (a) If the agency provides Medicaid under Sec. 435.211 to 
individuals in institutions who would be eligible for AFDC, SSI, or 
State supplements except for their institutional status, it may also 
cover aged, blind, and disabled individuals in institutions who--
    (1) Because of their income, would not be eligible for SSI or State 
supplements if they were not institutionalized; but
    (2) Have income below a level specified in the plan under Sec. 
435.722. (See Sec. 435.1005 for limitations on FFP in Medicaid 
expenditures for individuals specified in this section.)
    (b) The agency may cover individuals under this section whether or 
not the State pays optional supplements.

[43 FR 45204, Sept. 29, 1978, as amended at 45 FR 24884, Apr. 11, 1980. 
Redesignated at 58 FR 4928, Jan. 19, 1993]



           Subpart D_Optional Coverage of the Medically Needy



Sec. 435.300  Scope.

    This subpart specifies the option for coverage of medically needy 
individuals.



Sec. 435.301  General rules.

    (a) An agency may provide Medicaid to individuals specified in this 
subpart who:
    (1) Either:
    (i) Have income that meets the applicable standards in Sec. Sec. 
435.811 and 435.814; or
    (ii) If their income is more than allowed under the standard, have 
incurred medical expenses at least equal to the difference between their 
income and the applicable income standard; and
    (2) Have resources that meet the applicable standards in Sec. Sec. 
435.840 and 435.843.
    (b) If the agency chooses this option, the following provisions 
apply:
    (1) The agency must provide Medicaid to the following individuals 
who meet the requirements of paragraph (a) of this section:
    (i) All pregnant women during the course of their pregnancy who, 
except for income and resources, would be eligible for Medicaid as 
mandatory or optional categorically needy under subparts B or C of this 
part;
    (ii) All individuals under 18 years of age who, except for income 
and resources, would be eligible for Medicaid as mandatory categorically 
needy under subpart B of this part;
    (iii) All newborn children born on or after October 1, 1984, to a 
woman who is eligible as medically needy and is receiving Medicaid on 
the date of the child's birth. The child is deemed to have applied and 
been found eligible for Medicaid on the date of birth and remains 
eligible as medically needy for one year so long as the woman remains 
eligible and the child is a member of the woman's household. If the 
woman's basis of eligibility changes to categorically needy, the child 
is eligible as categorically needy under Sec. 435.117. The woman is 
considered to remain eligible if she meets the spend-down requirements 
in any consecutive budget period following the birth of the child.
    (iv) Women who, while pregnant, applied for, were eligible for, and 
received Medicaid services as medically needy on the day that their 
pregnancy ends. The agency must provide medically needy eligibility to 
these women for an extended period following termination of pregnancy. 
This period extends from the last day of the pregnancy through the end 
of the month in which a 60-day period, beginning on the last day of 
pregnancy, ends. Eligibility must be provided, regardless of changes in 
the woman's financial circumstances that may occur within this extended 
period. These women are eligible for the extended period for all 
services under the plan that are pregnancy-related (as defined in Sec. 
440.210(c)(1) of this subchapter).
    (2) The agency may provide Medicaid to any of the following groups 
of individuals;
    (i) Individuals under age 21 (Sec. 435.308).
    (ii) Specified relatives (Sec. 435.310).
    (iii) Aged (Sec. 435.330.320 and 435.330).
    (iv) Blind (Sec. Sec. 435.322, 435.330 and 435.340).
    (v) Disabled (Sec. Sec. 435.324, 435.330, and 435.340).

[[Page 127]]

    (3) If the agency provides Medicaid to any individual in a group 
specified in paragraph (b)(2) of this section, the agency must provide 
Medicaid to all individuals eligible to be members of that group.

[46 FR 47986, Sept. 30, 1981, as amended at 52 FR 43072, Nov. 9, 1987; 
52 FR 48438, Dec. 22, 1987; 55 FR 48609, Nov. 21, 1990; 58 FR 4929, Jan. 
19, 1993]



Sec. 435.308  Medically needy coverage of individuals under age 21.

    (a) If the agency provides Medicaid to the medically needy, it may 
provide Medicaid to individuals under age 21 (or, at State option, under 
age 20, 19, or 18), as specified in paragraph (b) of this section:
    (1) Who would not be covered under the mandatory medically needy 
group of individuals under 18 under Sec. 435.301(b)(1)(ii); and
    (2) Who meet the income and resource requirements of subpart I of 
this part.
    (b) The agency may cover all individuals described in paragraph (a) 
of this section or reasonable classifications of those individuals. 
Examples of reasonable classifications are as follows:
    (1) Individuals in foster homes or private institutions for whom a 
public agency is assuming a full or partial financial responsibility. If 
the agency covers these individuals, it may also provide Medicaid to 
individuals placed in foster homes or private institutions by private 
nonprofit agencies.
    (2) Individuals in adoptions subsidized in full or in part by a 
public agency.
    (3) Individuals in nursing facilities when nursing facility services 
are provided under the plan to individuals within the age group selected 
under this provision. When the agency covers such individuals, it may 
also provide Medicaid to individuals in intermediate care facilities for 
the mentally retarded.
    (4) Individuals receiving active treatment as inpatients in 
psychiatric facilities or programs, if inpatient psychiatric services 
for individuals under 21 are provided under the plan.

[46 FR 47986, Sept. 30, 1981, as amended at 58 FR 4929, Jan. 19, 1993]



Sec. 435.310  Medically needy coverage of specified relatives.

    (a) If the agency provides for the medically needy, it may provide 
Medicaid to specified relatives, as defined in paragraph (b) of this 
section, who meet the income and resource requirements of subpart I of 
this part.
    (b) Specified relatives means individuals who:
    (1) Are listed under section 406(b)(1) of the Act and 45 CFR 
233.90(c)(1)(v)(A); and
    (2) Have in their care an individual who is determined to be (or 
would, if needy, be) dependent, as specified in Sec. 435.510.

[58 FR 4929, Jan. 19, 1993]



Sec. 435.320  Medically needy coverage of the aged in States that cover individuals receiving SSI.

    If the agency provides Medicaid to individuals receiving SSI and 
elects to cover the medically needy, it may provide Medicaid to 
individuals who--
    (a) Are 65 years of age and older, as specified in Sec. 435.520; 
and
    (b) Meet the income and resource requirements of subpart I of this 
part.

[46 FR 47986, Sept. 30, 1981]



Sec. 435.322  Medically needy coverage of the blind in States that cover individuals receiving SSI.

    If the agency provides Medicaid to individuals receiving SSI and 
elects to cover the medically needy, it may provide Medicaid to blind 
individuals who meet--
    (a) The requirements for blindness, as specified in Sec. Sec. 
435.530 and 435.531; and
    (b) The income and resource requirements of subpart I of this part.

[46 FR 47986, Sept. 30, 1981]



Sec. 435.324  Medically needy coverage of the disabled in States that cover individuals receiving SSI.

    If the agency provides Medicaid to individuals receiving SSI and 
elects to cover the medically needy, it may provide Medicaid to disabled 
individuals who meet--
    (a) The requirements for disability, as specified in Sec. Sec. 
435.540 and 435.541; and

[[Page 128]]

    (b) The income and resource requirements of Subpart I of this part.

[46 FR 47986, Sept. 30, 1981; 46 FR 54743, Nov. 11, 1981]



Sec. 435.326  Individuals who would be ineligible if they were not enrolled in an MCO or PCCM.

    If the agency provides Medicaid to the categorically needy under 
Sec. 435.212, it may provide it under the same rules to medically needy 
recipients who are enrolled in MCOs or PCCMs.

[67 FR 41095, June 14, 2002]



Sec. 435.330  Medically needy coverage of the aged, blind, and disabled in States using more restrictive eligibility requirements for Medicaid than those used 
          under SSI.

    (a) If an agency provides Medicaid as categorically needy only to 
those aged, blind, or disabled individuals who meet more restrictive 
requirements than used under SSI and elects to cover the medically 
needy, it may provide Medicaid as medically needy to those aged, blind, 
or disabled individuals who:
    (1) Do not qualify for Medicaid as categorically needy under Sec. 
435.121 or Sec. 435.230; and
    (2) If applying as blind or disabled, meet the definition of 
blindness or disability established under Sec. 435.121.
    (b) Except as specified in paragraph (c) of this section, the agency 
must apply to individuals covered under the option of this section the 
same financial and nonfinancial requirements that are applied to 
individuals covered as categorically needy under Sec. Sec. 435.121 and 
435.230.
    (c) In determining the financial eligibility of individuals who are 
considered as medically needy under this section, the agency must apply 
the financial eligibility requirements of subparts G and I of this part.

[58 FR 4929, Jan. 19, 1993]



Sec. 435.340  Protected medically needy coverage for blind and disabled individuals eligible in December 1973.

    If an agency provides Medicaid to the medically needy, it must cover 
individuals who--
    (a) Where eligible as medically needy under the Medicaid plan in 
December 1973 on the basis of the blindness or disability criteria of 
the AB, APTD, or AABD plan;
    (b) For each consecutive month after December 1973, continue to 
meet--
    (1) Those blindness or disability criteria; and
    (2) The eligibility requirements for the medically needy under the 
December 1973 Medicaid plan; and
    (c) Meet the current requirements for eligibility as medically needy 
under the Medicaid plan except for blindness or disability criteria.

[46 FR 47987, Sept. 30, 1981]



Sec. 435.350  Coverage for certain aliens.

    If an agency provides Medicaid to the medically needy, it must 
provide the services necessary for the treatment of an emergency medical 
condition, as defined in Sec. 440.255(c) of this chapter, to those 
aliens described in Sec. 435.406(c) of this subpart.

[55 FR 36819, Sept. 7, 1990]



               Subpart E_General Eligibility Requirements



Sec. 435.400  Scope.

    This subpart prescribes general requirements for determining the 
eligibility of both categorically and medically needy individuals 
specified in subparts B, C, and D of this part.



Sec. 435.401  General rules.

    (a) A Medicaid agency may not impose any eligibility requirement 
that is prohibited under Title XIX of the Act.
    (b) The agency must base any optional group covered under subparts B 
and C of this part on reasonable classifications that do not result in 
arbitrary or inequitable treatment of individuals and groups and that 
are consistent with the objectives of Title XIX.
    (c) The agency must not use requirements for determining eligibility 
for optional coverage groups that are--
    (1) For families and children, more restrictive than those used 
under the State's AFDC plan; and
    (2) For aged, blind, and disabled individuals, more restrictive than 
those used under SSI, except for individuals receiving an optional State 
supplement as specified in Sec. 435.230 or individuals in

[[Page 129]]

categories specified by the agency under Sec. 435.121.



Sec. 435.402  [Reserved]



Sec. 435.403  State residence.

    (a) Requirement. The agency must provide Medicaid to eligible 
residents of the State, including residents who are absent from the 
State. The conditions under which payment for services is provided to 
out-of-State residents are set forth in Sec. 431.52 of this chapter.
    (b) Definition. For purposes of this section--Institution has the 
same meaning as Institution and Medical institution, as defined in Sec. 
435.1009 of this chapter. For purposes of State placement, the term also 
includes foster care homes, licensed as set forth in 45 CFR 1355.20, and 
providing food, shelter and supportive services to one or more persons 
unrelated to the proprietor.
    (c) Incapability of indicating intent. For purposes of this section, 
an individual is considered incapable of indicating intent if the 
individual--
    (1) Has an I.Q. of 49 or less or has a mental age of 7 or less, 
based on tests acceptable to the mental retardation agency in the State:
    (2) Is judged legally incompetent; or
    (3) Is found incapable of indicating intent based on medical 
documentation obtained from a physician, psychologist, or other person 
licensed by the State in the field of mental retardation.
    (d) Who is a State resident. A resident of a State is any individual 
who:
    (1) Meets the conditions in paragraphs (e) through (i) of this 
section; or
    (2) Meets the criteria specified in an interstate agreement under 
paragraph (k) of this section.
    (e) Placement by a State in an out-of-State institution--(1) General 
rule. Any agency of the State, including an entity recognized under 
State law as being under contract with the State for such purposes, that 
arranges for an individual to be placed in an institution located in 
another State, is recognized as acting on behalf of the State in making 
a placement. The State arranging or actually making the placement is 
considered as the individual's State of residence.
    (2) Any action beyond providing information to the individual and 
the individual's family would constitute arranging or making a State 
placement. However, the following actions do not constitute State 
placement:
    (i) Providing basic information to individuals about another State's 
Medicaid program, and information about the availability of health care 
services and facilities in another State.
    (ii) Assisting an individual in locating an institution in another 
State, provided the individual is capable of indicating intent and 
independently decides to move.
    (3) When a competent individual leaves the facility in which the 
individual is placed by a State, that individual's State of residence 
for Medicaid purposes is the State where the individual is physically 
located.
    (4) Where a placement is initiated by a State because the State 
lacks a sufficient number of appropriate facilities to provide services 
to its residents, the State making the placement is the individual's 
State of residence for Medicaid purposes.
    (f) Individuals receiving a State supplementary payment (SSP). For 
individuals of any age who are receiving an SSP, the State of residence 
is the State paying the SSP.
    (g) Individuals receiving Title IV-E payments. For individuals of 
any age who are receiving Federal payments for foster care and adoption 
assistance under title IV-E of the Social Security Act, the State of 
residence is the State where the child lives.
    (h) Individuals under Age 21. (1) For any individual who is 
emancipated from his or her parents or who is married and capable of 
indicating intent, the State of residence is the State where the 
individual is living with the intention to remain there permanently or 
for an indefinite period.
    (2) For any individual not residing in an institution as defined in 
paragraph (b) whose Medicaid eligibility is based on blindness or 
disability, the State of residence is the State in which the individual 
is living.
    (3) For any other non-institutionalized individual not subject to 
paragraph (h)(1) or (h)(2) of this section, the

[[Page 130]]

State of residence is determined in accordance with 45 CFR 233.40, the 
rules governing residence under the AFDC program.
    (4) For any institutionalized individual who is neither married nor 
emancipated, the State of residence is--
    (i) The parent's or legal guardian's State of residence at the time 
of placement (if a legal guardian has been appointed and parental rights 
are terminated, the State of residence of the guardian is used instead 
of the parent's); or
    (ii) The current State of residence of the parent or legal guardian 
who files the application if the individual is institutionalized in that 
State (if a legal guardian has been appointed and parental rights are 
terminated, the State or residence of the guardian is used instead of 
the parent's).
    (iii) The State of residence of the individual or party who files an 
application is used if the individual has been abandoned by his or her 
parent(s), does not have a legal guardian and is institutionalized in 
that State.
    (i) Individuals Age 21 and over. (1) For any individual not residing 
in an institution as defined in paragraph (b), the State of residence is 
the State where the individual is--
    (i) Living with the intention to remain there permanently or for an 
indefinite period (or if incapable of stating intent, where the 
individual is living); or
    (ii) Living and which the individual entered with a job commitment 
or seeking employment (whether or not currently employed).
    (2) For any institutionalized individual who became incapable of 
indicating intent before age 21, the State of residence is--
    (i) That of the parent applying for Medicaid on the individual's 
behalf, if the parents reside in separate States (if a legal guardian 
has been appointed and parental rights are terminated, the State of 
residence of the guardian is used instead of the parent's);
    (ii) The parent's or legal guardian's State of residence at the time 
of placement (if a legal guardian has been appointed and parental rights 
are terminated, the State of residence of the guardian is used instead 
of the parent's); or
    (iii) The current State of residence of the parent or legal guardian 
who files the application if the individual is institutionalized in that 
State (if a legal guardian has been appointed and parental rights are 
terminated, the State of residence of the guardian is used instead of 
the parent's).
    (iv) The State of residence of the individual or party who files an 
application is used if the individual has been abandoned by his or her 
parent(s), does not have a legal guardian and is institutionalized in 
that State.
    (3) For any institutionalized individual who became incapable of 
indicating intent at or after age 21, the State of residence is the 
State in which the individual is physically present, except where 
another State makes a placement.
    (4) For any other institutionalized individual, the State of 
residence is the State where the individual is living with the intention 
to remain there permanently or for an indefinite period.
    (j) Specific prohibitions. (1) The agency may not deny Medicaid 
eligibility because an individual has not resided in the State for a 
specified period.
    (2) The agency may not deny Medicaid eligibility to an individual in 
an institution, who satisfies the residency rules set forth in this 
section, on the grounds that the individual did not establish residence 
in the State before entering the institution.
    (3) The agency may not deny or terminate a resident's Medicaid 
eligibility because of that person's temporary absence from the State if 
the person intends to return when the purpose of the absence has been 
accomplished, unless another State has determined that the person is a 
resident there for purposes of Medicaid.
    (k) Interstate agreements. A State may have a written agreement with 
another State setting forth rules and procedures resolving cases of 
disputed residency. These agreements may establish criteria other than 
those specified in paragraphs (c) through (i) of this section, but must 
not include criteria that result in loss of residency in both

[[Page 131]]

States or that are prohibited by paragraph (j) of this section. The 
agreements must contain a procedure for providing Medicaid to 
individuals pending resolution of the case. States may use interstate 
agreeements for purposes other than cases of disputed residency to 
facilitate administration of the program, and to facilitate the 
placement and adoption of title IV-E individuals when the child and his 
or her adoptive parent(s) move into another State.
    (l) Continued Medicaid for institutionalized recipients. If an 
agency is providing Medicaid to an institutionalized recipient who, as a 
result of this section, would be considered a resident of a different 
State--
    (1) The agency must continue to provide Medicaid to that recipient 
from June 24, 1983 until July 5, 1984, unless it makes arrangements with 
another State of residence to provide Medicaid at an earlier date: and
    (2) Those arrangements must not include provisions prohibited by 
paragraph (h) of this section.
    (m) Cases of disputed residency. Where two or more States cannot 
resolve which State is the State of residence, the State where the 
individual is physically located is the State of residence.

[49 FR 13531, Apr. 5, 1984, as amended at 55 FR 48609, Nov. 21, 1990]



Sec. 435.404  Applicant's choice of category.

    The agency must allow an individual who would be eligible under more 
than one category to have his eligibility determined for the category he 
selects.



Sec. 435.406  Citizenship and alienage.

    (a) The agency must provide Medicaid to otherwise eligible residents 
of the United States who are--
    (1) Citizens; or
    (2) Aliens lawfully admitted for permanent residence or permanently 
residing in the United States under color of law as defined in Sec. 
435.408 of this part;
    (3) Aliens granted lawful temporary resident status under sections 
245A and 210A of the Immigration and Nationality Act if the individual 
is aged, blind, or disabled as defined in section 1614(a)(1) of the Act, 
under 18 years of age, or a Cuban/Haitian entrant as defined in section 
501(e)(1) and (2)(A) of Public Law 96-422; or
    (4) Aliens granted lawful temporary resident status under section 
210 of the Immigration and Nationality Act unless the alien would, but 
for the 5-year bar to receipt of AFDC contained in such section, be 
eligible for AFDC.
    (b) The agency must only provide emergency services (as defined for 
purposes of section 1916(a)(2)(D) of the Social Security Act), and 
services for pregnant women as defined in section 1916(a)(2)(B) of the 
Social Security Act to otherwise eligible residents of the United States 
not described in paragraph (a)(3) and (a)(4) of this section who have 
been granted lawful temporary or lawful permanent resident status under 
sections 245A, 210 or 210A of the Immigration and Nationality Act for 
five years from the date lawful temporary resident status was granted.
    (c) The agency must provide payment for the services described in 
Sec. 440.255(c) of this chapter to residents of the State who otherwise 
meet the eligibility requirements of the State plan (except for receipt 
of AFDC, SSI, or State Supplementary payments and the presentation of a 
social security number) but who do not meet the requirements of 
paragraphs (a) and (b) of this section.
    (d) The limitations on eligibility set forth in paragraph (b) of 
this section do not apply after 5 years from the date an alien was 
granted lawful temporary resident status under sections 245A, 210 and 
210A of the INA.

[55 FR 36819, Sept. 7, 1990, as amended at 56 FR 10807, Mar. 14, 1991]



Sec. 435.408  Categories of aliens who are permanently residing in the United States under color of law.

    This section describes aliens that the agency must accept as 
permanently residing in the United States under color of law and who may 
be eligible for Medicaid.
    (a) An individual may be eligible for Medicaid if the individual is 
an alien residing in the United States with the knowledge and permission 
of the Immigration and Naturalization Services

[[Page 132]]

(INS) and the INS does not contemplate enforcing the alien's departure. 
The INS does not contemplate enforcing an alien's departure if it is the 
policy or practice of INS not to enforce the departure of aliens in the 
same category, or if from all the facts and circumstances in a 
particular case it appears that INS is otherwise permitting the alien to 
reside in the United States indefinitely, as determined by verifying the 
alien's status with INS.
    (b) Aliens who are permanently residing in the United States under 
color of law are listed below. None of the categories includes 
applicants for an Immigration and Naturalization Service status other 
than those applicants listed in paragraph (b)(6) of this section or 
those covered under paragraph (b)(16) of this section. None of the 
categories allows Medicaid eligibility for nonimmigrants: for example, 
students or visitors. Also listed are the most commonly used documents 
that the INS provides to aliens in these categories.
    (1) Aliens admitted to the United States pursuant to 8 U.S.C. 
1153(a)(7), (section 203(a)(7) of the Immigration and Nationality Act). 
Ask for a copy of INS Form I-94 endorsed ``Refugee-Conditional Entry'';
    (2) Aliens, including Cuban/Haitian entrants, paroled in the United 
States pursuant to 8 U.S.C. 1182(d)(5) (section 212(d)(5) of the 
Immigration and Nationality Act). Ask for a copy of INS Form I-94 with 
notation that the alien was paroled pursuant to section 212(d)(5) of the 
Immigration and Nationality Act. For Cuban/Haitian entrants, ask for a 
copy of INS Form I-94 stamped Cuban/Haitian entrant (Status Pending) 
reviewable January 15, 1981. (Although the forms bear this notation. 
Cuban/Haitian entrants are admitted under section 212(d)(5) of the 
Immigration and Nationality Act);
    (3) Aliens residing in the United States pursuant to an indefinite 
stay of deportation. Ask for an Immigration and Naturalization Service 
letter with this information or INS Form I-94 with such a notation;
    (4) Aliens residing in the United States pursuant to an indefinite 
voluntary departure. Ask for an Immigration and Naturalization Service 
letter or INS Form I-94 showing that voluntary departure has been 
granted for an indefinite time period;
    (5) Aliens on whose behalf an immediate relative petition has been 
approved and their families covered by the petition who are entitled to 
voluntary departure (under 8 CFR 242.5(a)(2)(vi)) and whose departure 
the Immigration and Naturalization Service does not contemplate 
enforcing. Ask for a copy of INS Form I-94 or Form I-210 or a letter 
showing that status;
    (6) Aliens who have filed applications for adjustment of status 
pursuant to section 245 of the Immigration and Nationality Act (8 U.S.C. 
1255) that the Immigration and Naturalization Service has accepted as 
``properly filed'' (within the meaning of 8 CFR 245.2(a) (1) or (2)) and 
whose departure the Immigration and Naturalization service does not 
contemplate enforcing. Ask for a copy of INS Form I-94 or I-181 or a 
passport appropriately stamped;
    (7) Aliens granted stays of deportation by court order, statute or 
regulation, or by individual determination of the Immigration and 
Naturalization Service pursuant to section 106 of the Immigration and 
Nationality Act (8 U.S.C. 1105a) or relevant Immigration and 
Naturalization Service instructions, whose departure that agency does 
not contemplate enforcing. Ask for a copy of INS Form I-94 or a letter 
from the Immigration and Naturalization Service, or a copy of a court 
order establishing the alien's status;
    (8) Aliens granted asylum pursuant to section 208 of the Immigration 
and Nationality Act (8 U.S.C. 1158). Ask for a copy of INS Form I-94 and 
a letter establishing this status;
    (9) Aliens admitted as refugees pursuant to section 207 of the 
Immigration and Nationality Act (8 U.S.C. 1157) or section 203(a)(7) of 
the Immigration and Nationality Act (8 U.S.C. 1153(a)(7)). Ask for a 
copy of INS Form I-94 properly endorsed;
    (10) Aliens granted voluntary departure pursuant to section 242(b) 
of the Immigration and Nationality Act (8 U.S.C. 1252(b)) or 8 CFR 242.5 
whose departure the Immigration and Nationality Service does not 
contemplate enforcing. Ask for a Form I-94 or Form I-210 bearing a 
departure date;

[[Page 133]]

    (11) Aliens granted deferred action status pursuant to Immigration 
and Naturalization Service Operations Instruction 103.1(a)(ii) prior to 
June 15, 1984 or Sec. 242.1(a)(22) issued June 15, 1984 and later. Ask 
for a copy of INS Form I-210 or a letter showing that departure has been 
deferred;
    (12) Aliens residing in the United States under orders of 
supervision pursuant to section 242 of the Immigration and Nationality 
Act (8 U.S.C. 1252(d)). Ask for a copy of Form I-220 B;
    (13) Aliens who have entered and continuously resided in the United 
States since before January 1, 1972 (or any date established by section 
249 of the Immigration and Nationality Act, 8 U.S.C. 1259). Ask for any 
proof establishing this entry and continuous residence;
    (14) Aliens granted suspension of deportation pursuant to section 
244 of the Immigration and Naturalization Act (8 U.S.C. 1254) and whose 
departure the Immigration and Naturalization Service does not 
contemplate enforcing. Ask for an order from an immigration judge 
showing that deportation has been withheld;
    (15) Aliens whose deportation has been withheld pursuant to section 
243(h) of the Immigration and Nationality Act (8 U.S.C. 1253(h)). Ask 
for an order from an immigration judge showing that deportation has been 
withheld; or
    (16) Any other aliens living in the United States with the knowledge 
and permission of the Immigration and Naturalization Service and whose 
departure that agency does not contemplate enforcing. (Including 
permanent non-immigrants as established by Public Law 99-239, and 
persons granted Extended Voluntary Departure due to conditions in the 
alien's home country based on a determination by the Secretary of 
State).

[55 FR 36819, Sept. 7, 1990, as amended at 56 FR 10807, Mar. 14, 1991; 
58 FR 4907, Jan. 19, 1993]



           Subpart F_Categorical Requirements for Eligibility



Sec. 435.500  Scope.

    This subpart prescribes categorical requirements for determining the 
eligibility of both categorically and medically needy individuals 
specified in subparts B, C, and D of this part.

                               Dependency



Sec. 435.510  Determination of dependency.

    For families with dependent children who are not receiving AFDC, the 
agency must use the definitions and procedures set forth under the 
State's AFDC plan to determine whether--
    (a) An individual is a dependent child because he is deprived of 
parental support or care; and
    (b) An individual is an eligible member of a family with dependent 
children.

[43 FR 45204, Sept. 29, 1978, as amended at 58 FR 4929, Jan. 19, 1993]

                                   Age



Sec. 435.520  Age requirements for the aged.

    The agency must not impose an age requirement of more than 65 years.

[58 FR 4929, Jan. 19, 1993]



Sec. 435.522  Determination of age.

    (a) Except as specified in paragraphs (b) and (c) of this section, 
in determining age, the agency must use the common-law method (under 
which an age reached the day before the anniversary of birth).
    (b) For families and children, the agency must use the popular usage 
method (under which an age is reached on the anniversary of birth), if 
this method is used under the State's AFDC plan.
    (c) For aged, blind, or disabled individuals, the agency must use 
the popular usage method, if the plan provides under Sec. 435.121, 
Sec. 435.230, or Sec. 435.330, for coverage of aged, blind, or 
disabled individuals who meet more restrictive eligibility requirements 
than those under SSI.
    (d) The agency may use an arbitrary date, such as July 1, for 
determining an individual's age if the year, but not the month, of his 
birth is known.

[58 FR 4929, Jan. 19, 1993]

[[Page 134]]

                                Blindness



Sec. 435.530  Definition of blindness.

    (a) Definition. The agency must use the same definition of blindness 
as used under SSI, except that--
    (1) In determining the eligibility of individuals whose Medicaid 
eligibility is protected under Sec. Sec. 435.130 through 435.134, the 
agency must use the definition of blindness that was used under the 
Medicaid plan in December 1973; and
    (2) The agency may use a more restrictive definition to determine 
eligibility under Sec. 435.121, if the definition is no more 
restrictive than that used under the Medicaid plan on January 1, 1972.
    (b) State plan requirement. The State plan must contain the 
definition of blindness, expressed in ophthalmic measurements.



Sec. 435.531  Determinations of blindness.

    (a) Except as specified in paragraph (b) of this section, in 
determining blindness--
    (1) A physician skilled in the diseases of the eye or an 
optometrist, whichever the individual selects, must examine him, unless 
both of the applicant's eyes are missing;
    (2) The examiner must submit a report of examination to the Medicaid 
agency; and
    (3) A physician skilled in the diseases of the eye (for example, an 
ophthalmologist or an eye, ear, nose, and throat specialist) must review 
the report and determine on behalf of the agency--
    (i) Whether the individual meets the definition of blindness; and
    (ii) Whether and when re-examinations are necessary for periodic 
redeterminations of eligibility, as required under Sec. 435.916 of this 
part.
    (b) If an agency provides Medicaid to individuals receiving SSI on 
the basis of blindness, this section does not apply for those 
individuals.

[43 FR 45204, Sept. 29, 1978, as amended at 44 FR 17937, Mar. 23, 1979]

                               Disability



Sec. 435.540  Definition of disability.

    (a) Definition. The agency must use the same definition of 
disability as used under SSI, except that--
    (1) In determining the eligibility of individuals whose Medicaid 
eligibility is protected under Sec. Sec. 435.130 through 435.134, the 
agency must use the definition of disability that was used under the 
Medicaid plan in December 1973; and
    (2) The agency may use a more restrictive definition to determine 
eligibility under Sec. 435.121, if the definition is no more 
restrictive than that used under the Medicaid plan on January 1, 1972.
    (b) State plan requirements. The State plan must contain the 
definition of disability.



Sec. 435.541  Determinations of disability.

    (a) Determinations made by SSA. The following rules and those under 
paragraph (b) of this section apply where an individual has applied for 
Medicaid on the basis of disability.
    (1) If the agency has an agreement with the Social Security 
Administration (SSA) under section 1634 of the Act, the agency may not 
make a determination of disability when the only application is filed 
with SSA.
    (2) The agency may not make an independent determination of 
disability if SSA has made a disability determination within the time 
limits set forth in Sec. 435.911 on the same issues presented in the 
Medicaid application. A determination of eligibility for SSI payments 
based on disability that is made by SSA automatically confers Medicaid 
eligibility, as provided for under Sec. 435.909.
    (b) Effect of SSA determinations. (1) Except in the circumstances 
specified in paragraph (c)(3) of this section--
    (i) An SSA disability determination is binding on an agency until 
the determination is changed by SSA.
    (ii) If the SSA determination is changed, the new determination is 
also binding on the agency.
    (2) The agency must refer to SSA all applicants who allege new 
information or evidence affecting previous SSA determinations of 
ineligibility based

[[Page 135]]

upon disability for reconsideration or reopening of the determination, 
except in cases specified in paragraph (c)(4) of this section.
    (c) Determinations made by the Medicaid agency. The agency must make 
a determination of disability in accordance with the requirements of 
this section if any of the following circumstances exist:
    (1) The individual applies for Medicaid as a non-cash recipient and 
has not applied to SSA for SSI cash benefits, whether or not a State has 
a section 1634 agreement with SSA; or an individual applies for Medicaid 
and has applied to SSA for SSI benefits and is found ineligible for SSI 
for a reason other than disability.
    (2) The individual applies both to SSA for SSI and to the State 
Medicaid agency for Medicaid, the State agency has a section 1634 
agreement with SSA, and SSA has not made an SSI disability determination 
within 90 days from the date of the individual's application for 
Medicaid.
    (3) The individual applies to SSA for SSI and to the State Medicaid 
agency for Medicaid, the State does not have a section 1634 agreement 
with SSA, and either the State uses more restrictive criteria than SSI 
for determining Medicaid eligibility under its section 1902(f) option 
or, in the case of a State that uses SSI criteria, SSA has not made an 
SSI disability determination in time for the State to comply with the 
Medicaid time limit for making a prompt determination on an individual's 
application for Medicaid.
    (4) The individual applies for Medicaid as a non-cash recipient, 
whether or not the State has a section 1634 agreement with SSA, and--
    (i) Alleges a disabling condition different from, or in addition to, 
that considered by SSA in making its determination; or
    (ii) Alleges more than 12 months after the most recent SSA 
determination denying disability that his or her condition has changed 
or deteriorated since that SSA determination and alleges a new period of 
disability which meets the durational requirements of the Act, and has 
not applied to SSA for a determination with respect to these 
allegations.
    (iii) Alleges less than 12 months after the most recent SSA 
determination denying disability that his or her condition has changed 
or deteriorated since that SSA determination, alleges a new period of 
disability which meets the durational requirements of the Act, and--
    (A) Has applied to SSA for reconsideration or reopening of its 
disability decision and SSA refused to consider the new allegations; 
and/or
    (B) He or she no longer meets the nondisability requirements for SSI 
but may meet the State's nondisability requirements for Medicaid 
eligibility.
    (d) Basis for determinations. The agency must make a determination 
of disability as provided in paragraph (c) of this section--
    (1) On the basis of the evidence required under paragraph (e) of 
this section; and
    (2) In accordance with the requirements for evaluating that evidence 
under the SSI program specified in 20 CFR 416.901 through 416.998.
    (e) Medical and nonmedical evidence. The agency must obtain a 
medical report and other nonmedical evidence for individuals applying 
for Medicaid on the basis of disability. The medical report and 
nonmedical evidence must include diagnosis and other information in 
accordance with the requirements for evidence applicable to disability 
determinations under the SSI program specified in 20 CFR part 416, 
subpart I.
    (f) Disability review teams--(1) Function. A review team must review 
the medical report and other evidence required under paragraph (e) of 
this section and determine on behalf of the agency whether the 
individual's condition meets the definition of disability.
    (2) Composition. The review team must be composed of a medical or 
psychological consultant and another individual who is qualified to 
interpret and evaluate medical reports and other evidence relating to 
the individual's physical or mental impairments and, as necessary, to 
determine the capacities of the individual to perform substantial 
gainful activity, as specified in 20 CFR part 416, subpart J.
    (3) Periodic reexaminations. The review team must determine whether 
and when reexaminations will be necessary

[[Page 136]]

for periodic redeterminations of eligibility as required under Sec. 
435.916 of this part, using the principles set forth in 20 CFR 416.989 
and 416.990. If a State uses the same definition of disability as SSA, 
as provided for under Sec. 435.540, and a recipient is Medicaid 
eligible because he or she receives SSI, this paragraph (f)(3) does not 
apply. The reexamination will be conducted by SSA.

[54 FR 50761, Dec. 11, 1989]



    Subpart G_General Financial Eligibility Requirements and Options



Sec. 435.600  Scope.

    This subpart prescribes:
    (a) General financial requirements and options for determining the 
eligibility of both categorically and medically needy individuals 
specified in subparts B, C, and D of this part. Subparts H and I of this 
part prescribe additional financial requirements.
    (b) [Reserved]

[58 FR 4929, Jan. 19, 1993, as amended at 59 FR 43052, Aug. 22, 1994]



Sec. 435.601  Application of financial eligibility methodologies.

    (a) Definitions. For purposes of this section, cash assistance 
financial methodologies refers to the income and resources methodologies 
of the AFDC, SSI, or State supplement programs, or, for aged, blind, and 
disabled individuals in States that use more restrictive criteria than 
SSI, the methodologies established in accordance with the requirements 
of Sec. Sec. 435.121 and 435.230.
    (b) Basic rule for use of cash assistance methodologies. Except as 
specified in paragraphs (c) and (d) of this section or in Sec. 435.121 
in determining financial eligibility of individuals as categorically and 
medically needy, the agency must apply the financial methodologies and 
requirements of the cash assistance program that is most closely 
categorically related to the individual's status.
    (c) Financial responsibility of relatives. The agency must use the 
requirements for financial responsibility of relatives specified in 
Sec. 435.602.
    (d) Use of less restrictive methodologies than those under cash 
assistance programs. (1) At State option, and subject to the conditions 
of paragraphs (d)(2) through (d)(5) of this section, the agency may 
apply income and resource methodologies that are less restrictive than 
the cash assistance methodologies in determining eligibility of the 
following groups:
    (i) Qualified pregnant women and children under the mandatory 
categorically needy group under Sec. 435.116;
    (ii) Low-income pregnant women, infants, and children specified in 
section 1902(a)(10)(i)(IV), 1902(a)(10)(A)(i)(VI), and 
1902(a)(10)(A)(i)(VII) of the Act;
    (iii) Qualified Medicare beneficiaries specified in sections 
1902(a)(10)(E) and 1905(p) of the Act;
    (iv) Optional categorically needy individuals under groups 
established under subpart C of this part and section 1902(a)(10)(A)(ii) 
of the Act;
    (v) Medically needy individuals under groups established under 
subpart D of this part and section 1902(a)(10)(C)(i)(III) of the Act; 
and
    (vi) Aged, blind, and disabled individuals in States using more 
restrictive eligibility requirements than SSI under groups established 
under Sec. Sec. 435.121 and 435.230.
    (2) The income and resource methodologies that an agency elects to 
apply to groups of individuals described in paragraph (d)(1) of this 
section may be less restrictive, but no more restrictive (except in 
States using more restrictive requirements than SSI), than:
    (i) For groups of aged, blind, and disabled individuals, the SSI 
methodologies; or
    (ii) For all other groups, the methodologies under the State plan 
most closely categorically related to the individual's status.
    (3) A financial methodology is considered to be no more restrictive 
if, by using the methodology, additional individuals may be eligible for 
Medicaid and no individuals who are otherwise eligible are by use of 
that methodology made ineligible for Medicaid.
    (4) The less restrictive methodology applied under this section must 
be comparable for all persons within each category of assistance (aged, 
or blind, or disabled, or AFDC related) within an eligibility group. For 
example, if the agency chooses to apply less restrictive income or 
resource methodology to an

[[Page 137]]

eligibility group of aged individuals, it must apply that methodology to 
all aged individuals within the selected group.
    (5) The application of the less restrictive income and resource 
methodologies permitted under this section must be consistent with the 
limitations and conditions on FFP specified in subpart K of this part.
    (e) [Reserved]
    (f) State plan requirements. (1) The State plan must specify that, 
except to the extent precluded in Sec. 435.602, in determining 
financial eligibility of individuals, the agency will apply the cash 
assistance financial methodologies and requirements, unless the agency 
chooses to apply less restrictive income and resource methodologies in 
accordance with paragraph (d) of this section.
    (2) If the agency chooses to apply less restrictive income and 
resource methodologies, the State plan must specify:
    (i) The less restrictive methodologies that will be used; and
    (ii) The eligibility group or groups to which the less restrictive 
methodologies will be applied.

[58 FR 4929, Jan. 19, 1993, as amended at 59 FR 43052, Aug. 22, 1994]



Sec. 435.602  Financial responsibility of relatives and other individuals.

    (a) Basic requirements. Subject to the provisions of paragraphs (b) 
and (c) of this section, in determining financial responsibility of 
relatives and other persons for individuals under Medicaid, the agency 
must apply the following requirements and methodologies:
    (1) Except for a spouse of an individual or a parent for a child who 
is under age 21 or blind or disabled, the agency must not consider 
income and resources of any relative as available to an individual.
    (2) In relation to individuals under age 21 (as described in section 
1905(a)(i) of the Act), the financial responsibility requirements and 
methodologies that apply include considering the income and resources of 
parents or spouses whose income and resources would be considered if the 
individual under age 21 were dependent under the State's approved AFDC 
plan, whether or not they are actually contributed, except as specified 
under paragraphs (c) and (d) of this section. These requirements and 
methodologies must be applied in accordance with the provisions of the 
State's approved AFDC plan.
    (3) When a couple ceases to live together, the agency must count 
only the income of the individual spouse in determining his or her 
eligibility, beginning the first month following the month the couple 
ceases to live together.
    (4) In the case of eligible institutionalized spouses who are aged, 
blind, and disabled and who have shared the same room in a title XIX 
Medicaid institution, the agency has the option of considering these 
couples as eligible couples for purposes of counting income and 
resources or as eligible individuals, whichever is more advantageous to 
the couple.
    (b) Requirements for States using more restrictive requirements. 
Subject to the provisions of paragraph (c) of this section, in 
determining financial eligibility of aged, blind, or disabled 
individuals in States that apply eligibility requirements more 
restrictive than those used under SSI, the agency must apply:
    (1) The requirements and methodologies for financial responsibility 
of relatives used under the SSI program; or
    (2) More extensive requirements for relative responsibility than 
specified in Sec. 435.602(a) but no more extensive than the 
requirements under the Medicaid plan in effect on January 1, 1972.
    (c) Use of less restrictive methodologies. The agency may apply 
income and resources methodologies that are less restrictive than those 
used under the cash assistance programs as specified in the State 
Medicaid plan in accordance with Sec. 435.601(d).
    (d) [Reserved]

[58 FR 4930, Jan. 19, 1993, as amended at 59 FR 43052, Aug. 22, 1994]



Sec. 435.604  [Reserved]



Sec. 435.606  [Reserved]



Sec. 435.608  Applications for other benefits.

    (a) As a condition of eligibility, the agency must require 
applicants and recipients to take all necessary steps to

[[Page 138]]

obtain any annuities, pensions, retirement, and disability benefits to 
which they are entitled, unless they can show good cause for not doing 
so.
    (b) Annuities, pensions, retirement and disability benefits include, 
but are not limited to, veterans' compensation and pensions, OASDI 
benefits, railroad retirement benefits, and unemployment compensation.

[43 FR 45204, Sept. 29, 1978. Redesignated at 58 FR 4931, Jan. 19, 1993]



Sec. 435.610  Assignment of rights to benefits.

    (a) As a condition of eligibility, the agency must require legally 
able applicants and recipients to:
    (1) Assign rights to the Medicaid agency to medical support and to 
payment for medical care from any third party;
    (2) Cooperate with the agency in establishing paternity and in 
obtaining medical support and payments, unless the individual 
establishes good cause for not cooperating, and except for individuals 
described in section 1902 (1)(1)(A) of the Act (poverty level pregnant 
women), who are exempt from cooperating in establishing paternity and 
obtaining medical support and payments from, or derived from, the father 
of the child born out of wedlock; and
    (3) Cooperate in identifying and providing information to assist the 
Medicaid agency in pursuing third parties who may be liable to pay for 
care and services under the plan, unless the individual establishes good 
cause for not cooperating.
    (b) The requirements for assignment of rights must be applied 
uniformly for all groups covered under the plan.
    (c) The requirements of paragraph (a) of this section for the 
assignment of rights to medical support and other payments and 
cooperation in obtaining medical support and payments are effective for 
medical assistance furnished on or after October 1, 1984. The 
requirement for cooperation in identifying and providing information for 
pursuing liable third parties is effective for medical assistance 
furnished on or after July 1, 1988.

[55 FR 48609, Nov. 21, 1990, as amended at 58 FR 4907, Jan. 19, 1993. 
Redesignated at 58 FR 4931, Jan. 19, 1993]



Sec. 435.622  Individuals in institutions who are eligible under a special income level.

    (a) If an agency, under Sec. 435.231, provides Medicaid to 
individuals in medical institutions, nursing facilities, and 
intermediate care facilities for the mentally retarded who would not be 
eligible for SSI or State supplements if they were not 
institutionalized, the agency must use income standards based on the 
greater need for financial assistance that the individuals would have if 
they were not in the institution. The standards may vary by the level of 
institutional care needed by the individual (hospital, nursing facility, 
or intermediate level care for the mentally retarded), or by other 
factors related to individual needs. (See Sec. 435.1005 for FFP limits 
on income standards established under this section.)
    (b) In determining the eligibility of individuals under the income 
standards established under this section, the agency must not take into 
account income that would be disregarded in determining eligibility for 
SSI or for an optional State supplement.
    (c) The agency must apply the income standards established under 
this section effective with the first day of a period of not less than 
30 consecutive days of institutionalization.

[43 FR 45204, Sept. 29, 1978, as amended at 45 FR 24884, Apr. 11, 1980; 
53 FR 3595, Feb. 8, 1988. Redesignated and amended at 58 FR 4932, Jan. 
19, 1993]



Sec. 435.631  General requirements for determining income eligibility in States using more restrictive requirements for Medicaid than SSI.

    (a) Income eligibility methods. In determining income eligibility of 
aged, blind, and disabled individuals in a State using more restrictive 
eligibility requirements than SSI, the agency must use the methods for 
treating income elected under Sec. Sec. 435.121 and 435.230, under 
Sec. 435.601. The methods

[[Page 139]]

used must be comparable for all individuals within each category of 
individuals under Sec. 435.121 and each category of individuals within 
each optional categorically needy group included under Sec. 435.230 and 
for each category of individuals under the medically needy option 
described under Sec. 435.800.
    (b) Categorically needy versus medically needy eligibility. (1) 
Individuals who have income equal to, or below, the categorically needy 
income standards described in Sec. Sec. 435.121 and 435.230 are 
categorically needy in States that include the medically needy under 
their plans.
    (2) Categorically needy eligibility in States that do not include 
the medically needy is determined in accordance with the provisions of 
Sec. 435.121 (e)(4) and (e)(5).

[58 FR 4932, Jan. 19, 1993]



Sec. 435.640  Protected Medicaid eligibility for individuals eligible in December 1973.

    In determining whether individuals continue to meet the income 
requirements used in December 1973, for purposes of determining 
eligibility under Sec. Sec. 435.131, 435.132, and 435.133, the agency 
must deduct increased OASDI payments to the same extent that these 
deductions were in effect in December 1973. These deductions are 
required by section 306 of the Social Security Amendments of 1972 (Pub. 
L. 92-603) and section 1007 of Pub. L. 91-172 (enacted Dec. 30, 1969), 
modified by section 304 of Pub. L. 92-603.

[43 FR 45204, Sept. 29, 1978. Redesignated at 58 FR 4932, Jan. 19, 1993]



   Subpart H_Specific Post-Eligibility Financial Requirements for the 
                           Categorically Needy



Sec. 435.700  Scope.

    This subpart prescribes specific financial requirements for 
determining the post-eligibility treatment of income of categorically 
needy individuals, including requirements for applying patient income to 
the cost of care.

[58 FR 4931, Jan. 19, 1993]



Sec. 435.725  Post-eligibility treatment of income of institutionalized individuals in SSI States: Application of patient income to the cost of care.

    (a) Basic rules. (1) The agency must reduce its payment to an 
institution, for services provided to an individual specified in 
paragraph (b) of this section, by the amount that remains after 
deducting the amounts specified in paragraphs (c) and (d) of this 
section, from the individual's total income,
    (2) The individual's income must be determined in accordance with 
paragraph (e) of this section.
    (3) Medical expenses must be determined in accordance with paragraph 
(f) of this section.
    (b) Applicability. This section applies to the following individuals 
in medical institutions and intermediate care facilities.
    (1) Individuals receiving cash assistance under SSI or AFDC who are 
eligible for Medicaid under Sec. 435.110 or Sec. 435.120.
    (2) Individuals who would be eligible for AFDC, SSI, or an optional 
State supplement except for their institutional status and who are 
eligible for Medicaid under Sec. 435.211.
    (3) Aged, blind, and disabled individuals who are eligible for 
Medicaid, under Sec. 435.231, under a higher income standard than the 
standard used in determining eligibility for SSI or optional State 
supplements.
    (c) Required deductions. In reducing its payment to the institution, 
the agency must deduct the following amounts, in the following order, 
from the individual's total income, as determined under paragraph (e) of 
this section. Income that was disregarded in determining eligibility 
must be considered in this process.
    (1) Personal needs allowance. A personal needs allowance that is 
reasonable in amount for clothing and other personal needs of the 
individual while in the institution. This protected personal needs 
allowance must be at least--
    (i) $30 a month for an aged, blind, or disabled individual, 
including a child applying for Medicaid on the basis of blindness or 
disability;
    (ii) $60 a month for an institutionalized couple if both spouses are 
aged,

[[Page 140]]

blind, or disabled and their income is considered available to each 
other in determining eligibility; and
    (iii) For other individuals, a reasonable amount set by the agency, 
based on a reasonable difference in their personal needs from those of 
the aged, blind, and disabled.
    (2) Maintenance needs of spouse. For an individual with only a 
spouse at home, an additional amount for the maintenance needs of the 
spouse. This amount must be based on a reasonable assessment of need but 
must not exceed the highest of--
    (i) The amount of the income standard used to determine eligibility 
for SSI for an individual living in his own home, if the agency provides 
Medicaid only to individuals receiving SSI;
    (ii) The amount of the highest income standard, in the appropriate 
category of age, blindness, or disability, used to determine eligibility 
for an optional State supplement for an individual in his own home, if 
the agency provides Medicaid to optional State supplement recipients 
under Sec. 435.230; or
    (iii) The amount of the medically needy income standard for one 
person established under Sec. 435.811, if the agency provides Medicaid 
under the medically needy coverage option.
    (3) Maintenance needs of family. For an individual with a family at 
home, an additional amount for the maintenance needs of the family. This 
amount must--
    (i) Be based on a reasonable assessment of their financial need;
    (ii) Be adjusted for the number of family members living in the 
home; and
    (iii) Not exceed the higher of the need standard for a family of the 
same size used to determine eligibility under the State's approved AFDC 
plan or the medically needy income standard established under Sec. 
435.811, if the agency provides Medicaid under the medically needy 
coverage option for a family of the same size.
    (4) Expenses not subject to third party payment. Amounts for 
incurred expenses for medical or remedial care that are not subject to 
payment by a third party, including--
    (i) Medicare and other health insurance premiums, deductibles, or 
coinsurance charges; and
    (ii) Necessary medical or remedial care recognized under State law 
but not covered under the State's Medicaid plan, subject to reasonable 
limits the agency may establish on amounts of these expenses.
    (5) Continued SSI and SSP benefits. The full amount of SSI and SSP 
benefits that the individual continues to receive under sections 
1611(e)(1) (E) and (G) of the Act.
    (d) Optional deduction: Allowance for home maintenance. For single 
individuals and couples, an amount (in addition to the personal needs 
allowance) for maintenance of the individual's or couple's home if--
    (1) The amount is deducted for not more than a 6-month period; and
    (2) A physician has certified that either of the individuals is 
likely to return to the home within that period.
    (3) For single individuals and couples, an amount (in addition to 
the personal needs allowance) for maintenance of the individual's or 
couple's home if--
    (i) The amount is deducted for not more than a 6-month period; and
    (ii) A physician has certified that either of the individuals is 
likely to return to the home within that period.
    (e) Determination of income--(1) Option. In determining the amount 
of an individual's income to be used to reduce the agency's payment to 
the institution, the agency may use total income received, or it may 
project monthly income for a prospective period not to exceed 6 months.
    (2) Basis for projection. The agency must base the projection on 
income received in the preceding period, not to exceed 6 months, and on 
income expected to be received.
    (3) Adjustments. At the end of the prospective period specified in 
paragraph (e)(1) of this section, or when any significant change occurs, 
the agency must reconcile estimates with income received.
    (f) Determination of medical expenses--(1) Option. In determining 
the amount of medical expenses to be deducted

[[Page 141]]

from an individual's income, the agency may deduct incurred medical 
expenses, or it may project medical expenses for a prospective period 
not to exceed 6 months.
    (2) Basis for projection. The agency must base the estimate on 
medical expenses incurred in the preceding period, not to exceed 6 
months, and on medical expenses expected to be incurred.
    (3) Adjustments. At the end of the prospective period specified in 
paragraph (f)(1) of this section, or when any significant change occurs, 
the agency must reconcile estimates with incurred medical expenses.

[43 FR 45204, Sept. 29, 1978, as amended at 45 FR 24884, Apr. 11, 1980; 
48 FR 5735, Feb. 8, 1983; 53 FR 3595, Feb. 8, 1988; 55 FR 33705, Aug. 
17, 1990; 56 FR 8850, 8854, Mar. 1, 1991; 58 FR 4932, Jan. 19, 1993]



Sec. 435.726  Post-eligibility treatment of income of individuals receiving home and community-based services furnished under a waiver: Application of patient 
          income to the cost of care.

    (a) The agency must reduce its payment for home and community-based 
services provided to an individual specified in paragraph (b) of this 
section, by the amount that remains after deducting the amounts 
specified in paragraph (c) of this section from the individual's income.
    (b) This section applies to individuals who are eligible for 
Medicaid under Sec. 435.217 and are receiving home and community-based 
services furnished under a waiver of Medicaid requirements specified in 
part 441, subpart G or H of this subchapter.
    (c) In reducing its payment for home and community-based services, 
the agency must deduct the following amounts, in the following order, 
from the individual's total income (including amounts disregarded in 
determining eligibility):
    (1) An amount for the maintenance needs of the individual that the 
State may set at any level, as long as the following conditions are met:
    (i) The deduction amount is based on a reasonable assessment of 
need.
    (ii) The State establishes a maximum deduction amount that will not 
be exceeded for any individual under the waiver.
    (2) For an individual with only a spouse at home, an additional 
amount for the maintenance needs of the spouse. This amount must be 
based on a reasonable assessment of need but must not exceed the highest 
of--
    (i) The amount of the income standard used to determine eligibility 
for SSI for an individual living in his own home, if the agency provides 
Medicaid only to individuals receiving SSI;
    (ii) The amount of the highest income standard, in the appropriate 
category of age, blindness, or disability, used to determine eligibility 
for an optional State supplement for an individual in his own home, if 
the agency provides Medicaid to optional State supplement recipients 
under Sec. 435.230; or
    (iii) The amount of the medically needy income standard for one 
person established under Sec. Sec. 435.811 and 435.814, if the agency 
provides Medicaid under the medically needy coverage option.
    (3) For an individual with a family at home, an additional amount 
for the maintenance needs of the family. This amount must--
    (i) Be based on a reasonable assessment of their financial need;
    (ii) Be adjusted for the number of family members living in the 
home; and
    (iii) Not exceed the higher of the need standard for a family of the 
same size used to determine eligibility under the State's AFDC plan or 
the medically needy income standard established under Sec. 435.811 for 
a family of the same size.
    (4) Amounts for incurred expenses for medical or remedial care that 
are not subject to payment by a third party including--
    (i) Medicare and other health insurance premiums, deductibles, or 
coinsurance charges; and
    (ii) Necessary medical or remedial care recognized under State law 
but not covered under the State's Medicaid plan, subject to reasonable 
limits the

[[Page 142]]

agency may establish on amounts of these expenses.

[46 FR 48539, Oct. 1, 1981, as amended at 50 FR 10026, Mar. 13, 1985; 57 
FR 29155, June 30, 1992; 58 FR 4932, Jan. 19, 1993; 59 FR 37715, July 
25, 1994]



Sec. 435.733  Post-eligibility treatment of income of institutionalized individuals in States using more restrictive requirements than SSI: Application of 
          patient income to the cost of care.

    (a) Basic rules. (1) The agency must reduce its payment to an 
institution, for services provided to an individual specified in 
paragraph (b) of this section, by the amount that remains after 
deducting the amounts specified in paragraphs (c) and (d) of this 
section, from the individual's total income.
    (2) The individual's income must be determined in accordance with 
paragraph (e) of this section.
    (3) Medical expenses must be determined in accordance with paragraph 
(f) of this section.
    (b) Applicability. This section applies to the following individuals 
in medical institutions and intermediate care facilities:
    (1) Individuals receiving cash assistance under AFDC who are 
eligible for Medicaid under Sec. 435.110 and individuals eligible under 
Sec. 435.121.
    (2) Individuals who would be eligible for AFDC, SSI, or an optional 
State supplement except for their institutional status and who are 
eligible for Medicaid under Sec. 435.211.
    (3) Aged, blind, and disabled individuals who are eligible for 
Medicaid, under Sec. 435.231, under a higher income standard than the 
standard used in determining eligibility for SSI or optional State 
supplements.
    (c) Required deductions. The agency must deduct the following 
amounts, in the following order, from the individual's total income, as 
determined under paragraph (e) of this section. Income that was 
disregarded in determining eligibility must be considered in this 
process.
    (1) Personal needs allowance. A personal needs allowance that is 
reasonable in amount for clothing and other personal needs of the 
individual while in the institution. This protected personal needs 
allowance must be at least--
    (i) $30 a month for an aged, blind, or disabled individual, 
including a child applying for Medicaid on the basis of blindness or 
disability;
    (ii) $60 a month for an institutionalized couple if both spouses are 
aged, blind, or disabled and their income is considered available to 
each other in determining eligibility; and
    (iii) For other individuals, a reasonable amount set by the agency, 
based on a reasonable difference in their personal needs from those of 
the aged, blind, and disabled.
    (2) Maintenance needs of spouse. For an individual with only a 
spouse at home, an additional amount for the maintenance needs of the 
spouse. This amount must be based on a reasonable assessment of need but 
must not exceed the higher of--
    (i) The more restrictive income standard established under Sec. 
435.121; or
    (ii) The amount of the medically needy income standard for one 
person established under Sec. 435.811, if the agency provides Medicaid 
under the medically needy coverage option.
    (3) Maintenance needs of family. For an individual with a family at 
home, an additional amount for the maintenance needs of the family. This 
amount must--
    (i) Be based on a reasonable assessment of their financial need;
    (ii) Be adjusted for the number of family members living in the 
home; and
    (iii) Not exceed the higher of the need standard for a family of the 
same size used to determine eligibility under the State's approved AFDC 
plan or the medically needy income standard established under Sec. 
435.811, if the agency provides Medicaid under the medically needy 
coverage option for a family of the same size.
    (4) Expenses not subject to third party payment. Amounts for 
incurred expenses for medical or remedial care that are not subject to 
payment by a third party, including--
    (i) Medicare and other health insurance permiums, deductibles, or 
coinsurance charges; and
    (ii) Necessary medical or remedial care recognized under State law 
but

[[Page 143]]

not covered under the State's Medicaid plan, subject to reasonable 
limits the agency may establish on amounts of these expenses.
    (5) Continued SSI and SSP benefits. The full amount of SSI and SSP 
benefits that the individual continues to receive under sections 
1611(e)(1) (E) and (G) of the Act.
    (d) Optional deduction: Allowance for home maintenance. For single 
individuals and couples, an amount (in addition to the personal needs 
allowance) for maintenance of the individual's or couple's home if--
    (1) The amount is deducted for not more than a 6-month period; and
    (2) A physician has certified that either of the individuals is 
likely to return to the home within that period.
    (e) Determination of income--(1) Option. In determining the amount 
of an individual's income to be used to reduce the agency's payment to 
the institution, the agency may use total income received, or it may 
project total monthly income for a prospective period not to exceed 6 
months.
    (2) Basis for projection. The agency must base the projection on 
income received in the preceding period, not to exceed 6 months, and on 
income expected to be received.
    (3) Adjustments. At the end of the prospective period specified in 
paragraph (e)(1) of this section, or when any significant change occurs, 
the agency must reconcile estimates with income received.
    (f) Determination of medical expenses--(1) Option. In determining 
the amount of medical expenses that may be deducted from an individual's 
income, the agency may deduct incurred medical expenses, or it may 
project medical expenses for a prospective period not to exceed 6 
months.
    (2) Basis for projection. The agency must base the estimate on 
medical expenses incurred in the preceding period, not to exceed 6 
months, and medical expenses expected to be incurred.
    (3) Adjustments. At the end of the prospective period specified in 
paragraph (f)(1) of this section, or when any significant change occurs, 
the agency must reconcile estimates with incurred medical expenses.

[45 FR 24884, Apr. 11, 1980, as amended at 48 FR 5735, Feb. 8, 1983; 53 
FR 3596, Feb. 8, 1988; 55 FR 33705, Aug. 17, 1990; 56 FR 8850, 8854, 
Mar. 1, 1991; 58 FR 4932, Jan. 19, 1993]



Sec. 435.735  Post-eligibility treatment of income and resources of individuals receiving home and community-based services furnished under a waiver: 
          Application of patient income to the cost of care.

    (a) The agency must reduce its payment for home and community-based 
services provided to an individual specified in paragraph (b) of this 
section, by the amount that remains after deducting the amounts 
specified in paragraph (c) of this section from the individual's income.
    (b) This section applies to individuals who are eligible for 
Medicaid under Sec. 435.217, and are eligible for home and community-
based services furnished under a waiver of State plan requirements 
specified in part 441, subpart G or H of this subchapter.
    (c) In reducing its payment for home and community-based services, 
the agency must deduct the following amounts, in the following order, 
from the individual's total income (including amounts disregarded in 
determining eligibility):
    (1) An amount for the maintenance needs of the individual that the 
State may set at any level, as long as the following conditions are met:
    (i) The deduction amount is based on a reasonable assessment of 
need.
    (ii) The State establishes a maximum deduction amount that will not 
be exceeded for any individual under the waiver.
    (2) For an individual with only a spouse at home, an additional 
amount for the maintenance needs of the spouse. This amount must be 
based on a reasonable assessment of need but must not exceed the higher 
of--
    (i) The more restrictive income standard established under Sec. 
435.121; or
    (ii) The medically needy standard for an individual.
    (3) For an individual with a family at home, an additional amount 
for the maintenance needs of the family. This amount must--

[[Page 144]]

    (i) Be based on a reasonable assessment of their financial need;
    (ii) Be adjusted for the number of family members living in the 
home; and
    (iii) Not exceed the higher of the need standard for a family of the 
same size used to determine eligibility under the State's approved AFDC 
plan or the medically needy income standard established under Sec. 
435.811 for a family of the same size.
    (4) Amounts for incurred expenses for medical or remedial care that 
are not subject to payment by a third party, including--
    (i) Medicare and other health insurance premiums, deductibles, or 
coinsurance charges; and
    (ii) Necessary medical or remedial care recognized under State law 
but not covered under the State's Medicaid plan, subject to reasonable 
limits the agency may establish on amounts of these expenses.

[46 FR 48540, Oct. 1, 1981, as amended at 50 FR 10026, Mar. 13, 1985; 57 
FR 29155, June 30, 1992; 58 FR 4932, Jan. 19, 1993; 59 FR 37716, July 
25, 1994]



     Subpart I_Specific Eligibility and Post-Eligibility Financial 
                  Requirements for the Medically Needy



Sec. 435.800  Scope.

    This subpart prescribes specific financial requirements for 
determining the eligibility of medically needy individuals under subpart 
D of this part.

[58 FR 4932, Jan. 19, 1993]

                     Medically Needy Income Standard



Sec. 435.811  Medically needy income standard: General requirements.

    (a) Except as provided in paragraph (d)(2) of this section, to 
determine eligibility of medically needy individuals, a Medicaid agency 
must use a single income standard under this subpart that meets the 
requirements of this section.
    (b) The income standard must take into account the number of persons 
in the assistance unit. Subject to the limitations specified in 
paragraph (e) of this section. The standard may not diminish by an 
increase in the number of persons in the assistance unit. For example, 
if the income level in the standard for an assistance unit of two is set 
at $400, the income level in the standard for an assistance unit of 
three may not be less than $400.
    (c) In States that do not use more restrictive requirements than 
SSI, the income standard must be set at an amount that is no lower than 
the lowest income standards used under the cash assistance programs that 
are related to the State's covered medically needy eligibility group or 
groups of individuals under Sec. 435.301. The amount of the income 
standard is subject to the limitations specified in paragraph (e) of 
this section.
    (d) In States that use more restrictive requirements for aged, 
blind, and disabled individuals than SSI:
    (1) For all individuals except aged, blind, and disabled 
individuals, the income standard must be set in accordance with 
paragraph (c) of this section; and
    (2) For all aged, blind, and disabled individuals or any combination 
of these groups of individuals, the agency may establish a separate 
single medically needy income standard that is more restrictive than the 
single income standard set under paragraph (c) of this section. However, 
the amount of the more restrictive separate standard for aged, blind, or 
disabled individuals must be no lower than the higher of the lowest 
categorically needy income standard currently applied under the State's 
more restrictive criteria under Sec. 435.121 or the medically needy 
income standard in effect under the State's Medicaid plan on January 1, 
1972. The amount of the income standard is subject to the limitations 
specified in paragraph (e) of this section.
    (e) The income standards specified in paragraphs (c) and (d) of this 
section must not exceed the maximum dollar amount of income allowed for 
purposes of FFP under Sec. 435.1007.
    (f) The income standard may vary based on the variations between 
shelter costs in urban areas and rural areas.

[58 FR 4932, Jan. 19, 1993]

[[Page 145]]



Sec. 435.814  Medically needy income standard: State plan requirements.

    The State plan must specify the income standard for the covered 
medically needy groups.

[58 FR 4933, Jan. 19, 1993]

                   Medically Needy Income Eligibility



Sec. 435.831  Income eligibility.

    The agency must determine income eligibility of medically needy 
individuals in accordance with this section.
    (a) Budget periods. (1) The agency must use budget periods of not 
more than 6 months to compute income. The agency may use more than one 
budget period.
    (2) The agency may include in the budget period in which income is 
computed all or part of the 3-month retroactive period specified in 
Sec. 435.914. The budget period can begin no earlier than the first 
month in the retroactive period in which the individual received covered 
services. This provision applies to all medically needy individuals 
except in groups for whom criteria more restrictive than that used in 
the SSI program apply.
    (3) If the agency elects to begin the first budget period for the 
medically needy in any month of the 3-month period prior to the date of 
the application in which the applicant received covered services, this 
election applies to all medically needy groups.
    (b) Determining countable income. The agency must deduct the 
following amounts from income to determine the individual's countable 
income.
    (1) For individuals under age 21 and caretaker relatives, the agency 
must deduct amounts that would be deducted in determining eligibility 
under the State's AFDC plan.
    (2) For aged, blind, or disabled individuals in States covering all 
SSI recipients, the agency must deduct amounts that would be deducted in 
determining eligibility under SSI. However, the agency must also deduct 
the highest amounts from income that would be deducted in determining 
eligibility for optional State supplements if these supplements are paid 
to all individuals who are receiving SSI or would be eligible for SSI 
except for their income.
    (3) For aged, blind, or disabled individuals in States using income 
requirements more restrictive than SSI, the agency must deduct amounts 
that are no more restrictive than those used under the Medicaid plan on 
January 1, 1972 and no more liberal than those used in determining 
eligibility under SSI or an optional State supplement. However, the 
amounts must be at least the same as those that would be deducted in 
determining eligibility, under Sec. 435.121, of the categorically 
needy.
    (c) Eligibility based on countable income. If countable income 
determined under paragraph (b) of this section is equal to or less than 
the applicable income standard under Sec. 435.814, the individual or 
family is eligible for Medicaid.
    (d) Deduction of incurred medical expenses. If countable income 
exceeds the income standard, the agency must deduct from income medical 
expenses incurred by the individual or family or financially responsible 
relatives that are not subject to payment by a third party. An expense 
is incurred on the date liability for the expense arises. The agency 
must determine deductible incurred expenses in accordance with 
paragraphs (e), (f), and (g) of this section and deduct those expenses 
in accordance with paragraph (h) of this section.
    (e) Determination of deductible incurred expenses: Required 
deductions based on kinds of services. Subject to the provisions of 
paragraph (g), in determining incurred medical expenses to be deducted 
from income, the agency must include the following:
    (1) Expenses for Medicare and other health insurance premiums, and 
deductibles or coinsurance charges, including enrollment fees, 
copayments, or deductibles imposed under Sec. 447.51 or Sec. 447.53 of 
this subchapter;
    (2) Expenses incurred by the individual or family or financially 
responsible relatives for necessary medical and remedial services that 
are recognized under State law but not included in the plan;

[[Page 146]]

    (3) Expenses incurred by the individual or family or by financially 
responsible relatives for necessary medical and remedial services that 
are included in the plan, including those that exceed agency limitations 
on amount, duration, or scope of services.
    (f) Determination of deductible incurred expenses: Required 
deductions based on the age of bills. Subject to the provisions of 
paragraph (g), in determining incurred medical expenses to be deducted 
from income, the agency must include the following:
    (1) For the first budget period or periods that include only months 
before the month of application for medical assistance, expenses 
incurred during such period or periods, whether paid or unpaid, to the 
extent that the expenses have not been deducted previously in 
establishing eligibility;
    (2) For the first prospective budget period that also includes any 
of the 3 months before the month of application for medical assistance, 
expenses incurred during such budget period, whether paid or unpaid, to 
the extent that the expenses have not been deducted previously in 
establishing eligibility;
    (3) For the first prospective budget period that includes none of 
the months preceding the month of application, expenses incurred during 
such budget period and any of the 3 preceding months, whether paid or 
unpaid, to the extent that the expenses have not been deducted 
previously in establishing eligibility;
    (4) For any of the 3 months preceding the month of application that 
are not includable under paragraph (f)(2) of this section, expenses 
incurred in the 3-month period that were a current liability of the 
individual in any such month for which a spenddown calculation is made 
and that had not been previously deducted from income in establishing 
eligibility for medical assistance;
    (5) Current payments (that is, payments made in the current budget 
period) on other expenses incurred before the current budget period and 
not previously deducted from income in any budget period in establishing 
eligibility for such period; and
    (6) If the individual's eligibility for medical assistance was 
established in each such preceding period, expenses incurred before the 
current budget period but not previously deducted from income in 
establishing eligibility, to the extent that such expenses are unpaid 
and are:
    (i) Described in paragraphs (e)(1) through (e)(3) of this section; 
and
    (ii) Carried over from the preceding budget period or periods 
because the individual had a spenddown liability in each such preceding 
period that was met without deducting all such incurred, unpaid 
expenses.
    (g) Determination of deductible incurred medical expenses: Optional 
deductions. In determining incurred medical expenses to be deducted from 
income, the agency--
    (1) May include medical institutional expenses (other than expenses 
in acute care facilities) projected to the end of the budget period at 
the Medicaid reimbursement rate;
    (2) May, to the extent determined by the State and specified in its 
approved plan, include expenses incurred earlier than the third month 
before the month of application (except States using more restrictive 
eligibility criteria under the option in section 1902(f) of the Act must 
deduct incurred expenses regardless of when the expenses were incurred); 
and
    (3) May set reasonable limits on the amount to be deducted for 
expenses specified in paragraphs (e)(1), (e)(2), and (g)(2) of this 
section.
    (h) Order of deduction. The agency must deduct incurred medical 
expenses that are deductible under paragraphs (e), (f), and (g) of this 
section in the order prescribed under one of the following three 
options:
    (1) Type of service. Under this option, the agency deducts expenses 
in the following order based on type of expense or service:
    (i) Cost-sharing expenses as specified in paragraph (e)(1) of this 
section.
    (ii) Services not included in the State plan as specified in 
paragraph (e)(2) of this section.
    (iii) Services included in the State plan as specified in paragraph 
(e)(3) of

[[Page 147]]

this section but that exceed limitations on amounts, duration, or scope 
of services.
    (iv) Services included in the State plan as specified in paragraph 
(e)(3) of this section but that are within agency limitations on amount, 
duration, or scope of services.
    (2) Chronological order by service date. Under this option, the 
agency deducts expenses in chronological order by the date each service 
is furnished, or in the case of insurance premiums, coinsurance or 
deductible charges, the date such amounts are due. Expenses for services 
furnished on the same day may be deducted in any reasonable order 
established by the State.
    (3) Chronological order by bill submission date. Under this option, 
the agency deducts expenses in chronological order by the date each bill 
is submitted to the agency by the individual. If more than one bill is 
submitted at one time, the agency must deduct the bills from income in 
the order prescribed in either paragraph (h)(1) or (h)(2) of this 
section.
    (i) Eligibility based on incurred medical expenses.
    (1) Whether a State elects partial or full month coverage, an 
individual who is expected to contribute a portion of his or her income 
toward the costs of institutional care or home and community-based 
services under Sec. Sec. 435.725, 435.726, 435.733, 435.735 or 435.832 
is eligible on the first day of the applicable budget (spenddown) 
period--
    (i) If his or her spenddown liability is met after the first day of 
the budget period; and
    (ii) If beginning eligibility after the first day of the budget 
period makes the individual's share of health care expenses under 
Sec. Sec. 435.725, 435.726, 435.733, 435.735 or 435.832 greater than 
the individual's contributable income determined under these sections.
    (2) At the end of the prospective period specified in paragraphs 
(f)(2) and (f)(3) of this section, and any subsequent prospective period 
or, if earlier, when any significant change occurs, the agency must 
reconcile the projected amounts with the actual amounts incurred, or 
with changes in circumstances, to determine if the adjusted deduction of 
incurred expenses reduces income to the income standard.
    (3) Except as provided in paragraph (i)(1) of this section, in 
States that elect partial month coverage, an individual is eligible for 
Medicaid on the day that the deduction of incurred health care expenses 
(and of projected institutional expenses if the agency elects the option 
under paragraph (g)(1) of this section) reduces income to the income 
standard.
    (4) Except as provided in paragraph (i)(1) of this section, in 
States that elect full month coverage, an individual is eligible on the 
first day of the month in which spenddown liability is met.
    (5) Expenses used to meet spenddown liability are not reimbursable 
under Medicaid. To the extent necessary to prevent the transfer of an 
individual's spenddown liability to the Medicaid program, States must 
reduce the amount of provider charges that would otherwise be 
reimbursable under Medicaid.

[59 FR 1672, Jan. 12, 1994]



Sec. 435.832  Post-eligibility treatment of income of institutionalized individuals: Application of patient income to the cost of care.

    (a) Basic rules. (1) The agency must reduce its payment to an 
institution, for services provided to an individual specified in 
paragraph (b) of this section, by the amount that remains after 
deducting the amounts specified in paragraphs (c) and (d) of this 
section, from the individual's total income.
    (2) The individual's income must be determined in accordance with 
paragraph (e) of this section.
    (3) Medical expenses must be determined in accordance with paragraph 
(f) of this section.
    (b) Applicability. This section applies to medically needy 
individuals in medical institutions and intermediate care facilities.
    (c) Required deductions. The agency must deduct the following 
amounts, in the following order, from the individual's total income, as 
determined under paragraph (e) of this section. Income that was 
disregarded in determining eligibility must be considered in this 
process.

[[Page 148]]

    (1) Personal needs allowance. A personal needs allowance that is 
reasonable in amount for clothing and other personal needs of the 
individual while in the institution. This protected personal needs 
allowance must be at least--
    (i) $30 a month for an aged, blind, or disabled individual, 
including a child applying for Medicaid on the basis of blindness or 
diability.
    (ii) $60 a month for an institutionalized couple if both spouses are 
aged, blind, or disabled and their income is considered available to 
each other in determining eligibility; and
    (iii) For other individuals, a reasonable amount set by the agency, 
based on a reasonable difference in their personal needs from those of 
the aged, blind, and disabled.
    (2) Maintenance needs of spouse. For an individual with only a 
spouse at home, an additional amount for the maintenance needs of the 
spouse. This amount must be based on a reasonable assessment of need but 
must not exceed the highest of--
    (i) The amount of the income standard used to determine eligibility 
for SSI for an individual living in his own home;
    (ii) The amount of the highest income standard, in the appropriate 
category of age, blindness, or disability, used to determine eligibility 
for an optional State supplement for an individual in his own home, if 
the agency provides Medicaid to optional State supplement recipients 
under Sec. 435.230; or
    (iii) The amount of the medically needy income standard for one 
person established under Sec. 435.811.
    (3) Maintenance needs of family. For an individual with a family at 
home, an additional amount for the maintenance needs of the family. This 
amount must--
    (i) Be based on a reasonable assessment of their financial need;
    (ii) Be adjusted for the number of family members living in the 
home; and
    (iii) Not exceed the highest of the following need standards for a 
family of the same size:
    (A) The standard used to determine eligibility under the State's 
approved AFDC plan.
    (B) The medically needy income standard established under Sec. 
435.811.
    (4) Expenses not subject to third party payment. Amounts for 
incurred expenses for medical or remedial care that are not subject to 
payment by a third party, including--
    (i) Medicare and other health insurance permiums, deductibles, or 
coinsurance charges; and
    (ii) Necessary medical or remedial care recognized under State law 
but not covered under the State's Medicaid plan, subject to reasonable 
limits the agency may establish on amounts of these expenses.
    (d) Optional deduction: Allowance for home maintenance. For single 
individuals and couples, an amount (in addition to the personal needs 
allowance) for maintenance of the individual's or couple's home if--
    (1) The amount is deducted for not more than a 6-month period; and
    (2) A physician has certified that either of the individuals is 
likely to return to the home within that period.
    (e) Determination of income--(1) Option. In determining the amount 
of an individual's income to be used to reduce the agency's payment to 
the institution, the agency may use total income received or it may 
project total monthly income for a prospective period not to exceed 6 
months.
    (2) Basis for projection. The agency must base the projection on 
income received in the preceding period, not to exceed 6 months, and on 
income expected to be received.
    (3) Adjustments. At the end of the prospective period specified in 
paragraph (e)(1) of this section, or when any significant change occurs, 
the agency must reconcile estimates with income received.
    (f) Determination of medical expenses--(1) Option. In determining 
the amount of medical expenses to be deducted from an individual's 
income, the agency may deduct incurred medical expenses, or it may 
project medical expenses for a prospective period not to exceed 6 
months.

[[Page 149]]

    (2) Basis for projection. The agency must base the estimate on 
medical expenses incurred in the preceding period, not to exceed 6 
months, and medical expenses expected to be incurred.
    (3) Adjustments. At the end of the prospective period specified in 
paragraph (f)(1) of this section, or when any significant change occurs, 
the agency must reconcile estimates with incurred medical expenses.

[45 FR 24886, Apr. 11, 1980, as amended at 46 FR 47988, Sept. 30, 1981; 
48 FR 5735, Feb. 8, 1983; 53 FR 3596, Feb. 8, 1988; 53 FR 5344, Feb. 23, 
1988; 56 FR 8850, 8854, Mar. 1, 1991; 58 FR 4933, Jan. 19, 1993]

                    Medically Needy Resource Standard



Sec. 435.840  Medically needy resource standard: General requirements.

    (a) To determine eligibility of medically needy individuals, a 
Medicaid agency must use a single resource standard that meets the 
requirements of this section.
    (b) In States that do not use more restrictive criteria than SSI for 
aged, blind, and disabled individuals, the resource standard must be 
established at an amount that is no lower than the lowest resource 
standard used under the cash assistance programs that relate to the 
State's covered medically needy eligibility group or groups of 
individuals under Sec. 435.301.
    (c) In States using more restrictive requirements than SSI:
    (1) For all individuals except aged, blind, and disabled 
individuals, the resource standard must be set in accordance with 
paragraph (b) of this section; and
    (2) For all aged, blind, and disabled individuals or any combination 
of these groups of individuals, the agency may establish a separate 
single medically needy resource standard that is more restrictive than 
the single resource standard set under paragraph (b) of this section. 
However, the amount of the more restrictive separate standard for aged, 
blind, or disabled individuals must be no lower than the higher of the 
lowest categorically needy resource standard currently applied under the 
State's more restrictive criteria under Sec. 435.121 or the medically 
needy resource standard in effect under the State's Medicaid plan on 
January 1, 1972.
    (d) The resource standard established under paragraph (a) of this 
section may not diminish by an increase in the number of persons in the 
assistance unit. For example, the resource standard for an assistance 
unit of three may not be less than that set for a unit of two.

[58 FR 4933, Jan. 19, 1993]



Sec. 435.843  Medically needy resource standard: State plan requirements.

    The State plan must specify the resource standard for the covered 
medically needy groups.

[58 FR 4933, Jan. 19, 1993]

            Determining Eligibility on the Basis of Resources



Sec. 435.845  Medically needy resource eligibility.

    To determine eligibility on the basis of resources for medically 
needy individuals, the agency must:
    (a) Consider only the individual's resources and those that are 
considered available to him under the financial responsibility 
requirements for relatives in Sec. 435.602.
    (b) Deduct the amounts that would be deducted in determining 
resource eligibility for the medically needy group as provided for in 
Sec. 435.601 or under the criteria of States using more restrictive 
criteria than SSI as provided for in Sec. 435.121. In determining the 
amount of an individual's resources for Medicaid eligibility, States 
must count amounts of resources that otherwise would not be counted 
under the conditional eligibility provisions of the SSI or AFDC 
programs.
    (c) Apply the resource standard specified under Sec. 435.840.

[58 FR 4933, Jan. 19, 1993]



Sec. Sec. 435.850-435.852  [Reserved]



      Subpart J_Eligibility in the States and District of Columbia

    Source: 44 FR 17937, Mar. 23, 1979, unless otherwise noted.

[[Page 150]]



Sec. 435.900  Scope.

    This subpart sets forth requirements for processing applications, 
determining eligibility, and furnishing Medicaid.

                    General Methods of Administration



Sec. 435.901  Consistency with objectives and statutes.

    The Medicaid agency's standards and methods for determining 
eligibility must be consistent with the objectives of the program and 
with the rights of individuals under the United States Constitution, the 
Social Security Act, title VI of the Civil Rights Act of 1964, section 
504 of the Rehabilitation Act of 1973, and all other relevant provisions 
of Federal and State laws.

[44 FR 17937, Mar. 23, 1979. Redesignated at 59 FR 48809, Sept. 23, 
1994]



Sec. 435.902  Simplicity of administration.

    The agency's policies and procedures must ensure that eligibility is 
determined in a manner consistent with simplicity of administration and 
the best interests of the applicant or recipient.

[44 FR 17937, Mar. 23, 1979. Redesignated at 59 FR 48809, Sept. 23, 
1994]



Sec. 435.903  Adherence of local agencies to State plan requirements.

    The agency must--
    (a) Have methods to keep itself currently informed of the adherence 
of local agencies to the State plan provisions and the agency's 
procedures for determining eligibility; and
    (b) Take corrective action to ensure their adherence.

[44 FR 17937, Mar. 23, 1979. Redesignated at 59 FR 48809, Sept. 23, 
1994]



Sec. 435.904  Establishment of outstation locations to process applications for certain low-income eligibility groups.

    (a) State plan requirements. The Medicaid State plan must specify 
that the requirements of this section are met.
    (b) Opportunity to apply. The agency must provide an opportunity for 
the following groups of low-income pregnant women, infants, and children 
under age 19 to apply for Medicaid at outstation locations other than 
AFDC offices:
    (1) The groups of pregnant women or infants with incomes up to 133 
percent of the Federal poverty level as specified under section 
1902(a)(10)(A)(i)(IV) of the Act;
    (2) The group of children age 1 up to age 6 with incomes at 133 
percent of the Federal poverty level as specified under section 
1902(a)(10)(A)(i)(VI) of the Act;
    (3) The group of children age 6 up to age 19 born after September 
30, 1983, with incomes up to 100 percent of the Federal poverty level as 
specified under section 1902(a)(10)(A)(i)(VII) of the Act; and
    (4) The groups of pregnant women or infants, children age 1 up to 
age 6, and children age 6 up to age 19, who are not eligible as a 
mandatory group, with incomes up to 185 percent of the Federal poverty 
level as specified under section 1902(a)(10)(A)(ii)(IX) of the Act.
    (c) Outstation locations: general requirements.
    (1) The agency must establish either--
    (i) Outstation locations at each disproportionate share hospital, as 
defined in section 1923(a)(1)(A) of the Act, and each Federally-
qualified health center, as defined in section 1905(1)(2)(B) of the Act, 
participating in the Medicaid program and providing services to 
Medicaid-eligible pregnant women and children; or
    (ii) Other outstation locations, which include at least some, 
disproportionate share hospitals and federally-qualified health centers, 
as specified under an alternative State plan that is submitted to and 
approved by CMS if the following conditions are met:
    (A) The State must demonstrate that the alternative plan for 
outstationing is equally effective as, or more effective than, a plan 
that would meet the requirements of paragraph (c)(1)(i) of this section 
in enabling the individuals described in paragraph (b) of this section 
to apply for and receive Medicaid; and
    (B) The State must provide assurances that the level of staffing and 
funding committed by the State under the alternative plan equals or 
exceeds the level of staffing and funding under

[[Page 151]]

a plan that would meet the requirements of establishing the outstation 
locations at the sites specified in paragraph (c)(1)(i) of this section.
    (2) The agency must establish outstation locations at Indian health 
clinics operated by a tribe or tribal organization as these clinics are 
specifically included in the definition of Federally-qualified health 
centers under section 1905(l)(2)(B) of the Act and are also included in 
the definition of rural health clinics under part 491, subpart A of this 
chapter.
    (3) The agency may establish additional outstation locations at any 
other site where potentially eligible pregnant women or children receive 
services--for example, at school-linked service centers and family 
support centers. These additional sites may also include sites other 
than the main outstation location of those Federally-qualified health 
centers or disproportionate share hospitals providing services to 
Medicaid-eligible pregnant women and to children and that operate more 
than one site.
    (4) The agency may, at its option, enter into reciprocal agreements 
with neighboring States to ensure that the groups described in paragraph 
(b) of this section who customarily receive services in a neighboring 
State have the opportunity to apply at outstation locations specified in 
paragraphs (c)(l) and (2) of this section.
    (d) Outstation functions. (1) The agency must provide for the 
receipt and initial processing of Medicaid applications from the 
designated eligibility groups at each outstation location.
    (2) ``Initial processing'' means taking applications, assisting 
applicants in completing the application, providing information and 
referrals, obtaining required documentation to complete processing of 
the application, assuring that the information contained on the 
application form is complete, and conducting any necessary interviews. 
It does not include evaluating the information contained on the 
application and the supporting documentation nor making a determination 
of eligibility or ineligibility.
    (3) The agency may, at its option, allow appropriate State 
eligibility workers assigned to outstation locations to evaluate the 
information contained on the application and the supporting 
documentation and make a determination of eligibility if the workers are 
authorized to determine eligibility for the agency which determines 
Medicaid eligibility under Sec. 431.10 of this subchapter.
    (e) Staffing. (1) Except for outstation locations that are 
infrequently used by the low-income eligibility groups, the State agency 
must have staff available at each outstation location during the regular 
office operating hours of the State Medicaid agency to accept 
applications and to assist applicants with the application process.
    (2) The agency may station staff at one outstation location or 
rotate staff among several locations as workload and staffing 
availability dictate.
    (3) The agency may use State employees, provider or contractor 
employees, or volunteers who have been properly trained to staff 
outstation locations under the following conditions:
    (i) State outstation intake staff may perform all eligibility 
processing functions, including the eligibility determination, if the 
staff is authorized to do so at the regular Medicaid intake office.
    (ii) Provider or contractor employees and volunteers may perform 
only initial processing functions as defined in paragraph (d)(2) of this 
section.
    (4) Provider and contractor employees and volunteers are subject to 
the confidentiality of information rules specified in part 431, subpart 
F, of this subchapter, to the prohibition against reassignment of 
provider claims specified in Sec. 447.10 of this subchapter, and to all 
other State or Federal laws concerning conflicts of interest.
    (5) At locations that are infrequently used by the designated low-
income eligibility groups, the State agency may use volunteers, provider 
or contractor employees, or its own eligibility staff, or telephone 
assistance.
    (i) The agency must display a notice in a prominent place at the 
outstation location advising potential applicants of when outstation 
intake workers will be available.
    (ii) The notice must include a telephone number that applicants may 
call for assistance.

[[Page 152]]

    (iii) The agency must comply with Federal and State laws and 
regulations governing the provision of adequate notice to persons who 
are blind or deaf or who are unable to read or understand the English 
language.

[59 FR 48809, Sept. 23, 1994]

                              Applications



Sec. 435.905  Availability of program information.

    (a) The agency must furnish the following information in written 
form, and orally as appropriate, to all applicants and to all other 
individuals who request it:
    (1) The eligibility requirements.
    (2) Available Medicaid services.
    (3) The rights and responsibilities of applicants and recipients.
    (b) The agency must publish in quantity and make available bulletins 
or pamphlets that explain the rules governing eligibility and appeals in 
simple and understandable terms.

[44 FR 17937, Mar. 23, 1979, as amended at 45 FR 24887, Apr. 11, 1980]



Sec. 435.906  Opportunity to apply.

    The agency must afford an individual wishing to do so the 
opportunity to apply for Medicaid without delay.



Sec. 435.907  Written application.

    (a) The agency must require a written application from the 
applicant, an authorized representative, or, if the applicant is 
incompetent or incapacitated, someone acting responsibly for the 
applicant.
    (b) Subject to the conditions specified in paragraph (c) of this 
section, the application must be on a form prescribed by the agency and 
signed under a penalty of perjury.
    (c) The application form used at outstation locations for low-income 
pregnant women, infants, and children specified in Sec. 435.904 must 
not be the application form used to apply for AFDC. The application form 
(including any computerized application form) for these designated 
eligibility groups may be--
    (1) A Medicaid-only form prescribed by the agency specifically for 
the designated eligibility groups;
    (2) An existing Medicaid-only application; or
    (3) A multiple-program application that contains clearly 
identifiable Medicaid-only sections or parts.

[59 FR 48810, Sept. 23, 1994]



Sec. 435.908  Assistance with application.

    The agency must allow an individual or individuals of the 
applicant's choice to accompany, assist, and represent the applicant in 
the application process or a redetermination of eligibility.



Sec. 435.909  Automatic entitlement to Medicaid following a determination of eligibility under other programs.

    The agency must not require a separate application for Medicaid from 
an individual, if--
    (a) The individual receives AFDC; or
    (b) The agency has an agreement with the Social Security 
Administration (SSA) under section 1634 of the Act for determining 
Medicaid eligibility; and--
    (1) The individual receives SSI;
    (2) The individual receives a mandatory State supplement under 
either a federally-administered or State-administered program; or
    (3) The individual receives an optional State supplement and the 
agency provides Medicaid to recipients of optional supplements under 
Sec. 435.230.



Sec. 435.910  Use of social security number.

    (a) The agency must require, as a condition of eligibility, that 
each individual (including children) requesting Medicaid services 
furnish each of his or her social security numbers (SSNs).
    (b) The agency must advise the applicant of--
    (1) [Reserved]
    (2) The statute or other authority under which the agency is 
requesting the applicant's SSN; and
    (3) The uses the agency will make of each SSN, including its use for 
verifying income, eligibility, and amount of medical assistance payments 
under Sec. Sec. 435.940 through 435.960.
    (c)-(d) [Reserved]
    (e) If an applicant cannot recall his SSN or SSNs or has not been 
issued a SSN the agency must--

[[Page 153]]

    (1) Assist the applicant in completing an application for an SSN;
    (2) Obtain evidence required under SSA regulations to establish the 
age, the citizenship or alien status, and the true identity of the 
applicant; and
    (3) Either send the application to SSA or, if there is evidence that 
the applicant has previously been issued a SSN, request SSA to furnish 
the number.
    (f) The agency must not deny or delay services to an otherwise 
eligible applicant pending issuance or verification of the individual's 
SSN by SSA.
    (g) The agency must verify each SSN of each applicant and recipient 
with SSA, as prescribed by the Commissioner, to insure that each SSN 
furnished was issued to that individual, and to determine whether any 
others were issued.
    (h) Exception. (1) A State may give a Medicaid identification number 
to an applicant who, because of well established religious objections, 
refuses to obtain a Social Security Number (SSN). The identification 
number may be either an SSN obtained by the State on the applicant's 
behalf or another unique identifier.
    (2) The term well established religious objections means that the 
applicant--
    (i) Is a member of a recognized religious sect or division of the 
sect; and
    (ii) Adheres to the tenets or teachings of the sect or division of 
the sect and for that reason is conscientiously opposed to applying for 
or using a national identification number.
    (3) A State may use the Medicaid identification number established 
by the State to the same extent as an SSN is used for purposes described 
in paragraph (b)(3) of this section.

[44 FR 17937, Mar. 23, 1979, as amended at 51 FR 7211, Feb. 28, 1986; 66 
FR 2667, Jan. 11, 2001]

                  Determination of Medicaid Eligibility



Sec. 435.911  Timely determination of eligibility.

    (a) The agency must establish time standards for determining 
eligibility and inform the applicant of what they are. These standards 
may not exceed--
    (1) Ninety days for applicants who apply for Medicaid on the basis 
of disability; and
    (2) Forty-five days for all other applicants.
    (b) The time standards must cover the period from the date of 
application to the date the agency mails notice of its decision to the 
applicant.
    (c) The agency must determine eligibility within the standards 
except in unusual circumstances, for example--
    (1) When the agency cannot reach a decision because the applicant or 
an examining physician delays or fails to take a required action, or
    (2) When there is an administrative or other emergency beyond the 
agency's control.
    (d) The agency must document the reasons for delay in the 
applicant's case record.
    (e) The agency must not use the time standards--
    (1) As a waiting period before determining eligibility; or
    (2) As a reason for denying eligibility (because it has not 
determined eligibility within the time standards).

[44 FR 17937, Mar. 23, 1979, as amended at 45 FR 24887, Apr. 11, 1980; 
54 FR 50762, Dec. 11, 1989]



Sec. 435.912  Notice of agency's decision concerning eligibility.

    The agency must send each applicant a written notice of the agency's 
decision on his application, and, if eligibility is denied, the reasons 
for the action, the specific regulation supporting the action, and an 
explanation of his right to request a hearing. (See subpart E of part 
431 of this subchapter for rules on hearings.)

[44 FR 17937, Mar. 23, 1979, as amended at 51 FR 7211, Feb. 28, 1986]



Sec. 435.913  Case documentation.

    (a) The agency must include in each applicant's case record facts to 
support the agency's decision on his application.
    (b) The agency must dispose of each application by a finding of 
eligibility or ineligibility, unless--
    (1) There is an entry in the case record that the applicant 
voluntarily withdrew the application, and that the

[[Page 154]]

agency sent a notice confirming his decision;
    (2) There is a supporting entry in the case record that the 
applicant has died; or
    (3) There is a supporting entry in the case record that the 
applicant cannot be located.



Sec. 435.914  Effective date.

    (a) The agency must make eligibility for Medicaid effective no later 
than the third month before the month of application if the individual--
    (1) Received Medicaid services, at any time during that period, of a 
type covered under the plan; and
    (2) Would have been eligible for Medicaid at the time he received 
the services if he had applied (or someone had applied for him), 
regardless of whether the individual is alive when application for 
Medicaid is made.
    (b) The agency may make eligiblity for Medicaid effective on the 
first day of a month if an individual was eligible at any time during 
that month.
    (c) The State plan must specify the date on which eligibility will 
be made effective.

                Redeterminations of Medicaid Eligibility



Sec. 435.916  Periodic redeterminations of Medicaid eligibility.

    (a) The agency must redetermine the eligibility of Medicaid 
recipients, with respect to circumstances that may change, at least 
every 12 months, however--
    (1) The agency may consider blindness as continuing until the review 
physician under Sec. 435.531 determines that a recipient's vision has 
improved beyond the definition of blindness contained in the plan; and
    (2) The agency may consider disability as continuing until the 
review team under Sec. 435.541 determines that a recipient's disability 
no longer meets the definition of disability contained in the plan.
    (b) Procedures for reporting changes. The agency must have 
procedures designed to ensure that recipients make timely and accurate 
reports of any change in circumstances that may affect their 
eligibility.
    (c) Agency action on information about changes. (1) The agency must 
promptly redetermine eligibility when it receives information about 
changes in a recipient's circumstances that may affect his eligibility.
    (2) If the agency has information about anticipated changes in a 
recipient's circumstances, it must redetermine eligibility at the 
appropriate time based on those changes.



Sec. 435.919  Timely and adequate notice concerning adverse actions.

    (a) The agency must give recipients timely and adequate notice of 
proposed action to terminate, discontinue, or suspend their eligibility 
or to reduce or discontinue services they may receive under Medicaid.
    (b) The notice must meet the requirements of subpart E of part 431 
of this subchapter.

[44 FR 17937, Mar. 23, 1979, as amended at 45 FR 24887, Apr. 11, 1980; 
51 FR 7211, Feb. 28, 1986]



Sec. 435.920  Verification of SSNs.

    (a) In redetermining eligibility, the agency must review case 
records to determine whether they contain the recipient's SSN or, in the 
case of families, each family member's SSN.
    (b) If the case record does not contain the required SSNs, the 
agency must require the recipient to furnish them and meet other 
requirements of Sec. 435.910.
    (c) For any recipient whose SSN was established as part of the case 
record without evidence required under the SSA regulations as to age, 
citizenship, alien status, or true identity, the agency must obtain 
verification of these factors in accordance with Sec. 435.910.

[44 FR 17937, Mar. 23, 1979, as amended at 51 FR 7211, Feb. 28, 1986]

                           Furnishing Medicaid



Sec. 435.930  Furnishing Medicaid.

    The agency must--
    (a) Furnish Medicaid promptly to recipients without any delay caused 
by the agency's administrative procedures;
    (b) Continue to furnish Medicaid regularly to all eligible 
individuals until they are found to be ineligible; and

[[Page 155]]

    (c) Make arrangements to assist applicants and recipients to get 
emergency medical care whenever needed, 24 hours a day and 7 days a 
week.

            Income and Eligibility Verification Requirements

    Source: Sections 435.940 through 935.965 appear at 51 FR 7211, Feb. 
28, 1986, unless otherwise noted.



Sec. 435.940  Basis and scope.

    (a) Section 1137 of the Act requires certain Federally-funded, 
State-administered public assistance programs to establish procedures 
for obtaining, using and verifying information relevant to 
determinations as to eligibility and the amount of assistance. Section 
1902(a)(4) of the Act allows the Secretary to prescribe methods of 
administration found necessary for the proper and efficient operation of 
a State's Medicaid plan.
    (b) The agency must maintain information, as enumerated in Sec. 
435.960, to exchange for the purpose of enabling any agency or program 
referenced in Sec. 435.945(b) to verify income, eligibility of, and the 
amount of assistance for its applicants and recipients.



Sec. 435.945  General requirements.

    (a) The agency must request and use information timely in accordance 
with Sec. Sec. 435.948, 435.952, and 435.953 of this subpart for 
verifying Medicaid eligibility and the amount of medical assistance 
payments.
    (b) The agency must furnish timely to other agencies in the State 
and in other States and to Federal programs income, eligibility and 
medical assistance payment information for verifying eligibility or 
benefit amounts for the programs listed in Sec. 435.948(a)(6) of this 
subpart. In addition, the agency must furnish income and eligibility 
information to--
    (1) The child support enforcement program under part D of title IV 
of the Act; and
    (2) SSA for old age, survivors and disability benefits under title 
II and for SSI benefits under title XVI of the Act.
    (c) The agency must, upon request, reimburse another agency listed 
in Sec. 435.948(a)(6) of this subpart or paragraph (b) of this section 
for reasonable costs incurred in furnishing information, including new 
developmental costs associated with furnishing the information to 
another agency.
    (d) The agency must inform all applicants in writing at the time of 
application that the agency will obtain and use information available to 
it under section 1137 of the Act to verify income, eligibility and the 
correct amount of medical assistance payments. The agency must give each 
recipient the same notice when it redetermines eligibility. The 
requirements in this paragraph do not apply in the case of applicants or 
recipients whose eligibility is determined by AFDC or by SSA under 
section 1634 of the Act.
    (e) The agency must report as the Secretary prescribes for the 
purposes of determining compliance with Sec. Sec. 431.305, 431.800, 
435.910, 435.919 and 435.940 through 435.965 of this chapter and of 
evaluating the effectiveness of the income and eligibility verification 
system.
    (f) The agency must execute written agreements with other agencies 
before releasing data to or requesting data from, those agencies. The 
agreements, at a minimum, must specify:
    (1) The information to be exchanged;
    (2) The titles of all agency officials with the authority to request 
income and eligibility information;
    (3) The methods, including the formats to be used, and the timing 
for requesting and providing the information (see also paragraph (f)(6) 
of this section);
    (4) The safeguards limiting the use and disclosure of the 
information as required by Federal or State law or regulations;
    (5) The method, if any, the agency will use to reimburse reasonable 
costs of furnishing the information; and
    (6) In the case of an agreement between a SWICA or a UC agency and 
the Medicaid agency, that the Medicaid agency will obtain information on 
applicants at least twice monthly; and
    (7) In the case of an agreement between any Federal agency and the 
Medicaid agency for data on individuals, provisions relating to--
    (i) Purpose and legal authority;

[[Page 156]]

    (ii) Justification and expected results;
    (iii) Records description (including specific identification of the 
system of records, the number of records, what data elements will be 
included in the match, and projected starting and completion dates);
    (iv) Notice procedures;
    (v) Verification procedures;
    (vi) Disposition of matched items;
    (vii) Security procedures;
    (viii) Records usage, duplication and redisclosure restrictions;
    (ix) Records accuracy assessments; and
    (x) Access by the Comptroller General.
    (g) SWICA that does not use the quarterly wages reported by 
employers as required by Section 1137 of the Act of unemployment 
insurance benefit calculations must maintain wage information that:
    (1) Contains the SSN, full name, wages earned for the period of the 
report, and an identifier of the employer;
    (2) Includes all employers covered by the States' UC law;
    (3) Accumulates earnings reported by employers for no longer periods 
than calendar quarters;
    (4) Is reported to the SWICA within 30 days after the end of the 
quarter;
    (5) Is machine readable; and
    (6) Is accessible to agencies in other States that have executed 
agreements as required in Sec. 435.945(f) of this chapter and to SSA 
for use in making eligibility or benefit determinations under Title II 
or XVI of the Act.

[51 FR 7211, Feb. 28, 1986, as amended at 52 FR 5977, Feb. 27, 1987; 54 
FR 8741, Mar. 2, 1989; 57 FR 46097, Oct. 7, 1992; 59 FR 4254, Jan. 31, 
1994]



Sec. 435.948  Requesting information.

    (a) Except as provided in paragraphs (d), (e), and (f) of this 
section, the agency must request information from the sources specified 
in this paragraph for verifying Medicaid eligibility and the correct 
amount of medical assistance payments for each applicant (unless 
obviously ineligible on the face of his or her application) and 
recipient. The agency must request--
    (1) State wage information maintained by the SWICA during the 
application period and at least on a quarterly basis;
    (2) Information about net earnings from self-employment, wage and 
payment of retirement income, maintained by SSA and available under 
Section 6103(l)(7)(A) of the Internal Revenue Code of 1954, for 
applicants during the application period and for recipients for whom the 
information has not previously been requested;
    (3) Information about benefit and other eligibility related 
information available from SSA under titles II and XVI of the Social 
Security Act for applicants during the application period and for 
recipients for whom the information has not previously been requested;
    (4) Unearned income information from the Internal Revenue Service 
available under Section 6103(l)(7)(B) of the Internal Revenue Code of 
1954, during the application period and at least yearly;
    (5) Unemployment compensation information maintained by the agency 
administering State unemployment compensation laws (under the provisions 
of section 3304 of the Internal Revenue Code and section 303 of the Act) 
as follows:
    (i) For an applicant, during the application period and at least for 
each of the three subsequent months;
    (ii) For a recipient that reports a loss of employment, at the time 
the recipient reports that loss and for at least each of the three 
subsequent months.
    (iii) For an applicant or a recipient who is found to be receiving 
unemployment compensation benefits, at least for each month until the 
benefits are reported to be exhausted.
    (6) Any additional income, resource, or eligibility information 
relevant to determinations concerning eligibility or correct amount of 
medical assistance payments available from agencies in the State or 
other States administering the following programs as provided in the 
agency's State plan:
    (i) AFDC;
    (ii) Medicaid;
    (iii) State-administered supplementary payment programs under 
Section 1616(a) of the Act;
    (iv) SWICA;
    (v) Unemployment compensation;

[[Page 157]]

    (vi) Food stamps; and
    (vii) Any State program administered under a plan approved under 
Title I (assistance to the aged), X (aid to the blind), XIV (aid to the 
permanently and totally disabled), or XVI (aid to the aged, blind, and 
disabled in Puerto Rico, Guam, and the Virgin Islands) of the Act.
    (b) The agency must request information on applicants from the 
sources listed in paragraph (a)(1) through (a)(5) of this section at the 
first opportunity provided by these sources following the receipt of the 
application. If an applicant cannot provide an SSN at application, the 
agency must request the information at the next available opportunity 
after receiving the SSN.
    (c) The agency must request the information required in paragraph 
(a) of this section by SSN, using each SSN furnished by the individual 
or received through verification.
    (d) Exception: In cases where the individual is institutionalized, 
the agency needs to obtain and use information from SWICA only during 
the application period and on a yearly basis, and from unemployment 
compensation agencies only during the application period. An individual 
is institutionalized for purposes of this section when he or she is 
required to apply his or her income to the cost of medical care as 
required by Sec. Sec. 435.725, 435.733, and 435.832.
    (e) Exception: Alternate sources. (1) The Secretary may, upon 
application from a State agency, permit an agency to request and use 
income information from a source or sources alternative to those listed 
in paragraph (a) of this section. The agency must demonstrate to the 
Secretary that the alternative source(s) is as timely, complete and 
useful for verifying eligibility and benefit amounts. The Secretary will 
consult with the Secretary of Agriculture and the Secretary of Labor 
before determining whether an agency may use an alternate source.
    (2) The agency must continue to meet the requirements of this 
section unless the Secretary has approved the request.
    (f) Exception: If the agency administering the the AFDC program, or 
SSA under section 1634 of the Act, determines the eligibility of an 
applicant or recipient, the requirements of this section do not apply to 
that applicant or recipient.



Sec. 435.952  Use of information.

    (a) Except as provided under Sec. 435.953, the agency must review 
and compare against the case file all information received under 
Sec. Sec. 435.940 through 435.960 to determine whether it affects the 
applicant's or recipient's eligibility or amount of medical assistance 
payment. The agency also must independently verify the information if 
required by Sec. 435.955 or if determined appropriate by agency 
experience.
    (b) For applicants, if the information is received during the 
application period, it must be used, to the extent possible, making 
eligibility determinations. If it is received after the eligibility 
determination, it must be used as specified for recipients in paragraphs 
(c) and (d) of this section.
    (c) Except as specified in Sec. 435.953 of this subpart and 
paragraph (d) of this section, for recipients, the agency must, within 
45 days of receipt of an item of information, request verification (if 
appropriate), determine whether the information affects eligibility or 
the amount of medical assistance payment, and either initiate a notice 
of case action to advise the recipient of any adverse action the agency 
intends to take or make an entry in the casefile that no further action 
is necessary.
    (d) Subject to paragraph (e) of this section, if the agency does not 
receive requested third party verification within the 45-day period 
after receipt of information, the agency may determine whether the 
information affects eligibility or correct amount of medical assistance 
payment after the 45-day period. However, the agency must make any 
delayed determinations permitted under this paragraph--
    (1) Promptly, as required by Sec. 435.916, if the verification is 
received before the next redetermination; or
    (2) In conjunction with the next redetermination if no verification 
is received before that redetermination.
    (e) The number of determinations delayed beyond 45 days from receipt 
of an item of information (as permitted by

[[Page 158]]

paragraph (d) of this section) must not exceed twenty percent of the 
number of items of information for which verification was requested.
    (f) The agency must use appropriate procedures to monitor the 
timeliness requirements of this section.
    (g) The requirements of this section do not relieve the agency of 
its responsibility for determinations of erroneous payments or the 
agency's liability for those erroneous payments, as defined in subpart P 
of part 431 of this chapter.

[51 FR 7211, Feb. 28, 1986, as amended at 53 FR 6648, March 2, 1988; 54 
FR 8741, Mar. 2, 1989; 59 FR 4255, Jan. 31, 1994]



Sec. 435.953  Identifying items of information to use.

    (a) With respect to information received on recipients under 
Sec. Sec. 435.940 through 435.960, the agency may either review and 
compare against the case file all items of information received or it 
may identify (target) separately for each data source the information 
items that are most likely to be most productive in identifying and 
preventing ineligibility and incorrect payments.
    (b) An agency that wishes to exclude categories of information items 
must submit for the Secretary's approval a follow-up plan describing the 
categories that it proposes to exclude. For each category, the agency 
must provide a reasonable justification that follow-up is not cost-
effective; a formal cost/benefit analysis is not required.
    (c) If an agency receives an item of unemployment compensation 
information from the Internal Revenue Service or earnings information 
from SSA that duplicates an item of information previously received from 
another source and followed up, the agency may exclude that information 
item without justification.
    (d) An agency may submit a follow-up plan or alter its plan at any 
time by notifying the Secretary and submitting the necessary 
justification. The Secretary approves or disapproves categories of items 
to be excluded under the plan within 60 days of its submission. The 
categories approved by the Secretary constitute an approved agency 
follow-up plan for IEVS.

[54 FR 8742, Mar. 2, 1989]



Sec. 435.955  Additional requirements regarding information released by a Federal agency.

    (a) Unless waived under paragraph (d) of this section, based on 
information received from a computerized data match in which information 
on an individual is provided to the agency by a Federal agency, the 
agency may not terminate, deny, suspend, or reduce medical assistance to 
that individual until it has taken appropriate steps to verify the 
information independently. The agency must independently verify 
information relating to--
    (1) The amount of the income and resource that generated the income 
involved;
    (2) Whether the applicant or recipient actually has (or had) access 
to the resource or income (or both) for his or her own use;
    (3) The period or periods when the individual actually has (or had) 
access to the resource or income or both.
    (b) The agency must verify the information by either
    (1) Requesting the entity from which the information originally came 
to verify the fact and amount of income or resource; or
    (2) Sending the applicant or recipient a letter informing that 
individual of the information received and asking him or her to respond 
within a specified period. The letter must clearly explain the 
information the agency has and its possible relevance to the 
individual's past or future eligibility, and be as neutral in tone as 
possible.
    (c)(1) If the original source of the income or resource or the 
applicant or recipient verifies the information, and the agency intends 
to reduce, suspend, terminate or deny medical assistance based on the 
information, the agency must send the applicant or recipient a notice of 
the action to be taken and include information on the right to appeal 
and opportunity for a hearing under Sec. Sec. 431.200 through 431.246 
of this chapter (see also Sec. 435.912 and Sec. 435.919).
    (2) If the applicant or recipient fails to respond after reasonable 
attempts to contact him or her, the agency must proceed to deny, 
terminate, reduce or suspend medical assistance based on the applicant's 
or recipient's failure to cooperate.

[[Page 159]]

    (3) If the applicant or recipient disputes the information, the 
agency must obtain evidence (from the source of the data, applicant, 
recipient, or otherwise) to substantiate any negative case action it may 
take.
    (d) The independent verification requirement concerning a category 
of data received from a Federal benefit agency may be waived if the 
Federal agency's Data Integrity Board approves the waiver. The Federal 
benefit agency involved in the data exchange will develop the request by 
petitioning its Data Integrity Board for a waiver of independent 
verification by a Medicaid State agency. The State agency must furnish 
the Federal agency with any information it needs to seek the Data 
Integrity Board's approval of the waiver.
    (e) In accordance with the Federal agency's procedures, the agency 
must provide data on the costs and benefits of the matching program to 
the Federal agency from which it receives information on individuals.
    (f) In accordance with the Federal agency's procedures, the agency 
must certify to the Federal agency that it will not take adverse action 
against an individual until the information has been independently 
verified and until 10 days (or sooner if permitted by Sec. 431.213 or 
Sec. 431.214) after the individual has been notified of the findings 
and given an opportunity to contest.
    (g) In accordance with the Federal agency's procedures for renewals 
of matching programs, the agency must certify to the Federal agency that 
the terms of the agreement have been followed.

[59 FR 4255, Jan. 31, 1994]



Sec. 435.960  Standardized formats for furnishing and obtaining information to verifying income and eligibility.

    (a) The agency must maintain for all applicants and recipients 
within an agency file the SSN, surname and other data elements in a 
format that at a minimum allows the agency to furnish and to obtain 
eligibility and income information from the agencies or programs 
referenced in Sec. 435.945(b) and Sec. 435.948(a).
    (b) The format to be used will be prescribed by--
    (1) CMS when the agency furnishes information to, or requests 
information from, any Federal or State agency, except SSA and the 
Internal Revenue Service as specified in paragraphs (b) (2) and (3), 
respectively;
    (2) The Commissioner of Social Security when the agency requests 
information from SSA; and
    (3) The Commissioner of Internal Revenue when the agency requests 
information from the Internal Revenue Service.

[52 FR 5977, Feb. 27, 1987]



Sec. 435.965  Delay of effective date.

    (a) If the agency submits, by May 29, 1986, a plan describing a good 
faith effort to come into compliance with the requirements of section 
1137 of the Act and of Sec. Sec. 435.910 and 435.940 through 435.960 of 
this subpart, the Secretary may, after consultation with the Secretary 
of Agriculture and the Secretary of Labor, grant a delay in the 
effective date of Sec. Sec. 435.910 and 435.940 through 435.960, but 
not beyond September 30, 1986.
    (b) The Secretary may not grant a delay of the effective date of 
section 1137(c) of the Act, which is implemented by Sec. 435.955 (a) 
and (c). (The provisions of these statutory and regulation sections 
require the agency to follow certain procedures before taking any 
adverse actions based on information from the Internal Revenue Service 
concerning unearned income.)



                Subpart K_Federal Financial Participation



Sec. 435.1000  Scope.

    This subpart specifies when, and the extent to which, FFP is 
available in expenditures for determining eligibility and for Medicaid 
services to individuals determined eligible under this part, and 
prescribes limitations and conditions on FFP for those expenditures.

[[Page 160]]

 FFP in Expenditures for Determining Eligibility and Providing Services



Sec. 435.1001  FFP for administration.

    (a) FFP is available in the necessary administrative costs the State 
incurs in--
    (1) Determining and redetermining Medicaid eligibility and in 
providing Medicaid to eligible individuals; and
    (2) Determining presumptive eligibility for children and providing 
services to presumptively eligible children.
    (b) Administrative costs include any costs incident to an eye 
examination or medical examination to determine whether an individual is 
blind or disabled.

[43 FR 45204, Sept. 29, 1978, as amended at 66 FR 2667, Jan. 11, 2001]



Sec. 435.1002  FFP for services.

    (a) Except for the limitations and conditions specified in 
Sec. Sec. 435.1007, 435.1008, and 438.814 of this chapter FFP is 
available in expenditures for Medicaid services for all recipients whose 
coverage is required or allowed under this part.
    (b) FFP is available in expenditures for services provided to 
recipients who were eligible for Medicaid in the month in which the 
medical care or services were provided except that, for recipients who 
establish eligibility for Medicaid by deducting incurred medical 
expenses from income, FFP is not available for expenses that are the 
recipient's liability. (See Sec. 435.914 and Sec. 436.901 of this 
subchapter for regulations on retroactive eligibility for Medicaid.)
    (c) FFP is available in expenditures for services covered under the 
plan that are furnished--
    (1) To children who are determined by a qualified entity to be 
presumptively eligible;
    (2) During a period of presumptive eligibility;
    (3) By a provider that is eligible for payment under the plan; and
    (4) Regardless of whether the children are determined eligible for 
Medicaid following the period of presumptive eligibility.

[43 FR 45204, Sept. 29, 1978, as amended at 44 FR 17939, Mar. 23, 1979; 
66 FR 2667, Jan. 11, 2001; 67 FR 41095, June 14, 2002]



Sec. 435.1003  FFP for redeterminations.

    (a) If the Social Security Administration (SSA) notifies an agency 
that a recipient has been determined ineligible for SSI, FFP is 
available in Medicaid expenditures for services to the recipient as 
follows:
    (1) If the agency receives the SSA notice by the 10th day of the 
month, FFP is available under this section only through the end of the 
month unless the recipient requests a hearing under subpart E, part 431 
of this subchapter.
    (2) If the agency receives the SSA notice after the 10th day of the 
month, FFP is available only through the end of the following month, 
unless the recipient requests a hearing under subpart E, part 431 of 
this subchapter.
    (3) If a recipient requests a hearing, FFP is available as specified 
in subpart E, part 431 of this subchapter.
    (b) The agency must take prompt action to determine eligibility 
after receiving the SSA notice.
    (c) When a change in Federal law affects the eligibility of 
substantial numbers of Medicaid recipients, the Secretary may waive the 
otherwise applicable FFP requirements and redetermination time limits of 
this section, in order to provide a reasonable time to complete such 
redeterminations. The Secretary will designate an additional amount of 
time beyond that allowed under paragraphs (a) and (b) of this section, 
within which FFP will be available, to perform large numbers of 
redeterminations arising from a change in Federal law.

[43 FR 45204, Sept. 29, 1978, as amended at 44 FR 17939, Mar. 23, 1979; 
62 FR 1685, Jan. 13, 1997]



Sec. 435.1004  Recipients overcoming certain conditions of eligibility.

    (a) FFP is available, as specified in paragraph (b) of this section, 
in expenditures for services provided to recipients who are overcoming 
certain eligibility conditions, including blindness, disability, 
continued absence or incapacity of a parent, or unemployment of a 
parent.
    (b) FFP is available for a period not to exceed--
    (1) The period during which a recipient of AFDC, SSI or an optional 
State supplement continues to receive cash

[[Page 161]]

payments while these conditions are being overcome; or
    (2) For recipients eligible for Medicaid only and recipients of 
AFDC, SSI or an optional State supplement who do not continue to receive 
cash payments, the second month following the month in which the 
recipient's Medicaid eligibility would have been terminated.

[43 FR 45204, Sept. 29, 1978, as amended at 45 FR 24887, Apr. 11, 1980]

                           Limitations on FFP



Sec. 435.1005  Recipients in institutions eligible under a special income standard.

    For recipients in institutions whose Medicaid eligibility is based 
on a special income standard established under Sec. 435.236, FFP is 
available in expenditures for services provided to those individuals 
only if their income before deductions, as determined by SSI budget 
methodology, does not exceed 300 percent of the SSI benefit amount 
payable under section 1611(b)(1) of the Act to an individual in his own 
home who has no income or resources.

[58 FR 4933, Jan. 19, 1993]



Sec. 435.1006  Recipients of optional State supplements only.

    FFP is available in expenditures for services provided to 
individuals receiving optional State supplements but not receiving SSI, 
if their income before deductions, as determined by SSI budget 
methodology, does not exceed 300 percent of the SSI benefit amount 
payable under section 1611(b)(1) of the Act to an individual who has no 
income and resources.

[45 FR 24887, Apr. 11, 1980]



Sec. 435.1007  Categorically needy, medically needy, and qualified Medicare beneficiaries.

    (a) FFP is available in expenditures for covered services provided 
to categorically needy recipients, medically needy recipients, and 
qualified Medicare beneficiaries, subject to the restrictions contained 
in subpart K of this part and as provided in paragraphs (b) and (e) of 
this section. However, the restrictions listed in paragraphs (b) and (e) 
of this section do not apply to expenditures for medical assistance made 
on behalf of qualified Medicare beneficiaries under section 1905(p) of 
the Act; individuals receiving Medicaid as categorically needy under 
section 1902(a)(10)(A)(i) (I), (II), (III), (IV), (V), (VI), or (VII) 
and section 1902(a)(10)(A)(ii) (I), (IX), or (X) and section 1905(u) of 
the Act; individuals who are eligible to receive benefits (or would be 
eligible for those benefits if they were not in a medical institution); 
and any individuals deemed to be members of the groups identified in 
this sentence.
    (b) Except as provided in paragraphs (c) and (d) of this section, 
FFP is not available in State expenditures for individuals (including 
the medically needy) whose annual income after deductions specified in 
Sec. 435.831(a) and (c) exceeds the following amounts, rounded to the 
next higher multiple of $100.
    (c) In the case of a family consisting only of two individuals, both 
of whom are adults and at least one of whom is aged, blind, or disabled, 
the State of California may use the amount of the AFDC payment most 
frequently made to a family of one adult and two children for purposes 
of computing the 133\1/3\ percent limitation (under the authority of 
section 4106 of Public Law 100-230).
    (d) For purposes of paragraph (b)(1) of this section, a State that 
as of June 1, 1989, has in its State plan (as defined in section 
2373(c)(5) of Public Law 98-369 as amended by section 9 of Public Law 
100-93) an amount for individuals that was reasonably related to 133\1/
3\ percent of the highest amount of AFDC which would ordinarily be paid 
to a family of two without income or resources may use an amount based 
upon a reasonable relationship to such an AFDC standard for a family of 
two.
    (e) FFP is not available in expenditures for services provided to 
categorically needy and medically needy recipients subject to the FFP 
limits if their annual income, after the cash assistance income 
deductions and any income disregards in the State plan authorized under 
section 1902(r)(2) of the Act are applied, exceeds the 133\1/3\ percent 
limitation described under paragraphs (b), (c), and (d) of this section.

[[Page 162]]

    (f) A State may use the less restrictive income methodologies 
included under its State plan as authorized under Sec. 435.601 in 
determining whether a family's income exceeds the limitation described 
in paragraph (b) of this section.

[58 FR 4933, Jan. 19, 1993, as amended at 66 FR 2321, 2667, Jan. 11, 
2001]



Sec. 435.1008  Institutionalized individuals.

    (a) FFP is not available in expenditures for services provided to--
    (1) Individuals who are inmates of public institutions as defined in 
Sec. 435.1009; or
    (2) Individuals under age 65 who are patients in an institution for 
mental diseases unless they are under age 22 and are receiving inpatient 
psychiatric services under Sec. 440.160 of this subchapter.
    (b) The exclusion of FFP described in paragraph (a) of this section 
does not apply during that part of the month in which the individual is 
not an inmate of a public institution or a patient in an institution for 
tuberculosis or mental diseases.
    (c) An individual on conditional release or convalescent leave from 
an institution for mental diseases is not considered to be a patient in 
that institution. However, such an individual who is under age 22 and 
has been receiving inpatient psychiatric services under Sec. 440.160 of 
this subchapter is considered to be a patient in the institution until 
he is unconditionally released or, if earlier, the date he reaches age 
22.

[43 FR 45204, Sept. 29, 1978, as amended at 50 FR 13199, Apr. 3, 1985; 
50 FR 38811, Sept. 25, 1985]



Sec. 435.1009  Definitions relating to institutional status.

    For purposes of FFP, the following definitions apply:
    Active treatment in intermediate care facilities for the mentally 
retarded means treatment that meets the requirements specified in the 
standard concerning active treatment for intermediate care facilities 
for persons with mental retardation under Sec. 483.440(a) of this 
subchapter.
    Child-care institution means a nonprofit private child-care 
institution, or a public child-care institution that accommodates no 
more than twenty-five children, which is licensed by the State in which 
it is situated, or has been approved by the agency of the State 
responsible for licensing or approval of institutions of this type, as 
meeting the standards established for licensing. The term does not 
include detention facilities, forestry camps, training schools or any 
other facility operated primarily for the detention of children who are 
determined to be delinquent.
    In an institution refers to an individual who is admitted to live 
there and receive treatment or services provided there that are 
appropriate to his requirements.
    Inmate of a public institution means a person who is living in a 
public institution. An individual is not considered an inmate if--
    (a) He is in a public educational or vocational training institution 
for purposes of securing education or vocational training; or
    (b) He is in a public institution for a temporary period pending 
other arrangements appropriate to his needs.
    Inpatient means a patient who has been admitted to a medical 
institution as an inpatient on recommendation of a physician or dentist 
and who--
    (1) Receives room, board and professional services in the 
institution for a 24 hour period or longer, or
    (2) Is expected by the institution to receive room, board and 
professional services in the institution for a 24 hour period or longer 
even though it later develops that the patient dies, is discharged or is 
transferred to another facility and does not actually stay in the 
institution for 24 hours.
    Institution means an establishment that furnishes (in single or 
multiple facilities) food, shelter, and some treatment or services to 
four or more persons unrelated to the proprietor.
    Institution for mental diseases means a hospital, nursing facility, 
or other institution of more than 16 beds that is primarily engaged in 
providing diagnosis, treatment or care of persons with mental diseases, 
including medical attention, nursing care and related services. Whether 
an institution is an

[[Page 163]]

institution for mental diseases is determined by its overall character 
as that of a facility established and maintained primarily for the care 
and treatment of individuals with mental diseases, whether or not it is 
licensed as such. An institution for the mentally retarded is not an 
institution for mental diseases.
    Institution for the mentally retarded or persons with related 
conditions means an institution (or distinct part of an institution) 
that--
    (a) Is primarily for the diagnosis, treatment, or rehabilitation of 
the mentally retarded or persons with related conditions; and
    (b) Provides, in a protected residential setting, ongoing 
evaluation, planning, 24-hour supervision, coordination, and integration 
of health or rehabilitative services to help each individual function at 
his greatest ability.
    Institution for tuberculosis means an institution that is primarily 
engaged in providing diagnosis, treatment, or care of persons with 
tuberculosis, including medical attention, nursing care, and related 
services. Whether an institution is an institution for tuberculosis is 
determined by its overall character as that of a facility established 
and maintained primarily for the care and treatment of tuberculosis, 
whether or not it is licensed as such.
    Medical institution means an institution that--
    (a) Is organized to provide medical care, including nursing and 
convalescent care;
    (b) Has the necessary professional personnel, equipment, and 
facilities to manage the medical, nursing, and other health needs of 
patients on a continuing basis in accordance with accepted standards;
    (c) Is authorized under State law to provide medical care; and
    (d) Is staffed by professional personnel who are responsible to the 
institution for professional medical and nursing services. The services 
must include adequate and continual medical care and supervision by a 
physician; registered nurse or licensed practical nurse supervision and 
services and nurses' aid services, sufficient to meet nursing care 
needs; and a physician's guidance on the professional aspects of 
operating the institution.
    Outpatient means a patient of an organized medical facility or 
distinct part of that facility who is expected by the facility to 
receive, and who does receive, professional services for less than a 24-
hour period regardless of the hour of admission, whether or not a bed is 
used or whether or not the patient remains in the facility past 
midnight.
    Patient means an individual who is receiving needed professional 
services that are directed by a licensed practitioner of the healing 
arts toward maintenance, improvement, or protection of health, or 
lessening of illness, disability, or pain.
    Persons with related conditions means individuals who have a severe, 
chronic disability that meets all of the following conditions:
    (a) It is attributable to--
    (1) Cerebral palsy or epilepsy; or
    (2) Any other condition, other than mental illness, found to be 
closely related to mental retardation because this condition results in 
impairment of general intellectual functioning or adaptive behavior 
similar to that of mentally retarded persons, and requires treatment or 
services similar to those required for these persons.
    (b) It is manifested before the person reaches age 22.
    (c) It is likely to continue indefinitely.
    (d) It results in substantial functional limitations in three or 
more of the following areas of major life activity:
    (1) Self-care.
    (2) Understanding and use of language.
    (3) Learning.
    (4) Mobility.
    (5) Self-direction.
    (6) Capacity for independent living.
    Public institution means an institution that is the responsibility 
of a governmental unit or over which a governmental unit exercises 
administrative control. The term ``public institution'' does not include
    (a) A medical institution as defined in this section;

[[Page 164]]

    (b) An intermediate care facility as defined in Sec. Sec. 440.140 
and 440.150 of this chapter;
    (c) A publicly operated community residence that serves no more than 
16 residents, as defined in this section; or
    (d) A child-care institution as defined in this section with respect 
to
    (1) Children for whom foster care maintenance payments are made 
under title IV-E of the Act; and
    (2) Children receiving AFDC--foster care under title IV-A of the 
Act.
    Publicly operated community residence that serves no more than 16 
residents is defined in 20 CFR 416.231(b)(6)(i). A summary of that 
definition is repeated here for the information of readers.
    (a) In general, a publicly operated community residence means--
    (1) It is publicly operated as defined in 20 CFR 416.231(b)(2).
    (2) It is designed or has been changed to serve no more than 16 
residents and it is serving no more than 16; and
    (3) It provides some services beyond food and shelter such as social 
services, help with personal living activities, or training in 
socialization and life skills. Occasional medical or remedial care may 
also be provided as defined in 45 CFR 228.1; and
    (b) A publicly operated community residence does not include the 
following facilities, even though they accommodate 16 or fewer 
residents:
    (1) Residential facilities located on the grounds of, or immediately 
adjacent to, any large institution or multiple purpose complex.
    (2) Educational or vocational training institutions that primarily 
provide an approved, accredited, or recognized program to individuals 
residing there.
    (3) Correctional or holding facilities for individuals who are 
prisoners, have been arrested or detained pending disposition of 
charges, or are held under court order as material witnesses or 
juveniles.
    (4) Hospitals, nursing facilities, and intermediate care facilities 
for the mentally retarded.

[43 FR 45204, Sept. 29, 1978, as amended at 47 FR 28655, July 1, 1982; 
47 FR 31532, July 20, 1982; 51 FR 19181, May 28, 1986; 52 FR 47934, Dec. 
17, 1987; 53 FR 657, Jan. 11, 1988; 53 FR 20495, June 3, 1988; 56 FR 
8854, Mar. 1, 1991; 56 FR 23022, May 20, 1991; 59 FR 56233, Nov. 10, 
1994]

                   Requirements for State Supplements



Sec. 435.1010  Requirement for mandatory State supplements.

    (a) Except as specified in paragraph (b) of this section, FFP is not 
available in Medicaid expenditures in any quarter in which the State 
does not have in effect an agreement with the Secretary under section 
212 of Pub. L. 93-66 (July 9, 1973) for minimum mandatory State 
supplements of the basic SSI benefit.
    (b) This section does not apply to any State that meets the 
conditions of section 212(f) of Pub. L. 93-66.



Sec. 435.1011  Requirement for maintenance of optional State supplement expenditures.

    (a) This section applies to States that make optional State 
supplement payments under section 1616(a) of the Act and mandatory 
supplement payments under section 212(a) of Pub. L. 93-66.
    (b) FFP in Medicaid expenditures is not available during any period 
in which the State does not have in effect an agreement with the 
Secretary under section 1618 of the Act to maintain its supplementary 
payments.

[43 FR 45204, Sept. 29, 1978, as amended at 55 FR 48609, Nov. 21, 1990]



             Subpart L_Option for Coverage of Special Groups

    Source: 66 FR 2667, Jan. 11, 2001, unless otherwise noted.



Sec. 435.1100  Basis and scope.

    (a) Statutory basis. Section 1920A of the Act allows States to 
provide Medicaid services to children under age 19 during a period of 
presumptive eligibility, prior to a formal determination of Medicaid 
eligibility.
    (b) Scope. This subpart prescribes the requirements for providing 
medical assistance to special groups who are not eligible for Medicaid 
as categorically or medically needy.

[[Page 165]]

                  Presumptive Eligibility for Children



Sec. 435.1101  Definitions related to presumptive eligibility for children.

    Application form means at a minimum the form used to apply for 
Medicaid under the poverty-level-related eligibility groups described in 
section 1902(l) of the Act or a joint form for children to apply for the 
State Children's Health Insurance Program and Medicaid.
    Period of presumptive eligibility means a period that begins on the 
date on which a qualified entity determines that a child is 
presumptively eligible and ends with the earlier of--
    (1) In the case of a child on whose behalf a Medicaid application 
has been filed, the day on which a decision is made on that application; 
or
    (2) In the case of a child on whose behalf a Medicaid application 
has not been filed, the last day of the month following the month in 
which the determination of presumptive eligibility was made.
    Presumptive income standard means the highest income eligibility 
standard established under the plan that is most likely to be used to 
establish the regular Medicaid eligibility of a child of the age 
involved.
    Qualified entity means an entity that is determined by the State to 
be capable of making determinations of presumptive eligibility for 
children, and that--
    (1) Furnishes health care items and services covered under the 
approved plan and is eligible to receive payments under the approved 
plan;
    (2) Is authorized to determine eligibility of a child to participate 
in a Head Start program under the Head Start Act;
    (3) Is authorized to determine eligibility of a child to receive 
child care services for which financial assistance is provided under the 
Child Care and Development Block Grant Act of 1990;
    (4) Is authorized to determine eligibility of an infant or child to 
receive assistance under the special nutrition program for women, 
infants, and children (WIC) under section 17 of the Child Nutrition Act 
of 1966;
    (5) Is authorized to determine eligibility of a child for medical 
assistance under the Medicaid State plan, or eligibility of a child for 
child health assistance under the State Children's Health Insurance 
Program;
    (6) Is an elementary or secondary school, as defined in section 
14101 of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 
8801);
    (7) Is an elementary or secondary school operated or supported by 
the Bureau of Indian Affairs;
    (8) Is a State or Tribal child support enforcement agency;
    (9) Is an organization that--
    (i) Provides emergency food and shelter under a grant under the 
Stewart B. McKinney Homeless Assistance Act;
    (ii) Is a State or Tribal office or entity involved in enrollment in 
the program under title XIX, Part A of title IV, or title XXI; or
    (iii) Determines eligibility for any assistance or benefits provided 
under any program of public or assisted housing that receives Federal 
funds, including the program under section 8 or any other section of the 
United States Housing Act of 1937 (42 U.S.C. 1437) or under the Native 
American Housing Assistance and Self Determination Act of 1996 (25 
U.S.C. 4101 et seq.); and
    (10) Any other entity the State so deems, as approved by the 
Secretary.
    Services means all services covered under the plan including EPSDT 
(see part 440 of this chapter).

[66 FR 2667, Jan. 11, 2001, as amended at 66 FR 33822, June 25, 2001]



Sec. 435.1102  General rules.

    (a) The agency may provide services to children under age 19 during 
one or more periods of presumptive eligibility following a determination 
by a qualified entity that the child's estimated gross family income or, 
at the State's option, the child's estimated family income after 
applying simple disregards, does not exceed the applicable income 
standard.
    (b) If the agency elects to provide services to children during a 
period of presumptive eligibility, the agency must--
    (1) Provide qualified entities with application forms for Medicaid 
and information on how to assist parents, caretakers and other persons 
in completing and filing such forms;

[[Page 166]]

    (2) Establish procedures to ensure that qualified entities--
    (i) Notify the parent or caretaker of the child at the time a 
determination regarding presumptive eligibility is made, in writing and 
orally if appropriate, of such determination;
    (ii) Provide the parent or caretaker of the child with a regular 
Medicaid application form;
    (iii) Within five working days after the date that the determination 
is made, notify the agency that a child is presumptively eligible;
    (iv) For children determined to be presumptively eligible, notify 
the child's parent or caretaker at the time the determination is made, 
in writing and orally if appropriate, that--
    (A) If a Medicaid application on behalf of the child is not filed by 
the last day of the following month, the child's presumptive eligibility 
will end on that last day; and
    (B) If a Medicaid application on behalf of the child is filed by the 
last day of the following month, the child's presumptive eligibility 
will end on the day that a decision is made on the Medicaid application; 
and
    (v) For children determined not to be presumptively eligible, notify 
the child's parent or caretaker at the time the determination is made, 
in writing and orally if appropriate--
    (A) Of the reason for the determination; and
    (B) That he or she may file an application for Medicaid on the 
child's behalf with the Medicaid agency;
    (3) Provide all services covered under the plan, including EPSDT; 
and
    (4) Allow determinations of presumptive eligibility to be made by 
qualified entities on a Statewide basis.
    (c) The agency must adopt reasonable standards regarding the number 
of periods of presumptive eligibility that will be authorized for a 
child in a given time frame.



PART 436_ELIGIBILITY IN GUAM, PUERTO RICO, AND THE VIRGIN ISLANDS--Table of Contents




              Subpart A_General Provisions and Definitions

Sec.
436.1 Purpose and applicability.
436.2 Basis.
436.3 Definitions and use of terms.
436.10 State plan requirements.

         Subpart B_Mandatory Coverage of the Categorically Needy

436.100 Scope.
436.110 Individuals receiving cash assistance.
436.111 Individuals who are not eligible for cash assistance because of 
          a requirement not applicable under Medicaid.
436.112 Individuals who would be eligible for cash assistance except for 
          increased OASDI under Pub. L. 92-336 (July 1, 1972).
436.114 Individuals deemed to be receiving AFDC.
436.116 Families terminated from AFDC because of increased earnings or 
          hours of employment.
436.118 Children for whom adoption assistance or foster care maintenance 
          payments are made.
436.120 Qualified pregnant women and children who are not qualified 
          family members.
436.121 Qualified family members.
436.122 Pregnant women eligible for extended coverage.
436.124 Newborn children.
436.128 Coverage for certain qualified aliens.

          Subpart C_Options for Coverage as Categorically Needy

436.200 Scope.
436.201 Individuals included in optional groups.

   Options for Coverage of Families and Children and Aged, Blind, and 
             Disabled Individuals, Including Pregnant Women

436.210 Individuals who meet the income and resource requirements of the 
          cash assistance programs.
436.211 Individuals who would be eligible for cash assistance if they 
          were not in medical institutions.
436.212 Individuals who would be eligible for cash assistance if the 
          State plan for OAA, AFDC, AB, APTD, or AABD were as broad as 
          allowed under the Act.
436.217 Individuals receiving home and community-based services.
436.220 Individuals who would meet the income and resource requirements 
          under

[[Page 167]]

          AFDC if child care costs were paid from earnings.
436.222 Individuals under age 21 who meet the income and resource 
          requirements of AFDC.
436.224 Individuals under age 21 who are under State adoption assistance 
          agreements.
436.229 Optional targeted low-income children.

          Options for Coverage of the Aged, Blind, and Disabled

436.230 Essential spouses of aged, blind, or disabled individuals 
          receiving cash assistance.

           Subpart D_Optional Coverage of the Medically Needy

436.300 Scope.
436.301 General rules.
436.308 Medically needy coverage of individuals under age 21.
436.310 Medically needy coverage of specified relatives.
436.320 Medically needy coverage of the aged.
436.321 Medically needy coverage of the blind.
436.322 Medically needy coverage of the disabled.
436.330 Coverage for certain aliens.

               Subpart E_General Eligibility Requirements

436.400 Scope.
436.401 General rules.
436.402 [Reserved]
436.403 State residence.
436.404 Applicant's choice of category.
436.406 Citizenship and alienage.
436.408 Categories of aliens who are permanently residing in the United 
          States under color of law.

       Subpart F_Categorical Requirements for Medicaid Eligibility

436.500 Scope.

                               Dependency

436.510 Determination of dependency.

                                   Age

436.520 Age requirements for the aged.
436.522 Determination of age.

                                Blindness

436.530 Definition of blindness.
436.531 Determination of blindness.

                               Disability

436.540 Definition of disability.
436.541 Determination of disability.

    Subpart G_General Financial Eligibility Requirements and Options

436.600 Scope.
436.601 Application of financial eligibility methodologies.
436.602 Financial responsibility of relatives and other individuals.
436.604 [Reserved]
436.606 [Reserved]
436.608 Applications for other benefits.
436.610 Assignment of rights to benefits.

Subpart H [Reserved]

        Subpart I_Financial Requirements for the Medically Needy

436.800 Scope.

                     Medically Needy Income Standard

436.811 Medically needy income standard: General requirements.
436.814 Medically needy income standard: State plan requirements.

Medically Needy Income Eligibility and Liability for Payment of Medical 
                                Expenses

436.831 Income eligibility.
436.832 Post-eligibility treatment of income of institutionalized 
          individuals: Application of patient income to the cost of 
          care.

                    Medically Needy Resource Standard

436.840 Medically needy resource standard: General requirements.
436.843 Medically needy resource standard: State plan requirements.

            Determining Eligibility on the Basis of Resources

436.845 Medically needy resource eligibility.

   Subpart J_Eligibility in Guam, Puerto Rico, and the Virgin Islands

436.900 Scope.
436.901 General requirements.
436.909 Automatic entitlement to Medicaid following a determination of 
          eligibility under other programs.

             Subpart K_Federal Financial Participation (FFP)

436.1000 Scope.

 FFP for Expenditures for Determining Eligibility and Providing Services

436.1001 FFP for administration.
436.1002 FFP for services.
436.1003 Recipients overcoming certain conditions of eligibility.
436.1004 Institutionalized individuals.

[[Page 168]]

436.1005 Definitions relating to institutional status.

             Subpart L_Option for Coverage of Special Groups

436.1100 Basis and scope.

                  Presumptive Eligibility for Children

436.1101 Definitions related to presumptive eligibility for children.
436.1102 General rules.

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

    Source: 43 FR 45218, Sept. 29, 1978, unless otherwise noted.



              Subpart A_General Provisions and Definitions



Sec. 436.1  Purpose and applicability.

    This part sets forth, for Guam, Puerto Rico, and the Virgin 
Islands--
    (a) The eligibility provisions that a State plan must contain;
    (b) The mandatory and optional groups of individuals to whom 
Medicaid is provided under a State plan;
    (c) The eligibility requirements and procedures that a Medicaid 
agency must use in determining and redetermining eligibility, and 
requirements it may not use; and
    (d) The availability of FFP for providing Medicaid and for 
administering the eligibility provisions of the plan.

[43 FR 45218, Sept. 29, 1978, as amended at 44 FR 17939, Mar. 23, 1979]



Sec. 436.2  Basis.

    This part implements the following sections of the Act and public 
laws that state requirements and standards for eligibility:

402(a)(22) Eligibility of deemed recipients of AFDC who receive zero 
payments because of recoupment of overpayments.
402(a)(37) Eligibility of individuals who lose AFDC eligibility due to 
increased earnings.
414(g) Eligibility of certain individuals participating in work 
supplementation programs.
473(b) Eligibility of children in foster care and adopted children who 
are deemed AFDC recipients.
1902(a)(8) Opportunity to apply; assistance must be furnished promptly.
1902(a)(10) Required and optional groups.
1902(a)(12) Determination of blindness.
1902(a)(16) Out-of-State care for State residents.
1902(a)(17) Standards for determining eligibility; flexibility in the 
application of income eligibility standards.
1902(a)(19) Safeguards for simplicity of administration and best 
interests of recipients.
1902(a)(34) Three-month retroactive eligibility.
1902(a) (second paragraph after (47)) Eligibility despite increased 
monthly insurance benefits under title II.
1902(a)(55) Mandatory use of outstation locations other than welfare 
offices to receive and initially process applications of certain low-
income pregnant women, infants, and children under age 19.
1902(b) Prohibited conditions for eligibility:
    Age requirements of more than 65 years;
    State residence requirements excluding individuals who reside in the 
State; and
    Citizenship requirement excluding United States citizens.
1902(e) Four-month continued eligibility for families ineligible because 
of increased hours or income from employment.
1902(e)(2) Minimum eligibility period for recipients enrolled in HMO.
1902(e)(3) Optional coverage of certain disabled children at home.
1902(e)(4) Eligibility of newborn children of Medicaid-eligible women.
1902(e)(5) Eligibility of pregnant women for extended coverage for a 
specified period after pregnancy ends.
1903(v) Payment for emergency services under Medicaid provided to 
aliens.
1905(a) (i)-(viii) List of eligible individuals.
1905(a) (clause following (21)) Prohibitions against providing Medicaid 
to certain institutionalized individuals.
1905(a) (second sentence) Definition f essential person.
1905(d)(2) Definition of resident of an intermediate care facility for 
the mentally retarded.
1905(n) Definition of qualified pregnant woman and child.
1912(a) Conditions of eligibility.
1915(c) Home or community based services.
1915(d) Home and community-based services for individuals age 65 or 
older.
412(e)(5) of Immigration and Nationality Act-Eligibility of certain 
refugees.
Pub. L. 93-66, section 230 Deemed eligibility of certain essential 
persons.
Pub. L. 93-66, section 231 Deemed eligibility of certain persons in 
medical institutions.
Pub. L. 93-66, section 232 Deemed eligibility of certain blind and 
disabled medically indigent persons.
Pub. L. 96-272, section 310(b)(1) Continued eligibility of certain 
recipients of Veterans Administration pensions.
Pub. L. 99-509, section 9406 Payment for emergency medical services 
provided to aliens.

[[Page 169]]

Pub. L. 99-603, section 201 Aliens granted legalized status under 
section 245A of the Immigration and Nationality Act (8 U.S.C. 1255a) may 
under certain circumstances be eligible for Medicaid.
Pub. L. 99-603, section 302 Aliens granted legalized status under 
section 210 of the Immigration and Nationality Act may under certain 
circumstances be eligible for Medicaid (8 U.S.C. 1160).
Pub. L. 99-603, section 303 Aliens granted legal status under section 
210A of the Immigration and Nationality Act may under certain 
circumstances be eligible for Medicaid (8 U.S.C. 1161).

[52 FR 43072, Nov. 9, 1987; 52 FR 48438, Dec. 22, 1987, as amended at 55 
FR 36820, Sept. 7, 1990; 55 FR 48609, Nov. 21, 1990; 57 FR 29155, June 
30, 1992; 59 FR 48811, Sept. 23, 1994]



Sec. 436.3  Definitions and use of terms.

    As used in this part--
    AABD means aid to the aged, blind, and disabled under title XVI of 
the Act;
    AB means aid to the blind under title X of the Act;
    AFDC means aid to families with dependent children under title IV-A 
of the Act;
    APTD means aid to the permanently and totally disabled under title 
XIV of the Act;
    Categorically needy refers to families and children, aged, blind or 
disabled individuals, and pregnant women listed under subparts B and C 
of this part who are eligible for Medicaid. Subpart B of this part 
describes the mandatory eligibility groups who, generally, are receiving 
or deemed to be receiving cash assistance under the Act. These mandatory 
groups are specified in sections 1902(a)(10)(A)(i) and 1902(e) of the 
Act. Subpart C of this part describes the optional eligibility groups of 
individuals who, generally, meet the categorical requirements that are 
the same as or less restrictive than those of the cash assistance 
programs but are not receiving cash payments. These optional groups are 
specified in sections 1902(a)(10)(A)(ii) and 1902(e) of the Act.
    Families and children refers to eligible members of families with 
children who are financially eligible under AFDC or medically needy 
rules and who are deprived of parental support or care as defined under 
the AFDC program (see 45 CFR 233.90; 233.100). In addition, this group 
includes individuals under age 21 who are not deprived of parental 
support or care but who are financially eligible under AFDC or medically 
needy rules (see optional coverage group, Sec. 436.222);
    Medically needy means families, children, aged, blind, or disabled 
individuals, and pregnant women listed in subpart D of this part who are 
not listed in subparts B and C of this part as categorically needy but 
who may be eligible for Medicaid under this part because their income 
and resources are within limits set by the State under its Medicaid plan 
(including persons whose income and resources fall within these limits 
after their incurred expenses for medical or remedial care are 
deducted). (Specific financial requirements for determining eligibility 
of the medically needy appear in subpart I of this part.)
    OAA means old age assistance under title I of the Act;
    OASDI means old age, survivors, and disability insurance under Title 
II of the Act.
    Optional targeted low-income child means a child under age 19 who 
meets the financial and categorical standards described below.
    (1) Financial need. An optional targeted low-income child:
    (i) Has a family income at or below 200 percent of the Federal 
poverty line for a family of the size involved;
    (ii) Resides in a State with no Medicaid applicable income level (as 
defined in Sec. 457.10 of this chapter); or,
    (iii) Resides in a State that has a Medicaid applicable income level 
(as defined in Sec. 457.10) and has family income that either:
    (A) Exceeds the Medicaid applicable income level for the age of such 
child, but not by more than 50 percentage points (expressed as a 
percentage of the Federal poverty line); or
    (B) Does not exceed the income level specified for such child to be 
eligible for medical assistance under the policies of the State plan 
under title XIX on June 1, 1997.
    (2) No other coverage and State maintenance of effort. An optional 
targeted low-income child is not covered under a group health plan or 
health insurance coverage, or would not be eligible for Medicaid under 
the policies of the State plan in effect on March 31, 1997;

[[Page 170]]

except that, for purposes of this standard--
    (i) A child shall not be considered to be covered by health 
insurance coverage based on coverage offered by the State under a 
program in operation prior to July 1, 1997 if that program received no 
Federal financial participation;
    (ii) A child shall not be considered to be covered under a group 
health plan or health insurance coverage if the child did not have 
reasonable geographic access to care under that coverage.
    (3) For purposes of this section, policies of the State plan under 
title XIX plan include policies under a Statewide demonstration project 
under section 1115(a) of the Act other than a demonstration project that 
covered an expanded group of eligible children but that either--
    (i) Did not provide inpatient hospital coverage; or
    (ii) Limited eligibility to children previously enrolled in 
Medicaid, imposed premiums as a condition of initial or continued 
enrollment, and did not impose a general time limit on eligibility.

[43 FR 45218, Sept. 29, 1978, as amended at 45 FR 24887, Apr. 11, 1980; 
46 FR 47989, Sept. 30, 1981; 58 FR 4934, Jan. 19, 1993; 66 FR 2668, Jan. 
11, 2001]



Sec. 436.10  State plan requirements.

    A State plan must--
    (a) Provide that the requirements of this part are met; and
    (b) Specify the groups to whom Medicaid is provided, as specified in 
subparts B, C, and D of this part, and the conditions of eligibility for 
individuals in those groups.



         Subpart B_Mandatory Coverage of the Categorically Needy



Sec. 436.100  Scope.

    This subpart prescribes requirements for coverage of categorically 
needy individuals.



Sec. 436.110  Individuals receiving cash assistance.

    (a) A Medicaid agency must provide Medicaid to individuals receiving 
cash assistance under OAA, AFDC, AB, APTD, or AABD.
    (b) For purposes of this section, an individual is receiving cash 
assistance if his needs are considered in determining the amount of the 
payment. This includes an individual whose presence in the home is 
considered essential to the well-being of a recipient under the State's 
plan for OAA, AFDC, AB, APTD, or AABD if that plan were as broad as 
allowed under the Act for FFP.



Sec. 436.111  Individuals who are not eligible for cash assistance because of a requirement not applicable under Medicaid.

    (a) The agency must provide Medicaid to individuals who would be 
eligible for OAA, AB, APTD, or AABD except for an eligibility 
requirement used in those programs that is specifically prohibited under 
title XIX of the Act.
    (b) The agency also must provide Medicaid to:
    (1) Individuals denied AFDC solely because of policies requiring the 
deeming of income and resources of the following individuals who are not 
included as financially responsible relatives under section 
1902(a)(17)(D) of the Act:
    (i) Stepparents who are not legally liable for support of 
stepchildren under a State law of general applicability;
    (ii) Grandparents
    (iii) Legal guardians;
    (iv) Aliens sponsors who are not organizations; and
    (v) Siblings.
    (2) [Reserved]

[58 FR 4934, Jan. 19, 1993, as amended at 59 FR 43053, Aug. 22, 1994]



Sec. 436.112  Individuals who would be eligible for cash assistance except for increased OASDI under Pub. L. 92-336 (July 1, 1972).

    The agency must provide Medicaid to individuals who meet the 
following conditions:
    (a) In August 1972, the individual was entitled to OASDI and--
    (1) He was receiving cash assistance; or
    (2) He would have been eligible for cash assistance if he had 
applied, and the Medicaid plan covered this optional group; or

[[Page 171]]

    (3) He would have been eligible for cash assistance if he were not 
in a medical institution or intermediate care facility, and the Medicaid 
plan covered this optional group.
    (b) The individual would currently be eligible for cash assistance 
except that the increase in OASDI under Pub. L. 92-336 raised his income 
over the limit allowed under the cash assistance program. This includes 
an individual who--
    (1) Meets all current requirements for cash assistance except for 
the requirement to file an application; or
    (2) Would meet all current requirements for cash assistance if he 
were not in a medical institution or intermediate care facility, and the 
Medicaid plan covers this optional group.



Sec. 436.114  Individuals deemed to be receiving AFDC.

    (a) The Medicaid agency must provide Medicaid to individuals deemed 
to be receiving AFDC, as specified in this section.
    (b) The State must deem individuals to be receiving AFDC who are 
denied a cash payment from the title IV-A State agency solely because 
the amount of the AFDC payment would be less than $10.
    (c) The State may deem participants in a work supplementation 
program to be receiving AFDC under section 414(g) of the Act. This 
section permits States, for purposes of title XIX, to deem an individual 
and any child or relative of the individual (or other individual living 
in the same household) to be receiving AFDC, if the individual--
    (1) Participates in a State-operated work supplementation program 
under section 414 of the Act; and
    (2) Would be eligible for an AFDC cash payment if the individual 
were not participating in the work supplementation program.
    (d) The State must deem to be receiving AFDC those individuals who 
are denied AFDC payments from the title IV-A State agency solely because 
that agency is recovering an overpayment.
    (e) The State must deem to be receiving AFDC individuals described 
in section 473(a)(1) of the Act--
    (1) For whom an adoption assistance agreement is in effect under 
title IV-E of the Act, whether or not adoption assistance is being 
provided or an interlocutory or other judicial decree of adoption has 
been issued; or
    (2) For whom foster care maintenance payments are made under title 
IV-E of the Act.
    (f) The State must deem an individual to be receiving AFDC if a new 
collection or increased collection of child or spousal support under 
title IV-D of the Social Security Act results in the termination of AFDC 
eligibility in accordance with section 406(h) of the Social Security 
Act. States must continue to provide Medicaid for four consecutive 
calendar months, beginning with the first month of AFDC ineligibility, 
to each dependent child and each relative with whom such a child is 
living (including the eligible spouse of such relative as described in 
section 406(b) of the Social Security Act) who:
    (1) Becomes ineligible for AFDC on or after August 16, 1984; and
    (2) Has received AFDC for at least three of the six months 
immediately preceding the month in which the individual becomes 
ineligible for AFDC; and
    (3) Becomes ineligible for AFDC wholly or partly as a result of the 
initiation of or an increase in the amount of a child or spousal support 
collection under title IV-D.
    (g)(1) Except as provided in paragraph (g)(2) of this section, 
individuals who are eligible for extended Medicaid lose this coverage if 
they move to another State during the 4-month period. However, if they 
move back to and reestablish residence in the State in which they have 
extended coverage, they are eligible for any of the months remaining in 
the 4-month period in which they are residents of the State.
    (2) If a State has chosen in its State plan to provide Medicaid to 
non-residents, the State may continue to provide the 4-month extended 
benefits to individuals who have moved to another State.
    (h) For purposes of paragraph (f) of this section:
    (1) The new collection or increased collection of child or spousal 
support

[[Page 172]]

results in the termination of AFDC eligibility when it actively causes 
or contributes to the termination. This occurs when:
    (i) The change in support collection in and of itself is sufficient 
to cause ineligibility. This rule applies even if the support collection 
must be added to other, stable income. It also applies even if other 
independent factors, alone or in combination with each other, might 
simultaneously cause ineligibility; or
    (ii) The change in support contributes to ineligibility but does not 
by itself cause ineligibility. Ineligibility must result when the change 
in support is combined with other changes in income or changes in other 
circumstances and the other changes in income or circumstances cannot 
alone or in combination result in termination without the change in 
support.
    (2) In cases of increases in the amounts of both the support 
collections and earned income, eligibility under this section does not 
preclude eligibility under 45 CFR 233.20(a)(14) or section 1925 of the 
Social Security Act (which was added by section 303(a) of the Family 
Support Act of 1988 (42 U.S.C. 1396r-6)). Extended periods resulting 
from both an increase in the amount of the support collection and from 
an increase in earned income must run concurrently.

[46 FR 47989, Sept. 30, 1981, as amended at 52 FR 43072, Nov. 9, 1987; 
52 FR 48438, Dec. 22, 1987; 55 FR 48610, Nov. 21, 1990; 59 FR 59377, 
Nov. 17, 1994]



Sec. 436.116  Families terminated from AFDC because of increased earnings or hours of employment.

    (a) If a family loses AFDC solely because of increased income from 
employment or increased hours of employment, the agency must continue to 
provide Medicaid for 4 months to all members of the family if--
    (1) The family received AFDC in any 3 or more months during the 6-
month period immediately before the month in which it became ineligible 
for AFDC; and
    (2) At least one member of the family is employed throughout the 4-
month period, although this need not be the same member for the whole 
period.
    (b) The 4 calendar month period begins on the date AFDC is 
terminated. If AFDC benefits are terminated retroactively, the 4 
calendar month period also begins retroactively with the first month in 
which AFDC was erroneously paid.

[43 FR 45218, Sept. 29, 1978, as amended at 45 FR 24887, Apr. 11, 1980]



Sec. 436.118  Children for whom adoption assistance or foster care maintenance payments are made.

    The agency must provide Medicaid to children for whom adoption 
assistance or foster care maintenance payments are made under title IV-E 
of the Act.

[47 FR 28656, July 1, 1982]



Sec. 436.120  Qualified pregnant women and children who are not qualified family members.

    (a) The Medicaid agency must provide Medicaid to a pregnant woman 
whose pregnancy has been medically verified and who--
    (1) Would be eligible for an AFDC cash payment (or would be eligible 
for an AFDC cash payment if coverage under the State's AFDC plan 
included the AFDC-unemployed parents program) if her child had been born 
and was living with her in the month of payment;
    (2) Is a member of a family that would be eligible for an AFDC cash 
payment if the State's AFDC plan included an AFDC-unemployed parents 
program; or
    (3) Meets the income and resource requirements of the State's 
approved AFDC plan. In determining whether the woman meets the AFDC 
income and resource requirements, the unborn child or children are 
considered members of the household, and the woman's family is treated 
as though deprivation exists.
    (b) The provisions of paragraphs (a) (1) and (2) of this section are 
effective October 1, 1984. The provisions of paragraph (a)(3) of this 
section are effective July 1, 1986.
    (c) The agency must provide Medicaid to children who meet all of the 
following criteria:
    (1) They are born after September 30, 1983;

[[Page 173]]

    (2) Effective October 1, 1988, they are under age 6 (or if 
designated by the State, any age that exceeds age 6 but does not exceed 
age 8), and effective October 1, 1989 they are under age 7 (or if 
designated by the State, any age that exceeds age 7 but does not exceed 
age 8); and
    (3) They meet the income and resource requirements of the State's 
approved AFDC plan.

[52 FR 43072, Nov. 9, 1987, as amended at 55 FR 48610, Nov. 21, 1990; 58 
FR 48614, Sept. 17, 1993]



Sec. 436.121  Qualified family members.

    (a) Definition. A qualified family member is any member of a family, 
including pregnant women and children eligible for Medicaid under Sec. 
436.120 of this subpart, who would be receiving AFDC cash benefits on 
the basis of the unemployment of the principal wage earner under section 
407 of the Act had the State not chosen to place time limits on those 
benefits as permitted under section 407(b)(2)(B)(i) of the Act.
    (b) State plan requirement. The State plan must provide that the 
State makes Medicaid available to any individual who meets the 
definition of ``qualified family member'' as specified in paragraph (a) 
of this section.
    (c) Applicability. The provisions in this section are applicable 
from October 1, 1992, through September 30, 1998.

[58 FR 48614, Sept. 17, 1993]



Sec. 436.122  Pregnant women eligible for extended coverage.

    (a) The Medicaid agency must provide categorically needy Medicaid 
eligibility for an extended period following termination of pregnancy to 
women who, while pregnant, applied for, were eligible for, and received 
Medicaid services on the day that their pregnancy ends. This period 
extends from the last day of pregnancy through the end of the month in 
which a 60-day period, beginning on the last day of the pregnancy, ends. 
Eligibility must be provided, regardless of changes in the woman's 
financial circumstances that may occur within this extended period. 
These pregnant women are eligible for the extended period for all 
services under the plan that are pregnancy-related (as defined in Sec. 
440.210(c)(1) of this subchapter).
    (b) The provisions of paragraph (a) of this section apply to 
Medicaid furnished on or after April 7, 1986.

[55 FR 48610, Nov. 21, 1990]



Sec. 436.124  Newborn children.

    (a) The Medicaid agency must provide categorically needy Medicaid 
eligibility to a child born to a woman who is eligible for and receiving 
Medicaid on the date of the child's birth. The child is deemed to have 
applied and been found eligible for Medicaid on the date of birth and 
remains eligible as categorically needy for one year so long as the 
woman remains eligible and the child is a member of the woman's 
household. If the mother's basis of eligibility changes to medically 
needy, the child is eligible as medically needy under Sec. 
436.301(b)(1)(iii).
    (b) The requirements under paragraph (a) of this section apply to 
children born on or after October 1, 1984.

[52 FR 43073, Nov. 9, 1987; 52 FR 48438, Dec. 22, 1987]



Sec. 436.128  Coverage for certain qualified aliens.

    The agency must provide the services necessary for the treatment of 
an emergency medical condition as defined in Sec. 440.255(c) of this 
chapter to those aliens described in Sec. 436.406(c) of this subpart.

[55 FR 36820, Sept. 7, 1990]



          Subpart C_Options for Coverage as Categorically Needy



Sec. 436.200  Scope.

    This subpart specifies options for coverage of individuals as 
categorically needy.



Sec. 436.201  Individuals included in optional groups.

    (a) The agency may choose to cover as optional categorically needy 
any group or groups of the following individuals who are not receiving 
cash assistance and who meet the appropriate eligibility criteria for 
groups specified in the separate sections of this subpart:

[[Page 174]]

    (1) Aged individuals (65 years of age or older);
    (2) Blind individuals (as defined in Sec. 436.530);
    (3) Disabled individuals (as defined in Sec. 436.541);
    (4) Individuals under age 21 (or, at State option), under age 20, 
19, or 18) or reasonable classifications of these individuals;
    (5) Specified relatives under section 406(b)(1) of the Act who have 
in their care an individual who is determined to be dependent) as 
specified in Sec. 436.510;
    (6) Pregnant women; and
    (7) Essential spouses specified under Sec. 436.230.
    (b) If the agency provides Medicaid to any individual in an optional 
group specified in paragraph (a) of this section, the agency must 
provide Medicaid to all individuals who apply and are found eligible to 
be members of that group.

[58 FR 4934, Jan. 19, 1993]

   Options for Coverage of Families and Children and Aged, Blind, and 
             Disabled Individuals, Including Pregnant Women



Sec. 436.210  Individuals who meet the income and resource requirements of the cash assistance programs.

    The agency may provide Medicaid to any group or groups of 
individuals specified under Sec. 436.201(a)(1), (a)(2), (a)(3), (a)(5), 
and (a)(6) who are not mandatory categorically needy and who meet the 
income and resource requirements of the appropriate cash assistance 
program for their status (that is, OAA, AFDC, AB, APTD, or AABD).

[58 FR 4935, Jan. 19, 1993]



Sec. 436.211  Individuals who would be eligible for cash assistance if they were not in medical institutions.

    The agency may provide Medicaid to any group or groups of 
individuals specified in Sec. 436.201(a) who are in title XIX 
reimbursable medical institutions and who:
    (a) Are ineligible for the cash assistance program appropriate for 
their status (that is, OAA, AFDC, AB, APTD, or AABD) because of lower 
income standards used under the program to determine eligibility for 
institutionalized individuals; but
    (b) Would be eligible for aid or assistance under the State's 
approved plan under OAA, AFDC, AB, APTD, or AABD if they were not 
institutionalized.

[58 FR 4935, Jan. 19, 1993]



Sec. 436.212  Individuals who would be eligible for cash assistance if the State plan for OAA, AFDC, AB, APTD, or AABD were as broad as allowed under the Act.

    (a) The agency may provide Medicaid to any group or groups of 
individuals specified under Sec. 436.201(a) who:
    (1) Would be eligible for OAA, AFDC, AB, APTD, or AABD if the 
State's plan under those programs included individuals whose coverage 
under title I, IV-A, X, XIV, or XVI of the Act is optional (for example, 
the agency may provide Medicaid to individuals who are 18 years of age 
and who are attending secondary school full-time and are expected to 
complete their education before age 19, even though the State's AFDC 
plan does not include them); or
    (2) Would qualify for OAA, AFDC, AB, APTD, or AABD if the State's 
plan under those programs did not contain eligibility requirements more 
restrictive than, or in addition to, those required under the 
appropriate title of the Act. (For example, the agency may provide 
Medicaid to individuals who would meet the Federal definition of 
disability, 45 CFR 233.80, but who do not meet the State's more 
restrictive definitions.)
    (b) The agency may cover one or more optional groups under any of 
the titles of the Act without covering all such groups.

[43 FR 45218, Sept. 29, 1978, as amended at 45 FR 24887, Apr. 11, 1980; 
46 FR 47990, Sept. 30, 1981; 58 FR 4935, Jan. 19, 1993]



Sec. 436.217  Individuals receiving home and community-based services.

    The agency may provide Medicaid to any group or groups of 
individuals in the community who meet the following requirements:
    (a) The group would be eligible for Medicaid if institutionalized.

[[Page 175]]

    (b) In the absence of home and community-based services under a 
waiver granted under part 441--
    (1) Subpart G of this subchapter, the group would otherwise require 
the level of care furnished in a hospital, NF, or an ICF/MR; or
    (2) Subpart H of this subchapter, the group would otherwise require 
the level of care furnished in a NF and are age 65 or older.
    (c) The group receives the waivered services.

[57 FR 29155, June 30, 1992]



Sec. 436.220  Individuals who would meet the income and resource requirements under AFDC if child care costs were paid from earnings.

    (a) The agency may provide Medicaid to any group or groups of 
individuals specified under Sec. 436.201(a)(4), (a)(5), and (a)(6) who 
would meet the income and resource requirements under the State's AFDC 
plan if their work-related child care costs were paid from their 
earnings rather than by a State agency as a service expenditure.
    (b) The agency may use this option only if the State's AFDC plan 
deducts work-related child care costs from income to determine the 
amount of AFDC.

[43 FR 45218, Sept. 29, 1978, as amended at 58 FR 4935, Jan. 19, 1993]



Sec. 436.222  Individuals under age 21 who meet the income and resource requirements of AFDC.

    (a) The agency may provide Medicaid to individuals under age 21 (or 
at State option, under age 20, 19, or 18) or reasonable categories of 
these individuals as specified in paragraph (b) of this section, who are 
not receiving cash assistance but who meet the income and resource 
requirements of the State's approved AFDC plan.
    (b) The agency may cover all individuals described in paragraph (a) 
of this section or reasonable classifications of those individuals. 
Examples of reasonable classifications are as follows:
    (1) Individuals in foster homes or private institutions for whom a 
public agency is assuming a full or partial financial responsibility. If 
the agency covers these individuals, it may also provide Medicaid to 
individuals of the same age in foster homes or private institutions by 
private nonprofit agencies.
    (2) Individuals in adoptions subsidized in full or in part by a 
public agency.
    (3) Individuals in nursing facilities when nursing facility services 
are provided under the plan to individuals within the age group selected 
under this provision. If the agency covers these individuals, it may 
also provide Medicaid to individuals in intermediate care facilities for 
the mentally retarded.
    (4) Individuals receiving active treatment as inpatients in 
psychiatric facilities or programs, if inpatient psychiatric services 
for individuals under 21 are provided under the plan.

[46 FR 47990, Sept. 30, 1981, as amended at 58 FR 4935, Jan. 19, 1993]



Sec. 436.224  Individuals under age 21 who are under State adoption assistance agreements.

    (a) The agency may provide Medicaid to individuals under the age of 
21 (or, at State option, age 20, 19, or 18)--
    (1) For whom an adoption agreement (other than an agreement under 
title IV-E) between the State and adoptive parent(s) is in effect;
    (2) Who, the State agency responsible for adoption assistance has 
determined, cannot be placed with adoptive parents without Medicaid 
because the child has special needs for medical or rehabilitative care; 
and
    (3) Who meet either of the following:
    (i) Were eligible for Medicaid under the State plan before the 
adoption agreement was entered into; or
    (ii) Would have been eligible for Medicaid before the adoption 
agreement was entered into, if the eligibility standards and 
methodologies of the foster care program were used without employing the 
threshold title IV-A eligibility determination.
    (b) For adoption assistance agreements entered into before April 7, 
1986--
    (1) The agency must deem the requirements of paragraph (a)(1) and 
(2) of this section to be met if the State adoption assistance agency 
determines that--

[[Page 176]]

    (i) At the time of the adoption placement, the child had special 
needs for medical or rehabilitative care that made the child difficult 
to place; and
    (ii) There is in effect an adoption assistance agreement between the 
State and the adoptive parent(s).
    (2) The agency must deem the requirements of paragraph (a)(3) of 
this section to be met if the child was found by the State to be 
eligible for Medicaid before the adoption assistance agreement was 
entered into.

[55 FR 48610, Nov. 21, 1990]



Sec. 436.229  Optional targeted low-income children.

    The agency may provide Medicaid to--
    (a) All individuals under age 19 who are optional targeted low-
income children as defined in Sec. 436.3; or
    (b) Reasonable categories of these individuals.

[66 FR 2668, Jan. 11, 2001]

          Options for Coverage of the Aged, Blind, and Disabled



Sec. 436.230  Essential spouses of aged, blind, or disabled individuals receiving cash assistance.

    The agency may provide Medicaid to the spouse of an individual 
receiving OAA, AB, APTD, or AABD, if--
    (a) The spouse is living with the individual receiving cash 
assistance;
    (b) The cash assistance agency has determined that the spouse is 
essential to the well-being of the individual and has considered the 
spouse's needs in determining the amount of cash assistance provided to 
the individual.



           Subpart D_Optional Coverage of the Medically Needy



Sec. 436.300  Scope.

    This subpart specifies the option for coverage of medically needy 
individuals.



Sec. 436.301  General rules.

    (a) A Medicaid agency may provide Medicaid to individuals specified 
in this subpart who:
    (1) Either:
    (i) Have income that meets the standard in Sec. 436.811; or
    (ii) If their income is more than allowed under the standard, have 
incurred medical expenses at least equal to the difference between their 
income and the applicable income standards; and
    (2) Have resources that meet the standard in Sec. Sec. 436.840 and 
436.843.
    (b) If the agency chooses this option, the following provisions 
apply:
    (1) The agency must provide Medicaid to the following individuals 
who meet the requirements of paragraph (a) of this section:
    (i) All pregnant women during the course of their pregnancy who, 
except for income and resources, would be eligible for Medicaid as 
mandatory or optional categorically needy under subparts B and C of this 
part;
    (ii) All individuals under 18 years of age who, except for income 
and resources, would be eligible for Medicaid as mandatory categorically 
needy under subpart B of this part;
    (iii) All newborn children born on or after October 1, 1984, to a 
woman who is eligible as medically needy and receiving Medicaid on the 
date of the child's birth. The child is deemed to have applied and been 
found eligible for Medicaid on the date of birth and remains eligible as 
medically needy for ne year so long as the woman remains eligible and 
the child is a member of the woman's household. If the woman's basis of 
eligibility changes to categorically needy, the child is eligible as 
categorically needy under Sec. 436.124. The woman is considered to 
remain eligible if she meets the spend-down requirements in any 
consecutive budget period following the birth of the child.
    (iv) Women who, while pregnant, applied for, were eligible for, and 
received Medicaid services as medically needed on the day that their 
pregnancy ends. The agency must provide medically needy eligibility to 
these women for an extended period following termination of pregnancy. 
This period begins on the last day of the pregnancy and extends through 
the end of the month in which a 60-day period following termination of 
pregnancy ends. Eligibility must be provided, regardless of changes in 
the women's financial circumstances that

[[Page 177]]

may occur within this extended period. These women are eligible for the 
extended period for all services under the plan that are pregnancy-
related (as defined in Sec. 440.210(c)(1) of this subchapter).
    (2) The agency may provide Medicaid to any or all of the following 
groups of individuals:
    (i) Individuals under age 21 (Sec. 436.308).
    (ii) Specified relatives (Sec. 436.310).
    (iii) Aged (Sec. 436.320).
    (iv) Blind (Sec. 436.321).
    (v) Disabled (Sec. 436.322).
    (3) If the agency provides Medicaid to any individual in a group 
specified in paragraph (b)(2) of this section, the agency must provide 
Medicaid to all individuals eligible to be members of that group.

[46 FR 47990, Sept. 30, 1981; 46 FR 54743, Nov. 4, 1981, as amended at 
52 FR 43073, Nov. 9, 1987; 55 FR 48610, Nov. 21, 1990; 58 FR 4935, Jan. 
19, 1993]



Sec. 436.308  Medically needy coverage of individuals under age 21.

    (a) If the agency provides Medicaid to the medically needy, it may 
provide Medicaid to individuals under age 21 (or at State option, under 
age 20, 19, or 18) as specified in paragraph (b) of this section:
    (1) Who would not be covered under the mandatory medically needy 
group of individuals under 18 under Sec. 436.301(b)(1)(ii); and
    (2) Who meet the income and resource requirements of subpart I of 
this part.
    (b) The agency may cover all individuals in paragraph (a) of this 
section or individuals in reasonable classifications. Examples of 
reasonable classifications are as follows:
    (1) Individuals in foster homes or private institutions for whom a 
public agency is assuming a full or partial financial responsibility. If 
the agency covers these individuals, it may also provide Medicaid to 
individuals placed in foster homes or private institutions by private 
nonprofit agencies.
    (2) Individuals in adoptions subsidized in full or in part by a 
public agency.
    (3) Individuals in nursing facilities when nursing facility services 
are provided under the plan to individuals within the age group selected 
under this provision. When the agency covers such individuals, it may 
also provide Medicaid to individuals in intermediate care facilities for 
the mentally retarded.
    (4) Individuals receiving active treatment as inpatients in 
psychiatric facilities or programs, if inpatient psychiatric services 
for individuals under 21 are provided under the plan.

[46 FR 47990, Sept. 30, 1981, as amended at 58 FR 4935, Jan. 19, 1993]



Sec. 436.310  Medically needy coverage of specified relatives.

    (a) If the agency provides for the medically needy, it may provide 
Medicaid to specified relatives, defined in paragraph (b) of this 
section, who meet the income and resource requirements of subpart I of 
this part.
    (b) Specified relatives means individuals who:
    (1) Are listed under section 406(b)(1) of the Act and in 45 CFR 
233.90(c)(1)(v)(A); and
    (2) Have in their care an individual who is determined to be (or 
would, if needy, be) dependent, as specified in Sec. 436.510.

[58 FR 4936, Jan. 19, 1993]



Sec. 436.320  Medically needy coverage of the aged.

    If the agency provides Medicaid to the medically needy, it may 
provide Medicaid to individuals who--
    (a) Are 65 years of age and older, as provided for in Sec. 436.520; 
and
    (b) Meet the income and resource requirements of subpart I of this 
part.

[46 FR 47991, Sept. 30, 1981]



Sec. 436.321  Medically needy coverage of the blind.

    If the agency provides Medicaid to the medically needy, it may 
provide Medicaid to blind individuals who meet--
    (a) The requirements for blindness, as specified in Sec. Sec. 
436.530 and 436.531; and
    (b) The income and resource requirements of subpart I of this part.

[46 FR 47991, Sept. 30, 1981]

[[Page 178]]



Sec. 436.322  Medically needy coverage of the disabled.

    If the agency provides Medicaid to the medically needy, it may 
provide Medicaid to disabled individuals who meet--
    (a) The requirements for disability, as specified in Sec. Sec. 
436.540 and 436.541; and
    (b) The income and resource requirements of subpart I of this part.

[46 FR 47991, Sept. 30, 1981]



Sec. 436.330  Coverage for certain aliens.

    If an agency provides Medicaid to the medically needy, it must 
provide the services necessary for the treatment of an emergency medical 
condition, as defined in Sec. 440.255(c) of this chapter to those 
aliens described in Sec. 436.406(c) of this subpart.

[55 FR 36820, Sept. 7, 1990]



               Subpart E_General Eligibility Requirements



Sec. 436.400  Scope.

    This subpart prescribes general requirements for determining the 
eligibility of both categorically needy and medically needy individuals 
specified in subparts B, C, and D of the part.



Sec. 436.401  General rules.

    (a) The agency may not impose any eligibility requirement that is 
prohibited under title XIX.
    (b) The agency must base any optional group covered under subparts B 
and C of this part on reasonable classifications that do not result in 
arbitrary or inequitable treatment of individuals and groups and are 
consistent with the objectives of title XIX.
    (c) The agency must not use requirements for determining eligibility 
for optional coverage groups that are more restrictive than those used 
under the State plans for OAA, AFDC, AB, APTD, or AABD.



Sec. 436.402  [Reserved]



Sec. 436.403  State residence.

    (a) Requirement. The agency must provide Medicaid to eligible 
residents of the State, including residents who are absent from the 
State. The conditions under which payment for service is provided to 
out-of-State residents are set forth in Sec. 431.52 of this chapter.
    (b) Definition. For purposes of this section--Institution has the 
same meaning as Institution and Medical institution, as defined in Sec. 
435.1009 of this chapter. For purposes of State placement, the term also 
includes ``foster care homes'', licensed as set forth in 45 CFR 1355.20, 
and providing food, shelter and supportive services to one or more 
persons unrelated to the proprietor.
    (c) Incapability of indicating intent. For purposes of this section, 
an individual is considered incapable of indicating intent if the 
individual--
    (1) Has an I.Q. of 49 or less or has a mental age of 7 or less, 
based on tests acceptable to the mental retardation agency in the State;
    (2) Is judged legally incompetent; or
    (3) Is found incapable of indicating intent based on medical 
documentation obtained from a physician, psychologist, or other person 
licensed by the State in the field of mental retardation.
    (d) Who is a State resident. A resident of a State is any individual 
who:
    (1) Meets the conditions in paragraphs (e) through (h) of this 
section; or
    (2) Meets the criteria specified in an interstate agreement under 
paragraph (j) of this section.
    (e) Placement by a State in an out-of-state institution--(1) General 
rule. Any agency of the State, including an entity recognized under 
State law as being under contract with the State for such purposes, that 
arranges for an individual to be placed in an institution located in 
another State, is recognized as acting on behalf of the State in making 
a placement. The State arranging or actually making the placement is 
considered as the individual's State of residence.
    (2) Any action beyond providing information to the individual and 
the individual's family would constitute arranging or making a State 
placement. However, the following actions do not constitute State 
placement:
    (i) Providing basic information to individuals about another State's 
Medicaid program, and information about

[[Page 179]]

the availability of health care services and facilities in another 
State.
    (ii) Assisting an individual in locating an institution in another 
State provided the individual is capable of indicating intent and 
independently decides to move.
    (3) When a competent individual leaves the facility in which the 
individual is placed by a State, that individual's State of residency 
for Medicaid purposes is the State where the individual is physically 
located.
    (4) Where placement is initiated by a State because the State lacks 
a sufficient number of appropriate facilities to provide services to its 
residents, the State making the placement is the individual's State of 
residence for Medicaid purposes.
    (f) Individuals receiving title IV-E payments. For individuals of 
any age who are receiving Federal payment for foster care and adoption 
assistance under title IV-E of the Social Security Act, the State of 
residence is the State where the child lives.
    (g) Individuals under age 21. (1) For any individual who is 
emancipated from his or her parents or who is married and capable of 
indicating intent, the State of residence is the State where the 
individual is living with the intention to remain there permanently or 
for an indefinite period.
    (2) For any individual not residing in an institution as defined in 
paragraph (b) whose Medicaid eligibility is based on blindness or 
disability, the State of residence is the State in which the individual 
is living.
    (3) For any other non-institutionalized individual not subject to 
paragraph (h)(1) or (h)(2) of this section, the State of residence is 
determined in accordance with 45 CFR 233.40, the rules governing 
residence under the AFDC program.
    (4) For any institutionalized individual who is neither married nor 
emancipated, the State of residence is--
    (i) The parents' or legal guardian's current State of residence at 
the time of placement; or
    (ii) The current State of residence of the parent or legal guardian 
who files the application, if the individual is institutionalized in 
that State. If a legal guardian has been appointed and the parental 
rights are terminated, the State of residence of the guardian is used 
instead of the parent's.
    (iii) The State of residence of the individual or party who files an 
application is used if the individual has been abandoned by his or her 
parent(s), does not have a legal guardian and is institutionalized in 
that State.
    (h) Individuals age 21 and over. (1) For any individual not residing 
in an institution as defined in paragraph (b), the State of residence is 
the State where the individual is--
    (i) Living with the intention to remain there permanently or for an 
indefinite period (or if incapable of stating intent, where the 
individual is living); or
    (ii) Living and which the individual entered with a job commitment 
or seeking employment (whether or not currently employed).
    (2) For any institutionalized individual who became incapable of 
indicating intent before age 21, the State of residence is--
    (i) That of the parents applying for Medicaid on the individual's 
behalf, if the parents reside in separate States;
    (ii) The parent's or legal guardian's State of residence at the time 
of placement; or
    (iii) The current State of residence of the parent or legal guardian 
who files the application, if the individual is institutionalized in 
that State. If a legal guardian has been appointed and parental rights 
are terminated, the State of residence of the guardian is used instead 
of the legal parent's.
    (iv) The State of residence of the individual or party who files an 
application is used if the individual has been abandoned by his or her 
parent(s), does not have a legal guardian and is institutionalized in 
that State.
    (3) For any institutionalized individual who became incapable of 
indicating intent at or after age 21, the State of residence is the 
State in which the individual is physically present, except where 
another State makes a placement.
    (4) For any other institutionalized individual, the State of 
residence is the State where the individual is living

[[Page 180]]

with the intention to remain there permanently or for an indefinite 
period.
    (i) Specific prohibitions. (1) The agency may not deny Medicaid 
eligibility because an individual has not resided in the State for a 
specified period.
    (2) The agency may not deny Medicaid eligibility to an individual in 
an institution, who satisfies the residency rules set forth in this 
section, on the grounds that the individual did not establish residence 
in the State before entering the institution.
    (3) The agency may not deny or terminate a resident's Medicaid 
eligibility because of that person's temporary absence from the State if 
the person intends to return when the purpose of the absence has been 
accomplished, unless another State has determined that the person is a 
resident there for purposes of Medicaid.
    (j) Interstate agreements. A State may have a written agreement with 
another State setting forth rules and procedures resolving cases of 
disputed residency. These agreements may establish criteria other than 
those specified in paragraphs (c) through (h) of this section, but must 
not include criteria that result in loss of residency in both States or 
that are prohibited by paragraph (i) of this section. The agreements 
must contain a procedure for providing Medicaid to individuals pending 
resolution of the case.

States may use interstate agreements for purposes other than cases of 
disputed residency to facilitate administration of the program, and to 
facilitate the placement and adoption of title IV-E individuals when the 
child and his or her adoptive parent(s) move into another State.
    (k) Continued Medicaid for institutionalized recipients. An agency 
is providing Medicaid to an institutionalized recipient who, as a result 
of this section, would be considered a resident of a different State--
    (1) The agency must continue to provide Medicaid to that recipient 
from June 24, 1983 until July 5, 1984 unless it makes arrangements with 
another State of residence to provide Medicaid at an earlier date; and
    (2) Those arrangements must not include provisions prohibited by 
paragraph (g) of this section.
    (l) Cases of disputed residency. Where two or more States cannot 
resolve which State is the State of residence, the State where the 
individual is physically located is the State of residence.

[49 FR 13533, Apr. 5, 1984, as amended at 55 FR 48610, Nov. 21, 1990]



Sec. 436.404  Applicant's choice of category.

    The agency must allow an individual who would be eligible under more 
than one category to have his eligibility determined for the category he 
selects.



Sec. 436.406  Citizenship and alienage.

    (a) The agency must provide Medicaid to otherwise eligible residents 
of the United States who are--
    (1) Citizens; or
    (2) Aliens lawfully admitted for permanent residence or permanently 
residing in the United States under color of law, as defined in Sec. 
436.408 of this part;
    (3) Aliens granted lawful temporary resident status under sections 
245A and 210A of the Immigration and Nationality Act if the individual 
is aged, blind, or disabled as defined in section 1614(a)(1) of the Act, 
under 18 years of age, or a Cuban/Haitian entrant as defined in section 
501 (e)(1) and (2)(A) of Pub. L. 96-422; or
    (4) Aliens granted lawful temporary resident status under section 
210 of the Immigration and Nationality Act unless the alien would, but 
for the 5-year bar to receipt of AFDC contained in such section, be 
eligible for AFDC.
    (b) The agency must only provide emergency services (as defined for 
purposes of section 1916(a)(2)(D) of the Social Security Act), and 
services for pregnant women as defined in section 1916(a)(2)(B) of the 
Social Security Act to otherwise eligible residents of the United States 
not described in paragraphs (a)(3) and (a)(4) of this section who have 
been granted lawful temporary or lawful permanent resident status under 
section 245A, 210 or 210A of the Immigration and Nationality Act for 
five years from the date lawful temporary resident status was granted.
    (c) The agency must provide payment for the services described in 
Sec. 440.255 to residents of the State who otherwise meet the 
eligibility requirements of

[[Page 181]]

the State plan (except for receipt of AFDC, SSI, or State Supplementary 
payments and the presentation of a social security number) but who do 
not meet the requirements of paragraph (a) of this section.
    (d) The limitations on eligibility set forth in paragraph (b) of 
this section do not apply after 5 years from the date this alien was 
granted lawful temporary resident status.

[55 FR 36820, Sept. 7, 1990]



Sec. 436.408  Categories of aliens who are permanently residing in the United States under color of law.

    This section describes aliens that the agency must accept as 
permanently residing in the United States under color of law and who may 
be eligible for Medicaid.
    (a) An individual may be eligible for Medicaid if the individual is 
an alien residing in the United States with the knowledge and permission 
of the Immigration and Naturalization Services (INS) and the INS does 
not contemplate enforcing the alien's departure. The INS does not 
contemplate enforcing the alien's departure if it is the policy or 
practice of INS not to enforce the departure of aliens in the same 
category, or if from all the facts and circumstances in the case it 
appears that INS is otherwise permitting the alien to reside in the 
United States idefinitely, as determined by verifying the alien's status 
with INS.
    (b) Aliens who are permanently residing in the United States under 
color of law are listed below. None of the categories includes 
applicants for an Immigration and Naturalization Service status other 
than those applicants listed in paragraph (b)(6) of this section, or 
those covered under paragraph (b)(16) of this section. None of the 
categories allows Medicaid eligibility for nonimmigrants: for example, 
students or visitors. Also listed are the most common documents that the 
INS provides to aliens in these categories.
    (1) Aliens admitted to the United States pursuant to 8 U.S.C. 
1153(a)(7), (section 203(a)(7) of the Immigration and Nationality Act). 
Ask for a copy of INS Form I-94 endorsed ``Refugee-conditional Entry'';
    (2) Aliens, including Cuban/Haitian entrants, paroled in the United 
States pursuant to 8 U.S.C. 1182(d)(5) section 212(d)(5) of the 
Immigration and Nationality Act). Ask for a copy of INS Form I-94 with 
notation that the alien was paroled pursuant to section 212(d)(5) of the 
Immigration and Nationality Act. For Cuban/Haitian entrants ask for a 
copy of INS Form I-94 stamped Cuban/Haitian entrant (Status Pending) 
reviewable January 15, 1981. (Although the forms bear this notation, 
Cuban/Haitian entrants are admitted under section 212(d)(5) of the 
Immigration and Nationality Act.);
    (3) Aliens residing in the United States pursuant to an indefinite 
stay of deportation. Ask for an Immigration and Naturalization Service 
letter with this information or INS Form I-94 with such a notation;
    (4) Aliens residing in the United States pursuant to an indefinite 
voluntary departure. Ask for an Immigration and Naturalization Service 
letter or INS Form I-94 showing that a voluntary departure has been 
granted for an indefinite time period;
    (5) Aliens on whose behalf an immediate relative petition has been 
approved and their families covered by the petition who are entitled to 
voluntary departure (under 8 CFR 242.5(a)(2)(vi)) and whose departure 
the Immigration and Naturalization Service does not contemplate 
enforcing. Ask for a copy of INS Form I-94 or INS Form I-210 or a letter 
showing this status;
    (6) Aliens who have filed applications for adjustment of status 
pursuant to section 245 of the Immigration and Nationality Act (8 U.S.C. 
1255) that the Immigration and Naturalization Service has accepted as 
``properly filed'' (within the meaning of 8 CFR 245.2(a)(1) or (2)) and 
whose departure the Immigration and Naturalization Service does not 
contemplate enforcing. Ask for a copy of INS Form I-94 or I-181 or a 
passport properly endorsed;
    (7) Aliens granted stays of deportation by court order, statute or 
regulation, or by individual determination of the Immigration and 
Naturalization Service pursuant to section 106 of the Immigration and 
Nationality Act (8 U.S.C. 1105a) or relevant Immigration

[[Page 182]]

and Naturalization Service instructions, whose departure that agency 
does not contemplate enforcing. Ask for a copy of INS Form I-94 or a 
letter from the Immigration and Naturalization Service, or a copy of a 
court order establishing the aliens's status;
    (8) Aliens granted asylum pursuant to section 208 of the Immigration 
and Nationality Act (8 U.S.C. 1158). Ask for a copy of INS Form I-94 and 
a letter establishing this status;
    (9) Aliens admitted as refugees pursuant to section 207 of the 
Immigration and Nationality Act (8 U.S.C. 1157) or section 203(a)(7) of 
the Immigration and Nationality Act (8 U.S.C. 1153(a)(7)). Ask for a 
copy of INS Form I-94 properly endorsed;
    (10) Aliens granted voluntary departure pursuant to section 242(b) 
of the Immigration and Nationality Act (8 U.S.C. 1252(b)) or 8 CFR 242.5 
whose departure the Immigration and Naturalization Service does not 
contemplate enforcing. Ask for a copy of INS Form I-94 or I-210 bearing 
a departure date;
    (11) Aliens granted deferred action status pursuant to Immigration 
and Naturalization Service Operations Instruction 103.1(a)(ii) prior to 
June 15, 1984 or Sec. 242.1(a)(22) issued June 15, 1984 and later. Ask 
for a copy of INS Form I-210 or a letter showing that departure has been 
deferred;
    (12) Aliens residing in the United States under orders of 
supervision pursuant to section 242 of the Immigration and Nationality 
Act (8 U.S.C. 1152(d)). Ask for a copy of Form I-220 B;
    (13) Aliens who have entered and continuously resided in the United 
States since before January 1, 1972 (or any date established by section 
249 of the Immigration and Nationality Act, 8 U.S.C. 1259). Ask for any 
proof establishing this entry and continuous residence;
    (14) Aliens granted suspension of deportation pursuant to section 
244 of the Immigration and Nationality Act (8 U.S.C. 1254) and whose 
departure the Immigration and Naturalization Service does not 
contemplate enforcing. Ask for an order from the Immigration judge;
    (15) Aliens whose deportation has been withheld pursuant to section 
243(h) of the Immigration and Nationality Act (8 U.S.C. 1253(h)). Ask 
for an order from an immigration judge showing that deportation has been 
withheld; or
    (16) Any other aliens living in the United States with the knowledge 
and permission of the Immigration and Naturalization Service and whose 
departure that agency does not contemplate enforcing, including 
permanent non-immigrants as established by Public Law 99-239, and 
persons granted Extended Voluntary Departure due to conditions in the 
alien's home country based on a determination by the Secretary of State.

[55 FR 36821, Sept. 7, 1990, as amended at 56 FR 10807, Mar. 14, 1991; 
58 FR 4908, Jan. 19, 1993]



       Subpart F_Categorical Requirements for Medicaid Eligibility



Sec. 436.500  Scope.

    This subpart prescribes categorical requirements for determining the 
eligibility of both categorically needy and medically needy individuals 
specified in subparts B, C, and D of this part.

                               Dependency



Sec. 436.510  Determination of dependency.

    For families with dependent children who are not receiving AFDC, the 
agency must use the definitions and procedures used under the State's 
AFDC plan to determine whether--
    (a) An individual is a dependent child because he is deprived of 
parental support or care; and
    (b) An individual is an eligible member of a family with dependent 
children.

[43 FR 45218, Sept. 29, 1978, as amended at 58 FR 4936, Jan. 19, 1993]

                                   Age



Sec. 436.520  Age requirements for the aged.

    The agency must not impose an age requirement of more than 65 years.

[58 FR 4936, Jan. 19, 1993]

[[Page 183]]



Sec. 436.522  Determination of age.

    (a) In determining age, the agency must use the common law method 
(under which an age is reached the day before the anniversary of birth) 
or the popular usage method (under which a specific age is reached on 
the anniversary of birth), whichever is used under the corresponding 
State plan for OAA, AFDC, AB, APTD, or AABD.
    (b) The agency may use an arbitrary date, such as July 1, for 
determining an individual's age if the year, but not the month, of his 
birth is known.

[58 FR 4936, Jan. 19, 1993]

                                Blindness



Sec. 436.530  Definition of blindness.

    (a) Definition. The agency must use the definition of blindness that 
is used in the State plan for AB or AABD.
    (b) State plan requirement. The State plan must contain the 
definition of blindness, expressed in ophthalmic measurements.



Sec. 436.531  Determination of blindness.

    In determining blindness--
    (a) A physician skilled in the diseases of the eye or an 
optometrist, whichever the individual selects, must examine him, unless 
both of the applicant's eyes are missing;
    (b) The examiner must submit a report of examination to the Medicaid 
agency; and
    (c) A physician skilled in the diseases of the eye (for example, an 
ophthalmologist or an eye, ear, nose, and throat specialist) must review 
the report and determine on behalf of the agency--
    (1) Whether the individual meets the definition of blindness; and
    (2) Whether and when reexaminations are necessary for periodic 
redeterminations of eligibility, as required under Sec. 435.916 of this 
subchapter. Blindness is considered to continue until the reviewing 
physician determines that the recipient's vision no longer meets the 
definition.

[43 FR 45218, Sept. 29, 1978, as amended at 44 FR 17939, Mar. 23, 1979]

                               Disability



Sec. 436.540  Definition of disability.

    (a) Definition. The agency must use the definition of permanent and 
total disability that is used in the State plan for APTD or AABD. (See 
45 CFR 233.80(a)(1) for the Federal recommended definition of permanent 
and total disability.)
    (b) State plan requirement. The State plan must contain the 
definition of permanent and total disability.



Sec. 436.541  Determination of disability.

    (a) Basic requirements. (1) At a minimum, the agency must use the 
review team, information, and evidence requirements specified in 
paragraph (b) through (d) of this section in making a determination of 
disability.
    (2) If the requirements or determining disability under the State's 
APTD or AABD program are more restrictive than the minimum requirements 
specified in this section, the agency must use the requirements applied 
under the APTD or AABD program.
    (b) The agency must obtain a medical report and a social history for 
individuals applying for Medicaid on the basis of disability. The 
medical report must include a diagnosis based on medical evidence. The 
social history must contain enough information to enable the agency to 
determine disability.
    (c) A physician and social worker, qualified by professional 
training and experience, must review the medical report and social 
history and determine on behalf of the agency whether the individual 
meets the definition of disability. The physician must determine whether 
and when reexaminations will be necessary for periodic redeterminations 
of eligibility as required under Sec. 435.916 of this subchapter.
    (d) In subsequently determining disability, the physician and social 
worker must review reexamination reports and the social history and 
determine whether the individual continues to meet the definition. 
Disability is considered to continue until this determination is made.

[54 FR 50762, Dec. 11, 1989]

[[Page 184]]



    Subpart G_General Financial Eligibility Requirements and Options



Sec. 436.600  Scope.

    This subpart prescribes:
    (a) General financial requirements and options for determining the 
eligibility of both categorically needy and medically needy individuals 
specified in subparts B, C, and D of this part. Subparts H and I of this 
part prescribe additional financial requirements.
    (b) [Reserved]

[58 FR 4936, Jan. 19, 1993, as amended at 59 FR 43053, Aug. 22, 1994]



Sec. 436.601  Application of financial eligibility methodologies.

    (a) Definitions. For purposes of this section, cash assistance 
financial methodologies refers to the income and resources methodologies 
of the OAA, AFDC, AB, APTD, and AABD programs.
    (b) Basic rule for use of cash assistance methodologies. Except as 
specified in paragraphs (c) and (d) of this section, in determining 
financial eligibility of individuals as categorically and medically 
needy, the agency must apply the cash assistance financial methodologies 
and requirements of the cash assistance program that is most closely 
categorically related to the individual's status.
    (c) Financial responsibility of relatives. The agency must use the 
requirements for financial responsibility of relatives specified in 
Sec. 436.602.
    (d) Use of less restrictive methodologies than under cash assistance 
program. (1) At State option, and subject to the conditions of 
paragraphs (d)(2) through (d)(5) of this section, the agency may apply 
income and resource methodologies that are less restrictive than the 
cash assistance methodologies in determining financial eligibility of 
the following groups:
    (i) Qualified pregnant women and children under the mandatory 
categorically needy group under Sec. 436.120;
    (ii) Low-income pregnant women, infants, and children specified in 
section 1902(a)(10)(i) (IV), (VI), and (VII) of the Act;
    (iii) Qualified Medicare beneficiaries specified in sections 
1902(a)(10)(E) and 1905(p) of the Act;
    (iv) Optional categorically needy individuals under groups 
established under subpart C of this part and section 1902(a)(10)(A)(ii) 
of the Act; and
    (v) Medically needy individuals under groups established under 
subpart D of this part and section 1902(a)(10)(C)(i)(III) of the Act.
    (2) The income and resource methodologies that an agency elects to 
apply to groups of individuals under paragraph (c)(1) of this section 
may be less restrictive, but no more restrictive, than:
    (i) For groups of aged, blind, and disabled individuals, the SSI 
methodologies; or
    (ii) For all other groups, the methodologies under the State plan 
most closely categorically related to the individual's status.
    (3) A financial methodology is considered to be no more restrictive 
if, by using the methodology, additional individuals may be eligible for 
Medicaid and no individuals who are otherwise eligible are by use of 
that methodology made ineligible for Medicaid.
    (4) The less restrictive methodology applied under this section must 
be comparable for all persons within each category of assistance (aged, 
or blind, or disabled, or AFDC-related) within each eligibility group. 
For example, if the agency chooses to apply a less restrictive income or 
resource methodology to aged individuals, it must apply that methodology 
to an eligibility group of all aged individuals within the selected 
group.
    (5) The application of the less restrictive income and resource 
methodologies permitted under this section must be consistent with the 
limitations and conditions on FFP specified in subpart K of this part.
    (e) [Reserved]
    (f) State plan requirements. (1) The State plan must specify that, 
except to the extent precluded by Sec. 436.602 in determining financial 
eligibility of individuals, the agency will apply the cash assistance 
financial methodologies and requirements, unless the agency chooses to 
apply less restrictive income and

[[Page 185]]

resource methodologies, in accordance with paragraph (d) of this 
section.
    (2) If the agency chooses to apply less restrictive income and 
resource methodologies, the State plan must specify:
    (i) The less restrictive methodologies that will used; and
    (ii) The eligibility groups or groups to which the less restrictive 
methodologies will be applied.

[58 FR 4936, Jan. 19, 1993, as amended at 59 FR 43053, Aug. 22, 1994]



Sec. 436.602  Financial responsibility of relatives and other individuals.

    (a) Subject to the provisions of paragraphs (b) and (c) of this 
section, in determining financial responsibility of relatives and other 
persons for individuals under Medicaid, the agency must use the 
following financial eligibility requirements and methodologies.
    (1) Except for a spouse of an individual or a parent for a child who 
is under age 21 or blind or disabled, the agency must not consider 
income and resources of any relative as available to an individual.
    (2) In relation to individuals under 21 (as described in section 
1905(a)(i) of the Act), the financial responsibility requirements and 
methodologies include considering the income and resources of parents or 
spouses whose income and resources would be considered if the individual 
under age 21 were dependent under the State's approved AFDC plan, 
whether or not they are actually contributed. These requirements and 
methodologies must be applied in accordance with provisions of the 
State's approved AFDC plan.
    (3) When a couple ceases to live together, the agency must count 
only the income and resources of the individual in determining his or 
her eligibility, beginning the first month following the month the 
couple ceases to live together.
    (b) The agency may apply income and resource methodologies that are 
less restrictive than the cash assistance methodologies as specified in 
the State plan in accordance with Sec. 436.601(d).
    (c) [Reserved]

[58 FR 4936, Jan. 19, 1993, as amended at 59 FR 43053, Aug. 22, 1994]



Sec. 436.604  [Reserved]



Sec. 436.606  [Reserved]



Sec. 436.608  Applications for other benefits.

    (a) As a condition of eligibility, the agency must require 
applicants and recipients to take all necessary steps to obtain any 
annuities, pensions, and retirement and disability benefits to which 
they are entitled, unless they can show good cause for not doing so.
    (b) Annuities, pensions, and retirement and disability benefits 
include, but are not limited to, veterans' compensation and pensions, 
OASDI benefits, railroad retirement benefits, and unemployment 
compensation.

[43 FR 45218, Sept. 29, 1978. Redesignated at 58 FR 4937, Jan. 19, 1993]



Sec. 436.610  Assignment of rights to benefits.

    (a) As a condition of eligibility, the agency must require legally 
able applicants and recipients to:
    (1) Assign rights to the Medicaid agency to medical support and to 
payment for medical care from any third party;
    (2) Cooperate with the agency in establishing paternity and in 
obtaining medical support and payments, unless the individual 
establishes good cause for not cooperating, and except for individuals 
described in section 1902(l)(1)(A) of the Act (poverty level pregnant 
women), who are exempt from cooperating in establishing paternity and 
obtaining medical support and payments from, or derived from, the father 
of the child born out of wedlock; and
    (3) Cooperate in identifying and providing information to assist the 
Medicaid agency in pursuing third parties who may be liable to pay for 
care and services under the plan, unless the individual establishes good 
cause for not cooperating.
    (b) The requirements for assignment of rights must be applied 
uniformly for all groups covered under the plan.
    (c) The requirements of paragraph (a) of this section for assignment 
of rights to medical support and other payments and cooperation in 
obtaining medical support and payments are effective for medical 
assistance furnished on or

[[Page 186]]

after October 1, 1984. The requirement for cooperation in identifying 
and providing information for pursuing liable third parties is effective 
for medical assistance furnished on or after July 1, 1986.

[55 FR 48610, Nov. 21, 1990; 55 FR 52130, Dec. 19, 1990, as amended at 
58 FR 4908, Jan. 19, 1993. Redesignated at 58 FR 4937, Jan. 19, 1993]

Subpart H [Reserved]



        Subpart I_Financial Requirements for the Medically Needy



Sec. 436.800  Scope.

    This subpart prescribes financial requirements for determining the 
eligibility of medically needy individuals under subpart D of this part.

                     Medically Needy Income Standard



Sec. 436.811  Medically needy income standard: General requirements.

    (a) To determine eligibility of medically needy individuals, the 
agency must use a single income standard for all covered medically needy 
groups that meets the requirements of this section.
    (b) The income standard must take into account the number of persons 
in the assistance unit. The standard may not diminish by the number of 
persons in the unit (for example, if the income level in the standard 
for an assistance unit of two is set at $400, the income level in the 
standard for an assistance unit of three may not be less than $400).
    (c) The income standard must be set at an amount that is no lower 
than the lowest income standard used on or after January 1, 1966, to 
determine eligibility under the cash assistance programs that are 
related to the State's covered medically needy group or groups of 
individuals under Sec. 436.301.
    (d) The income standard may vary based on the variations between 
shelter costs in urban areas and rural areas.

[58 FR 4938, Jan. 19, 1993]



Sec. 436.814  Medically needy income standard: State plan requirements.

    The State plan must specify the income standard for the covered 
medically needy groups.

[58 FR 4938, Jan. 19, 1993]

Medically Needy Income Eligibility and Liability for Payment of Medical 
                                Expenses



Sec. 436.831  Income eligibility.

    The agency must determine income eligibility of medically needy 
individuals in accordance with this section.
    (a) Budget periods. (1) The agency must use budget periods of not 
more than 6 months to compute income. The agency may use more than one 
budget period.
    (2) The agency must include in the budget period in which income is 
computed all or part of the 3-month retroactive period specified in 
Sec. 435.914. The budget period can begin no earlier then the first 
month in the retroactive period in which the individual received covered 
services.
    (3) If the agency elects to begin the first budget period for the 
medically needy in any month of the 3-month period prior to the date of 
application in which the applicant received covered services, this 
election applies to all medically needy groups.
    (b) Determining countable income. The agency must, to determine 
countable income, deduct amounts that would be deducted in determining 
eligibility under the State's approved plan for OAA, AFDC, AB, APTD, or 
AABD.
    (c) Eligibility based on countable income. If countable income 
determined under paragraph (b) of this section is equal to or less than 
the applicable income standard under Sec. 436.814, the individual is 
eligible for Medicaid.
    (d) Deduction of incurred medical expenses. If countable income 
exceeds the income standard, the agency must deduct from income medical 
expenses incurred by the individual or family or financially responsible 
relatives that are not subject to payment by a third party. An expense 
is incurred on the date liability for the expense arises. The agency 
must determine deductible incurred expenses in accordance with

[[Page 187]]

paragraphs (e), (f) and (g) of this section and deduct those expenses in 
accordance with paragraph (h) of this section.
    (e) Determination of deductible incurred expenses: Required 
deductions based on kinds of services. Subject to the provisions of 
paragraph (g) of this section, in determining incurred medical expenses 
to be deducted from income, the agency must include the following:
    (1) Expenses for Medicare and other health insurance premiums, and 
deductibles or coinsurance charges, including enrollment fees, 
copayments, or deductibles imposed under Sec. 447.51 or Sec. 447.53 of 
this chapter;
    (2) Expenses incurred by the individual or family or financially 
responsible relatives for necessary medical and remedial services that 
are recognized under State law but not included in the plan;
    (3) Expenses incurred by the individual or family or by financially 
responsible relatives for necessary medical and remedial services that 
are included in the plan, including those that exceed agency limitations 
on amount, duration or scope of services;
    (f) Determination of deductible incurred expenses: Required 
deductions based on the age of bills. Subject to the provisions of 
paragraph (g) of this section, in determining incurred medical expenses 
to be deducted from income, the agency must include the following:
    (1) For the first budget period or periods that include only months 
before the month of application for medical assistance, expenses 
incurred during such period or periods, whether paid or unpaid, to the 
extent that the expenses have not been deducted previously in 
establishing eligibility;
    (2) For the first prospective budget period that also includes any 
of the 3 months before the month of application for medical assistance, 
expenses incurred during such budget period, whether paid or unpaid, to 
the extent that the expenses have not been deducted previously in 
establishing eligibility;
    (3) For the first prospective budget period that includes none of 
the months preceding the month of application, expenses incurred during 
such budget period and any of the 3 preceding months, whether paid or 
unpaid, to the extent that the expenses have not been deducted 
previously in establishing eligibility;
    (4) For any of the 3 months preceding the month of application that 
are not includable under paragraph (f)(2) of this section, expenses 
incurred in the 3-month period that were a current liability of the 
individual in any such month for which a spenddown calculation is made 
and that had not been previously deducted from income in establishing 
eligibility for medical assistance;
    (5) Current payments (that is, payments made in the current budget 
period) on other expenses incurred before the current budget period and 
not previously deducted from income in any budget period in establishing 
eligibility for such period; and
    (6) If the individual's eligibility for medical assistance was 
established in each such preceding period, expenses incurred before the 
current budget period but not previously deducted from income, to the 
extent that such expenses are unpaid and are:
    (i) Described in paragraphs (e)(1) through (e)(3) of this section; 
and
    (ii) Are carried over from the preceding budget period or periods 
because the individual had a spenddown liability in each such preceding 
period that was met without deducting all such incurred, unpaid 
expenses.
    (g) Determination of deductible incurred medical expenses: Optional 
deductions. In determining incurred medical expenses to be deducted from 
income, the agency--
    (1) May include medical institutional expenses (other than expenses 
in acute care facilities) projected to the end of the budget period at 
the Medicaid reimbursement rate;
    (2) May, to the extent determined by the agency and specified in its 
approved plan, include expenses incurred earlier than the third month 
before the month of application; and
    (3) May set reasonable limits on the amount to be deducted for 
expenses specified in paragraphs (e)(1), (e)(2), and (g)(2) of this 
section.
    (h) Order of deduction. The agency must deduct incurred medical 
expenses that are deductible under paragraphs

[[Page 188]]

(e), (f), and (g) of this section, in the order prescribed under one of 
the following three options:
    (1) Type of service. Under this option, the agency deducts expenses 
in the following order based on type of service:
    (i) Cost-sharing expenses as specified in paragraph (e)(1) of this 
section.
    (ii) Services not included in the State plan as specified in 
paragraph (e)(2) of this section.
    (iii) Services included in the State plan as specified in paragraph 
(e)(3) of this section but that exceed agency limitations on amount, 
duration, or scope of services.
    (iv) Services included in the State plan as specified in paragraph 
(e)(3) of this section but that are within agency limitations on amount, 
duration, or scope of services.
    (2) Chronological order by service date. Under this option, the 
agency deducts expenses in chronological order by the date each service 
is furnished, or in the case of insurance premiums, coinsurance, or 
deductibles charges the date such amounts are due. Expenses for services 
furnished on the same day may be deducted in any reasonable order 
established by the State.
    (3) Chronological order by bill submission date. Under this option, 
the agency deducts expenses in chronological order by the date each bill 
is submitted to the agency by the individual. If more than one bill is 
submitted at one time, the agency must deduct the bills from income in 
the order prescribed in either paragraph (h)(1) or (h)(2) of this 
section.
    (i) Eligibility based on incurred medical expenses.
    (1) Whether a State elects partial or full month coverage, an 
individual who is expected to contribute a portion of his or her income 
toward the costs of institutional care or home and community-based 
services under Sec. 436.832 is eligible on the first day of the 
applicable budget (spenddown) period--
    (i) If his or her spenddown liability is met after the first day of 
the budget period; and
    (ii) If beginning eligibility after the first day of the budget 
period makes the individual's share of health care expenses under Sec. 
436.832 greater than the individual's contributable income determined 
under this section.
    (2) At the end of the prospective period specified in paragraph 
(f)(2) or (f)(3) of this section and any subsequent prospective period 
or, if earlier, when any significant change occurs, the agency must 
reconcile the projected amounts with the actual amounts incurred, or 
with changes in circumstances, to determine if the adjusted deduction of 
incurred expenses reduces income to the income standard.
    (3) Except as provided in paragraph (i)(1) of this section, if 
agencies elect partial month coverage, an individual is eligible for 
Medicaid on the day that the deduction of incurred health care expenses 
(and of projected institutional expenses if the agency elects the option 
under paragraph (g)(1) of this section) reduces income to the income 
standard.
    (4) Except as provided in paragraph (i)(1) of this section, if 
agencies elect full month coverage, an individual is eligible on the 
first day of the month in which spenddown liability is met.
    (5) Expenses used to meet spenddown liability are not reimbursable 
under Medicaid. Therefore, to the extent necessary to prevent the 
transfer of an individual's spenddown liability to the Medicaid program, 
States must reduce the amount of provider charges that would otherwise 
be reimbursable under Medicaid.

[59 FR 1674, Jan. 12, 1994]



Sec. 436.832  Post-eligibility treatment of income of institutionalized individuals: Application of patient income to the cost of care.

    (a) Basic rules. (1) The agency must reduce its payment to an 
institution, for services provided to an individual specified in 
paragraph (b) of this section, by the amount that remains after 
deducting the amounts specified in paragraphs (c) and (d) of this 
section from the individual's total income.
    (2) The individual's income must be determined in accordance with 
paragraph (e) of this section.
    (3) Medical expenses must be determined in accordance with paragraph 
(f) of this section.

[[Page 189]]

    (b) Applicability. This section applies to medically needy 
individuals in medical institutions and intermediate care facilities.
    (c) Required deductions. The agency must deduct the following 
amounts, in the following order, from the individual's total income as 
determined under paragraph (e) of this section. Income that was 
disregarded in determining eligibility must be considered in this 
process.
    (1) Personal needs allowance. A personal needs allowance that is 
reasonable in amount for clothing and other personal needs of the 
individual while in the institution. This protected personal needs 
allowance must be at least--
    (i) $30 a month for an aged, blind, or disabled individual, 
including a child applying for Medicaid on the basis of blindness or 
disability;
    (ii) $60 a month for an institutionalized couple if both spouses are 
aged, blind, or disabled and their income is considered available to 
each other in determining eligibility; and
    (iii) For other individuals, a reasonable amount set by the agency, 
based on a reasonable difference in their personal needs from those of 
the aged, blind, or disabled.
    (2) Maintenance needs of spouse. For an individual with only a 
spouse at home, an additional amount for the maintenance needs of the 
spouse. This amount must be based on a reasonable assessment of need but 
must not exceed the higher of--
    (i) The amount of the highest need standard for an individual 
without income and resources under the State's approved plan for OAA, 
AFDC, AB, APTD, or AABD; or
    (ii) The amount of the highest medically needy income standard for 
one person established under Sec. 436.811.
    (3) Maintenance needs of family. For an individual with a family at 
home, an additional amount for the maintenance needs of the family. This 
amount must--
    (i) Be based on a reasonable assessment of their financial need;
    (ii) Be adjusted for the number of family members living in the 
home; and
    (iii) Not exceed the highest of the following need standards for a 
family of the same size:
    (A) The standard used to determine eligibility under the State's 
Medicaid plan, as provided for in Sec. 436.811.
    (B) The standard used to determine eligibility under the State's 
approved AFDC plan.
    (4) Expenses not subject to third party payment. Amounts for 
incurred expenses for medical or remedial care that are not subject to 
payment by a third party, including--
    (i) Medicare and other health insurance premiums, deductibles, or 
coinsurance charges; and
    (ii) Necessary medical or remedial care recognized under State law 
but not covered under the State's Medicaid plan, subject to reasonable 
limits the agency may establish on amounts of these expenses.
    (d) Optional deduction: Allowance for home maintenance. For single 
individuals and couples, an amount (in addition to the personal needs 
allowance) for maintenance of the individual's or couple's home if--
    (1) The amount is deducted for not more than a 6-month period; and
    (2) A physician has certified that either of the individuals is 
likely to return to the home within that period.
    (e) Determination of income--(1) Option. In determining the amount 
of an individual's income to be used to reduce the agency's payment to 
the institution, the agency may use total income received or it may 
project total monthly income for a prospective period not to exceed 6 
months.
    (2) Basis for projection. The agency must base the projection on 
income received in the preceding period, not to exceed 6 months, and on 
income expected to be received.
    (3) Adjustments. At the end of the prospective period specified in 
paragraph (e)(1) of this section, or when any significant change occurs, 
the agency must reconcile estimates with income received.
    (f) Determination of medical expenses--(1) Option. In determining 
the amount of medical expenses to be deducted

[[Page 190]]

from an individual's income, the agency may deduct incurred medical 
expenses, or it may project medical expenses for a prospective period 
not to exceed 6 months.
    (2) Basis for projection. The agency must base the estimate on 
medical expenses incurred in the preceding period, not to exceed 6 
months, and medical expenses expected to be incurred.
    (3) Adjustments. At the end of the prospective period specified in 
paragraph (f)(1) of this section, or when any significant change occurs, 
the agency must reconcile estimates with incurred medical expenses.

[45 FR 24888, Apr. 11, 1980, as amended at 46 FR 47991, Sept. 30, 1981; 
48 FR 5735, Feb. 8, 1983; 53 FR 3597, Feb. 8, 1988; 56 FR 8851, 8854, 
Mar. 1, 1991; 58 FR 4938, Jan. 19, 1993]

                    Medically Needy Resource Standard



Sec. 436.840  Medically needy resource standard: General requirements.

    (a) To determine eligibility of medically needy individuals, the 
Medicaid agency must use a single resource standard that is set at an 
amount that is no lower than the lowest resource standard used on or 
after January 1, 1966, to determine eligibility under the cash 
assistance programs that are related to the State's covered medically 
needy group or groups of individuals under Sec. 436.301.
    (b) The resource standard established under paragraph (a) of this 
section may not diminish by an increase in the number of persons in the 
assistance unit. For example, the resource level in the standard for an 
assistance unit of three may not be less than that set for an assistance 
unit of two.

[58 FR 4938, Jan. 19, 1993]



Sec. 436.843  Medically needy resource standard: State plan requirements.

    The State plan must specify the resource standard for the covered 
medically needy groups.

[58 FR 4938, Jan. 19, 1993]

            Determining Eligibility on the Basis of Resources



Sec. 436.845  Medically needy resource eligibility.

    To determine eligibility on the basis of resources for medically 
needy individuals, the agency must--
    (a) Consider only the individual's resources and those that are 
considered available to him under the financial responsibility 
requirements for relatives under Sec. 436.602;
    (b) Consider only resources available during the period for which 
income is computed under Sec. 436.831(a);
    (c) Deduct the value of resources that would be deducted in 
determining eligibility under the State's plan for OAA, AFDC, AB, APTD, 
or AABD or under the State's less restrictive financial methodology 
specified in the State Medicaid plan in accordance with Sec. 436.601. 
In determining the amount of an individual's resources for Medicaid 
eligibility, States must count amounts of resources that otherwise would 
not be counted under the conditional eligibility provisions of the AFDC 
program.
    (d) Apply the resource standards established under Sec. 436.840.

[43 FR 45218, Sept. 29, 1978, as amended at 46 FR 47992, Sept. 30, 1981; 
58 FR 4938, Jan. 19, 1993]



   Subpart J_Eligibility in Guam, Puerto Rico, and the Virgin Islands

    Source: 44 FR 17939, Mar. 23, 1979, unless otherwise noted.



Sec. 436.900  Scope.

    This subpart sets forth requirements for processing applications, 
determining eligibility, and furnishing Medicaid.



Sec. 436.901  General requirements.

    The Medicaid agency must comply with all the requirements of part 
435, subpart J, of this subchapter, except those specified in Sec. 
435.909.



Sec. 436.909  Automatic entitlement to Medicaid following a determination of eligibility under other programs.

    The agency may not require a separate application for Medicaid from 
an

[[Page 191]]

individual if the individual receives cash assistance under a State plan 
for OAA, AFDC, AB, APTD, or AABD.



             Subpart K_Federal Financial Participation (FFP)



Sec. 436.1000  Scope.

    This subpart specifies when, and the extent to which, FFP is 
available in expenditures for determining eligibility and for Medicaid 
services to individuals determined eligible under this part, and 
prescribes limitations and conditions on FFP for those expenditures.

 FFP for Expenditures for Determining Eligibility and Providing Services



Sec. 436.1001  FFP for administration.

    (a) FFP is available in the necessary administrative costs the State 
incurs in--
    (1) Determining and redetermining Medicaid eligibility and in 
providing Medicaid to eligible individuals; and
    (2) Determining presumptive eligibility for children and providing 
services to presumptively eligible children.
    (b) Administrative costs include any costs incident to an eye 
examination or medical examination to determine whether an individual is 
blind or disabled.

[43 FR 45218, Sept. 29, 1978, as amended at 66 FR 2668, Jan. 11, 2001]



Sec. 436.1002  FFP for services.

    (a) FFP is available in expenditures for Medicaid services for all 
recipients whose coverage is required or allowed under this part.
    (b) FFP is available in expenditures for services provided to 
recipients who were eligible for Medicaid in the month in which the 
medical care or services were provided, except that, for recipients who 
establish eligibility for Medicaid by deducting incurred medical 
expenses from income, FFP is not available for expenses that are the 
recipient's liability.
    (c) FFP is available in expenditures for services covered under the 
plan that are furnished--
    (1) To children who are determined by a qualified entity to be 
presumptively eligible;
    (2) During a period of presumptive eligibility;
    (3) By a provider that is eligible for payment under the plan; and
    (4) Regardless of whether the children are determined eligible for 
Medicaid following the period of presumptive eligibility.

[43 FR 45218, Sept. 29, 1978, as amended at 44 FR 17940, Mar. 23, 1979; 
66 FR 2669, Jan. 11, 2001]



Sec. 436.1003  Recipients overcoming certain conditions of eligibility.

    FFP is available for a temporary period specified in the State plan 
in expenditures for services provided to recipients who are overcoming 
certain eligibility conditions, including blindness, disability, 
continued absence or incapacity of a parent, or unemployment of a 
parent.

[45 FR 24888, Apr. 11, 1980]



Sec. 436.1004  Institutionalized individuals.

    (a) FFP is not available in expenditures for services provided to--
    (1) Individuals who are inmates of public institutions as defined in 
Sec. 435.1009; or
    (2) Individuals under age 65 who are patients in an institution for 
mental diseases unless they are under age 22 and are receiving inpatient 
psychiatric services under Sec. 440.160 of this subchapter.
    (b) The exclusion of FFP described in paragraph (a) of this section 
does not apply during that part of the month in which the individual is 
not an inmate of a public institution or a patient in an institution for 
mental diseases.
    (c) An individual on conditional release or convalescent leave from 
an institution for mental diseases is not considered to be a patient in 
that institution. However, such an individual who is under age 22 and 
has been receiving inpatient pyschiatric services

[[Page 192]]

under Sec. 440.160 of this subchapter is considered to be a patient in 
the institution until he is unconditionally released or, if earlier, the 
date he reaches age 22.

[43 FR 45204, Sept. 29, 1978, as amended at 50 FR 13200, Apr. 3, 1985; 
50 FR 38811, Sept. 25, 1985]



Sec. 436.1005  Definitions relating to institutional status.

    For purposes of FFP, the definitions in Sec. 435.1009 of this 
subchapter apply to this part.



             Subpart L_Option for Coverage of Special Groups

    Source: 66 FR 2669, Jan. 11, 2001, unless otherwise noted.



Sec. 436.1100  Basis and scope.

    (a) Statutory basis. Section 1920A of the Act allows States to 
provide Medicaid services to children under age 19 during a period of 
presumptive eligibility, prior to a formal determination of Medicaid 
eligibility.
    (b) Scope. This subpart prescribes the requirements for providing 
medical assistance to special groups who are not eligible for Medicaid 
as categorically or medically needy.

                  Presumptive Eligibility for Children



Sec. 436.1101  Definitions related to presumptive eligibility period for children.

    Application form means at a minimum the form used to apply for 
Medicaid under the poverty-level-related eligibility groups described in 
section 1902(l) of the Act or a joint form for children to apply for the 
State Children's Health Insurance Program and Medicaid.
    Period of presumptive eligibility means a period that begins on the 
date on which a qualified entity determines that a child is 
presumptively eligible and ends with the earlier of--
    (1) In the case of a child on whose behalf a Medicaid application 
has been filed, the day on which a decision is made on that application; 
or
    (2) In the case of a child on whose behalf a Medicaid application 
has not been filed, the last day of the month following the month in 
which the determination of presumptive eligibility was made.
    Presumptive income standard means the highest income eligibility 
standard established under the plan that is most likely to be used to 
establish the regular Medicaid eligibility of a child of the age 
involved.
    Qualified entity means an entity that is determined by the State to 
be capable of making determinations of presumptive eligibility for 
children, and that--
    (1) Furnishes health care items and services covered under the 
approved plan and is eligible to receive payments under the approved 
plan;
    (2) Is authorized to determine eligibility of a child to participate 
in a Head Start program under the Head Start Act;
    (3) Is authorized to determine eligibility of a child to receive 
child care services for which financial assistance is provided under the 
Child Care and Development Block Grant Act of 1990;
    (4) Is authorized to determine eligibility of an infant or child to 
receive assistance under the special nutrition program for women, 
infants, and children (WIC) under section 17 of the Child Nutrition Act 
of 1966;
    (5) Is authorized to determine eligibility of a child for medical 
assistance under the Medicaid State plan, or eligibility of a child for 
child health assistance under the State Children's Health Insurance 
Program;
    (6) Is an elementary or secondary school, as defined in section 
14101 of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 
8801);
    (7) Is an elementary or secondary school operated or supported by 
the Bureau of Indian Affairs;
    (8) Is a State or Tribal child support enforcement agency;
    (9) Is an organization that--
    (i) Provides emergency food and shelter under a grant under the 
Stewart B. McKinney Homeless Assistance Act;
    (ii) Is a State or Tribal office or entity involved in enrollment in 
the program under this title, Part A of title IV, or title XXI; or
    (iii) Determines eligibility for any assistance or benefits provided 
under

[[Page 193]]

any program of public or assisted housing that receives Federal funds, 
including the program under section 8 or any other section of the United 
States Housing Act of 1937 (42 U.S.C. 1437) or under the Native American 
Housing Assistance and Self Determination Act of 1996 (25 U.S.C. 4101 et 
seq.); and
    (10) Any other entity the State so deems, as approved by the 
Secretary.
    Services means all services covered under the plan including EPSDT 
(see part 440 of this chapter.)

[66 FR 2669, Jan. 11, 2001, as amended at 66 FR 33822, June 25, 2001]



Sec. 436.1102  General rules.

    (a) The agency may provide services to children under age 19 during 
one or more periods of presumptive eligibility following a determination 
made by a qualified entity that the child's estimated gross family 
income or, at the State's option, the child's estimated family income 
after applying simple disregards, does not exceed the applicable income 
standard.
    (b) If the agency elects to provide services to children during a 
period of presumptive eligibility, the agency must--
    (1) Provide qualified entities with application forms for Medicaid 
and information on how to assist parents, caretakers and other persons 
in completing and filing such forms;
    (2) Establish procedures to ensure that qualified entities--
    (i) Notify the parent or caretaker of the child at the time a 
determination regarding presumptive eligibility is made, in writing and 
orally if appropriate, of such determination;
    (ii) Provide the parent or caretaker of the child with a Medicaid 
application form;
    (iii) Within 5 working days after the date that the determination is 
made, notify the agency that a child is presumptively eligible;
    (iv) For children determined to be presumptively eligible, notify 
the child's parent or caretaker at the time the determination is made, 
in writing and orally if appropriate, that--
    (A) If a Medicaid application on behalf of the child is not filed by 
the last day of the following month, the child's presumptive eligibility 
will end on that last day; and
    (B) If a Medicaid application on behalf of the child is filed by the 
last day of the following month, the child's presumptive eligibility 
will end on the day that a decision is made on the Medicaid application; 
and
    (v) For children determined not to be presumptively eligible, notify 
the child's parent or caretaker at the time the determination is made, 
in writing and orally if appropriate--
    (A) Of the reason for the determination; and
    (B) That he or she may file an application for Medicaid on the 
child's behalf with the Medicaid agency; and
    (3) Provide all services covered under the plan, including EPSDT.
    (4) Allow determinations of presumptive eligibility to be made by 
qualified entities on a Statewide basis.
    (c) The agency must adopt reasonable standards regarding the number 
of periods of presumptive eligibility that will be authorized for a 
child in a given time frame.



PART 438_MANAGED CARE--Table of Contents




                      Subpart A_General Provisions

Sec.
438.1 Basis and scope.
438.2 Definitions.
438.6 Contract requirements.
438.8 Provisions that apply to PIHPs and PAHPs.
438.10 Information requirements.
438.12 Provider discrimination prohibited.

                    Subpart B_State Responsibilities

438.50 State Plan requirements.
438.52 Choice of MCOs, PIHPs, PAHPs, and PCCMs.
438.56 Disenrollment: Requirements and limitations.
438.58 Conflict of interest safeguards.
438.60 Limit on payment to other providers.
438.62 Continued services to recipients.
438.66 Monitoring procedures.

                Subpart C_Enrollee Rights and Protections

438.100 Enrollee rights.
438.102 Provider-enrollee communications.
438.104 Marketing activities.
438.106 Liability for payment.
438.108 Cost sharing.
438.114 Emergency and poststabilization services.

[[Page 194]]

438.116 Solvency standards.

        Subpart D_Quality Assessment and Performance Improvement

438.200 Scope.
438.202 State responsibilities.
438.204 Elements of State quality strategies.

                            Access Standards

438.206 Availability of services.
438.207 Assurances of adequate capacity and services.
438.208 Coordination and continuity of care.
438.210 Coverage and authorization of services.

                    Structure and Operation Standards

438.214 Provider selection.
438.218 Enrollee information.
438.224 Confidentiality.
438.226 Enrollment and disenrollment.
438.228 Grievance systems.
438.230 Subcontractual relationships and delegation.

                  Measurement and Improvement Standards

438.236 Practice guidelines.
438.240 Quality assessment and performance improvement program.
438.242 Health information systems.

                    Subpart E_External Quality Review

438.310 Basis, scope, and applicability.
438.320 Definitions.
438.350 State responsibilities.
438.352 External quality review protocols.
438.354 Qualifications of external quality review organizations.
438.356 State contract options.
438.358 Activities related to external quality review.
438.360 Nonduplication of mandatory activities.
438.362 Exemption from external quality review.
438.364 External quality review results.
438.370 Federal financial participation.

                       Subpart F_Grievance System

438.400 Statutory basis and definitions.
438.402 General requirements.
438.404 Notice of action.
438.406 Handling of grievances and appeals.
438.408 Resolution and notification: Grievances and appeals.
438.410 Expedited resolution of appeals.
438.414 Information about the grievance system to providers and 
          subcontractors.
438.416 Recordkeeping and reporting requirements.
438.420 Continuation of benefits while the MCO or PIHP appeal and the 
          State fair hearing are pending.
438.424 Effectuation of reversed appeal resolutions.

Subpart G [Reserved]

             Subpart H_Certifications and Program Integrity

438.600 Statutory basis.
438.602 Basic rule.
438.604 Data that must be certified.
438.606 Source, content, and timing of certification.
438.608 Program integrity requirements.
438.610 Prohibited affiliations with individuals debarred by Federal 
          agencies.

                           Subpart I_Sanctions

438.700 Basis for imposition of sanctions.
438.702 Types of intermediate sanctions.
438.704 Amounts of civil money penalties.
438.706 Special rules for temporary management.
438.708 Termination of an MCO or PCCM contract.
438.710 Due process: Notice of sanction and pre-termination hearing.
438.722 Disenrollment during termination hearing process.
438.724 Notice to CMS.
438.726 State plan requirement.
438.730 Sanction by CMS: Special rules for MCOs.

        Subpart J_Conditions for Federal Financial Participation

438.802 Basic requirements.
438.806 Prior approval.
438.808 Exclusion of entities.
438.810 Expenditures for enrollment broker services.
438.812 Costs under risk and nonrisk contracts.

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

    Source: 67 FR 41095, June 14, 2002, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 438.1  Basis and scope.

    (a) Statutory basis. This part is based on sections 1902(a)(4), 
1903(m), 1905(t), and 1932 of the Act.
    (1) Section 1902(a)(4) requires that States provide for methods of 
administration that the Secretary finds necessary for proper and 
efficient operation of the State plan. The application of the 
requirements of this part to PIHPs and PAHPs that do not meet the 
statutory definition of an MCO or a

[[Page 195]]

PCCM is under the authority in section 1902(a)(4).
    (2) Section 1903(m) contains requirements that apply to 
comprehensive risk contracts.
    (3) Section 1903(m)(2)(H) provides that an enrollee who loses 
Medicaid eligibility for not more than 2 months may be enrolled in the 
succeeding month in the same MCO or PCCM if that MCO or PCCM still has a 
contract with the State.
    (4) Section 1905(t) contains requirements that apply to PCCMs.
    (5) Section 1932--
    (i) Provides that, with specified exceptions, a State may require 
Medicaid recipients to enroll in MCOs or PCCMs;
    (ii) Establishes the rules that MCOs, PCCMs, the State, and the 
contracts between the State and those entities must meet, including 
compliance with requirements in sections 1903(m) and 1905(t) of the Act 
that are implemented in this part;
    (iii) Establishes protections for enrollees of MCOs and PCCMs;
    (iv) Requires States to develop a quality assessment and performance 
improvement strategy;
    (v) Specifies certain prohibitions aimed at the prevention of fraud 
and abuse;
    (vi) Provides that a State may not enter into contracts with MCOs 
unless it has established intermediate sanctions that it may impose on 
an MCO that fails to comply with specified requirements; and
    (vii) Makes other minor changes in the Medicaid program.
    (b) Scope. This part sets forth requirements, prohibitions, and 
procedures for the provision of Medicaid services through MCOs, PIHPs, 
PAHPs, and PCCMs. Requirements vary depending on the type of entity and 
on the authority under which the State contracts with the entity. 
Provisions that apply only when the contract is under a mandatory 
managed care program authorized by section 1932(a)(1)(A) of the Act are 
identified as such.



Sec. 438.2  Definitions.

    As used in this part--
    Capitation payment means a payment the State agency makes 
periodically to a contractor on behalf of each recipient enrolled under 
a contract for the provision of medical services under the State plan. 
The State agency makes the payment regardless of whether the particular 
recipient receives services during the period covered by the payment.
    Comprehensive risk contract means a risk contract that covers 
comprehensive services, that is, inpatient hospital services and any of 
the following services, or any three or more of the following services:
    (1) Outpatient hospital services.
    (2) Rural health clinic services.
    (3) FQHC services.
    (4) Other laboratory and X-ray services.
    (5) Nursing facility (NF) services.
    (6) Early and periodic screening, diagnostic, and treatment (EPSDT) 
services.
    (7) Family planning services.
    (8) Physician services.
    (9) Home health services.
    Federally qualified HMO means an HMO that CMS has determined is a 
qualified HMO under section 1310(d) of the PHS Act.
    Health care professional means a physician or any of the following: 
a podiatrist, optometrist, chiropractor, psychologist, dentist, 
physician assistant, physical or occupational therapist, therapist 
assistant, speech-language pathologist, audiologist, registered or 
practical nurse (including nurse practitioner, clinical nurse 
specialist, certified registered nurse anesthetist, and certified nurse 
midwife), licensed certified social worker, registered respiratory 
therapist, and certified respiratory therapy technician.
    Health insuring organization (HIO) means a county operated entity, 
that in exchange for capitation payments, covers services for 
recipients--
    (1) Through payments to, or arrangements with, providers;
    (2) Under a comprehensive risk contract with the State; and
    (3) Meets the following criteria--
    (i) First became operational prior to January 1, 1986; or
    (ii) Is described in section 9517(e)(3) of the Omnibus Budget 
Reconciliation Act of 1985 (as amended by section 4734

[[Page 196]]

of the Omnibus Budget Reconciliation Act of 1990).
    Managed care organization (MCO) means an entity that has, or is 
seeking to qualify for, a comprehensive risk contract under this part, 
and that is--
    (1) A Federally qualified HMO that meets the advance directives 
requirements of subpart I of part 489 of this chapter; or
    (2) Any public or private entity that meets the advance directives 
requirements and is determined to also meet the following conditions:
    (i) Makes the services it provides to its Medicaid enrollees as 
accessible (in terms of timeliness, amount, duration, and scope) as 
those services are to other Medicaid recipients within the area served 
by the entity.
    (ii) Meets the solvency standards of Sec. 438.116.
    Nonrisk contract means a contract under which the contractor--
    (1) Is not at financial risk for changes in utilization or for costs 
incurred under the contract that do not exceed the upper payment limits 
specified in Sec. 447.362 of this chapter; and
    (2) May be reimbursed by the State at the end of the contract period 
on the basis of the incurred costs, subject to the specified limits.
    Prepaid ambulatory health plan (PAHP) means an entity that--
    (1) Provides medical services to enrollees under contract with the 
State agency, and on the basis of prepaid capitation payments, or other 
payment arrangements that do not use State plan payment rates;
    (2) Does not provide or arrange for, and is not otherwise 
responsible for the provision of any inpatient hospital or institutional 
services for its enrollees; and
    (3) Does not have a comprehensive risk contract.
    Prepaid inpatient health plan (PIHP) means an entity that--
    (1) Provides medical services to enrollees under contract with the 
State agency, and on the basis of prepaid capitation payments, or other 
payment arrangements that do not use State plan payment rates;
    (2) Provides, arranges for, or otherwise has responsibility for the 
provision of any inpatient hospital or institutional services for its 
enrollees; and
    (3) Does not have a comprehensive risk contract.
    Primary care means all health care services and laboratory services 
customarily furnished by or through a general practitioner, family 
physician, internal medicine physician, obstetrician/gynecologist, or 
pediatrician, to the extent the furnishing of those services is legally 
authorized in the State in which the practitioner furnishes them.
    Primary care case management means a system under which a PCCM 
contracts with the State to furnish case management services (which 
include the location, coordination and monitoring of primary health care 
services) to Medicaid recipients.
    Primary care case manager (PCCM) means a physician, a physician 
group practice, an entity that employs or arranges with physicians to 
furnish primary care case management services or, at State option, any 
of the following:
    (1) A physician assistant.
    (2) A nurse practitioner.
    (3) A certified nurse-midwife.
    Risk contract means a contract under which the contractor--
    (1) Assumes risk for the cost of the services covered under the 
contract; and
    (2) Incurs loss if the cost of furnishing the services exceeds the 
payments under the contract.



Sec. 438.6  Contract requirements.

    (a) Regional office review. The CMS Regional Office must review and 
approve all MCO, PIHP, and PAHP contracts, including those risk and 
nonrisk contracts that, on the basis of their value, are not subject to 
the prior approval requirement in Sec. 438.806.
    (b) Entities eligible for comprehensive risk contracts. A State 
agency may enter into a comprehensive risk contract only with the 
following:
    (1) An MCO.
    (2) The entities identified in section 1903(m)(2)(B)(i), (ii), and 
(iii) of the Act.
    (3) Community, Migrant, and Appalachian Health Centers identified in 
section 1903(m)(2)(G) of the Act. Unless they qualify for a total 
exemption

[[Page 197]]

under section 1903(m)(2)(B) of the Act, these entities are subject to 
the regulations governing MCOs under this part.
    (4) An HIO that arranges for services and became operational before 
January 1986.
    (5) An HIO described in section 9517(c)(3) of the Omnibus Budget 
Reconciliation Act of 1985 (as added by section 4734(2) of the Omnibus 
Budget Reconciliation Act of 1990).
    (c) Payments under risk contracts.
    (1) Terminology. As used in this paragraph, the following terms have 
the indicated meanings:
    (i) Actuarially sound capitation rates means capitation rates that--
    (A) Have been developed in accordance with generally accepted 
actuarial principles and practices;
    (B) Are appropriate for the populations to be covered, and the 
services to be furnished under the contract; and
    (C) Have been certified, as meeting the requirements of this 
paragraph (c), by actuaries who meet the qualification standards 
established by the American Academy of Actuaries and follow the practice 
standards established by the Actuarial Standards Board.
    (ii) Adjustments to smooth data means adjustments made, by cost-
neutral methods, across rate cells, to compensate for distortions in 
costs, utilization, or the number of eligibles.
    (iii) Cost neutral means that the mechanism used to smooth data, 
share risk, or adjust for risk will recognize both higher and lower 
expected costs and is not intended to create a net aggregate gain or 
loss across all payments.
    (iv) Incentive arrangement means any payment mechanism under which a 
contractor may receive additional funds over and above the capitation 
rates it was paid for meeting targets specified in the contract.
    (v) Risk corridor means a risk sharing mechanism in which States and 
contractors share in both profits and losses under the contract outside 
of predetermined threshold amount, so that after an initial corridor in 
which the contractor is responsible for all losses or retains all 
profits, the State contributes a portion toward any additional losses, 
and receives a portion of any additional profits.
    (2) Basic requirements. (i) All payments under risk contracts and 
all risk-sharing mechanisms in contracts must be actuarially sound.
    (ii) The contract must specify the payment rates and any risk-
sharing mechanisms, and the actuarial basis for computation of those 
rates and mechanisms.
    (3) Requirements for actuarially sound rates. In setting actuarially 
sound capitation rates, the State must apply the following elements, or 
explain why they are not applicable:
    (i) Base utilization and cost data that are derived from the 
Medicaid population, or if not, are adjusted to make them comparable to 
the Medicaid population.
    (ii) Adjustments made to smooth data and adjustments to account for 
factors such as medical trend inflation, incomplete data, MCO, PIHP, or 
PAHP administration (subject to the limits in paragraph (c)(4)(ii) of 
this section), and utilization;
    (iii) Rate cells specific to the enrolled population, by--
    (A) Eligibility category;
    (B) Age;
    (C) Gender;
    (D) Locality/region; and
    (E) Risk adjustments based on diagnosis or health status (if used).
    (iv) Other payment mechanisms and utilization and cost assumptions 
that are appropriate for individuals with chronic illness, disability, 
ongoing health care needs, or catastrophic claims, using risk 
adjustment, risk sharing, or other appropriate cost-neutral methods.
    (4) Documentation. The State must provide the following 
documentation:
    (i) The actuarial certification of the capitation rates.
    (ii) An assurance (in accordance with paragraph (c)(3) of this 
section) that all payment rates are--
    (A) Based only upon services covered under the State plan (or costs 
directly related to providing these services, for example, MCO, PIHP, or 
PAHP administration).
    (B) Provided under the contract to Medicaid-eligible individuals.

[[Page 198]]

    (iii) The State's projection of expenditures under its previous 
year's contract (or under its FFS program if it did not have a contract 
in the previous year) compared to those projected under the proposed 
contract.
    (iv) An explanation of any incentive arrangements, or stop-loss, 
reinsurance, or any other risk-sharing methodologies under the contract.
    (5) Special contract provisions. (i) Contract provisions for 
reinsurance, stop-loss limits or other risk-sharing methodologies must 
be computed on an actuarially sound basis.
    (ii) If risk corridor arrangements result in payments that exceed 
the approved capitation rates, these excess payments will not be 
considered actuarially sound to the extent that they result in total 
payments that exceed the amount Medicaid would have paid, on a fee-for-
service basis, for the State plan services actually furnished to 
enrolled individuals, plus an amount for MCO, PIHP, or PAHP 
administrative costs directly related to the provision of these 
services.
    (iii) Contracts with incentive arrangements may not provide for 
payment in excess of 105 percent of the approved capitation payments 
attributable to the enrollees or services covered by the incentive 
arrangement, since such total payments will not be considered to be 
actuarially sound.
    (iv) For all incentive arrangements, the contract must provide that 
the arrangement is--
    (A) For a fixed period of time;
    (B) Not to be renewed automatically;
    (C) Made available to both public and private contractors;
    (D) Not conditioned on intergovernmental transfer agreements; and
    (E) Necessary for the specified activities and targets.
    (v) If a State makes payments to providers for graduate medical 
education (GME) costs under an approved State plan, the State must 
adjust the actuarially sound capitation rates to account for the GME 
payments to be made on behalf of enrollees covered under the contract, 
not to exceed the aggregate amount that would have been paid under the 
approved State plan for FFS. States must first establish actuarially 
sound capitation rates prior to making adjustments for GME.
    (d) Enrollment discrimination prohibited. Contracts with MCOs, 
PIHPs, PAHPs, and PCCMs must provide as follows:
    (1) The MCO, PIHP, PAHP, or PCCM accepts individuals eligible for 
enrollment in the order in which they apply without restriction (unless 
authorized by the Regional Administrator), up to the limits set under 
the contract.
    (2) Enrollment is voluntary, except in the case of mandatory 
enrollment programs that meet the conditions set forth in Sec. 
438.50(a).
    (3) The MCO, PIHP, PAHP, or PCCM will not, on the basis of health 
status or need for health care services, discriminate against 
individuals eligible to enroll.
    (4) The MCO, PIHP, PAHP, or PCCM will not discriminate against 
individuals eligible to enroll on the basis of race, color, or national 
origin, and will not use any policy or practice that has the effect of 
discriminating on the basis of race, color, or national origin.
    (e) Services that may be covered. An MCO, PIHP, or PAHP contract may 
cover, for enrollees, services that are in addition to those covered 
under the State plan, although the cost of these services cannot be 
included when determining the payment rates under Sec. 438.6(c).
    (f) Compliance with contracting rules. All contracts under this 
subpart must:
    (1) Comply with all applicable Federal and State laws and 
regulations including title VI of the Civil Rights Act of 1964; title IX 
of the Education Amendments of 1972 (regarding education programs and 
activities); the Age Discrimination Act of 1975; the Rehabilitation Act 
of 1973; and the Americans with Disabilities Act; and
    (2) Meet all the requirements of this section.
    (g) Inspection and audit of financial records. Risk contracts must 
provide that the State agency and the Department may inspect and audit 
any financial records of the entity or its subcontractors.

[[Page 199]]

    (h) Physician incentive plans. (1) MCO, PIHP, and PAHP contracts 
must provide for compliance with the requirements set forth in 
Sec. Sec. 422.208 and 422.210 of this chapter.
    (2) In applying the provisions of Sec. Sec. 422.208 and 422.210 of 
this chapter, references to ``M+C organization'', ``CMS'', and 
``Medicare beneficiaries'' must be read as references to ``MCO, PIHP, or 
PAHP'', ``State agency'' and ``Medicaid recipients'', respectively.
    (i) Advance directives. (1) All MCO and PIHP contracts must provide 
for compliance with the requirements of Sec. 422.128 of this chapter 
for maintaining written policies and procedures for advance directives.
    (2) All PAHP contracts must provide for compliance with the 
requirements of Sec. 422.128 of this chapter for maintaining written 
policies and procedures for advance directives if the PAHP includes, in 
its network, any of those providers listed in Sec. 489.102(a) of this 
chapter.
    (3) The MCO, PIHP, or PAHP subject to this requirement must provide 
adult enrollees with written information on advance directives policies, 
and include a description of applicable State law.
    (4) The information must reflect changes in State law as soon as 
possible, but no later than 90 days after the effective date of the 
change.
    (j) Special rules for certain HIOs. Contracts with HIOs that began 
operating on or after January 1, 1986, and that the statute does not 
explicitly exempt from requirements in section 1903(m) of the Act, are 
subject to all the requirements of this part that apply to MCOs and 
contracts with MCOs. These HIOs may enter into comprehensive risk 
contracts only if they meet the criteria of paragraph (a) of this 
section.
    (k) Additional rules for contracts with PCCMs. A PCCM contract must 
meet the following requirements:
    (1) Provide for reasonable and adequate hours of operation, 
including 24-hour availability of information, referral, and treatment 
for emergency medical conditions.
    (2) Restrict enrollment to recipients who reside sufficiently near 
one of the manager's delivery sites to reach that site within a 
reasonable time using available and affordable modes of transportation.
    (3) Provide for arrangements with, or referrals to, sufficient 
numbers of physicians and other practitioners to ensure that services 
under the contract can be furnished to enrollees promptly and without 
compromise to quality of care.
    (4) Prohibit discrimination in enrollment, disenrollment, and re-
enrollment, based on the recipient's health status or need for health 
care services.
    (5) Provide that enrollees have the right to disenroll from their 
PCCM in accordance with Sec. 438.56(c).
    (l) Subcontracts. All subcontracts must fulfill the requirements of 
this part that are appropriate to the service or activity delegated 
under the subcontract.
    (m) Choice of health professional. The contract must allow each 
enrollee to choose his or her health professional to the extent possible 
and appropriate.



Sec. 438.8  Provisions that apply to PIHPs and PAHPs.

    (a) The following requirements and options apply to PIHPs, PIHP 
contracts, and States with respect to PIHPs, to the same extent that 
they apply to MCOs, MCO contracts, and States for MCOs.
    (1) The contract requirements of Sec. 438.6, except for 
requirements that pertain to HIOs.
    (2) The information requirements in Sec. 438.10.
    (3) The provision against provider discrimination in Sec. 438.12.
    (4) The State responsibility provisions of subpart B of this part 
except Sec. 438.50.
    (5) The enrollee rights and protection provisions in subpart C of 
this part.
    (6) The quality assessment and performance improvement provisions in 
subpart D of this part to the extent that they are applicable to 
services furnished by the PIHP.
    (7) The grievance system provisions in subpart F of this part.
    (8) The certification and program integrity protection provisions 
set forth in subpart H of this part.
    (b) The following requirements and options for PAHPs apply to PAHPs, 
PAHP contracts, and States.

[[Page 200]]

    (1) The contract requirements of Sec. 438.6, except requirements 
for--
    (i) HIOs.
    (ii) Advance directives (unless the PAHP includes any of the 
providers listed in Sec. 489.102) of this chapter.
    (2) All applicable portions of the information requirements in Sec. 
438.10.
    (3) The provision against provider discrimination in Sec. 438.12.
    (4) The State responsibility provisions of subpart B of this part 
except Sec. 438.50.
    (5) The provisions on enrollee rights and protections in subpart C 
of this part.
    (6) Designated portions of subpart D of this part.
    (7) An enrollee's right to a State fair hearing under subpart E of 
part 431 of this chapter.
    (8) Prohibitions against affiliations with individuals debarred by 
Federal agencies in Sec. 438.610.

[67 FR 41095, June 14, 2002, as amended at 67 FR 65505, Oct. 25, 2002]



Sec. 438.10  Information requirements.

    (a) Terminology. As used in this section, the following terms have 
the indicated meanings:
    Enrollee means a Medicaid recipient who is currently enrolled in an 
MCO, PIHP, PAHP, or PCCM in a given managed care program.
    Potential enrollee means a Medicaid recipient who is subject to 
mandatory enrollment or may voluntarily elect to enroll in a given 
managed care program, but is not yet an enrollee of a specific MCO, 
PIHP, PAHP, or PCCM.
    (b) Basic rules. (1) Each State, enrollment broker, MCO, PIHP, PAHP, 
and PCCM must provide all enrollment notices, informational materials, 
and instructional materials relating to enrollees and potential 
enrollees in a manner and format that may be easily understood.
    (2) The State must have in place a mechanism to help enrollees and 
potential enrollees understand the State's managed care program.
    (3) Each MCO and PIHP must have in place a mechanism to help 
enrollees and potential enrollees understand the requirements and 
benefits of the plan.
    (c) Language. The State must do the following:
    (1) Establish a methodology for identifying the prevalent non-
English languages spoken by enrollees and potential enrollees throughout 
the State. ``Prevalent'' means a non-English language spoken by a 
significant number or percentage of potential enrollees and enrollees in 
the State.
    (2) Make available written information in each prevalent non-English 
language.
    (3) Require each MCO, PIHP, PAHP, and PCCM to make its written 
information available in the prevalent non-English languages in its 
particular service area.
    (4) Make oral interpretation services available and require each 
MCO, PIHP, PAHP, and PCCM to make those services available free of 
charge to each potential enrollee and enrollee. This applies to all non-
English languages, not just those that the State identifies as 
prevalent.
    (5) Notify enrollees and potential enrollees, and require each MCO, 
PIHP, PAHP, and PCCM to notify its enrollees--
    (i) That oral interpretation is available for any language and 
written information is available in prevalent languages; and
    (ii) How to access those services.
    (d) Format. (1) Written material must--
    (i) Use easily understood language and format; and
    (ii) Be available in alternative formats and in an appropriate 
manner that takes into consideration the special needs of those who, for 
example, are visually limited or have limited reading proficiency.
    (2) All enrollees and potential enrollees must be informed that 
information is available in alternative formats and how to access those 
formats.
    (e) Information for potential enrollees. (1) The State or its 
contracted representative must provide the information specified in 
paragraph (e)(2) of this section to each potential enrollee as follows:
    (i) At the time the potential enrollee first becomes eligible to 
enroll in a voluntary program, or is first required to enroll in a 
mandatory enrollment program.

[[Page 201]]

    (ii) Within a timeframe that enables the potential enrollee to use 
the information in choosing among available MCOs, PIHPs, PAHPs, or 
PCCMs.
    (2) The information for potential enrollees must include the 
following:
    (i) General information about--
    (A) The basic features of managed care;
    (B) Which populations are excluded from enrollment, subject to 
mandatory enrollment, or free to enroll voluntarily in the program; and
    (C) MCO, PIHP, PAHP, and PCCM responsibilities for coordination of 
enrollee care;
    (ii) Information specific to each MCO, PIHP, PAHP, or PCCM program 
operating in potential enrollee's service area. A summary of the 
following information is sufficient, but the State must provide more 
detailed information upon request:
    (A) Benefits covered.
    (B) Cost sharing, if any.
    (C) Service area.
    (D) Names, locations, telephone numbers of, and non-English language 
spoken by current contracted providers, and including identification of 
providers that are not accepting new patients. For MCOs, PIHPs, and 
PAHPs, this includes at a minimum information on primary care 
physicians, specialists, and hospitals.
    (E) Benefits that are available under the State plan but are not 
covered under the contract, including how and where the enrollee may 
obtain those benefits, any cost sharing, and how transportation is 
provided. For a counseling or referral service that the MCO, PIHP, PAHP, 
or PCCM does not cover because of moral or religious objections, the 
State must provide information about where and how to obtain the 
service.
    (f) General information for all enrollees of MCOs, PIHPs, PAHPs, and 
PCCMs. Information must be furnished to MCO, PIHP, PAHP, and PCCM 
enrollees as follows:
    (1) The State must notify all enrollees of their disenrollment 
rights, at a minimum, annually. For States that choose to restrict 
disenrollment for periods of 90 days or more, States must send the 
notice no less than 60 days before the start of each enrollment period.
    (2) The State, its contracted representative, or the MCO, PIHP, 
PAHP, or PCCM must notify all enrollees of their right to request and 
obtain the information listed in paragraph (f)(6) of this section and, 
if applicable, paragraphs (g) and (h) of this section, at least once a 
year.
    (3) The State, its contracted representative, or the MCO, PIHP, 
PAHP, or PCCM must furnish to each of its enrollees the information 
specified in paragraph (f)(6) of this section and, if applicable, 
paragraphs (g) and (h) of this section, within a reasonable time after 
the MCO, PIHP, PAHP, or PCCM receives, from the State or its contracted 
representative, notice of the recipient's enrollment.
    (4) The State, its contracted representative, or the MCO, PIHP, 
PAHP, or PCCM must give each enrollee written notice of any change (that 
the State defines as ``significant'') in the information specified in 
paragraphs (f)(6) of this section and, if applicable, paragraphs (g) and 
(h) of this section, at least 30 days before the intended effective date 
of the change.
    (5) The MCO, PIHP, and, when appropriate, the PAHP or PCCM, must 
make a good faith effort to give written notice of termination of a 
contracted provider, within 15 days after receipt or issuance of the 
termination notice, to each enrollee who received his or her primary 
care from, or was seen on a regular basis by, the terminated provider.
    (6) The State, its contracted representative, or the MCO, PIHP, 
PAHP, or PCCM must provide the following information to all enrollees:
    (i) Names, locations, telephone numbers of, and non-English 
languages spoken by current contracted providers in the enrollee's 
service area, including identification of providers that are not 
accepting new patients. For MCOs, PIHPs, and PAHPs this includes, at a 
minimum, information on primary care physicians, specialists, and 
hospitals.
    (ii) Any restrictions on the enrollee's freedom of choice among 
network providers.

[[Page 202]]

    (iii) Enrollee rights and protections, as specified in Sec. 
438.100.
    (iv) Information on grievance and fair hearing procedures, and for 
MCO and PIHP enrollees, the information specified in Sec. 438.10(g)(1), 
and for PAHP enrollees, the information specified in Sec. 438.10(h)(1).
    (v) The amount, duration, and scope of benefits available under the 
contract in sufficient detail to ensure that enrollees understand the 
benefits to which they are entitled.
    (vi) Procedures for obtaining benefits, including authorization 
requirements.
    (vii) The extent to which, and how, enrollees may obtain benefits, 
including family planning services, from out-of-network providers.
    (viii) The extent to which, and how, after-hours and emergency 
coverage are provided, including:
    (A) What constitutes emergency medical condition, emergency 
services, and poststabilization services, with reference to the 
definitions in Sec. 438.114(a).
    (B) The fact that prior authorization is not required for emergency 
services.
    (C) The process and procedures for obtaining emergency services, 
including use of the 911-telephone system or its local equivalent.
    (D) The locations of any emergency settings and other locations at 
which providers and hospitals furnish emergency services and 
poststabilization services covered under the contract.
    (E) The fact that, subject to the provisions of this section, the 
enrollee has a right to use any hospital or other setting for emergency 
care.
    (ix) The poststabilization care services rules set forth at Sec. 
422.113(c) of this chapter.
    (x) Policy on referrals for specialty care and for other benefits 
not furnished by the enrollee's primary care provider.
    (xi) Cost sharing, if any.
    (xii) How and where to access any benefits that are available under 
the State plan but are not covered under the contract, including any 
cost sharing, and how transportation is provided. For a counseling or 
referral service that the MCO, PIHP, PAHP, or PCCM does not cover 
because of moral or religious objections, the MCO, PIHP, PAHP, or PCCM 
need not furnish information on how and where to obtain the service. The 
State must provide information on how and where to obtain the service.
    (g) Specific information requirements for enrollees of MCOs and 
PIHPs. In addition to the requirements in Sec. 438.10(f), the State, 
its contracted representative, or the MCO and PIHP must provide the 
following information to their enrollees:
    (1) Grievance, appeal, and fair hearing procedures and timeframes, 
as provided in Sec. Sec. 438.400 through 438.424, in a State-developed 
or State-approved description, that must include the following:
    (i) For State fair hearing--
    (A) The right to hearing;
    (B) The method for obtaining a hearing; and
    (C) The rules that govern representation at the hearing.
    (ii) The right to file grievances and appeals.
    (iii) The requirements and timeframes for filing a grievance or 
appeal.
    (iv) The availability of assistance in the filing process.
    (v) The toll-free numbers that the enrollee can use to file a 
grievance or an appeal by phone.
    (vi) The fact that, when requested by the enrollee--
    (A) Benefits will continue if the enrollee files an appeal or a 
request for State fair hearing within the timeframes specified for 
filing; and
    (B) The enrollee may be required to pay the cost of services 
furnished while the appeal is pending, if the final decision is adverse 
to the enrollee.
    (vii) Any appeal rights that the State chooses to make available to 
providers to challenge the failure of the organization to cover a 
service.
    (2) Advance directives, as set forth in Sec. 438.6(i)(2).
    (3) Additional information that is available upon request, including 
the following:
    (i) Information on the structure and operation of the MCO or PIHP.
    (ii) Physician incentive plans as set forth in Sec. 438.6(h) of 
this chapter.
    (h) Specific information for PAHPs. The State, its contracted 
representative, or

[[Page 203]]

the PAHP must provide the following information to their enrollees:
    (1) The right to a State fair hearing, including the following:
    (i) The right to a hearing.
    (ii) The method for obtaining a hearing.
    (iii) The rules that govern representation.
    (2) Advance directives, as set forth in Sec. 438.6(i)(2), to the 
extent that the PAHP includes any of the providers listed in Sec. 
489.102(a) of this chapter.
    (3) Upon request, physician incentive plans as set forth in Sec. 
438.6(h).
    (i) Special rules: States with mandatory enrollment under State plan 
authority--(1) Basic rule. If the State plan provides for mandatory 
enrollment under Sec. 438.50, the State or its contracted 
representative must provide information on MCOs and PCCMs (as specified 
in paragraph (i)(3) of this section), either directly or through the MCO 
or PCCM.
    (2) When and how the information must be furnished. The information 
must be furnished as follows:
    (i) For potential enrollees, within the timeframe specified in Sec. 
438.10(e)(1).
    (ii) For enrollees, annually and upon request.
    (iii) In a comparative, chart-like format.
    (3) Required information. Some of the information is the same as the 
information required for potential enrollees under paragraph (e) of this 
section and for enrollees under paragraph (f) of this section. However, 
all of the information in this paragraph is subject to the timeframe and 
format requirements of paragraph (i)(2) of this section, and includes 
the following for each contracting MCO or PCCM in the potential 
enrollees and enrollee's service area:
    (i) The MCO's or PCCM's service area.
    (ii) The benefits covered under the contract.
    (iii) Any cost sharing imposed by the MCO or PCCM.
    (iv) To the extent available, quality and performance indicators, 
including enrollee satisfaction.

[67 FR 41095, June 14, 2002; 67 FR 65505, Oct. 25, 2002]



Sec. 438.12  Provider discrimination prohibited.

    (a) General rules. (1) An MCO, PIHP, or PAHP may not discriminate 
for the participation, reimbursement, or indemnification of any provider 
who is acting within the scope of his or her license or certification 
under applicable State law, solely on the basis of that license or 
certification. If an MCO, PIHP, or PAHP declines to include individual 
or groups of providers in its network, it must give the affected 
providers written notice of the reason for its decision.
    (2) In all contracts with health care professionals, an MCO, PIHP, 
or PAHP must comply with the requirements specified in Sec. 438.214.
    (b) Construction. Paragraph (a) of this section may not be construed 
to--
    (1) Require the MCO, PIHP, or PAHP to contract with providers beyond 
the number necessary to meet the needs of its enrollees;
    (2) Preclude the MCO, PIHP, or PAHP from using different 
reimbursement amounts for different specialties or for different 
practitioners in the same specialty; or
    (3) Preclude the MCO, PIHP, or PAHP from establishing measures that 
are designed to maintain quality of services and control costs and are 
consistent with its responsibilities to enrollees.



                    Subpart B_State Responsibilities



Sec. 438.50  State Plan requirements.

    (a) General rule. A State plan that requires Medicaid recipients to 
enroll in managed care entities must comply with the provisions of this 
section, except when the State imposes the requirement--
    (1) As part of a demonstration project under section 1115 of the 
Act; or
    (2) Under a waiver granted under section 1915(b) of the Act.
    (b) State plan information. The plan must specify--
    (1) The types of entities with which the State contracts;
    (2) The payment method it uses (for example, whether fee-for-service 
or capitation);
    (3) Whether it contracts on a comprehensive risk basis; and

[[Page 204]]

    (4) The process the State uses to involve the public in both design 
and initial implementation of the program and the methods it uses to 
ensure ongoing public involvement once the State plan has been 
implemented.
    (c) State plan assurances. The plan must provide assurances that the 
State meets applicable requirements of the following statute and 
regulations:
    (1) Section 1903(m) of the Act, for MCOs and MCO contracts.
    (2) Section 1905(t) of the Act, for PCCMs and PCCM contracts.
    (3) Section 1932(a)(1)(A) of the Act, for the State's option to 
limit freedom of choice by requiring recipients to receive their 
benefits through managed care entities.
    (4) This part, for MCOs and PCCMs.
    (5) Part 434 of this chapter, for all contracts.
    (6) Section 438.6(c), for payments under any risk contracts, and 
Sec. 447.362 of this chapter for payments under any nonrisk contracts.
    (d) Limitations on enrollment. The State must provide assurances 
that, in implementing the State plan managed care option, it will not 
require the following groups to enroll in an MCO or PCCM:
    (1) Recipients who are also eligible for Medicare.
    (2) Indians who are members of Federally recognized tribes, except 
when the MCO or PCCM is--
    (i) The Indian Health Service; or
    (ii) An Indian health program or Urban Indian program operated by a 
tribe or tribal organization under a contract, grant, cooperative 
agreement or compact with the Indian Health Service.
    (3) Children under 19 years of age who are--
    (i) Eligible for SSI under title XVI;
    (ii) Eligible under section 1902(e)(3) of the Act;
    (iii) In foster care or other out-of-home placement;
    (iv) Receiving foster care or adoption assistance; or
    (v) Receiving services through a family-centered, community-based, 
coordinated care system that receives grant funds under section 
501(a)(1)(D) of title V, and is defined by the State in terms of either 
program participation or special health care needs.
    (e) Priority for enrollment. The State must have an enrollment 
system under which recipients already enrolled in an MCO or PCCM are 
given priority to continue that enrollment if the MCO or PCCM does not 
have the capacity to accept all those seeking enrollment under the 
program.
    (f) Enrollment by default. (1) For recipients who do not choose an 
MCO or PCCM during their enrollment period, the State must have a 
default enrollment process for assigning those recipients to contracting 
MCOs and PCCMs.
    (2) The process must seek to preserve existing provider-recipient 
relationships and relationships with providers that have traditionally 
served Medicaid recipients. If that is not possible, the State must 
distribute the recipients equitably among qualified MCOs and PCCMs 
available to enroll them, excluding those that are subject to the 
intermediate sanction described in Sec. 438.702(a)(4).
    (3) An ``existing provider-recipient relationship'' is one in which 
the provider was the main source of Medicaid services for the recipient 
during the previous year. This may be established through State records 
of previous managed care enrollment or fee-for-service experience, or 
through contact with the recipient.
    (4) A provider is considered to have ``traditionally served'' 
Medicaid recipients if it has experience in serving the Medicaid 
population.



Sec. 438.52  Choice of MCOs, PIHPs, PAHPs, and PCCMs.

    (a) General rule. Except as specified in paragraphs (b) and (c) of 
this section, a State that requires Medicaid recipients to enroll in an 
MCO, PIHP, PAHP, or PCCM must give those recipients a choice of at least 
two entities.
    (b) Exception for rural area residents. (1) Under any of the 
following programs, and subject to the requirements of paragraph (b)(2) 
of this section, a State may limit a rural area resident to a single 
MCO, PIHP, PAHP, or PCCM system:
    (i) A program authorized by a plan amendment under section 1932(a) 
of the Act.

[[Page 205]]

    (ii) A waiver under section 1115 of the Act.
    (iii) A waiver under section 1915(b) of the Act.
    (2) A State that elects the option provided under paragraph (b)(1) 
of this section, must permit the recipient--
    (i) To choose from at least two physicians or case managers; and
    (ii) To obtain services from any other provider under any of the 
following circumstances:
    (A) The service or type of provider (in terms of training, 
experience, and specialization) is not available within the MCO, PIHP, 
PAHP, or PCCM network.
    (B) The provider is not part of the network, but is the main source 
of a service to the recipient, provided that--
    (1) The provider is given the opportunity to become a participating 
provider under the same requirements for participation in the MCO, PIHP, 
PAHP, or PCCM network as other network providers of that type.
    (2) If the provider chooses not to join the network, or does not 
meet the necessary qualification requirements to join, the enrollee will 
be transitioned to a participating provider within 60 days (after being 
given an opportunity to select a provider who participates).
    (C) The only plan or provider available to the recipient does not, 
because of moral or religious objections, provide the service the 
enrollee seeks.
    (D) The recipient's primary care provider or other provider 
determines that the recipient needs related services that would subject 
the recipient to unnecessary risk if received separately (for example, a 
cesarean section and a tubal ligation) and not all of the related 
services are available within the network.
    (E) The State determines that other circumstances warrant out-of-
network treatment.
    (3) As used in this paragraph, ``rural area'' is any area other than 
an ``urban area'' as defined in Sec. 412.62(f)(1)(ii) of this chapter.
    (c) Exception for certain health insuring organizations (HIOs). The 
State may limit recipients to a single HIO if--
    (1) The HIO is one of those described in section 1932(a)(3)(C) of 
the Act; and
    (2) The recipient who enrolls in the HIO has a choice of at least 
two primary care providers within the entity.
    (d) Limitations on changes between primary care providers. For an 
enrollee of a single MCO, PIHP, PAHP, or HIO under paragraph (b) or (c) 
of this section, any limitation the State imposes on his or her freedom 
to change between primary care providers may be no more restrictive than 
the limitations on disenrollment under Sec. 438.56(c).

[67 FR 41095, June 14, 2002; 67 FR 65505, Oct. 25, 2002]



Sec. 438.56  Disenrollment: Requirements and limitations.

    (a) Applicability. The provisions of this section apply to all 
managed care arrangements whether enrollment is mandatory or voluntary 
and whether the contract is with an MCO, a PIHP, a PAHP, or a PCCM.
    (b) Disenrollment requested by the MCO, PIHP, PAHP, or PCCM. All 
MCO, PIHP, PAHP, and PCCM contracts must--(1) Specify the reasons for 
which the MCO, PIHP, PAHP, or PCCM may request disenrollment of an 
enrollee;
    (2) Provide that the MCO, PIHP, PAHP, or PCCM may not request 
disenrollment because of an adverse change in the enrollee's health 
status, or because of the enrollee's utilization of medical services, 
diminished mental capacity, or uncooperative or disruptive behavior 
resulting from his or her special needs (except when his or her 
continued enrollment in the MCO, PIHP, PAHP, or PCCM seriously impairs 
the entity's ability to furnish services to either this particular 
enrollee or other enrollees); and
    (3) Specify the methods by which the MCO, PIHP, PAHP, or PCCM 
assures the agency that it does not request disenrollment for reasons 
other than those permitted under the contract.
    (c) Disenrollment requested by the enrollee. If the State chooses to 
limit disenrollment, its MCO, PIHP, PAHP, and PCCM contracts must 
provide that a recipient may request disenrollment as follows:
    (1) For cause, at any time.
    (2) Without cause, at the following times:

[[Page 206]]

    (i) During the 90 days following the date of the recipient's initial 
enrollment with the MCO, PIHP, PAHP, or PCCM, or the date the State 
sends the recipient notice of the enrollment, whichever is later.
    (ii) At least once every 12 months thereafter.
    (iii) Upon automatic reenrollment under paragraph (g) of this 
section, if the temporary loss of Medicaid eligibility has caused the 
recipient to miss the annual disenrollment opportunity.
    (iv) When the State imposes the intermediate sanction specified in 
Sec. 438.702(a)(3).
    (d) Procedures for disenrollment-- (1) Request for disenrollment. 
The recipient (or his or her representative) must submit an oral or 
written request--
    (i) To the State agency (or its agent); or
    (ii) To the MCO, PIHP, PAHP, or PCCM, if the State permits MCOs, 
PIHP, PAHPs, and PCCMs to process disenrollment requests.
    (2) Cause for disenrollment. The following are cause for 
disenrollment:
    (i) The enrollee moves out of the MCO's, PIHP's, PAHP's, or PCCM's 
service area.
    (ii) The plan does not, because of moral or religious objections, 
cover the service the enrollee seeks.
    (iii) The enrollee needs related services (for example a cesarean 
section and a tubal ligation) to be performed at the same time; not all 
related services are available within the network; and the enrollee's 
primary care provider or another provider determines that receiving the 
services separately would subject the enrollee to unnecessary risk.
    (iv) Other reasons, including but not limited to, poor quality of 
care, lack of access to services covered under the contract, or lack of 
access to providers experienced in dealing with the enrollee's health 
care needs.
    (3) MCO, PIHP, PAHP, or PCCM action on request. (i) An MCO, PIHP, 
PAHP, or PCCM may either approve a request for disenrollment or refer 
the request to the State.
    (ii) If the MCO, PIHP, PAHP, PCCM, or State agency (whichever is 
responsible) fails to make a disenrollment determination so that the 
recipient can be disenrolled within the timeframes specified in 
paragraph (e)(1) of this section, the disenrollment is considered 
approved.
    (4) State agency action on request. For a request received directly 
from the recipient, or one referred by the MCO, PIHP, PAHP, or PCCM, the 
State agency must take action to approve or disapprove the request based 
on the following:
    (i) Reasons cited in the request.
    (ii) Information provided by the MCO, PIHP, PAHP, or PCCM at the 
agency's request.
    (iii) Any of the reasons specified in paragraph (d)(2) of this 
section.
    (5) Use of the MCO, PIHP, PAHP, or PCCM grievance procedures. (i) 
The State agency may require that the enrollee seek redress through the 
MCO, PIHP, PAHP, or PCCM's grievance system before making a 
determination on the enrollee's request.
    (ii) The grievance process, if used, must be completed in time to 
permit the disenrollment (if approved) to be effective in accordance 
with the timeframe specified in Sec. 438.56(e)(1).
    (iii) If, as a result of the grievance process, the MCO, PIHP, PAHP, 
or PCCM approves the disenrollment, the State agency is not required to 
make a determination.
    (e) Timeframe for disenrollment determinations. (1) Regardless of 
the procedures followed, the effective date of an approved disenrollment 
must be no later than the first day of the second month following the 
month in which the enrollee or the MCO, PIHP, PAHP, or PCCM files the 
request.
    (2) If the MCO, PIHP, PAHP, or PCCM or the State agency (whichever 
is responsible) fails to make the determination within the timeframes 
specified in paragraph (e)(1) of this section, the disenrollment is 
considered approved.
    (f) Notice and appeals. A State that restricts disenrollment under 
this section must take the following actions:
    (1) Provide that enrollees and their representatives are given 
written notice of disenrollment rights at least 60 days before the start 
of each enrollment period.
    (2) Ensure access to State fair hearing for any enrollee 
dissatisfied with a

[[Page 207]]

State agency determination that there is not good cause for 
disenrollment.
    (g) Automatic reenrollment: Contract requirement. If the State plan 
so specifies, the contract must provide for automatic reenrollment of a 
recipient who is disenrolled solely because he or she loses Medicaid 
eligibility for a period of 2 months or less.



Sec. 438.58  Conflict of interest safeguards.

    (a) As a condition for contracting with MCOs, PIHPs, or PAHPs, a 
State must have in effect safeguards against conflict of interest on the 
part of State and local officers and employees and agents of the State 
who have responsibilities relating to the MCO, PIHP, or PAHP contracts 
or the default enrollment process specified in Sec. 438.50(f).
    (b) These safeguards must be at least as effective as the safeguards 
specified in section 27 of the Office of Federal Procurement Policy Act 
(41 U.S.C. 423).



Sec. 438.60  Limit on payment to other providers.

    The State agency must ensure that no payment is made to a provider 
other than the MCO, PIHP, or PAHP for services available under the 
contract between the State and the MCO, PIHP, or PAHP, except when these 
payments are provided for in title XIX of the Act, in 42 CFR, or when 
the State agency has adjusted the capitation rates paid under the 
contract, in accordance with Sec. 438.6(c)(5)(v), to make payments for 
graduate medical education.



Sec. 438.62  Continued services to recipients.

    The State agency must arrange for Medicaid services to be provided 
without delay to any Medicaid enrollee of an MCO, PIHP, PAHP, or PCCM 
whose contract is terminated and for any Medicaid enrollee who is 
disenrolled from an MCO, PIHP, PAHP, or PCCM for any reason other than 
ineligibility for Medicaid.



Sec. 438.66  Monitoring procedures.

    The State agency must have in effect procedures for monitoring the 
MCO's, PIHP's, or PAHP's operations, including, at a minimum, operations 
related to the following:
    (a) Recipient enrollment and disenrollment.
    (b) Processing of grievances and appeals.
    (c) Violations subject to intermediate sanctions, as set forth in 
subpart I of this part.
    (d) Violations of the conditions for FFP, as set forth in subpart J 
of this part.
    (e) All other provisions of the contract, as appropriate.



                Subpart C_Enrollee Rights and Protections



Sec. 438.100  Enrollee rights.

    (a) General rule. The State must ensure that--
    (1) Each MCO and PIHP has written policies regarding the enrollee 
rights specified in this section; and
    (2) Each MCO, PIHP, PAHP, and PCCM complies with any applicable 
Federal and State laws that pertain to enrollee rights, and ensures that 
its staff and affiliated providers take those rights into account when 
furnishing services to enrollees.
    (b) Specific rights-- (1) Basic requirement. The State must ensure 
that each managed care enrollee is guaranteed the rights as specified in 
paragraphs (b)(2) and (b)(3) of this section.
    (2) An enrollee of an MCO, PIHP, PAHP, or PCCM has the following 
rights: The right to --
    (i) Receive information in accordance with Sec. 438.10.
    (ii) Be treated with respect and with due consideration for his or 
her dignity and privacy.
    (iii) Receive information on available treatment options and 
alternatives, presented in a manner appropriate to the enrollee's 
condition and ability to understand. (The information requirements for 
services that are not covered under the contract because of moral or 
religious objections are set forth in Sec. 438.10(f)(6)(xii).)
    (iv) Participate in decisions regarding his or her health care, 
including the right to refuse treatment.

[[Page 208]]

    (v) Be free from any form of restraint or seclusion used as a means 
of coercion, discipline, convenience or retaliation, as specified in 
other Federal regulations on the use of restraints and seclusion.
    (vi) If the privacy rule, as set forth in 45 CFR parts 160 and 164 
subparts A and E, applies, request and receive a copy of his or her 
medical records, and request that they be amended or corrected, as 
specified in 45 CFR Sec. 164.524 and 164.526.
    (3) An enrollee of an MCO, PIHP, or PAHP (consistent with the scope 
of the PAHP's contracted services) has the right to be furnished health 
care services in accordance with Sec. Sec. 438.206 through 438.210.
    (c) Free exercise of rights. The State must ensure that each 
enrollee is free to exercise his or her rights, and that the exercise of 
those rights does not adversely affect the way the MCO, PIHP, PAHP, or 
PCCM and its providers or the State agency treat the enrollee.
    (d) Compliance with other Federal and State laws. The State must 
ensure that each MCO, PIHP, PAHP, and PCCM complies with any other 
applicable Federal and State laws (such as: title VI of the Civil Rights 
Act of 1964 as implemented by regulations at 45 CFR part 80; the Age 
Discrimination Act of 1975 as implemented by regulations at 45 CFR part 
91; the Rehabilitation Act of 1973; and titles II and III of the 
Americans with Disabilities Act; and other laws regarding privacy and 
confidentiality).

[67 FR 41095, June 14, 2002; 67 FR 65505, Oct. 25, 2002]



Sec. 438.102  Provider-enrollee communications.

    (a) General rules. (1) An MCO, PIHP, or PAHP may not prohibit, or 
otherwise restrict, a health care professional acting within the lawful 
scope of practice, from advising or advocating on behalf of an enrollee 
who is his or her patient, for the following:
    (i) The enrollee's health status, medical care, or treatment 
options, including any alternative treatment that may be self-
administered.
    (ii) Any information the enrollee needs in order to decide among all 
relevant treatment options.
    (iii) The risks, benefits, and consequences of treatment or 
nontreatment.
    (iv) The enrollee's right to participate in decisions regarding his 
or her health care, including the right to refuse treatment, and to 
express preferences about future treatment decisions.
    (2) Subject to the information requirements of paragraph (b) of this 
section, an MCO, PIHP, or PAHP that would otherwise be required to 
provide, reimburse for, or provide coverage of, a counseling or referral 
service because of the requirement in paragraph (a)(1) of this section 
is not required to do so if the MCO, PIHP, or PAHP objects to the 
service on moral or religious grounds.
    (b) Information requirements: MCO, PIHP, and PAHP responsibility. 
(1) An MCO, PIHP, or PAHP that elects the option provided in paragraph 
(a)(2) of this section must furnish information about the services it 
does not cover as follows:
    (i) To the State--
    (A) With its application for a Medicaid contract; and
    (B) Whenever it adopts the policy during the term of the contract.
    (ii) Consistent with the provisions of Sec. 438.10--
    (A) To potential enrollees, before and during enrollment; and
    (B) To enrollees, within 90 days after adopting the policy with 
respect to any particular service. (Although this timeframe would be 
sufficient to entitle the MCO, PIHP, or PAHP to the option provided in 
paragraph (a)(2) of this section, the overriding rule in Sec. 
438.10(f)(4) requires the State, its contracted representative, or MCO, 
PIHP, or PAHP to furnish the information at least 30 days before the 
effective date of the policy.)
    (2) As specified in Sec. 438.10, paragraphs (e) and (f), the 
information that MCOs, PIHPs, and PAHPs must furnish to enrollees and 
potential enrollees does not include how and where to obtain the service 
excluded under paragraph (a)(2) of this section.
    (c) Information requirements: State responsibility. For each service 
excluded

[[Page 209]]

by an MCO, PIHP, or PAHP under paragraph (a)(2) of this section, the 
State must provide information on how and where to obtain the service, 
as specified in Sec. 438.10, paragraphs (e)(2)(ii)(E) and (f)(6)(xii).
    (d) Sanction. An MCO that violates the prohibition of paragraph 
(a)(1) of this section is subject to intermediate sanctions under 
subpart I of this part.

[67 FR 41095, June 14, 2002; 67 FR 65505, Oct. 25, 2002]



Sec. 438.104  Marketing activities.

    (a) Terminology. As used in this section, the following terms have 
the indicated meanings:
    Cold-call marketing means any unsolicited personal contact by the 
MCO, PIHP, PAHP, or PCCM with a potential enrollee for the purpose of 
marketing as defined in this paragraph.
    Marketing means any communication, from an MCO, PIHP, PAHP, or PCCM 
to a Medicaid recipient who is not enrolled in that entity, that can 
reasonably be interpreted as intended to influence the recipient to 
enroll in that particular MCO's, PIHP's, PAHP's, or PCCM's Medicaid 
product, or either to not enroll in, or to disenroll from, another 
MCO's, PIHP's, PAHP's, or PCCM's Medicaid product.
    Marketing materials means materials that--
    (1) Are produced in any medium, by or on behalf of an MCO, PIHP, 
PAHP, or PCCM; and
    (2) Can reasonably be interpreted as intended to market to potential 
enrollees.
    MCO, PIHP, PAHP, or PCCM include any of the entity's employees, 
affiliated providers, agents, or contractors.
    (b) Contract requirements. Each contract with an MCO, PIHP, PAHP, or 
PCCM must comply with the following requirements:
    (1) Provide that the entity--
    (i) Does not distribute any marketing materials without first 
obtaining State approval;
    (ii) Distributes the materials to its entire service area as 
indicated in the contract;
    (iii) Complies with the information requirements of Sec. 438.10 to 
ensure that, before enrolling, the recipient receives, from the entity 
or the State, the accurate oral and written information he or she needs 
to make an informed decision on whether to enroll;
    (iv) Does not seek to influence enrollment in conjunction with the 
sale or offering of any private insurance; and
    (v) Does not, directly or indirectly, engage in door-to-door, 
telephone, or other cold-call marketing activities.
    (2) Specify the methods by which the entity assures the State agency 
that marketing, including plans and materials, is accurate and does not 
mislead, confuse, or defraud the recipients or the State agency. 
Statements that will be considered inaccurate, false, or misleading 
include, but are not limited to, any assertion or statement (whether 
written or oral) that--
    (i) The recipient must enroll in the MCO, PIHP, PAHP, or PCCM in 
order to obtain benefits or in order to not lose benefits; or
    (ii) The MCO, PIHP, PAHP, or PCCM is endorsed by CMS, the Federal or 
State government, or similar entity.
    (c) State agency review. In reviewing the marketing materials 
submitted by the entity, the State must consult with the Medical Care 
Advisory Committee established under Sec. 431.12 of this chapter or an 
advisory committee with similar membership.



Sec. 438.106  Liability for payment.

    Each MCO, PIHP, and PAHP must provide that its Medicaid enrollees 
are not held liable for any of the following:
    (a) The MCO's, PIHP's, or PAHP's debts, in the event of the entity's 
insolvency.
    (b) Covered services provided to the enrollee, for which--
    (1) The State does not pay the MCO, PIHP, or PAHP; or
    (2) The State, or the MCO, PIHP, or PAHP does not pay the individual 
or health care provider that furnishes the services under a contractual, 
referral, or other arrangement.
    (c) Payments for covered services furnished under a contract, 
referral, or other arrangement, to the extent that those payments are in 
excess of the amount that the enrollee would owe if the MCO, PIHP, or 
PAHP provided the services directly.

[[Page 210]]



Sec. 438.108  Cost sharing.

    The contract must provide that any cost sharing imposed on Medicaid 
enrollees is in accordance with Sec. Sec. 447.50 through 447.60 of this 
chapter.



Sec. 438.114  Emergency and poststabilization services.

    (a) Definitions. As used in this section--
    Emergency medical condition means a medical condition manifesting 
itself by acute symptoms of sufficient severity (including severe pain) 
that a prudent layperson, who possesses an average knowledge of health 
and medicine, could reasonably expect the absence of immediate medical 
attention to result in the following:
    (1) Placing the health of the individual (or, with respect to a 
pregnant woman, the health of the woman or her unborn child) in serious 
jeopardy.
    (2) Serious impairment to bodily functions.
    (3) Serious dysfunction of any bodily organ or part.
    Emergency services means covered inpatient and outpatient services 
that are as follows:
    (1) Furnished by a provider that is qualified to furnish these 
services under this title.
    (2) Needed to evaluate or stabilize an emergency medical condition.
    Poststabilization care services means covered services, related to 
an emergency medical condition that are provided after an enrollee is 
stabilized in order to maintain the stabilized condition, or, under the 
circumstances described in paragraph (e) of this section, to improve or 
resolve the enrollee's condition.
    (b) Coverage and payment: General rule. The following entities are 
responsible for coverage and payment of emergency services and 
poststabilization care services.
    (1) The MCO, PIHP, or PAHP.
    (2) The PCCM that has a risk contract that covers these services.
    (3) The State, in the case of a PCCM that has a fee-for-service 
contract.
    (c) Coverage and payment: Emergency services. (1) The entities 
identified in paragraph (b) of this section--
    (i) Must cover and pay for emergency services regardless of whether 
the provider that furnishes the services has a contract with the MCO, 
PIHP, PAHP, or PCCM; and
    (ii) May not deny payment for treatment obtained under either of the 
following circumstances:
    (A) An enrollee had an emergency medical condition, including cases 
in which the absence of immediate medical attention would not have had 
the outcomes specified in paragraphs (1), (2), and (3) of the definition 
of emergency medical condition in paragraph (a) of this section.
    (B) A representative of the MCO, PIHP, PAHP, or PCCM instructs the 
enrollee to seek emergency services.
    (2) A PCCM must--
    (i) Allow enrollees to obtain emergency services outside the primary 
care case management system regardless of whether the case manager 
referred the enrollee to the provider that furnishes the services; and
    (ii) Pay for the services if the manager's contract is a risk 
contract that covers those services.
    (d) Additional rules for emergency services. (1) The entities 
specified in paragraph (b) of this section may not--
    (i) Limit what constitutes an emergency medical condition with 
reference to paragraph (a) of this section, on the basis of lists of 
diagnoses or symptoms; and
    (ii) Refuse to cover emergency services based on the emergency room 
provider, hospital, or fiscal agent not notifying the enrollee's primary 
care provider, MCO, PIHP, PAHP or applicable State entity of the 
enrollee's screening and treatment within 10 calendar days of 
presentation for emergency services.
    (2) An enrollee who has an emergency medical condition may not be 
held liable for payment of subsequent screening and treatment needed to 
diagnose the specific condition or stabilize the patient.
    (3) The attending emergency physician, or the provider actually 
treating the enrollee, is responsible for determining when the enrollee 
is sufficiently stabilized for transfer or discharge, and that 
determination is binding on the entities identified in paragraph (b) of 
this section as responsible for coverage and payment.

[[Page 211]]

    (e) Coverage and payment: Poststabilization care services. 
Poststabilization care services are covered and paid for in accordance 
with provisions set forth at Sec. 422.113(c) of this chapter. In 
applying those provisions, reference to ``M+C organization'' must be 
read as reference to the entities responsible for Medicaid payment, as 
specified in paragraph (b) of this section.
    (f) Applicability to PIHPs and PAHPs. To the extent that services 
required to treat an emergency medical condition fall within the scope 
of the services for which the PIHP or PAHP is responsible, the rules 
under this section apply.

[67 FR 41095, June 14, 2002; 67 FR 65505, Oct. 25, 2002]



Sec. 438.116  Solvency standards.

    (a) Requirement for assurances (1) Each MCO, PIHP, and PAHP that is 
not a Federally qualified HMO (as defined in section 1310 of the Public 
Health Service Act) must provide assurances satisfactory to the State 
showing that its provision against the risk of insolvency is adequate to 
ensure that its Medicaid enrollees will not be liable for the MCO's, 
PIHP's, or PAHP's debts if the entity becomes insolvent.
    (2) Federally qualified HMOs, as defined in section 1310 of the 
Public Health Service Act, are exempt from this requirement.
    (b) Other requirements--(1) General rule. Except as provided in 
paragraph (b)(2) of this section, an MCO or PIHP, must meet the solvency 
standards established by the State for private health maintenance 
organizations, or be licensed or certified by the State as a risk-
bearing entity.
    (2) Exception. Paragraph (b)(1) of this section does not apply to an 
MCO or PIHP, that meets any of the following conditions:
    (i) Does not provide both inpatient hospital services and physician 
services.
    (ii) Is a public entity.
    (iii) Is (or is controlled by) one or more Federally qualified 
health centers and meets the solvency standards established by the State 
for those centers.
    (iv) Has its solvency guaranteed by the State.

[67 FR 41095, June 14, 2002; 67 FR 65505, Oct. 25, 2002]



        Subpart D_Quality Assessment and Performance Improvement



Sec. 438.200  Scope.

    This subpart implements section 1932(c)(1) of the Act and sets forth 
specifications for quality assessment and performance improvement 
strategies that States must implement to ensure the delivery of quality 
health care by all MCOs, PIHPs, and PAHPs. It also establishes standards 
that States, MCOs, PIHPs, and PAHPs must meet.



Sec. 438.202  State responsibilities.

    Each State contracting with an MCO or PIHP must do the following:
    (a) Have a written strategy for assessing and improving the quality 
of managed care services offered by all MCOs and PIHPs.
    (b) Obtain the input of recipients and other stakeholders in the 
development of the strategy and make the strategy available for public 
comment before adopting it in final.
    (c) Ensure that MCOs, PIHPs, and PAHPs comply with standards 
established by the State, consistent with this subpart.
    (d) Conduct periodic reviews to evaluate the effectiveness of the 
strategy, and update the strategy periodically, as needed.
    (e) Submit to CMS the following:
    (1) A copy of the initial strategy, and a copy of the revised 
strategy whenever significant changes are made.
    (2) Regular reports on the implementation and effectiveness of the 
strategy.



Sec. 438.204  Elements of State quality strategies.

    At a minimum, State strategies must include the following:
    (a) The MCO and PIHP contract provisions that incorporate the 
standards specified in this subpart.
    (b) Procedures that--
    (1) Assess the quality and appropriateness of care and services 
furnished to all Medicaid enrollees under

[[Page 212]]

the MCO and PIHP contracts, and to individuals with special health care 
needs.
    (2) Identify the race, ethnicity, and primary language spoken of 
each Medicaid enrollee. States must provide this information to the MCO 
and PIHP for each Medicaid enrollee at the time of enrollment.
    (3) Regularly monitor and evaluate the MCO and PIHP compliance with 
the standards.
    (c) For MCOs and PIHPs, any national performance measures and levels 
that may be identified and developed by CMS in consultation with States 
and other relevant stakeholders.
    (d) Arrangements for annual, external independent reviews of the 
quality outcomes and timeliness of, and access to, the services covered 
under each MCO and PIHP contract.
    (e) For MCOs, appropriate use of intermediate sanctions that, at a 
minimum, meet the requirements of subpart I of this part.
    (f) An information system that supports initial and ongoing 
operation and review of the State's quality strategy.
    (g) Standards, at least as stringent as those in the following 
sections of this subpart, for access to care, structure and operations, 
and quality measurement and improvement.

                            Access Standards



Sec. 438.206  Availability of services.

    (a) Basic rule. Each State must ensure that all services covered 
under the State plan are available and accessible to enrollees of MCOs, 
PIHPs, and PAHPs.
    (b) Delivery network. The State must ensure, through its contracts, 
that each MCO, and each PIHP and PAHP consistent with the scope of the 
PIHP's or PAHP's contracted services, meets the following requirements:
    (1) Maintains and monitors a network of appropriate providers that 
is supported by written agreements and is sufficient to provide adequate 
access to all services covered under the contract. In establishing and 
maintaining the network, each MCO, PIHP, and PAHP must consider the 
following:
    (i) The anticipated Medicaid enrollment.
    (ii) The expected utilization of services, taking into consideration 
the characteristics and health care needs of specific Medicaid 
populations represented in the particular MCO, PIHP, and PAHP.
    (iii) The numbers and types (in terms of training, experience, and 
specialization) of providers required to furnish the contracted Medicaid 
services.
    (iv) The numbers of network providers who are not accepting new 
Medicaid patients.
    (v) The geographic location of providers and Medicaid enrollees, 
considering distance, travel time, the means of transportation 
ordinarily used by Medicaid enrollees, and whether the location provides 
physical access for Medicaid enrollees with disabilities.
    (2) Provides female enrollees with direct access to a women's health 
specialist within the network for covered care necessary to provide 
women's routine and preventive health care services. This is in addition 
to the enrollee's designated source of primary care if that source is 
not a women's health specialist.
    (3) Provides for a second opinion from a qualified health care 
professional within the network, or arranges for the enrollee to obtain 
one outside the network, at no cost to the enrollee.
    (4) If the network is unable to provide necessary services, covered 
under the contract, to a particular enrollee, the MCO, PIHP, or PAHP 
must adequately and timely cover these services out of network for the 
enrollee, for as long as the MCO, PIHP, or PAHP is unable to provide 
them.
    (5) Requires out-of-network providers to coordinate with the MCO or 
PIHP with respect to payment and ensures that cost to the enrollee is no 
greater than it would be if the services were furnished within the 
network.
    (6) Demonstrates that its providers are credentialed as required by 
Sec. 438.214.
    (c) Furnishing of services. The State must ensure that each MCO, 
PIHP, and PAHP contract complies with the requirements of this 
paragraph.
    (1) Timely access. Each MCO, PIHP, and PAHP must do the following:
    (i) Meet and require its providers to meet State standards for 
timely access

[[Page 213]]

to care and services, taking into account the urgency of the need for 
services.
    (ii) Ensure that the network providers offer hours of operation that 
are no less than the hours of operation offered to commercial enrollees 
or comparable to Medicaid fee-for-service, if the provider serves only 
Medicaid enrollees.
    (iii) Make services included in the contract available 24 hours a 
day, 7 days a week, when medically necessary.
    (iv) Establish mechanisms to ensure compliance by providers.
    (v) Monitor providers regularly to determine compliance.
    (vi) Take corrective action if there is a failure to comply.
    (2) Cultural considerations. Each MCO, PIHP, and PAHP participates 
in the State's efforts to promote the delivery of services in a 
culturally competent manner to all enrollees, including those with 
limited English proficiency and diverse cultural and ethnic backgrounds.



Sec. 438.207  Assurances of adequate capacity and services.

    (a) Basic rule. The State must ensure, through its contracts, that 
each MCO, PIHP, and PAHP gives assurances to the State and provides 
supporting documentation that demonstrates that it has the capacity to 
serve the expected enrollment in its service area in accordance with the 
State's standards for access to care under this subpart.
    (b) Nature of supporting documentation. Each MCO, PIHP, and PAHP 
must submit documentation to the State, in a format specified by the 
State to demonstrate that it complies with the following requirements:
    (1) Offers an appropriate range of preventive, primary care, and 
specialty services that is adequate for the anticipated number of 
enrollees for the service area.
    (2) Maintains a network of providers that is sufficient in number, 
mix, and geographic distribution to meet the needs of the anticipated 
number of enrollees in the service area.
    (c) Timing of documentation. Each MCO, PIHP, and PAHP must submit 
the documentation described in paragraph (b) of this section as 
specified by the State, but no less frequently than the following:
    (1) At the time it enters into a contract with the State.
    (2) At any time there has been a significant change (as defined by 
the State) in the MCO's, PIHP's, or PAHP's operations that would affect 
adequate capacity and services, including--
    (i) Changes in MCO, PIHP, or PAHP services, benefits, geographic 
service area or payments; or
    (ii) Enrollment of a new population in the MCO, PIHP, or PAHP.
    (d) State review and certification to CMS. After the State reviews 
the documentation submitted by the MCO, PIHP, or PAHP, the State must 
certify to CMS that the MCO, PIHP, or PAHP has complied with the State's 
requirements for availability of services, as set forth in Sec. 
438.206.
    (e) CMS' right to inspect documentation. The State must make 
available to CMS, upon request, all documentation collected by the State 
from the MCO, PIHP, or PAHP.



Sec. 438.208  Coordination and continuity of care.

    (a) Basic requirement--(1) General rule. Except as specified in 
paragraphs (a)(2) and (a)(3) of this section, the State must ensure 
through its contracts, that each MCO, PIHP, and PAHP complies with the 
requirements of this section.
    (2) PIHP and PAHP exception. For PIHPs and PAHPs, the State 
determines, based on the scope of the entity's services, and on the way 
the State has organized the delivery of managed care services, whether a 
particular PIHP or PAHP is required to--
    (i) Meet the primary care requirement of paragraph (b)(1) of this 
section; and
    (ii) Implement mechanisms for identifying, assessing, and producing 
a treatment plan for an individual with special health care needs, as 
specified in paragraph (c) of this section.
    (3) Exception for MCOs that serve dually eligible enrollees. (i) For 
each MCO that serves enrollees who are also enrolled in and receive 
Medicare benefits from a Medicare+Choice plan, the State determines to 
what extent the

[[Page 214]]

MCO must meet the primary care coordination, identification, assessment, 
and treatment planning provisions of paragraphs (b) and (c) of this 
section with respect to dually eligible individuals.
    (ii) The State bases its determination on the services it requires 
the MCO to furnish to dually eligible enrollees.
    (b) Primary care and coordination of health care services for all 
MCO, PIHP, and PAHP enrollees. Each MCO, PIHP, and PAHP must implement 
procedures to deliver primary care to and coordinate health care service 
for all MCO, PIHP, and PAHP enrollees. These procedures must meet State 
requirements and must do the following:
    (1) Ensure that each enrollee has an ongoing source of primary care 
appropriate to his or her needs and a person or entity formally 
designated as primarily responsible for coordinating the health care 
services furnished to the enrollee.
    (2) Coordinate the services the MCO, PIHP, or PAHP furnishes to the 
enrollee with the services the enrollee receives from any other MCO, 
PIHP, or PAHP.
    (3) Share with other MCOs, PIHPs, and PAHPs serving the enrollee 
with special health care needs the results of its identification and 
assessment of that enrollee's needs to prevent duplication of those 
activities.
    (4) Ensure that in the process of coordinating care, each enrollee's 
privacy is protected in accordance with the privacy requirements in 45 
CFR parts 160 and 164 subparts A and E, to the extent that they are 
applicable.
    (c) Additional services for enrollees with special health care 
needs--(1) Identification. The State must implement mechanisms to 
identify persons with special health care needs to MCOs, PIHPs and 
PAHPs, as those persons are defined by the State. These identification 
mechanisms--
    (i) Must be specified in the State's quality improvement strategy in 
Sec. 438.202; and
    (ii) May use State staff, the State's enrollment broker, or the 
State's MCOs,
    PIHPs and PAHPs.
    (2) Assessment. Each MCO, PIHP, and PAHP must implement mechanisms 
to assess each Medicaid enrollee identified by the State (through the 
mechanism specified in paragraph (c)(1) of this section) and identified 
to the MCO, PIHP, and PAHP by the State as having special health care 
needs in order to identify any ongoing special conditions of the 
enrollee that require a course of treatment or regular care monitoring. 
The assessment mechanisms must use appropriate health care 
professionals.
    (3) Treatment plans. If the State requires MCOs, PIHPs, and PAHPs to 
produce a treatment plan for enrollees with special health care needs 
who are determined through assessment to need a course of treatment or 
regular care monitoring, the treatment plan must be--
    (i) Developed by the enrollee's primary care provider with enrollee 
participation, and in consultation with any specialists caring for the 
enrollee;
    (ii) Approved by the MCO, PIHP, or PAHP in a timely manner, if this 
approval is required by the MCO, PIHP, or PAHP; and
    (iii) In accord with any applicable State quality assurance and 
utilization review standards.
    (4) Direct access to specialists. For enrollees with special health 
care needs determined through an assessment by appropriate health care 
professionals (consistent with Sec. 438.208(c)(2)) to need a course of 
treatment or regular care monitoring, each MCO, PIHP, and PAHP must have 
a mechanism in place to allow enrollees to directly access a specialist 
(for example, through a standing referral or an approved number of 
visits) as appropriate for the enrollee's condition and identified 
needs.



Sec. 438.210  Coverage and authorization of services.

    (a) Coverage. Each contract with an MCO, PIHP, or PAHP must do the 
following:
    (1) Identify, define, and specify the amount, duration, and scope of 
each service that the MCO, PIHP, or PAHP is required to offer.
    (2) Require that the services identified in paragraph (a)(1) of this 
section be furnished in an amount, duration, and scope that is no less 
than the amount, duration, and scope for the

[[Page 215]]

same services furnished to beneficiaries under fee-for-service Medicaid, 
as set forth in Sec. 440.230.
    (3) Provide that the MCO, PIHP, or PAHP--
    (i) Must ensure that the services are sufficient in amount, 
duration, or scope to reasonably be expected to achieve the purpose for 
which the services are furnished.
    (ii) May not arbitrarily deny or reduce the amount, duration, or 
scope of a required service solely because of diagnosis, type of 
illness, or condition of the beneficiary;
    (iii) May place appropriate limits on a service--
    (A) On the basis of criteria applied under the State plan, such as 
medical necessity; or
    (B) For the purpose of utilization control, provided the services 
furnished can reasonably be expected to achieve their purpose, as 
required in paragraph (a)(3)(i) of this section; and
    (4) Specify what constitutes ``medically necessary services'' in a 
manner that--
    (i) Is no more restrictive than that used in the State Medicaid 
program as indicated in State statutes and regulations, the State Plan, 
and other State policy and procedures; and
    (ii) Addresses the extent to which the MCO, PIHP, or PAHP is 
responsible for covering services related to the following:
    (A) The prevention, diagnosis, and treatment of health impairments.
    (B) The ability to achieve age-appropriate growth and development.
    (C) The ability to attain, maintain, or regain functional capacity.
    (b) Authorization of services. For the processing of requests for 
initial and continuing authorizations of services, each contract must 
require--
    (1) That the MCO, PIHP, or PAHP and its subcontractors have in 
place, and follow, written policies and procedures.
    (2) That the MCO, PIHP, or PAHP--
    (i) Have in effect mechanisms to ensure consistent application of 
review criteria for authorization decisions; and
    (ii) Consult with the requesting provider when appropriate.
    (3) That any decision to deny a service authorization request or to 
authorize a service in an amount, duration, or scope that is less than 
requested, be made by a health care professional who has appropriate 
clinical expertise in treating the enrollee's condition or disease.
    (c) Notice of adverse action. Each contract must provide for the 
MCO, PIHP, or PAHP to notify the requesting provider, and give the 
enrollee written notice of any decision by the MCO, PIHP, or PAHP to 
deny a service authorization request, or to authorize a service in an 
amount, duration, or scope that is less than requested. For MCOs and 
PIHPs, the notice must meet the requirements of Sec. 438.404, except 
that the notice to the provider need not be in writing.
    (d) Timeframe for decisions. Each MCO, PIHP, or PAHP contract must 
provide for the following decisions and notices:
    (1) Standard authorization decisions. For standard authorization 
decisions, provide notice as expeditiously as the enrollee's health 
condition requires and within State-established timeframes that may not 
exceed 14 calendar days following receipt of the request for service, 
with a possible extension of up to 14 additional calendar days, if--
    (i) The enrollee, or the provider, requests extension; or
    (ii) The MCO, PIHP, or PAHP justifies (to the State agency upon 
request) a need for additional information and how the extension is in 
the enrollee's interest.
    (2) Expedited authorization decisions. (i) For cases in which a 
provider indicates, or the MCO, PIHP, or PAHP determines, that following 
the standard timeframe could seriously jeopardize the enrollee's life or 
health or ability to attain, maintain, or regain maximum function, the 
MCO, PIHP, or PAHP must make an expedited authorization decision and 
provide notice as expeditiously as the enrollee's health condition 
requires and no later than 3 working days after receipt of the request 
for service.
    (ii) The MCO, PIHP, or PAHP may extend the 3 working days time 
period by up to 14 calendar days if the enrollee requests an extension, 
or if the MCO, PIHP, or PAHP justifies (to the

[[Page 216]]

State agency upon request) a need for additional information and how the 
extension is in the enrollee's interest.
    (e) Compensation for utilization management activities. Each 
contract must provide that, consistent with Sec. 438.6(h), and Sec. 
422.208 of this chapter, compensation to individuals or entities that 
conduct utilization management activities is not structured so as to 
provide incentives for the individual or entity to deny, limit, or 
discontinue medically necessary services to any enrollee.

                    Structure and Operation Standards



Sec. 438.214  Provider selection.

    (a) General rules. The State must ensure, through its contracts, 
that each MCO, PIHP, or PAHP implements written policies and procedures 
for selection and retention of providers and that those policies and 
procedures include, at a minimum, the requirements of this section.
    (b) Credentialing and recredentialing requirements. (1) Each State 
must establish a uniform credentialing and recredentialing policy that 
each MCO, PIHP, and PAHP must follow.
    (2) Each MCO, PIHP, and PAHP must follow a documented process for 
credentialing and recredentialing of providers who have signed contracts 
or participation agreements with the MCO, PIHP, or PAHP.
    (c) Nondiscrimination. MCO, PIHP, and PAHP provider selection 
policies and procedures, consistent with Sec. 438.12, must not 
discriminate against particular providers that serve high-risk 
populations or specialize in conditions that require costly treatment.
    (d) Excluded providers. MCOs, PIHPs, and PAHPs may not employ or 
contract with providers excluded from participation in Federal health 
care programs under either section 1128 or section 1128A of the Act.
    (e) State requirements. Each MCO, PIHP, and PAHP must comply with 
any additional requirements established by the State.

[67 FR 41095, June 14, 2002; 67 FR 54532, Aug. 22, 2002]



Sec. 438.218  Enrollee information.

    The requirements that States must meet under Sec. 438.10 constitute 
part of the State's quality strategy at Sec. 438.204.



Sec. 438.224  Confidentiality.

    The State must ensure, through its contracts, that (consistent with 
subpart F of part 431 of this chapter), for medical records and any 
other health and enrollment information that identifies a particular 
enrollee, each MCO, PIHP, and PAHP uses and discloses such individually 
identifiable health information in accordance with the privacy 
requirements in 45 CFR parts 160 and 164, subparts A and E, to the 
extent that these requirements are applicable.



Sec. 438.226  Enrollment and disenrollment.

    The State must ensure that each MCO, PIHP, and PAHP contract 
complies with the enrollment and disenrollment requirements and 
limitations set forth in Sec. 438.56.



Sec. 438.228  Grievance systems.

    (a) The State must ensure, through its contracts, that each MCO and 
PIHP has in effect a grievance system that meets the requirements of 
subpart F of this part.
    (b) If the State delegates to the MCO or PIHP responsibility for 
notice of action under subpart E of part 431 of this chapter, the State 
must conduct random reviews of each delegated MCO or PIHP and its 
providers and subcontractors to ensure that they are notifying enrollees 
in a timely manner.



Sec. 438.230  Subcontractual relationships and delegation.

    (a) General rule. The State must ensure, through its contracts, that 
each MCO, PIHP, and PAHP--
    (1) Oversees and is accountable for any functions and 
responsibilities that it delegates to any subcontractor; and
    (2) Meets the conditions of paragraph (b) of this section.
    (b) Specific conditions. (1) Before any delegation, each MCO, PIHP, 
and PAHP evaluates the prospective subcontractor's ability to perform 
the activities to be delegated.
    (2) There is a written agreement that--

[[Page 217]]

    (i) Specifies the activities and report responsibilities delegated 
to the subcontractor; and
    (ii) Provides for revoking delegation or imposing other sanctions if 
the subcontractor's performance is inadequate.
    (3) The MCO, PIHP, or PAHP monitors the subcontractor's performance 
on an ongoing basis and subjects it to formal review according to a 
periodic schedule established by the State, consistent with industry 
standards or State MCO laws and regulations.
    (4) If any MCO, PIHP, or PAHP identifies deficiencies or areas for 
improvement, the MCO, PIHP, or PAHP and the subcontractor take 
corrective action.

                  Measurement and Improvement Standards



Sec. 438.236  Practice guidelines.

    (a) Basic rule: The State must ensure, through its contracts, that 
each MCO and, when applicable, each PIHP and PAHP meets the requirements 
of this section.
    (b) Adoption of practice guidelines. Each MCO and, when applicable, 
each PIHP and PAHP adopts practice guidelines that meet the following 
requirements:
    (1) Are based on valid and reliable clinical evidence or a consensus 
of health care professionals in the particular field.
    (2) Consider the needs of the MCO's, PIHP's, or PAHP's enrollees.
    (3) Are adopted in consultation with contracting health care 
professionals.
    (4) Are reviewed and updated periodically as appropriate.
    (c) Dissemination of guidelines. Each MCO, PIHP, and PAHP 
disseminates the guidelines to all affected providers and, upon request, 
to enrollees and potential enrollees.
    (d) Application of guidelines. Decisions for utilization management, 
enrollee education, coverage of services, and other areas to which the 
guidelines apply are consistent with the guidelines.



Sec. 438.240  Quality assessment and performance improvement program.

    (a) General rules. (1) The State must require, through its 
contracts, that each MCO and PIHP have an ongoing quality assessment and 
performance improvement program for the services it furnishes to its 
enrollees.
    (2) CMS, in consultation with States and other stakeholders, may 
specify performance measures and topics for performance improvement 
projects to be required by States in their contracts with MCOs and 
PIHPs.
    (b) Basic elements of MCO and PIHP quality assessment and 
performance improvement programs. At a minimum, the State must require 
that each MCO and PIHP comply with the following requirements:
    (1) Conduct performance improvement projects as described in 
paragraph (d) of this section. These projects must be designed to 
achieve, through ongoing measurements and intervention, significant 
improvement, sustained over time, in clinical care and nonclinical care 
areas that are expected to have a favorable effect on health outcomes 
and enrollee satisfaction.
    (2) Submit performance measurement data as described in paragraph 
(c) of this section.
    (3) Have in effect mechanisms to detect both underutilization and 
overutilization of services.
    (4) Have in effect mechanisms to assess the quality and 
appropriateness of care furnished to enrollees with special health care 
needs.
    (c) Performance measurement. Annually each MCO and PIHP must--
    (1) Measure and report to the State its performance, using standard 
measures required by the State including those that incorporate the 
requirements of Sec. 438.204(c) and Sec. 438.240(a)(2);
    (2) Submit to the State, data specified by the State, that enables 
the State to measure the MCO's or PIHP's performance; or
    (3) Perform a combination of the activities described in paragraphs 
(c)(1) and (c)(2) of this section.

[[Page 218]]

    (d) Performance improvement projects. (1) MCOs and PIHPs must have 
an ongoing program of performance improvement projects that focus on 
clinical and nonclinical areas, and that involve the following:
    (i) Measurement of performance using objective quality indicators.
    (ii) Implementation of system interventions to achieve improvement 
in quality.
    (iii) Evaluation of the effectiveness of the interventions.
    (iv) Planning and initiation of activities for increasing or 
sustaining improvement.
    (2) Each MCO and PIHP must report the status and results of each 
project to the State as requested, including those that incorporate the 
requirements of Sec. 438.240(a)(2). Each performance improvement 
project must be completed in a reasonable time period so as to generally 
allow information on the success of performance improvement projects in 
the aggregate to produce new information on quality of care every year.
    (e) Program review by the State. (1) The State must review, at least 
annually, the impact and effectiveness of each MCO's and PIHP's quality 
assessment and performance improvement program. The review must 
include--
    (i) The MCO's and PIHP's performance on the standard measures on 
which it is required to report; and
    (ii) The results of each MCO's and PIHP's performance improvement 
projects.
    (2) The State may require that an MCO or PIHP have in effect a 
process for its own evaluation of the impact and effectiveness of its 
quality assessment and performance improvement program.



Sec. 438.242  Health information systems.

    (a) General rule. The State must ensure, through its contracts, that 
each MCO and PIHP maintains a health information system that collects, 
analyzes, integrates, and reports data and can achieve the objectives of 
this subpart. The system must provide information on areas including, 
but not limited to, utilization, grievances and appeals, and 
disenrollments for other than loss of Medicaid eligibility.
    (b) Basic elements of a health information system. The State must 
require, at a minimum, that each MCO and PIHP comply with the following:
    (1) Collect data on enrollee and provider characteristics as 
specified by the State, and on services furnished to enrollees through 
an encounter data system or other methods as may be specified by the 
State.
    (2) Ensure that data received from providers is accurate and 
complete by--
    (i) Verifying the accuracy and timeliness of reported data;
    (ii) Screening the data for completeness, logic, and consistency; 
and
    (iii) Collecting service information in standardized formats to the 
extent feasible and appropriate.
    (3) Make all collected data available to the State and upon request 
to CMS, as required in this subpart.



                    Subpart E_External Quality Review

    Source: 68 FR 3635, Jan. 24, 2003, unless otherwise noted.



Sec. 438.310  Basis, scope, and applicability.

    (a) Statutory basis. This subpart is based on sections 1932(c)(2), 
1903(a)(3)(C)(ii), and 1902(a)(4) of the Act.
    (b) Scope. This subpart sets forth requirements for annual external 
quality reviews of each contracting managed care organization (MCO) and 
prepaid inpatient health plan (PIHP), including--
    (1) Criteria that States must use in selecting entities to perform 
the reviews;
    (2) Specifications for the activities related to external quality 
review;
    (3) Circumstances under which external quality review may use the 
results of Medicare quality reviews or private accreditation reviews; 
and
    (4) Standards for making available the results of the reviews.
    (c) Applicability. The provisions of this subpart apply to MCOs, 
PIHPs, and to health insuring organizations (HIOs) that began on or 
after January 1, 1986

[[Page 219]]

that the statute does not explicitly exempt from requirements in section 
1903(m) of the Act.



Sec. 438.320  Definitions.

    As used in this subpart--
    EQR stands for external quality review.
    EQRO stands for external quality review organization.
    External quality review means the analysis and evaluation by an 
EQRO, of aggregated information on quality, timeliness, and access to 
the health care services that an MCO or PIHP, or their contractors 
furnish to Medicaid recipients.
    External quality review organization means an organization that 
meets the competence and independence requirements set forth in Sec. 
438.354, and performs external quality review, other EQR-related 
activities as set forth in Sec. 438.358, or both.
    Financial relationship means--
    (1) A direct or indirect ownership or investment interest (including 
an option or nonvested interest) in any entity. This direct or indirect 
interest may be in the form of equity, debt, or other means and includes 
any indirect ownership or investment interest no matter how many levels 
removed from a direct interest; or
    (2) A compensation arrangement with an entity.
    Quality, as it pertains to external quality review, means the degree 
to which an MCO or PIHP increases the likelihood of desired health 
outcomes of its enrollees through its structural and operational 
characteristics and through the provision of health services that are 
consistent with current professional knowledge.
    Validation means the review of information, data, and procedures to 
determine the extent to which they are accurate, reliable, free from 
bias, and in accord with standards for data collection and analysis.



Sec. 438.350  State responsibilities.

    Each State that contracts with MCOs or PIHPs must ensure that--
    (a) Except as provided in Sec. 438.362, a qualified EQRO performs 
an annual EQR for each contracting MCO or PIHP;
    (b) The EQRO has sufficient information to use in performing the 
review;
    (c) The information used to carry out the review must be obtained 
from the EQR-related activities described in Sec. 438.358.
    (d) For each EQR-related activity, the information must include the 
elements described in Sec. 438.364(a)(1)(i) through (a)(1)(iv);
    (e) The information provided to the EQRO in accordance with 
paragraph (c) of this section is obtained through methods consistent 
with the protocols established under Sec. 438.352; and
    (f) The results of the reviews are made available as specified in 
Sec. 438.364.



Sec. 438.352  External quality review protocols.

    Each protocol must specify--
    (a) The data to be gathered;
    (b) The sources of the data;
    (c) The activities and steps to be followed in collecting the data 
to promote its accuracy, validity, and reliability;
    (d) The proposed method or methods for validly analyzing and 
interpreting the data once obtained; and
    (e) Instructions, guidelines, worksheets, and other documents or 
tools necessary for implementing the protocol.



Sec. 438.354  Qualifications of external quality review organizations.

    (a) General rule. The State must ensure that an EQRO meets the 
requirements of this section.
    (b) Competence. The EQRO must have at a minimum the following:
    (1) Staff with demonstrated experience and knowledge of--
    (i) Medicaid recipients, policies, data systems, and processes;
    (ii) Managed care delivery systems, organizations, and financing;
    (iii) Quality assessment and improvement methods; and
    (iv) Research design and methodology, including statistical 
analysis.
    (2) Sufficient physical, technological, and financial resources to 
conduct EQR or EQR-related activities.
    (3) Other clinical and nonclinical skills necessary to carry out EQR 
or EQR-related activities and to oversee the work of any subcontractors.

[[Page 220]]

    (c) Independence. The EQRO and its subcontractors are independent 
from the State Medicaid agency and from the MCOs or PIHPs that they 
review. To qualify as ``independent''--
    (1) A State agency, department, university, or other State entity 
may not have Medicaid purchasing or managed care licensing authority; 
and
    (2) A State agency, department, university, or other State entity 
must be governed by a Board or similar body the majority of whose 
members are not government employees.
    (3) An EQRO may not--
    (i) Review a particular MCO or PIHP if either the EQRO or the MCO or 
PIHP exerts control over the other (as used in this paragraph, 
``control'' has the meaning given the term in 48 CFR 19.101) through--
    (A) Stock ownership;
    (B) Stock options and convertible debentures;
    (C) Voting trusts;
    (D) Common management, including interlocking management; and
    (E) Contractual relationships.
    (ii) Deliver any health care services to Medicaid recipients;
    (iii) Conduct, on the State's behalf, ongoing Medicaid managed care 
program operations related to oversight of the quality of MCO or PIHP 
services, except for the related activities specified in Sec. 438.358; 
or
    (iv) Have a present, or known future, direct or indirect financial 
relationship with an MCO or PIHP that it will review as an EQRO.



Sec. 438.356  State contract options.

    (a) The State--
    (1) Must contract with one EQRO to conduct either EQR alone or EQR 
and other EQR-related activities; and
    (2) May contract with additional EQROs to conduct EQR-related 
activities as set forth in Sec. 438.358.
    (b) Each EQRO must meet the competence requirements as specified in 
Sec. 438.354(b).
    (c) Each EQRO is permitted to use subcontractors. The EQRO is 
accountable for, and must oversee, all subcontractor functions.
    (d) Each EQRO and its subcontractors performing EQR or EQR-related 
activities must meet the requirements for independence, as specified in 
Sec. 438.354(c).
    (e) For each contract, the State must follow an open, competitive 
procurement process that is in accordance with State law and regulations 
and consistent with 45 CFR part 74 as it applies to State procurement of 
Medicaid services.



Sec. 438.358  Activities related to external quality review.

    (a) General rule. The State, its agent that is not an MCO or PIHP, 
or an EQRO may perform the mandatory and optional EQR-related activities 
in this section.
    (b) Mandatory activities. For each MCO and PIHP, the EQR must use 
information from the following activities:
    (1) Validation of performance improvement projects required by the 
State to comply with requirements set forth in Sec. 438.240(b)(1) and 
that were underway during the preceding 12 months.
    (2) Validation of MCO or PIHP performance measures reported (as 
required by the State) or MCO or PIHP performance measure calculated by 
the State during the preceding 12 months to comply with requirements set 
forth in Sec. 438.240(b)(2).
    (3) A review, conducted within the previous 3-year period, to 
determine the MCO's or PIHP's compliance with standards (except with 
respect to standards under Sec. Sec. 438.240(b)(1) and (2), for the 
conduct of performance improvement projects and calculation of 
performance measures respectively) established by the State to comply 
with the requirements of Sec. 438.204(g).
    (c) Optional activities. The EQR may also use information derived 
during the preceding 12 months from the following optional activities:
    (1) Validation of encounter data reported by an MCO or PIHP.
    (2) Administration or validation of consumer or provider surveys of 
quality of care.
    (3) Calculation of performance measures in addition to those 
reported by an MCO or PIHP and validated by an EQRO.

[[Page 221]]

    (4) Conduct of performance improvement projects in addition to those 
conducted by an MCO or PIHP and validated by an EQRO.
    (5) Conduct of studies on quality that focus on a particular aspect 
of clinical or nonclinical services at a point in time.
    (d) Technical assistance. The EQRO may, at the State's direction, 
provide technical guidance to groups of MCOs or PIHPs to assist them in 
conducting activities related to the mandatory and optional activities 
that provide information for the EQR.



Sec. 438.360  Nonduplication of mandatory activities.

    (a) General rule. To avoid duplication, the State may use, in place 
of a Medicaid review by the State, its agent, or EQRO, information about 
the MCO or PIHP obtained from a Medicare or private accreditation review 
to provide information otherwise obtained from the mandatory activities 
specified in Sec. 438.358 if the conditions of paragraph (b) or 
paragraph (c) of this section are met.
    (b) MCOs or PIHPs reviewed by Medicare or private accrediting 
organizations. For information about an MCO's or PIHP's compliance with 
one or more standards required under Sec. 438.204(g), (except with 
respect to standards under Sec. Sec. 438.240(b)(1) and (2), for the 
conduct of performance improvement projects and calculation of 
performance measures respectively) the following conditions must be met:
    (1) The MCO or PIHP is in compliance with standards established by 
CMS for Medicare+Choice or a national accrediting organization. The CMS 
or national accreditation standards are comparable to standards 
established by the State to comply with Sec. 438.204(g) and the EQR-
related activity under Sec. 438.358(b)(3).
    (2) Compliance with the standards is determined either by--
    (i) CMS or its contractor for Medicare; or
    (ii) A private national accrediting organization that CMS has 
approved as applying standards at least as stringent as Medicare under 
the procedures in Sec. 422.158.
    (3) The MCO or PIHP provides to the State all the reports, findings, 
and other results of the Medicare or private accreditation review 
applicable to the standards provided for in Sec. 438.204(g); and the 
State provides the information to the EQRO.
    (4) In its quality strategy, the State identifies the standards for 
which the EQR will use information from Medicare or private 
accreditation reviews, and explains its rationale for why the standards 
are duplicative.
    (c) Additional provisions for MCOs or PIHPs serving only dually 
eligibles. The State may use information obtained from the Medicare 
program in place of information produced by the State, its agent, or 
EQRO with respect to the mandatory activities specified in Sec. 438.358 
(b)(1) and (b)(2) if the following conditions are met:
    (1) The MCO or PIHP serves only individuals who receive both 
Medicare and Medicaid benefits.
    (2) The Medicare review activities are substantially comparable to 
the State-specified mandatory activities in Sec. 438.358(b)(1) and 
(b)(2).
    (3) The MCO or PIHP provides to the State all the reports, findings, 
and other results of the Medicare review from the activities specified 
under Sec. 438.358(b)(1) and (b)(2) and the State provides the 
information to the EQRO.
    (4) In its quality strategy, the State identifies the mandatory 
activities for which it has exercised this option and explains its 
rationale for why these activities are duplicative.



Sec. 438.362  Exemption from external quality review.

    (a) Basis for exemption. The State may exempt an MCO or PIHP from 
EQR if the following conditions are met:
    (1) The MCO or PIHP has a current Medicare contract under part C of 
title XVIII or under section 1876 of the Act, and a current Medicaid 
contract under section 1903(m) of the Act.
    (2) The two contracts cover all or part of the same geographic area 
within the State.
    (3) The Medicaid contract has been in effect for at least 2 
consecutive years before the effective date of the exemption and during 
those 2 years the MCO or PIHP has been subject to EQR under

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this part, and found to be performing acceptably with respect to the 
quality, timeliness, and access to health care services it provides to 
Medicaid recipients.
    (b) Information on exempted MCOs or PIHPs. When the State exercises 
this option, the State must obtain either of the following:
    (1) Information on Medicare review findings. Each year, the State 
must obtain from each MCO or PIHP that it exempts from EQR the most 
recent Medicare review findings reported on the MCO or PIHP including--
    (i) All data, correspondence, information, and findings pertaining 
to the MCO's or PIHP's compliance with Medicare standards for access, 
quality assessment and performance improvement, health services, or 
delegation of these activities;
    (ii) All measures of the MCO's or PIHP's performance; and
    (iii) The findings and results of all performance improvement 
projects pertaining to Medicare enrollees.
    (2) Medicare information from a private, national accrediting 
organization that CMS approves and recognizes for Medicare+Choice 
deeming.
    (i) If an exempted MCO or PIHP has been reviewed by a private 
accrediting organization, the State must require the MCO or PIHP to 
provide the State with a copy of all findings pertaining to its most 
recent accreditation review if that review has been used for either of 
the following purposes:
    (A) To fulfill certain requirements for Medicare external review 
under subpart D of part 422 of this chapter.
    (B) To deem compliance with Medicare requirements, as provided in 
Sec. 422.156 of this chapter.
    (ii) These findings must include, but need not be limited to, 
accreditation review results of evaluation of compliance with individual 
accreditation standards, noted deficiencies, corrective action plans, 
and summaries of unmet accreditation requirements.



Sec. 438.364  External quality review results.

    (a) Information that must be produced. The State must ensure that 
the EQR produces at least the following information:
    (1) A detailed technical report that describes the manner in which 
the data from all activities conducted in accordance with Sec. 438.358 
were aggregated and analyzed, and conclusions were drawn as to the 
quality, timeliness, and access to the care furnished by the MCO or 
PIHP. The report must also include the following for each activity 
conducted in accordance with Sec. 438.358:
    (i) Objectives.
    (ii) Technical methods of data collection and analysis.
    (iii) Description of data obtained.
    (iv) Conclusions drawn from the data.
    (2) An assessment of each MCO's or PIHP's strengths and weaknesses 
with respect to the quality, timeliness, and access to health care 
services furnished to Medicaid recipients.
    (3) Recommendations for improving the quality of health care 
services furnished by each MCO or PIHP.
    (4) As the State determines, methodologically appropriate, 
comparative information about all MCOs and PIHPs.
    (5) An assessment of the degree to which each MCO or PIHP has 
addressed effectively the recommendations for quality improvement made 
by the EQRO during the previous year's EQR.
    (b) Availability of information. The State must provide copies of 
the information specified in paragraph (a) of this section, upon 
request, through print or electronic media, to interested parties such 
as participating health care providers, enrollees and potential 
enrollees of the MCO or PIHP, recipient advocacy groups, and members of 
the general public. The State must make this information available in 
alternative formats for persons with sensory impairments, when 
requested.
    (c) Safeguarding patient identity. The information released under 
paragraph (b) of this section may not disclose the identity of any 
patient.



Sec. 438.370  Federal financial participation.

    (a) FFP at the 75 percent rate is available in expenditures for EQR 
(including the production of EQR results) and EQR-related activities set 
forth in Sec. 438.358 conducted by EQROs and their subcontractors.

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    (b) FFP at the 50 percent rate is available in expenditures for EQR-
related activities conducted by any entity that does not qualify as an 
EQRO.



                       Subpart F_Grievance System



Sec. 438.400  Statutory basis and definitions.

    (a) Statutory basis. This subpart is based on sections 1902(a)(3), 
1902(a)(4), and 1932(b)(4) of the Act.
    (1) Section 1902(a)(3) requires that a State plan provide an 
opportunity for a fair hearing to any person whose claim for assistance 
is denied or not acted upon promptly.
    (2) Section 1902(a)(4) requires that the State plan provide for 
methods of administration that the Secretary finds necessary for the 
proper and efficient operation of the plan.
    (3) Section 1932(b)(4) requires Medicaid managed care organizations 
to establish internal grievance procedures under which Medicaid 
enrollees, or providers acting on their behalf, may challenge the denial 
of coverage of, or payment for, medical assistance.
    (b) Definitions. As used in this subpart, the following terms have 
the indicated meanings:
    Action means--
    In the case of an MCO or PIHP--
    (1) The denial or limited authorization of a requested service, 
including the type or level of service;
    (2) The reduction, suspension, or termination of a previously 
authorized service;
    (3) The denial, in whole or in part, of payment for a service;
    (4) The failure to provide services in a timely manner, as defined 
by the State;
    (5) The failure of an MCO or PIHP to act within the timeframes 
provided in Sec. 438.408(b); or
    (6) For a resident of a rural area with only one MCO, the denial of 
a Medicaid enrollee's request to exercise his or her right, under Sec. 
438.52(b)(2)(ii), to obtain services outside the network.
    Appeal means a request for review of an action, as ``action'' is 
defined in this section.
    Grievance means an expression of dissatisfaction about any matter 
other than an action, as ``action'' is defined in this section. The term 
is also used to refer to the overall system that includes grievances and 
appeals handled at the MCO or PIHP level and access to the State fair 
hearing process. (Possible subjects for grievances include, but are not 
limited to, the quality of care or services provided, and aspects of 
interpersonal relationships such as rudeness of a provider or employee, 
or failure to respect the enrollee's rights.)



Sec. 438.402  General requirements.

    (a) The grievance system. Each MCO and PIHP must have a system in 
place for enrollees that includes a grievance process, an appeal 
process, and access to the State's fair hearing system.
    (b) Filing requirements--(1) Authority to file. (i) An enrollee may 
file a grievance and an MCO or PIHP level appeal, and may request a 
State fair hearing.
    (ii) A provider, acting on behalf of the enrollee and with the 
enrollee's written consent, may file an appeal. A provider may file a 
grievance or request a State fair hearing on behalf of an enrollee, if 
the State permits the provider to act as the enrollee's authorized 
representative in doing so.
    (2) Timing. The State specifies a reasonable timeframe that may be 
no less than 20 days and not to exceed 90 days from the date on the 
MCO's or PIHP's notice of action. Within that timeframe--
    (i) The enrollee or the provider may file an appeal; and
    (ii) In a State that does not require exhaustion of MCO and PIHP 
level appeals, the enrollee may request a State fair hearing.
    (3) Procedures. (i) The enrollee may file a grievance either orally 
or in writing and, as determined by the State, either with the State or 
with the MCO or the PIHP.
    (ii) The enrollee or the provider may file an appeal either orally 
or in writing, and unless he or she requests expedited resolution, must 
follow an oral filing with a written, signed, appeal.



Sec. 438.404  Notice of action.

    (a) Language and format requirements. The notice must be in writing 
and must meet the language and format requirements of Sec. 438.10(c) 
and (d) to ensure ease of understanding.

[[Page 224]]

    (b) Content of notice. The notice must explain the following:
    (1) The action the MCO or PIHP or its contractor has taken or 
intends to take.
    (2) The reasons for the action.
    (3) The enrollee's or the provider's right to file an MCO or PIHP 
appeal.
    (4) If the State does not require the enrollee to exhaust the MCO or 
PIHP level appeal procedures, the enrollee's right to request a State 
fair hearing.
    (5) The procedures for exercising the rights specified in this 
paragraph.
    (6) The circumstances under which expedited resolution is available 
and how to request it.
    (7) The enrollee's right to have benefits continue pending 
resolution of the appeal, how to request that benefits be continued, and 
the circumstances under which the enrollee may be required to pay the 
costs of these services.
    (c) Timing of notice. The MCO or PIHP must mail the notice within 
the following timeframes:
    (1) For termination, suspension, or reduction of previously 
authorized Medicaid-covered services, within the timeframes specified in 
Sec. Sec. 431.211, 431.213, and 431.214 of this chapter.
    (2) For denial of payment, at the time of any action affecting the 
claim.
    (3) For standard service authorization decisions that deny or limit 
services, within the timeframe specified in Sec. 438.210(d)(1).
    (4) If the MCO or PIHP extends the timeframe in accordance with 
Sec. 438.210(d)(1), it must--
    (i) Give the enrollee written notice of the reason for the decision 
to extend the timeframe and inform the enrollee of the right to file a 
grievance if he or she disagrees with that decision; and
    (ii) Issue and carry out its determination as expeditiously as the 
enrollee's health condition requires and no later than the date the 
extension expires.
    (5) For service authorization decisions not reached within the 
timeframes specified in Sec. 438.210(d) (which constitutes a denial and 
is thus an adverse action), on the date that the timeframes expire.
    (6) For expedited service authorization decisions, within the 
timeframes specified in Sec. 438.210(d).



Sec. 438.406  Handling of grievances and appeals.

    (a) General requirements. In handling grievances and appeals, each 
MCO and each PIHP must meet the following requirements:
    (1) Give enrollees any reasonable assistance in completing forms and 
taking other procedural steps. This includes, but is not limited to, 
providing interpreter services and toll-free numbers that have adequate 
TTY/TTD and interpreter capability.
    (2) Acknowledge receipt of each grievance and appeal.
    (3) Ensure that the individuals who make decisions on grievances and 
appeals are individuals--
    (i) Who were not involved in any previous level of review or 
decision-making; and
    (ii) Who, if deciding any of the following, are health care 
professionals who have the appropriate clinical expertise, as determined 
by the State, in treating the enrollee's condition or disease.
    (A) An appeal of a denial that is based on lack of medical 
necessity.
    (B) A grievance regarding denial of expedited resolution of an 
appeal.
    (C) A grievance or appeal that involves clinical issues.
    (b) Special requirements for appeals. The process for appeals must:
    (1) Provide that oral inquiries seeking to appeal an action are 
treated as appeals (to establish the earliest possible filing date for 
the appeal) and must be confirmed in writing, unless the enrollee or the 
provider requests expedited resolution.
    (2) Provide the enrollee a reasonable opportunity to present 
evidence, and allegations of fact or law, in person as well as in 
writing. (The MCO or PIHP must inform the enrollee of the limited time 
available for this in the case of expedited resolution.)
    (3) Provide the enrollee and his or her representative opportunity, 
before and during the appeals process, to examine the enrollee's case 
file, including medical records, and any other documents and records 
considered during the appeals process.
    (4) Include, as parties to the appeal--
    (i) The enrollee and his or her representative; or

[[Page 225]]

    (ii) The legal representative of a deceased enrollee's estate.



Sec. 438.408  Resolution and notification: Grievances and appeals.

    (a) Basic rule. The MCO or PIHP must dispose of each grievance and 
resolve each appeal, and provide notice, as expeditiously as the 
enrollee's health condition requires, within State-established 
timeframes that may not exceed the timeframes specified in this section.
    (b) Specific timeframes--(1) Standard disposition of grievances. For 
standard disposition of a grievance and notice to the affected parties, 
the timeframe is established by the State but may not exceed 90 days 
from the day the MCO or PIHP receives the grievance.
    (2) Standard resolution of appeals. For standard resolution of an 
appeal and notice to the affected parties, the State must establish a 
timeframe that is no longer than 45 days from the day the MCO or PIHP 
receives the appeal. This timeframe may be extended under paragraph (c) 
of this section.
    (3) Expedited resolution of appeals. For expedited resolution of an 
appeal and notice to affected parties, the State must establish a 
timeframe that is no longer than 3 working days after the MCO or PIHP 
receives the appeal. This timeframe may be extended under paragraph (c) 
of this section.
    (c) Extension of timeframes--(1) The MCO or PIHP may extend the 
timeframes from paragraph (b) of this section by up to 14 calendar days 
if--
    (i) The enrollee requests the extension; or
    (ii) The MCO or PIHP shows (to the satisfaction of the State agency, 
upon its request) that there is need for additional information and how 
the delay is in the enrollee's interest.
    (2) Requirements following extension. If the MCO or PIHP extends the 
timeframes, it must--for any extension not requested by the enrollee, 
give the enrollee written notice of the reason for the delay.
    (d) Format of notice-- (1) Grievances. The State must establish the 
method MCOs and PIHPs will use to notify an enrollee of the disposition 
of a grievance.
    (2) Appeals. (i) For all appeals, the MCO or PIHP must provide 
written notice of disposition.
    (ii) For notice of an expedited resolution, the MCO or PIHP must 
also make reasonable efforts to provide oral notice.
    (e) Content of notice of appeal resolution. The written notice of 
the resolution must include the following:
    (1) The results of the resolution process and the date it was 
completed.
    (2) For appeals not resolved wholly in favor of the enrollees--
    (i) The right to request a State fair hearing, and how to do so;
    (ii) The right to request to receive benefits while the hearing is 
pending, and how to make the request; and
    (iii) That the enrollee may be held liable for the cost of those 
benefits if the hearing decision upholds the MCO's or PIHP's action.
    (f) Requirements for State fair hearings--(1) Availability. The 
State must permit the enrollee to request a State fair hearing within a 
reasonable time period specified by the State, but not less than 20 or 
in excess of 90 days from whichever of the following dates applies--
    (i) If the State requires exhaustion of the MCO or PIHP level appeal 
procedures, from the date of the MCO's or PIHP's notice of resolution; 
or
    (ii) If the State does not require exhaustion of the MCO or PIHP 
level appeal procedures and the enrollee appeals directly to the State 
for a fair hearing, from the date on the MCO's or PIHP's notice of 
action.
    (2) Parties. The parties to the State fair hearing include the MCO 
or PIHP as well as the enrollee and his or her representative or the 
representative of a deceased enrollee's estate.



Sec. 438.410  Expedited resolution of appeals.

    (a) General rule. Each MCO and PIHP must establish and maintain an 
expedited review process for appeals, when the MCO or PIHP determines 
(for a request from the enrollee) or the provider indicates (in making 
the request on the enrollee's behalf or supporting the enrollee's 
request) that taking the time for a standard resolution could seriously 
jeopardize the enrollee's life or

[[Page 226]]

health or ability to attain, maintain, or regain maximum function.
    (b) Punitive action. The MCO or PIHP must ensure that punitive 
action is neither taken against a provider who requests an expedited 
resolution or supports an enrollee's appeal.
    (c) Action following denial of a request for expedited resolution. 
If the MCO or PIHP denies a request for expedited resolution of an 
appeal, it must--
    (1) Transfer the appeal to the timeframe for standard resolution in 
accordance with Sec. 438.408(b)(2);
    (2) Make reasonable efforts to give the enrollee prompt oral notice 
of the denial, and follow up within two calendar days with a written 
notice.



Sec. 438.414  Information about the grievance system to providers and subcontractors.

    The MCO or PIHP must provide the information specified at Sec. 
438.10(g)(1) about the grievance system to all providers and 
subcontractors at the time they enter into a contract.



Sec. 438.416  Recordkeeping and reporting requirements.

    The State must require MCOs and PIHPs to maintain records of 
grievances and appeals and must review the information as part of the 
State quality strategy.



Sec. 438.420  Continuation of benefits while the MCO or PIHP appeal and the State fair hearing are pending.

    (a) Terminology. As used in this section, ``timely'' filing means 
filing on or before the later of the following:
    (1) Within ten days of the MCO or PIHP mailing the notice of action.
    (2) The intended effective date of the MCO's or PIHP's proposed 
action.
    (b) Continuation of benefits. The MCO or PIHP must continue the 
enrollee's benefits if--
    (1) The enrollee or the provider files the appeal timely;
    (2) The appeal involves the termination, suspension, or reduction of 
a previously authorized course of treatment;
    (3) The services were ordered by an authorized provider;
    (4) The original period covered by the original authorization has 
not expired; and
    (5) The enrollee requests extension of benefits.
    (c) Duration of continued or reinstated benefits. If, at the 
enrollee's request, the MCO or PIHP continues or reinstates the 
enrollee's benefits while the appeal is pending, the benefits must be 
continued until one of following occurs:
    (1) The enrollee withdraws the appeal.
    (2) Ten days pass after the MCO or PIHP mails the notice, providing 
the resolution of the appeal against the enrollee, unless the enrollee, 
within the 10-day timeframe, has requested a State fair hearing with 
continuation of benefits until a State fair hearing decision is reached.
    (3) A State fair hearing Office issues a hearing decision adverse to 
the enrollee.
    (4) The time period or service limits of a previously authorized 
service has been met.
    (d) Enrollee responsibility for services furnished while the appeal 
is pending. If the final resolution of the appeal is adverse to the 
enrollee, that is, upholds the MCO's or PIHP's action, the MCO or PIHP 
may recover the cost of the services furnished to the enrollee while the 
appeal is pending, to the extent that they were furnished solely because 
of the requirements of this section, and in accordance with the policy 
set forth in Sec. 431.230(b) of this chapter.



Sec. 438.424  Effectuation of reversed appeal resolutions.

    (a) Services not furnished while the appeal is pending. If the MCO 
or PIHP, or the State fair hearing officer reverses a decision to deny, 
limit, or delay services that were not furnished while the appeal was 
pending, the MCO or PIHP must authorize or provide the disputed services 
promptly, and as expeditiously as the enrollee's health condition 
requires.
    (b) Services furnished while the appeal is pending. If the MCO or 
PIHP, or the State fair hearing officer reverses a decision to deny 
authorization of services, and the enrollee received the disputed 
services while the appeal was pending, the MCO or the PIHP or the State 
must pay for those services, in

[[Page 227]]

accordance with State policy and regulations.

Subpart G [Reserved]



             Subpart H_Certifications and Program Integrity



Sec. 438.600  Statutory basis.

    This subpart is based on sections 1902(a)(4), 1902(a)(19), 1903(m), 
and 1932(d)(1) of the Act.
    (a) Section 1902(a)(4) requires that the State plan provide for 
methods of administration that the Secretary finds necessary for the 
proper and efficient operation of the plan.
    (b) Section 1902(a)(19) requires that the State plan provide the 
safeguards necessary to ensure that eligibility is determined and 
services are provided in a manner consistent with simplicity of 
administration and the best interests of the recipients.
    (c) Section 1903(m) establishes conditions for payments to the State 
with respect to contracts with MCOs.
    (d) Section 1932(d)(1) prohibits MCOs and PCCMs from knowingly 
having certain types of relationships with individuals excluded under 
Federal regulations from participating in specified activities, or with 
affiliates of those individuals.



Sec. 438.602  Basic rule.

    As a condition for receiving payment under the Medicaid managed care 
program, an MCO, PCCM, PIHP, or PAHP must comply with the applicable 
certification, program integrity and prohibited affiliation requirements 
of this subpart.



Sec. 438.604  Data that must be certified.

    (a) Data certifications. When State payments to an MCO or PIHP are 
based on data submitted by the MCO or PIHP, the State must require 
certification of the data as provided in Sec. 438.606. The data that 
must be certified include, but are not limited to, enrollment 
information, encounter data, and other information required by the State 
and contained in contracts, proposals, and related documents.
    (b) Additional certifications. Certification is required, as 
provided in Sec. 438.606, for all documents specified by the State.



Sec. 438.606  Source, content, and timing of certification.

    (a) Source of certification. For the data specified in Sec. 
438.604, the data the MCO or PIHP submits to the State must be certified 
by one of the following:
    (1) The MCO's or PIHP's Chief Executive Officer.
    (2) The MCO's or PIHP's Chief Financial Officer.
    (3) An individual who has delegated authority to sign for, and who 
reports directly to, the MCO's or PIHP's Chief Executive Officer or 
Chief Financial Officer.
    (b) Content of certification. The certification must attest, based 
on best knowledge, information, and belief, as follows:
    (1) To the accuracy, completeness and truthfulness of the data.
    (2) To the accuracy, completeness and truthfulness of the documents 
specified by the State.
    (c) Timing of certification. The MCO or PIHP must submit the 
certification concurrently with the certified data.



Sec. 438.608  Program integrity requirements.

    (a) General requirement. The MCO or PIHP must have administrative 
and management arrangements or procedures, including a mandatory 
compliance plan, that are designed to guard against fraud and abuse.
    (b) Specific requirements. The arrangements or procedures must 
include the following:
    (1) Written policies, procedures, and standards of conduct that 
articulate the organization's commitment to comply with all applicable 
Federal and State standards.
    (2) The designation of a compliance officer and a compliance 
committee that are accountable to senior management.
    (3) Effective training and education for the compliance officer and 
the organization's employees.
    (4) Effective lines of communication between the compliance officer 
and the organization's employees.

[[Page 228]]

    (5) Enforcement of standards through well-publicized disciplinary 
guidelines.
    (6) Provision for internal monitoring and auditing.
    (7) Provision for prompt response to detected offenses, and for 
development of corrective action initiatives relating to the MCO's or 
PIHP's contract.



Sec. 438.610  Prohibited affiliations with individuals debarred by Federal agencies.

    (a) General requirement. An MCO, PCCM, PIHP, or PAHP may not 
knowingly have a relationship of the type described in paragraph (b) of 
this section with the following:
    (1) An individual who is debarred, suspended, or otherwise excluded 
from participating in procurement activities under the Federal 
Acquisition Regulation or from participating in nonprocurement 
activities under regulations issued under Executive Order No. 12549 or 
under guidelines implementing Executive Order No. 12549.
    (2) An individual who is an affiliate, as defined in the Federal 
Acquisition Regulation, of a person described in paragraph (a)(1) of 
this section.
    (b) Specific requirements. The relationships described in this 
paragraph are as follow:
    (1) A director, officer, or partner of the MCO, PCCM, PIHP, or PAHP.
    (2) A person with beneficial ownership of five percent or more of 
the MCO's, PCCM's, PIHP's, or PAHP's equity.
    (3) A person with an employment, consulting or other arrangement 
with the MCO, PCCM, PIHP, or PAHP for the provision of items and 
services that are significant and material to the MCO's, PCCM's, PIHP's, 
or PAHP's obligations under its contract with the State.
    (c) Effect of Noncompliance. If a State finds that an MCO, PCCM, 
PIHP, or PAHP is not in compliance with paragraphs (a) and (b) of this 
section, the State:
    (1) Must notify the Secretary of the noncompliance.
    (2) May continue an existing agreement with the MCO, PCCM, PIHP, or 
PAHP unless the Secretary directs otherwise.
    (3) May not renew or otherwise extend the duration of an existing 
agreement with the MCO, PCCM, PIHP, or PAHP unless the Secretary 
provides to the State and to Congress a written statement describing 
compelling reasons that exist for renewing or extending the agreement.
    (d) Consultation with the Inspector General. Any action by the 
Secretary described in paragraphs (c)(2) or (c)(3) of this section is 
taken in consultation with the Inspector General.



                           Subpart I_Sanctions



Sec. 438.700  Basis for imposition of sanctions.

    (a) Each State that contracts with an MCO must, and each State that 
contracts with a PCCM may, establish intermediate sanctions, as 
specified in Sec. 438.702, that it may impose if it makes any of the 
determinations specified in paragraphs (b) through (d) of this section. 
The State may base its determinations on findings from onsite surveys, 
enrollee or other complaints, financial status, or any other source.
    (b) A State determines whether an MCO acts or fails to act as 
follows:
    (1) Fails substantially to provide medically necessary services that 
the MCO is required to provide, under law or under its contract with the 
State, to an enrollee covered under the contract.
    (2) Imposes on enrollees premiums or charges that are in excess of 
the premiums or charges permitted under the Medicaid program.
    (3) Acts to discriminate among enrollees on the basis of their 
health status or need for health care services. This includes 
termination of enrollment or refusal to reenroll a recipient, except as 
permitted under the Medicaid program, or any practice that would 
reasonably be expected to discourage enrollment by recipients whose 
medical condition or history indicates probable need for substantial 
future medical services.
    (4) Misrepresents or falsifies information that it furnishes to CMS 
or to the State.
    (5) Misrepresents or falsifies information that it furnishes to an 
enrollee, potential enrollee, or health care provider.

[[Page 229]]

    (6) Fails to comply with the requirements for physician incentive 
plans, as set forth (for Medicare) in Sec. Sec. 422.208 and 422.210 of 
this chapter.
    (c) A State determines whether an MCO, PIHP, PAHP or PCCM has 
distributed directly, or indirectly through any agent or independent 
contractor, marketing materials that have not been approved by the State 
or that contain false or materially misleading information.
    (d) A State determines whether--
    (1) An MCO has violated any of the other requirements of 
sections1903(m) or 1932 of the Act, and any implementing regulations;
    (2) A PCCM has violated any of the other applicable requirements of 
sections 1932 or 1905(t)(3) of the Act and any implementing regulations;
    (3) For any of the violations under paragraphs (d)(1) and (d)(2) of 
this section, only the sanctions specified in Sec. 438.702, paragraphs 
(a)(3), (a)(4), and (a)(5) may be imposed.



Sec. 438.702  Types of intermediate sanctions.

    (a) The types of intermediate sanctions that a State may impose 
under this subpart include the following:
    (1) Civil money penalties in the amounts specified in Sec. 438.704.
    (2) Appointment of temporary management for an MCO as provided in 
Sec. 438.706.
    (3) Granting enrollees the right to terminate enrollment without 
cause and notifying the affected enrollees of their right to disenroll.
    (4) Suspension of all new enrollment, including default enrollment, 
after the effective date of the sanction.
    (5) Suspension of payment for recipients enrolled after the 
effective date of the sanction and until CMS or the State is satisfied 
that the reason for imposition of the sanction no longer exists and is 
not likely to recur.
    (b) State agencies retain authority to impose additional sanctions 
under State statutes or State regulations that address areas of 
noncompliance specified in Sec. 438.700, as well as additional areas of 
noncompliance. Nothing in this subpart prevents State agencies from 
exercising that authority.



Sec. 438.704  Amounts of civil money penalties.

    (a) General rule. The limit on, or the maximum civil money penalty 
the State may impose varies depending on the nature of the MCO's or 
PCCM's action or failure to act, as provided in this section.
    (b) Specific limits. (1) The limit is $25,000 for each determination 
under the following paragraphs of Sec. 438.700:
    (i) Paragraph (b)(1) (Failure to provide services).
    (ii) Paragraph (b)(5) (Misrepresentation or false statements to 
enrollees, potential enrollees, or health care providers).
    (iii) Paragraph (b)(6) (Failure to comply with physician incentive 
plan requirements).
    (iv) Paragraph (c) (Marketing violations).
    (2) The limit is $100,000 for each determination under paragraph 
(b)(3) (discrimination) or (b)(4) (Misrepresentation or false statements 
to CMS or the State) of Sec. 438.700.
    (3) The limit is $15,000 for each recipient the State determines was 
not enrolled because of a discriminatory practice under paragraph (b)(3) 
of Sec. 438.700. (This is subject to the overall limit of $100,000 
under paragraph (b)(2) of this section).
    (c) Specific amount. For premiums or charges in excess of the 
amounts permitted under the Medicaid program, the maximum amount of the 
penalty is $25,000 or double the amount of the excess charges, whichever 
is greater. The State must deduct from the penalty the amount of 
overcharge and return it to the affected enrollees.



Sec. 438.706  Special rules for temporary management.

    (a) Optional imposition of sanction. The State may impose temporary 
management only if it finds (through onsite survey, enrollee complaints, 
financial audits, or any other means) that--
    (1) There is continued egregious behavior by the MCO, including but 
not limited to behavior that is described in Sec. 438.700, or that is 
contrary to any requirements of sections 1903(m) and 1932 of the Act; or
    (2) There is substantial risk to enrollees' health; or

[[Page 230]]

    (3) The sanction is necessary to ensure the health of the MCO's 
enrollees--
    (i) While improvements are made to remedy violations under Sec. 
438.700; or
    (ii) Until there is an orderly termination or reorganization of the 
MCO.
    (b) Required imposition of sanction. The State must impose temporary 
management (regardless of any other sanction that may be imposed) if it 
finds that an MCO has repeatedly failed to meet substantive requirements 
in section 1903(m) or section 1932 of the Act, or this subpart. The 
State must also grant enrollees the right to terminate enrollment 
without cause, as described in Sec. 438.702(a)(3), and must notify the 
affected enrollees of their right to terminate enrollment.
    (c) Hearing. The State may not delay imposition of temporary 
management to provide a hearing before imposing this sanction.
    (d) Duration of sanction. The State may not terminate temporary 
management until it determines that the MCO can ensure that the 
sanctioned behavior will not recur.



Sec. 438.708  Termination of an MCO or PCCM contract.

    A State has the authority to terminate an MCO or PCCM contract and 
enroll that entity's enrollees in other MCOs or PCCMs, or provide their 
Medicaid benefits through other options included in the State plan, if 
the State determines that the MCO or PCCM has failed to do either of the 
following:
    (a) Carry out the substantive terms of its contract; or
    (b) Meet applicable requirements in sections 1932, 1903(m), and 
1905(t) of the Act.



Sec. 438.710  Due process: Notice of sanction and pre-termination hearing.

    (a) Notice of sanction. Except as provided in Sec. 438.706(c), 
before imposing any of the intermediate sanctions specified in this 
subpart, the State must give the affected entity timely written notice 
that explains the following:
    (1) The basis and nature of the sanction.
    (2) Any other due process protections that the State elects to 
provide.
    (b) Pre-termination hearing--(1) General rule. Before terminating an 
MCO or PCCM contract under Sec. 438.708, the State must provide the 
entity a pre-termination hearing.
    (2) Procedures. The State must do the following:
    (i) Give the MCO or PCCM written notice of its intent to terminate, 
the reason for termination, and the time and place of the hearing;
    (ii) After the hearing, give the entity written notice of the 
decision affirming or reversing the proposed termination of the contract 
and, for an affirming decision, the effective date of termination; and
    (iii) For an affirming decision, give enrollees of the MCO or PCCM 
notice of the termination and information, consistent with Sec. 438.10, 
on their options for receiving Medicaid services following the effective 
date of termination.



Sec. 438.722  Disenrollment during termination hearing process.

    After a State notifies an MCO or PCCM that it intends to terminate 
the contract, the State may do the following:
    (a) Give the entity's enrollees written notice of the State's intent 
to terminate the contract.
    (b) Allow enrollees to disenroll immediately without cause.



Sec. 438.724  Notice to CMS.

    (a) The State must give the CMS Regional Office written notice 
whenever it imposes or lifts a sanction for one of the violations listed 
in Sec. 438.700.
    (b) The notice must--
    (1) Be given no later than 30 days after the State imposes or lifts 
a sanction; and
    (2) Specify the affected MCO, the kind of sanction, and the reason 
for the State's decision to impose or lift a sanction.



Sec. 438.726  State plan requirement.

    (a) The State plan must include a plan to monitor for violations 
that involve the actions and failures to act specified in this part and 
to implement the provisions of this part.
    (b) A contract with an MCO must provide that payments provided for

[[Page 231]]

under the contract will be denied for new enrollees when, and for so 
long as, payment for those enrollees is denied by CMS under section 
438.730(e).



Sec. 438.730  Sanction by CMS: Special rules for MCOs

    (a) Basis for sanction. (1) A State agency may recommend that CMS 
impose the denial of payment sanction specified in paragraph (e) of this 
section on an MCO with a contract under this part if the agency 
determines that the MCO acts or fails to act as specified in Sec. 
438.700(b)(1) through (b)(6).
    (b) Effect of an Agency Determination. (1) The State agency's 
determination becomes CMS's determination for purposes of section 
1903(m)(5)(A) of the Act unless CMS reverses or modifies it within 15 
days.
    (2) When the agency decides to recommend imposing the sanction 
described in paragraph (e) of this section, this recommendation becomes 
CMS's decision, for purposes of section 1903(m)(5)(B)(ii) of the Act, 
unless CMS rejects this recommendation within 15 days.
    (c) Notice of sanction. If the State agency's determination becomes 
CMS's determination under section (b)(2), the State agency takes the 
following actions:
    (1) Gives the MCO written notice of the nature and basis of the 
proposed sanction;
    (2) Allows the MCO 15 days from the date it receives the notice to 
provide evidence that it has not acted or failed to act in the manner 
that is the basis for the recommended sanction;
    (3) May extend the initial 15-day period for an additional 15 days 
if--
    (i) the MCO submits a written request that includes a credible 
explanation of why it needs additional time;
    (ii) the request is received by CMS before the end of the initial 
period; and
    (iii) CMS has not determined that the MCO's conduct poses a threat 
to an enrollee's health or safety.
    (d) Informal reconsideration. (1) If the MCO submits a timely 
response to the notice of sanction, the State agency--
    (i) Conducts an informal reconsideration that includes review of the 
evidence by a State agency official who did not participate in the 
original recommendation;
    (ii) Gives the MCO a concise written decision setting forth the 
factual and legal basis for the decision; and
    (iii) Forwards the decision to CMS.
    (2) The agency decision under paragraph (d)(1)(ii) of this section 
becomes CMS's decision unless CMS reverses or modifies the decision 
within 15 days from date of receipt by CMS.
    (3) If CMS reverses or modifies the State agency decision, the 
agency sends the MCO a copy of CMS's decision.
    (e) Denial of payment. (1) CMS, based upon the recommendation of the 
agency, may deny payment to the State for new enrollees of the HMO under 
section 1903(m)(5)(B)(ii) of the Act in the following situations:
    (i) If a CMS determination that an MCO has acted or failed to act, 
as described in paragraphs (b)(1) through (b)(6) of Sec. 438.700, is 
affirmed on review under paragraph (d) of this section.
    (ii) If the CMS determination is not timely contested by the MCO 
under paragraph (c) of this section.
    (2) Under Sec. 438.726(b), CMS's denial of payment for new 
enrollees automatically results in a denial of agency payments to the 
HMO for the same enrollees. (A new enrollee is an enrollee that applies 
for enrollment after the effective date in paragraph (f)(1) of this 
section.)
    (f) Effective date of sanction. (1) If the MCO does not seek 
reconsideration, a sanction is effective 15 days after the date the MCO 
is notified under paragraph (b) of this section of the decision to 
impose the sanction.
    (2) If the MCO seeks reconsideration, the following rules apply:
    (i) Except as specified in paragraph (d)(2)(ii) of this section, the 
sanction is effective on the date specified in CMS's reconsideration 
notice.
    (ii) If CMS, in consultation with the State agency, determines that 
the MCO's conduct poses a serious threat to an enrollee's health or 
safety, the sanction may be made effective earlier than the date of the 
agency's reconsideration decision under paragraph (c)(1)(ii) of this 
section.
    (g) CMS's role. (1) CMS retains the right to independently perform 
the

[[Page 232]]

functions assigned to the State agency under paragraphs (a) through (d) 
of this section.
    (2) At the same time that the agency sends notice to the MCO under 
paragraph (c)(1)(i) of this section, CMS forwards a copy of the notice 
to the OIG.
    (3) CMS conveys the determination described in paragraph (b) of this 
section to the OIG for consideration of possible imposition of civil 
money penalties under section 1903(m)(5)(A) of the Act and part 1003 of 
this title. In accordance with the provisions of part 1003, the OIG may 
impose civil money penalties on the MCO in addition to, or in place of, 
the sanctions that may be imposed under this section.



        Subpart J_Conditions for Federal Financial Participation



Sec. 438.802  Basic requirements.

    FFP is available in expenditures for payments under an MCO contract 
only for the periods during which the contract--
    (a) Meets the requirements of this part; and
    (b) Is in effect.



Sec. 438.806  Prior approval.

    (a) Comprehensive risk contracts. FFP is available under a 
comprehensive risk contract only if--
    (1) The Regional Office has confirmed that the contractor meets the 
definition of an MCO or is one of the entities described in paragraphs 
(b)(2) through (b)(5) of Sec. 438.6; and
    (2) The contract meets all the requirements of section 1903(m)(2)(A) 
of the Act, the applicable requirements of section 1932 of the Act, and 
the implementing regulations in this part.
    (b) MCO contracts. Prior approval by CMS is a condition for FFP 
under any MCO contract that extends for less than one full year or that 
has a value equal to, or greater than, the following threshold amounts:
    (1) For 1998, the threshold is $1,000,000.
    (2) For subsequent years, the amount is increased by the percentage 
increase in the consumer price index for all urban consumers.
    (c) FFP is not available in an MCO contract that does not have prior 
approval from CMS under paragraph (b) of this section.



Sec. 438.808  Exclusion of entities.

    (a) General rule. FFP is available in payments under MCO contracts 
only if the State excludes from the contracts any entities described in 
paragraph (b) of this section.
    (b) Entities that must be excluded. (1) An entity that could be 
excluded under section 1128(b)(8) of the Act as being controlled by a 
sanctioned individual.
    (2) An entity that has a substantial contractual relationship as 
defined in Sec. 431.55(h)(3) of this chapter, either directly or 
indirectly, with an individual convicted of certain crimes as described 
in section 1128(b)(8)(B) of the Act.
    (3) An entity that employs or contracts, directly or indirectly, for 
the furnishing of health care, utilization review, medical social work, 
or administrative services, with one of the following:
    (i) Any individual or entity excluded from participation in Federal 
health care programs under either section 1128 or section 1128A of the 
Act.
    (ii) Any entity that would provide those services through an 
excluded individual or entity.



Sec. 438.810  Expenditures for enrollment broker services.

    (a) Terminology. As used in this section--
    Choice counseling means activities such as answering questions and 
providing information (in an unbiased manner) on available MCO, PIHP, 
PAHP, or PCCM delivery system options, and advising on what factors to 
consider when choosing among them and in selecting a primary care 
provider;
    Enrollment activities means activities such as distributing, 
collecting, and processing enrollment materials and taking enrollments 
by phone or in person;
    Enrollment broker means an individual or entity that performs choice 
counseling or enrollment activities, or both, and;
    Enrollment services means choice counseling, or enrollment 
activities, or both.

[[Page 233]]

    (b) Conditions that enrollment brokers must meet. State expenditures 
for the use of enrollment brokers are considered necessary for the 
proper and efficient operation of the State plan and thus eligible for 
FFP only if the broker and its subcontractors meet the following 
conditions:
    (1) Independence. The broker and its subcontractors are independent 
of any MCO, PIHP, PAHP, PCCM, or other health care provider in the State 
in which they provide enrollment services. A broker or subcontractor is 
not considered ``independent'' if it--
    (i) Is an MCO, PIHP, PAHP, PCCM or other health care provider in the 
State;
    (ii) Is owned or controlled by an MCO, PIHP, PAHP, PCCM, or other 
health care provider in the State; or
    (iii) Owns or controls an MCO, PIHP, PAHP, PCCM or other health care 
provider in the State.
    (2) Freedom from conflict of interest. The broker and its 
subcontractor are free from conflict of interest. A broker or 
subcontractor is not considered free from conflict of interest if any 
person who is the owner, employee, or consultant of the broker or 
subcontractor or has any contract with them--
    (i) Has any direct or indirect financial interest in any entity or 
health care provider that furnishes services in the State in which the 
broker or subcontractor provides enrollment services;
    (ii) Has been excluded from participation under title XVIII or XIX 
of the Act;
    (iii) Has been debarred by any Federal agency; or
    (iv) Has been, or is now, subject to civil money penalties under the 
Act.
    (3) Approval. The initial contract or memorandum of agreement (MOA) 
for services performed by the broker has been reviewed and approved by 
CMS.

[67 FR 41095, June 14, 2002; 67 FR 65505, Oct. 25, 2002]



Sec. 438.812  Costs under risk and nonrisk contracts.

    (a) Under a risk contract, the total amount the State agency pays 
for carrying out the contract provisions is a medical assistance cost.
    (b) Under a nonrisk contract--
    (1) The amount the State agency pays for the furnishing of medical 
services to eligible recipients is a medical assistance cost; and
    (2) The amount the State agency pays for the contractor's 
performance of other functions is an administrative cost.



PART 440_SERVICES: GENERAL PROVISIONS--Table of Contents




                          Subpart A_Definitions

Sec.
440.1 Basis and purpose.
440.2 Specific definitions; definitions of services for FFP purposes.
440.10 Inpatient hospital services, other than services in an 
          institution for mental diseases.
440.20 Outpatient hospital services and rural health clinic services.
440.30 Other laboratory and X-ray services.
440.40 Nursing facility services for individuals age 21 or older (other 
          than services in an institution for mental disease), EPSDT, 
          and family planning services and supplies.
440.50 Physicians' services and medical and surgical services of a 
          dentist.
440.60 Medical or other remedial care provided by licensed 
          practitioners.
440.70 Home health services.
440.80 Private duty nursing services.
440.90 Clinic services.
440.100 Dental services.
440.110 Physical therapy, occupational therapy, and services for 
          individuals with speech, hearing, and language disorders.
440.120 Prescribed drugs, dentures, prosthetic devices, and eyeglasses.
440.130 Diagnostic, screening, preventive, and rehabilitative services.
440.140 Inpatient hospital services, nursing facility services, and 
          intermediate care facility services for individuals age 65 or 
          older in institutions for mental diseases.
440.150 Intermediate care facility (ICF/MR) services.
440.155 Nursing facility services, other than in institutions for mental 
          diseases.
440.160 Inpatient pyschiatric services for individuals under age 21.
440.165 Nurse-midwife services.
440.166 Nurse practitioner services.
440.167 Personal care services.
440.168 Primary care case management services.
440.170 Any other medical or remedial care recognized under State law 
          and specified by the Secretary.
440.180 Home or community-based services.
440.181 Home and community-based services for individuals age 65 or 
          older.

[[Page 234]]

440.185 Respiratory care for ventilator-dependent individuals.

      Subpart B_Requirements and Limits Applicable to All Services

440.200 Basis, purpose, and scope.
440.210 Required services for the categorically needy.
440.220 Required services for the medically needy.
440.225 Optional services.
440.230 Sufficiency of amount, duration, and scope.
440.240 Comparability of services for groups.
440.250 Limits on comparability of services.
440.255 Limited services available to certain aliens.
440.260 Methods and standards to assure quality of services.
440.270 Religious objections.

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

    Source: 43 FR 45224, Sept. 29, 1978, unless otherwise noted.



                          Subpart A_Definitions



Sec. 440.1  Basis and purpose.

    This subpart interprets and implements the following sections of the 
Act:

    1905(a) Services included in the term ``medical assistance.''
    1905 (c), (d), (f) through (i), (l), and (m) Definitions of 
institutions and services that are included in the term ``medical 
assistance.''
    1913 ``Swing-bed'' services. (See Sec. Sec. 447.280 and 482.66 of 
this chapter for related provisions on ``swing-bed'' services.)
    1915(c) Home and community-based services listed as ``medical 
assistance'' and furnished under waivers under that section to 
individuals who would otherwise require the level of care furnished in a 
hospital, NF, or ICF/MR.
    1915(d) Home and community-based services listed as ``medical 
assistance'' and furnished under waivers under that section to 
individuals age 65 or older who would otherwise require the level of 
care furnished in a NF.

[57 FR 29155, June 30, 1992, as amended at 61 FR 38398, July 24, 1996]



Sec. 440.2  Specific definitions; definitions of services for FFP purposes.

    (a) Specific definitions.
    Inpatient means a patient who has been admitted to a medical 
institution as an inpatient on recommendation of a physician or dentist 
and who--
    (1) Receives room, board and professional services in the 
institution for a 24 hour period or longer, or
    (2) Is expected by the institution to receive room, board and 
professional services in the institution for a 24 hour period or longer 
even though it later develops that the patient dies, is discharged or is 
transferred to another facility and does not actually stay in the 
institution for 24 hours.
    Outpatient means a patient of an organized medical facility, or 
distinct part of that facility who is expected by the facility to 
receive and who does receive professional services for less than a 24-
hour period regardless of the hour of admission, whether or not a bed is 
used, or whether or not the patient remains in the facility past 
midnight.
    Patient means an individual who is receiving needed professional 
services that are directed by a licensed practitioner of the healing 
arts toward the maintenance, improvement, or protection of health, or 
lessening of illness, disability, or pain. (See also Sec. 435.1009 of 
this subchapter for definitions relating to institutional care.)
    (b) Definitions of services for FFP purposes. Except as limited in 
part 441, FFP is available in expenditures under the State plan for 
medical or remedial care and services as defined in this subpart.

[43 FR 45224, Sept. 29, 1978, as amended at 52 FR 47934, Dec. 17, 1987]



Sec. 440.10  Inpatient hospital services, other than services in an institution for mental diseases.

    (a) Inpatient hospital services means services that--
    (1) Are ordinarily furnished in a hospital for the care and 
treatment of inpatients;
    (2) Are furnished under the direction of a physician or dentist; and
    (3) Are furnished in an institution that--
    (i) Is maintained primarily for the care and treatment of patients 
with disorders other than mental diseases;
    (ii) Is licensed or formally approved as a hospital by an officially 
designated authority for State standard-setting;

[[Page 235]]

    (iii) Meets the requirements for participation in Medicare as a 
hospital; and
    (iv) Has in effect a utilization review plan, applicable to all 
Medicaid patients, that meets the requirements of Sec. 482.30 of this 
chapter, unless a waiver has been granted by the Secretary.
    (b) Inpatient hospital services do not include SNF and ICF services 
furnished by a hospital with a swing-bed approval.

[47 FR 21050, May 17, 1982, as amended at 47 FR 31532, July 20, 1982; 51 
FR 22041, June 17, 1986, 52 FR 47934, Dec. 17, 1987; 60 FR 61486, Nov. 
30, 1995]



Sec. 440.20  Outpatient hospital services and rural health clinic services.

    (a) Outpatient hospital services means preventive, diagnostic, 
therapeutic, rehabilitative, or palliative services that--
    (1) Are furnished to outpatients;
    (2) Are furnished by or under the direction of a physician or 
dentist; and
    (3) Are furnished by an institution that--
    (i) Is licensed or formally approved as a hospital by an officially 
designated authority for State standard-setting; and
    (ii) Meets the requirements for participation in Medicare as a 
hospital; and
    (4) May be limited by a Medicaid agency in the following manner: A 
Medicaid agency may exclude from the definition of ``outpatient hospital 
services'' those types of items and services that are not generally 
furnished by most hospitals in the State.
    (b) Rural health clinic services. If nurse practitioners or 
physician assistants (as defined in Sec. 481.1 of this chapter) are not 
prohibited by State law from furnishing primary health care, ``rural 
health clinic services'' means the following services when furnished by 
a rural health clinic that has been certified in accordance with part 
491 of this chapter.
    (1) Services furnished by a physician within the scope of practice 
of his profession under State law, if the physician performs the 
services in the clinic or the services are furnished away from the 
clinic and the physician has an agreement with the clinic providing that 
he will be paid by it for such services.
    (2) Services furnished by a physician assistant, nurse practitioner, 
nurse midwife or other specialized nurse practitioner (as defined in 
Sec. Sec. 405.2401 and 491.2 of this chapter) if the services are 
furnished in accordance with the requirements specified in Sec. 
405.2414(a) of this chapter.
    (3) Services and supplies that are furnished as an incident to 
professional services furnished by a physician, physician assistant, 
nurse practitioner, nurse midwife, or specialized nurse practitioner. 
(See Sec. Sec. 405.2413 and 405.2415 of this chapter for the criteria 
for determining whether services and supplies are included under this 
paragraph.)
    (4) Part-time or intermittent visiting nurse care and related 
medical supplies (other than drugs and biologicals) if:
    (i) The clinic is located in an area in which the Secretary has 
determined that there is a shortage of home health agencies (see Sec. 
405.2417 of this chapter):
    (ii) The services are furnished by a registered nurse or licensed 
practical nurse or a licensed vocational nurse employed by, or otherwise 
compensated for the services by, the clinic;
    (iii) The services are furnished under a written plan of treatment 
that is established and reviewed at least every 60 days by a supervising 
physician of the clinic or that is established by a physician, physician 
assistant, nurse practitioner, nurse midwife, or specialized nurse 
practitioner and reviewed and approved at least every 60 days by a 
supervising physician of the clinic; and
    (iv) The services are furnished to a homebound recipient. For 
purposes of visiting nurse care, a ``homebound'' recipient means one who 
is permanently or temporarily confined to his place of residence because 
of a medical or health condition. He may be considered homebound if he 
leaves the place of residence infrequently. For this purpose, ``place of 
residence'' does not include a hospital or a skilled nursing facility.
    (c) Other ambulatory services furnished by a rural health clinic. If 
the State plan covers rural health clinic services, other ambulatory 
services means ambulatory services other than rural

[[Page 236]]

health clinic services, as defined in paragraph (b) of this section, 
that are otherwise included in the plan and meet specific State plan 
requirements for furnishing those services. Other ambulatory services 
furnishd by a rural health clinic are not subject to the physician 
supervision requirements specified in Sec. 491.8(b) of this chapter, 
unless required by State law or the State plan.

[43 FR 45224, Sept. 29, 1978, as amended at 47 FR 21050, May 17, 1982; 
52 FR 47934, Dec. 17, 1987; 60 FR 61486, Nov. 30, 1995]



Sec. 440.30  Other laboratory and X-ray services.

    Other laboratory and X-ray services means professional and technical 
laboratory and radiological services--
    (a) Ordered and provided by or under the direction of a physician or 
other licensed practioner of the healing arts within the scope of his 
practice as defined by State law or ordered by a physician but provided 
by referral laboratory;
    (b) Provided in an office or similar facility other than a hospital 
outpatient department or clinic; and
    (c) Furnished by a laboratory that meets the requirements of part 
493 of this chapter.

[46 FR 42672, Aug. 24, 1981, as amended at 57 FR 7135, Feb. 28, 1992]



Sec. 440.40  Nursing facility services for individuals age 21 or older (other than services in an institution for mental disease), EPSDT, and family planning 
          services and supplies.

    (a) Nursing facility services. (1) ``Nursing facility services for 
individuals age 21 or older, other than services in an institution for 
mental diseases'', means services that are--
    (i) Needed on a daily basis and required to be provided on an 
inpatient basis under Sec. Sec. 409.31 through 409.35 of this chapter.
    (ii) Provided by--
    (A) A facility or distinct part (as defined in Sec. 483.5(b) of 
this chapter) that meets the requirements for participation under 
subpart B of part 483 of this chapter, as evidenced by a valid agreement 
between the Medicaid agency and the facility for providing nursing 
facility services and making payments for services under the plan; or
    (B) If specified in the State plan, a swing-bed hospital that has an 
approval from CMS to furnish skilled nursing facility services in the 
Medicare program; and
    (iii) Ordered by and provided under the direction of a physician.
    (2) Nursing facility services include services provided by any 
facility located on an Indian reservation and certified by the Secretary 
as meeting the requirements of subpart B of part 483 of this chapter.
    (b) EPSDT. ``Early and periodic screening and diagnosis and 
treatment'' means--
    (1) Screening and diagnostic services to determine physical or 
mental defects in recipients under age 21; and
    (2) Health care, treatment, and other measures to correct or 
ameliorate any defects and chronic conditions discovered. (See subpart B 
of part 441 of this chapter.)
    (c) Family planning services and supplies for individuals of child-
bearing age. [Reserved]

[59 FR 56233, Nov. 10, 1994; 60 FR 50117, Sept. 28, 1995, as amended at 
61 FR 59198, Nov. 21, 1996; 68 FR 46071, Aug. 4, 2003]



Sec. 440.50  Physicians' services and medical and surgical services of a dentist.

    (a) ``Physicians' services,'' whether furnished in the office, the 
recipient's home, a hospital, a skilled nursing facility, or elsewhere, 
means services furnished by a physician--
    (1) Within the scope of practice of medicine or osteopathy as 
defined by State law; and
    (2) By or under the personal supervision of an individual licensed 
under State law to practice medicine or osteopathy.
    (b) ``Medical and surgical services of a dentist'' means medical and 
surgical services furnished, on or after January 1, 1988, by a doctor of 
dental medicine or dental surgery if the services are services that--
    (1) If furnished by a physician, would be considered physician's 
services.
    (2) Under the law of the State where they are furnished, may be 
furnished

[[Page 237]]

either by a physician or by a doctor of dental medicine or dental 
surgery; and
    (3) Are furnished by a doctor of dental medicine or dental surgery 
who is authorized to furnish those services in the State in which he or 
she furnished the services.

[56 FR 8851, Mar. 1, 1991]



Sec. 440.60  Medical or other remedial care provided by licensed practitioners.

    (a) ``Medical care or any other type remedial care provided by 
licensed practitioners'' means any medical or remedial care or services, 
other than physicians' services, provided by licensed practitioners 
within the scope of practice as defined under State law.
    (b) Chiropractors' services include only services that--
    (1) Are provided by a chiropractor who is licensed by the State and 
meets standards issued by the Secretary under Sec. 405.232(b) of this 
chapter; and
    (2) Consists of treatment by means of manual manipulation of the 
spine that the chiropractor is legally authorized by the State to 
perform.



Sec. 440.70  Home health services.

    (a) ``Home health services'' means the services in paragraph (b) of 
this section that are provided to a recipient--
    (1) At his place of residence, as specified in paragraph (c) of this 
section; and
    (2) On his or her physician's orders as part of a written plan of 
care that the physician reviews every 60 days, except as specified in 
paragraph (b)(3) of this section.
    (b) Home health services include the following services and items. 
Those listed in paragraphs (b) (1), (2) and (3) of this section are 
required services; those in paragraph (b)(4) of this section are 
optional.
    (1) Nursing service, as defined in the State Nurse Practice Act, 
that is provided on a part-time or intermittent basis by a home health 
agency as defined in paragraph (d) of this section, or if there is no 
agency in the area, a registered nurse who--
    (i) Is currently licensed to practice in the State;
    (ii) Receives written orders from the patient's physician;
    (iii) Documents the care and services provided; and
    (iv) Has had orientation to acceptable clinical and administrative 
recordkeeping from a health department nurse.
    (2) Home health aide service provided by a home health agency,
    (3) Medical supplies, equipment, and appliances suitable for use in 
the home.
    (i) A recipient's need for medical supplies, equipment, and 
appliances must be reviewed by a physician annually.
    (ii) Frequency of further physician review of a recipient's 
continuing need for the items is determined on a case-by-case basis, 
based on the nature of the item prescribed;
    (4) Physical therapy, occupational therapy, or speech pathology and 
audiology services, provided by a home health agency or by a facility 
licensed by the State to provide medical rehabilitation services. (See 
Sec. 441.15 of this subchapter.)
    (c) A recipient's place of residence, for home health services, does 
not include a hospital, nursing facility, or intermediate care facility 
for the mentally retarded, except for home health services in an 
intermediate care facility for the mentally retarded that are not 
required to be provided by the facility under subpart I of part 483. For 
example, a registered nurse may provide short-term care for a recipient 
in an intermediate care facility for the mentally retarded during an 
acute illness to avoid the recipient's transfer to a nursing facility.
    (d) ``Home health agency'' means a public or private agency or 
organization, or part of an agency or organization, that meets 
requirements for participation in Medicare, including the capitalization 
requirements under Sec. 489.28 of this chapter.
    (e) A ``facility licensed by the State to provide medical 
rehabilitation services'' means a facility that--
    (1) Provides therapy services for the primary purpose of assisting 
in the rehabilitation of disabled individuals through an integrated 
program of--
    (i) Medical evaluation and services; and
    (ii) Psychological, social, or vocational evaluation and services; 
and

[[Page 238]]

    (2) Is operated under competent medical supervision either--
    (i) In connection with a hospital; or
    (ii) As a facility in which all medical and related health services 
are prescribed by or under the direction of individuals licensed to 
practice medicine or surgery in the State.

[43 FR 45224, Sept. 29, 1978, as amended at 45 FR 24888, Apr. 11, 1980; 
62 FR 47902, Sept. 11, 1997; 63 FR 310, Jan. 5, 1998]



Sec. 440.80  Private duty nursing services.

    Private duty nursing services means nursing services for recipients 
who require more individual and continuous care than is available from a 
visiting nurse or routinely provided by the nursing staff of the 
hospital or skilled nursing facility. These services are provided--
    (a) By a registered nurse or a licensed practical nurse;
    (b) Under the direction of the recipient's physician; and
    (c) To a recipient in one or more of the following locations at the 
option of the State--
    (1) His or her own home;
    (2) A hospital; or
    (3) A skilled nursing facility.

[52 FR 47934, Dec. 17, 1987]



Sec. 440.90  Clinic services.

    Clinic services means preventive, diagnostic, therapeutic, 
rehabilitative, or palliative services that are furnished by a facility 
that is not part of a hospital but is organized and operated to provide 
medical care to outpatients. The term includes the following services 
furnished to outpatients:
    (a) Services furnished at the clinic by or under the direction of a 
physician or dentist.
    (b) Services furnished outside the clinic, by clinic personnel under 
the direction of a physician, to an eligible individual who does not 
reside in a permanent dwelling or does not have a fixed home or mailing 
address.

[56 FR 8851, Mar. 1, 1991, as amended at 60 FR 61486, Nov. 30, 1995]



Sec. 440.100  Dental services.

    (a) ``Dental services'' means diagnostic, preventive, or corrective 
procedures provided by or under the supervision of a dentist in the 
practice of his profession, including treatment of--
    (1) The teeth and associated structures of the oral cavity; and
    (2) Disease, injury, or impairment that may affect the oral or 
general health of the recipient.
    (b) ``Dentist'' means an individual licensed to practice dentistry 
or dental surgery.

[43 FR 45224, Sept. 29, 1978, as amended at 45 FR 24888, Apr. 11, 1980]



Sec. 440.110  Physical therapy, occupational therapy, and services for individuals with speech, hearing, and language disorders.

    (a) Physical therapy. (1) Physical therapy means services prescribed 
by a physician or other licensed practitioner of the healing arts within 
the scope of his or her practice under State law and provided to a 
recipient by or under the direction of a qualified physical therapist. 
It includes any necessary supplies and equipment.
    (2) A ``qualified physical therapist'' is an individual who is--
    (i) A graduate of a program of physical therapy approved by both the 
Committee on Allied Health Education and Accreditation of the American 
Medical Association and the American Physical Therapy Association or its 
equivalent; and
    (ii) Where applicable, licensed by the State.
    (b) Occupational therapy. (1) Occupational therapy means services 
prescribed by a physician or other licensed practitioner of the healing 
arts within the scope of his or her practice under State law and 
provided to a recipient by or under the direction of a qualified 
occupational therapist. It includes any necessary supplies and 
equipment.
    (2) A ``qualified occupation therapist'' is an individual who is--
    (i) Registered by the American Occupational Therapy Association; or
    (ii) A graduate of a program in occupational therapy approved by the 
Committee on Allied Health Education and Accreditation of the American 
Medical Association and engaged in the supplemental clinical experience 
required before registration by the American Occupational Therapy 
Association.

[[Page 239]]

    (c) Services for individuals with speech, hearing, and language 
disorders. (1) Services for individuals with speech, hearing, and 
language disorders means diagnostic, screening, preventive, or 
corrective services provided by or under the direction of a speech 
pathologist or audiologist, for which a patient is referred by a 
physician or other licensed practitioner of the healing arts within the 
scope of his or her practice under State law. It includes any necessary 
supplies and equipment.
    (2) A ``speech pathologist'' is an individual who meets one of the 
following conditions:
    (i) Has a certificate of clinical competence from the American 
Speech and Hearing Association.
    (ii) Has completed the equivalent educational requirements and work 
experience necessary for the certificate.
    (iii) Has completed the academic program and is acquiring supervised 
work experience to qualify for the certificate.
    (3) A ``qualified audiologist'' means an individual with a master's 
or doctoral degree in audiology that maintains documentation to 
demonstrate that he or she meets one of the following conditions:
    (i) The State in which the individual furnishes audiology services 
meets or exceeds State licensure requirements in paragraph (c)(3)(ii)(A) 
or (c)(3)(ii)(B) of this section, and the individual is licensed by the 
State as an audiologist to furnish audiology services.
    (ii) In the case of an individual who furnishes audiology services 
in a State that does not license audiologists, or an individual exempted 
from State licensure based on practice in a specific institution or 
setting, the individual must meet one of the following conditions:
    (A) Have a Certificate of Clinical Competence in Audiology granted 
by the American Speech-Language-Hearing Association.
    (B) Have successfully completed a minimum of 350 clock-hours of 
supervised clinical practicum (or is in the process of accumulating that 
supervised clinical experience under the supervision of a qualified 
master or doctoral-level audiologist); performed at least 9 months of 
full-time audiology services under the supervision of a qualified master 
or doctoral-level audiologist after obtaining a master's or doctoral 
degree in audiology, or a related field; and successfully completed a 
national examination in audiology approved by the Secretary.

[43 FR 45224, Sept. 29, 1978, as amended at 45 FR 24888, Apr. 11, 1980; 
56 FR 8854, Mar. 1, 1991; 60 FR 19861, Apr. 21, 1995; 69 FR 30587, May 
28, 2004]



Sec. 440.120  Prescribed drugs, dentures, prosthetic devices, and eyeglasses.

    (a) ``Prescribed drugs'' means simple or compound substances or 
mixtures of substances prescribed for the cure, mitigation, or 
prevention of disease, or for health maintenance that are--
    (1) Prescribed by a physician or other licensed practitioner of the 
healing arts within the scope of this professional practice as defined 
and limited by Federal and State law;
    (2) Dispensed by licensed pharmacists and licensed authorized 
practitioners in accordance with the State Medical Practice Act; and
    (3) Dispensed by the licensed pharmacist or practitioner on a 
written prescription that is recorded and maintained in the pharmacist's 
or practitioner's records.
    (b) ``Dentures'' are artificial structures made by or under the 
direction of a dentist to replace a full or partial set of teeth.
    (c) ``Prosthetic devices'' means replacement, corrective, or 
supportive devices prescribed by a physician or other licensed 
practitioner of the healing arts within the scope of his practice as 
defined by State law to--
    (1) Artificially replace a missing portion of the body;
    (2) Prevent or correct physical deformity or malfunction; or
    (3) Support a weak or deformed portion of the body.
    (d) ``Eyeglasses'' means lenses, including frames, and other aids to 
vision prescribed by a physician skilled in diseases of the eye or an 
optometrist.



Sec. 440.130  Diagnostic, screening, preventive, and rehabilitative services.

    (a) ``Diagnostic services,'' except as otherwise provided under this 
subpart, includes any medical procedures or

[[Page 240]]

supplies recommended by a physician or other licensed practitioner of 
the healing arts, within the scope of his practice under State law, to 
enable him to identify the existence, nature, or extent of illness, 
injury, or other health deviation in a recipient.
    (b) ``Screening services'' means the use of standardized tests given 
under medical direction in the mass examination of a designated 
population to detect the existence of one or more particular diseases or 
health deviations or to identify for more definitive studies individuals 
suspected of having certain diseases.
    (c) ``Preventive services'' means services provided by a physician 
or other licensed practitioner of the healing arts within the scope of 
his practice under State law to--
    (1) Prevent disease, disability, and other health conditions or 
their progression;
    (2) Prolong life; and
    (3) Promote physical and mental health and efficiency.
    (d) ``Rehabilitative services,'' except as otherwise provided under 
this subpart, includes any medical or remedial services recommended by a 
physician or other licensed practitioner of the healing arts, within the 
scope of his practice under State law, for maximum reduction of physical 
or mental disability and restoration of a recipient to his best possible 
functional level.



Sec. 440.140  Inpatient hospital services, nursing facility services, and intermediate care facility services for individuals age 65 or older in institutions 
          for mental diseases.

    (a) Inpatient hospital services. ``Inpatient hospital services for 
individuals age 65 or older in institutions for mental diseases'' means 
services provided under the direction of a physician for the care and 
treatment of recipients in an institution for mental diseases that meets 
the requirements specified in Sec. 482.60(b), (c), and (e) of this 
chapter and--
    (1) Meets the requirements for utilization review in Sec. 
482.30(a), (b), (d), and (e) of this chapter; or
    (2) Has been granted a waiver of those utilization review 
requirements under section 1903(i)(4) of the Act and subpart H of part 
456 of this chapter.
    (b) Nursing facility services. ``Nursing facility services for 
individuals age 65 or older in institutions for mental diseases'' means 
nursing facility services as defined in Sec. 440.40 and in subpart B of 
part 483 of this chapter that are provided in institutions for mental 
diseases, as defined in Sec. 435.1009 of this chapter.

[59 FR 56234, Nov. 10, 1994]



Sec. 440.150  Intermediate care facility (ICF/MR) services.

    (a) ``ICF/MR services'' means those items and services furnished in 
an intermediate care facility for the mentally retarded if the following 
conditions are met:
    (1) The facility fully meets the requirements for a State license to 
provide services that are above the level of room and board;
    (2) The primary purpose of the ICF/MR is to furnish health or 
rehabilitative services to persons with mental retardation or persons 
with related conditions;
    (3) The ICF/MR meets the standards specified in subpart I of part 
483 of this chapter.
    (4) The recipient with mental retardation for whom payment is 
requested is receiving active treatment, as specified in Sec. 483.440 
of this chapter.
    (5) The ICF/MR has been certified to meet the requirements of 
subpart C of part 442 of this chapter, as evidenced by a valid agreement 
between the Medicaid agency and the facility for furnishing ICF/MR 
services and making payments for these services under the plan.
    (b) ICF/MR services may be furnished in a distinct part of a 
facility other than an ICF/MR if the distinct part--
    (1) Meets all requirements for an ICF/MR, as specified in subpart I 
of part 483 of this chapter;
    (2) Is clearly an identifiable living unit, such as an entire ward, 
wing, floor or building;
    (3) Consists of all beds and related services in the unit;
    (4) Houses all recipients for whom payment is being made for ICF/MR 
services; and

[[Page 241]]

    (5) Is approved in writing by the survey agency.

[59 FR 56234, Nov. 10, 1994]



Sec. 440.155  Nursing facility services, other than in institutions for mental diseases.

    (a) ``Nursing facility services, other than in an institution for 
mental diseases'' means services provided in a facility that--
    (1) Fully meets the requirements for a State license to provide, on 
a regular basis, health-related services to individuals who do not 
require hospital care, but whose mental or physical condition requires 
services that--
    (i) Are above the level of room and board; and
    (ii) Can be made available only through institutional facilities;
    (2) Has been certified to meet the requirements of subpart C of part 
442 of this chapter as evidenced by a valid agreement between the 
Medicaid agency and the facility for providing nursing facility services 
and making payments for services under the plan; and
    (b) ``Nursing facility services'' include services--
    (1) Considered appropriate by the State and provided by a religious 
nonmedical institution as defined in Sec. 440.170(b); or
    (2) Provided by a facility located on an Indian reservation that--
    (i) Furnishes, on a regular basis, health-related services; and
    (ii) Is certified by the Secretary to meet the standards in subpart 
E of part 442 of this chapter.
    (c) ``Nursing facility services'' may include services provided in a 
distinct part (as defined in Sec. 483.5(b) of this chapter) of a 
facility other than a nursing facility if the distinct part (as defined 
in Sec. 483.5(b) of this chapter)--
    (1) Meets all requirements for a nursing facility;
    (2) Is an identifiable unit, such as an entire ward or contiguous 
ward, a wing, floor, or building;
    (3) Consists of all beds and related facilities in the unit;
    (4) Houses all recipients for whom payment is being made for nursing 
facility services, except as provided in paragraph (d) of this section;
    (5) Is clearly identified; and
    (6) Is approved in writing by the survey agency.
    (d) If a State includes as nursing facility services those services 
provided by a distinct part of a facility other than a nursing facility, 
it may not require transfer of a recipient within or between facilities 
if, in the opinion of the attending physician, it might be harmful to 
the physical or mental health of the recipient.
    (e) Nursing facility services may include services provided in a 
swing-bed hospital that has an approval to furnish nursing facility 
services.

[59 FR 56234, Nov. 10, 1994, as amended at 64 FR 67052, Nov. 30, 1999; 
68 FR 46071, Aug. 4, 2003]



Sec. 440.160  Inpatient psychiatric services for individuals under age 21.

    ``Inpatient psychiatric services for individuals under age 21'' 
means services that--
    (a) Are provided under the direction of a physician;
    (b) Are provided by--
    (1) A psychiatric hospital or an inpatient psychiatric program in a 
hospital, accredited by the Joint Commission on Accreditation of 
Healthcare Organizations, or
    (2) A psychiatric facility which is accredited by the Joint 
Commission on Accreditation of Healthcare Organizations, the Council on 
Accreditation of Services for Families and Children, the Commission on 
Accreditation of Rehabilitation Facilities, or by any other accrediting 
organization, with comparable standards, that is recognized by the 
State.
    (c) Meet the requirements in Sec. 441.151 of this subchapter.

[63 FR 64198, Nov. 19, 1998]



Sec. 440.165  Nurse-midwife service.

    (a) ``Nurse-midwife services'' means services that--
    (1) Are furnished by a nurse-midwife within the scope of practice 
authorized by State law or regulation and, in the case of inpatient or 
outpatient hospital services or clinic services, are furnished by or 
under the direction of a nurse-midwife to the extent permitted by the 
facility; and

[[Page 242]]

    (2) Unless required by State law or regulations or a facility, are 
reimbursed without regard to whether the nurse-midwife is under the 
supervision of, or associated with, a physician or other health care 
provider. (See Sec. 441.21 of this chapter for provisions on 
independent provider agreements for nurse-midwives.)
    (b) ``Nurse-midwife'' means a registered professional nurse who 
meets the following requirements:
    (1) Is currently licensed to practice in the State as a registered 
professional nurse.
    (2) Is legally authorized under State law or regulations to practice 
as a nurse-midwife.
    (3) Except as provided in paragraph (b)(4) of this section, has 
completed a program of study and clinical experience for nurse-midwives, 
as specified by the State.
    (4) If the State does not specify a program of study and clinical 
experience that nurse-midwives must complete to practice in that State, 
meets one of the following conditions:
    (i) Is currently certified as a nurse-midwife by the American 
College of Nurse-Midwives (ACNM or by the ACNM Certification Council, 
Inc. (ACC).
    (ii) Has satisfactorily completed a formal education program (of at 
least one academic year) that, upon completion qualifies the nurse to 
take the certification examination offered by the American College of 
Nurse-Midwives (ACNM) or by the ACNM Certification Council, Inc. (ACC).
    (iii) Has successfully completed a formal educational program for 
preparing registered nurses to furnish gynecological and obstetrical 
care to women during pregnancy, delivery, and the postpartum period, and 
care to normal newborns, and was practicing as a nurse-midwife for a 
total of 12 months during any 18-month period from August 8, 1976 to 
July 16, 1982.

[47 FR 21050, May 17, 1982; 47 FR 23448, May 28, 1982, as amended at 55 
FR 48611, Nov. 21, 1990; 61 FR 61486, Nov. 30, 1996]



Sec. 440.166  Nurse practitioner services.

    (a) Definition of nurse practitioner services. Nurse practitioner 
services means services that are furnished by a registered professional 
nurse who meets a State's advanced educational and clinical practice 
requirements, if any, beyond the 2 to 4 years of basic nursing education 
required of all registered nurses.
    (b) Requirements for certified pediatric nurse practitioner. The 
practitioner must be a registered professional nurse who meets the 
requirements specified in either paragraphs (b)(1) or (b)(2) of this 
section.
    (1) If the State specifies qualifications for pediatric nurse 
practitioners, the practitioner must--
    (i) Be currently licensed to practice in the State as a registered 
professional nurse; and
    (ii) Meet the State requirements for qualification of pediatric 
nurse practitioners in the State in which he or she furnishes the 
services.
    (2) If the State does not specify, by specialty, qualifications for 
pediatric nurse practitioners, but the State does define qualifications 
for nurses in advanced practice or general nurse practitioners, the 
practitioner must--
    (i) Meet qualifications for nurses in advanced practice or general 
nurse practitioners as defined by the State; and
    (ii) Have a pediatric nurse practice limited to providing primary 
health care to persons less than 21 years of age.
    (c) Requirements for certified family nurse practitioner. The 
practitioner must be a registered professional nurse who meets the 
requirements specified in either paragraph (c)(1) or (c)(2) of this 
section.
    (1) If the State specifies qualifications for family nurse 
practitioners, the practitioner must--
    (i) Be currently licensed to practice in the State as a registered 
professional nurse; and
    (ii) Meet the State requirements for qualification of family nurse 
practitioners in the State in which he or she furnishes the services.
    (2) If the State does not specify, by specialty, qualifications for 
family nurse practitioners, but the State does define qualifications for 
nurses in advanced practice or general nurse practitioners, the 
practitioner must--

[[Page 243]]

    (i) Meet qualifications for nurses in advanced practice or general 
nurse practitioners as defined by the State; and
    (ii) Have a family nurse practice limited to providing primary 
health care to individuals and families.
    (d) Payment for nurse practitioner services. The Medicaid agency 
must reimburse nurse practitioners for their services in accordance with 
Sec. 441.22(c) of this subchapter.

[60 FR 19861, Apr. 21, 1995]



Sec. 440.167  Personal care services.

    Unless defined differently by a State agency for purposes of a 
waiver granted under part 441, subpart G of this chapter--
    (a) Personal care services means services furnished to an individual 
who is not an inpatient or resident of a hospital, nursing facility, 
intermediate care facility for the mentally retarded, or institution for 
mental disease that are--
    (1) Authorized for the individual by a physician in accordance with 
a plan of treatment or (at the option of the State) otherwise authorized 
for the individual in accordance with a service plan approved by the 
State;
    (2) Provided by an individual who is qualified to provide such 
services and who is not a member of the individual's family; and
    (3) Furnished in a home, and at the State's option, in another 
location.
    (b) For purposes of this section, family member means a legally 
responsible relative.

[42 FR 47902, Sept. 11, 1997]



Sec. 440.168  Primary care case management services.

    (a) Primary care case management services means case management 
related services that--
    (1) Include location, coordination, and monitoring of primary health 
care services; and
    (2) Are provided under a contract between the State and either of 
the following:
    (i) A PCCM who is a physician or may, at State option, be a 
physician assistant, nurse practitioner, or certified nurse-midwife.
    (ii) A physician group practice, or an entity that employs or 
arranges with physicians to furnish the services.
    (b) Primary care case management services may be offered by the 
State--
    (1) As a voluntary option under the State plan; or
    (2) On a mandatory basis under section 1932 (a)(1) of the Act or 
under section 1915(b) or section 1115 waiver authority.

[67 FR 41115, June 14, 2002]



Sec. 440.170  Any other medical care or remedial care recognized under State law and specified by the Secretary.

    (a) Transportation. (1) ``Transportation'' includes expenses for 
transportation and other related travel expenses determined to be 
necessary by the agency to secure medical examinations and treatment for 
a recipient.
    (2) Transportation, as defined in this section, is furnished only by 
a provider to whom a direct vendor payment can appropriately be made by 
the agency. If other arrangements are made to assure transportation 
under Sec. 431.53 of this subchapter, FFP is available as an 
administrative cost.
    (3) ``Travel expenses'' include--
    (i) The cost of transportation for the recipient by ambulance, 
taxicab, common carrier, or other appropriate means;
    (ii) The cost of meals and lodging en route to and from medical 
care, and while receiving medical care; and
    (iii) The cost of an attendant to accompany the recipient, if 
necessary, and the cost of the attendant's transportation, meals, 
lodging, and, if the attendant is not a member of the recipient's 
family, salary.
    (b) Services furnished in a religious nonmedical health care 
institution. Services furnished in a religious nonmedical health care 
institution are services furnished in an institution that:
    (1) Is an institution that is described in (c)(3) of section 501 of 
the Internal Revenue Code of 1986 and is exempt from taxes under section 
501(a) of that section.
    (2) Is lawfully operated under all applicable Federal, State, and 
local laws and regulations.
    (3) Furnishes only nonmedical nursing items and services to patients 
who

[[Page 244]]

choose to rely solely upon a religious method of healing and for whom 
the acceptance of medical health services would be inconsistent with 
their religious beliefs.
    (4) Furnishes nonmedical items and services exclusively through 
nonmedical nursing personnel who are experienced in caring for the 
physical needs of nonmedical patients.
    (5) Furnishes these nonmedical items and services to inpatients on a 
24-hour basis.
    (6) Does not furnish, on the basis of its religious beliefs, through 
its personnel or otherwise, medical items and services (including any 
medical screening, examination, diagnosis, prognosis, treatment, or the 
administration of drugs) for its patients.
    (7) Is not owned by, is not under common ownership with, or does not 
have an ownership interest of 5 percent or more in, a provider of 
medical treatment or services and is not affiliated with a provider of 
medical treatment or services or with an individual who has an ownership 
interest or 5 percent or more in a provider of medical treatment or 
services. Permissible affiliations are described in paragraph (c) of 
this section.
    (8) Has in effect a utilization review plan that meets the following 
criteria:
    (i) Provides for the review of admissions to the institution, 
duration of stays, cases of continuous extended duration, and items and 
services furnished by the institution.
    (ii) Requires that the reviews be made by a committee of the 
institution that included the individuals responsible for overall 
administration and for supervision of nursing personnel at the 
institution.
    (iii) Provides that records be maintained of the meetings, 
decisions, and actions of the utilization review committee.
    (iv) Meets other requirements as CMS finds necessary to establish an 
effective utilization review plan.
    (9) Provides information CMS may require to implement section 1821 
of the Act, including information relating to quality of care and 
coverage determinations.
    (10) Meets other requirements as CMS finds necessary in the interest 
of the health and safety of patients who receive services in the 
institution. These requirements are the conditions of participation 
found at part 403, subpart G of this chapter.
    (c) Affiliations. An affiliation is permissible for purposes of 
paragraph (b)(7) of this section if it is between one of the following:
    (1) An individual serving as an uncompensated director, trustee, 
officer, or other member of the governing body of an RNHCI and a 
provider of medical treatment or services.
    (2) An individual who is a director, trustee, officer, employee, or 
staff member of an RNHCI and an another individual, with whom he or she 
has a family relationship, who is affiliated with (or has an ownership 
interest in) a provider of medical treatment or services.
    (3) The RNHCI and an individual or entity furnishing goods or 
services as a vendor to both providers of medical treatment or services 
and RNHCIs.
    (d) Skilled nursing facility services for individuals under age 21. 
``Skilled nursing facility services for individuals under 21'' means 
those services specified in Sec. 440.40 that are provided to recipients 
under 21 years of age.
    (e) Emergency hospital services. ``Emergency hospital services'' 
means services that--
    (1) Are necessary to prevent the death or serious impairment of the 
health of a recipient; and
    (2) Because of the threat to the life or health of the recipient 
necessitate the use of the most accessible hospital available that is 
equipped to furnish the services, even if the hospital does not 
currently meet--
    (i) The conditions for participation under Medicare; or
    (ii) The definitions of inpatient or outpatient hospital services 
under Sec. Sec. 440.10 and 440.20.
    (f) [Reserved]
    (g) Critical access hospital (CAH). (1) CAH services means services 
that (i) are furnished by a provider that meet the requirements for 
participation in Medicare as a CAH (see subpart F of part 485 of this 
chapter), and (ii) are of a type that would be paid for by Medicare when 
furnished to a Medicare beneficiary.

[[Page 245]]

    (2) Inpatient CAH services do not include nursing facility services 
furnished by a CAH with a swing-bed approval.

[43 FR 45224, Sept. 29, 1978, as amended at 45 FR 24889, Apr. 11, 1980; 
46 FR 48540, Oct. 1, 1981; 58 FR 30671, May 26, 1993; 62 FR 46037, Aug. 
29, 1997; 64 FR 67051, Nov. 30, 1999]



Sec. 440.180  Home or community-based services.

    (a) Description and requirements for services. ``Home or community-
based services'' means services, not otherwise furnished under the 
State's Medicaid plan, that are furnished under a waiver granted under 
the provisions of part 441, subpart G of this chapter.
    (1) These services may consist of any or all of the services listed 
in paragraph (b) of this section, as those services are defined by the 
agency and approved by CMS.
    (2) The services must meet the standards specified in Sec. 
441.302(a) of this chapter concerning health and welfare assurances.
    (3) The services are subject to the limits on FFP described in Sec. 
441.310 of this chapter.
    (b) Included services. Home or community-based services may include 
the following services, as they are defined by the agency and approved 
by CMS:
    (1) Case management services.
    (2) Homemaker services.
    (3) Home health aide services.
    (4) Personal care services.
    (5) Adult day health services.
    (6) Habilitation services.
    (7) Respite care services.
    (8) Day treatment or other partial hospitalization services, 
psychosocial rehabilitation services and clinic services (whether or not 
furnished in a facility) for individuals with chronic mental illness, 
subject to the conditions specified in paragraph (d) of this section.
    (9) Other services requested by the agency and approved by CMS as 
cost effective and necessary to avoid institutionalization.
    (c) Expanded habilitation services, effective October 1, 1997--(1) 
General rule. Expanded habilitation services are those services 
specified in paragraph (c)(2) of this section.
    (2) Services included. The agency may include as expanded 
habilitation services the following services:
    (i) Prevocational services, which means services that prepare an 
individual for paid or unpaid employment and that are not job-task 
oriented but are, instead, aimed at a generalized result. These services 
may include, for example, teaching an individual such concepts as 
compliance, attendance, task completion, problem solving and safety. 
Prevocational services are distinguishable from noncovered vocational 
services by the following criteria:
    (A) The services are provided to persons who are not expected to be 
able to join the general work force or participate in a transitional 
sheltered workshop within one year (excluding supported employment 
programs).
    (B) If the recipients are compensated, they are compensated at less 
than 50 percent of the minimum wage;
    (C) The services include activities which are not primarily directed 
at teaching specific job skills but at underlying habilitative goals 
(for example, attention span, motor skills); and
    (D) The services are reflected in a plan of care directed to 
habilitative rather than explicit employment objectives.
    (ii) Educational services, which means special education and related 
services (as defined in sections 602(16) and (17) of the Education of 
the Handicapped Act) (20 U.S.C. 1401 (16 and 17)) to the extent they are 
not prohibited under paragraph (c)(3)(i) of this section.
    (iii) Supported employment services, which facilitate paid 
employment, that are--
    (A) Provided to persons for whom competitive employment at or above 
the minimum wage is unlikely and who, because of their disabilities, 
need intensive ongoing support to perform in a work setting;
    (B) Conducted in a variety of settings, particularly worksites in 
which persons without disabilities are employed; and
    (C) Defined as any combination of special supervisory services, 
training, transportation, and adaptive equipment that the State 
demonstrates are

[[Page 246]]

essential for persons to engage in paid employment and that are not 
normally required for nondisabled persons engaged in competitive 
employment.
    (3) Services not included. The following services may not be 
included as habilitation services:
    (i) Special education and related services (as defined in sections 
602(16) and (17) of the Education of the Handicapped Act) (20 U.S.C. 
1401 (16) and (17)) that are otherwise available to the individual 
through a local educational agency.
    (ii) Vocational rehabilitation services that are otherwise available 
to the individual through a program funded under section 110 of the 
Rehabilitation Act of 1973 (29 U.S.C. 730).
    (d) Services for the chronically mentally ill--(1) Services 
included. Services listed in paragraph (b)(8) of this section include 
those provided to individuals who have been diagnosed as being 
chronically mentally ill, for which the agency has requested approval as 
part of either a new waiver request or a renewal and which have been 
approved by CMS on or after October 21, 1986.
    (2) Services not included. Any home and community-based service, 
including those indicated in paragraph (b)(8) of this section, may not 
be included in home and community-based service waivers for the 
following individuals:
    (i) For individuals aged 22 through 64 who, absent the waiver, would 
be institutionalized in an institution for mental diseases (IMD); and, 
therefore, subject to the limitation on IMDs specified in Sec. 
435.1008(a)(2) of this subchapter.
    (ii) For individuals, not meeting the age requirements described in 
paragraph (d)(2)(i) of this section, who, absent the waiver, would be 
placed in an IMD in those States that have not opted to include the 
benefits defined in Sec. 440.140 or Sec. 440.160.

[59 FR 37716, July 25, 1994, as amended at 65 FR 60107, Oct. 10, 2000]



Sec. 440.181  Home and community-based services for individuals age 65 or older.

    (a) Description of services-- Home and community-based services for 
individuals age 65 or older means services, not otherwise furnished 
under the State's Medicaid plan, or services already furnished under the 
State's Medicaid plan but in expanded amount, duration, or scope, which 
are furnished to individuals age 65 or older under a waiver granted 
under the provisions of part 441, subpart H of this subchapter. Except 
as provided in Sec. 441.310, the services may consist of any of the 
services listed in paragraph (b) of this section that are requested by 
the State, approved by CMS, and furnished to eligible recipients. 
Service definitions for each service in paragraph (b) of this section 
must be approved by CMS.
    (b) Included services. (1) Case management services.
    (2) Homemaker services.
    (3) Home health aide services.
    (4) Personal care services.
    (5) Adult day health services.
    (6) Respite care services.
    (7) Other medical and social services requested by the Medicaid 
agency and approved by CMS, which will contribute to the health and 
well-being of individuals and their ability to reside in a community-
based care setting.

[57 FR 29156, June 30, 1992]



Sec. 440.185  Respiratory care for ventilator-dependent individuals.

    (a) ``Respiratory care for ventilator-dependent individuals'' means 
services that are not otherwise available under the State's Medicaid 
plan, provided on a part-time basis in the recipient's home by a 
respiratory therapist or other health care professional trained in 
respiratory therapy (as determined by the State) to an individual who--
    (1) Is medically dependent on a ventilator for life support at least 
6 hours per day;
    (2) Has been so dependent for at least 30 consecutive days (or the 
maximum number of days authorized under the State plan, whichever is 
less) as an inpatient in one or more hospitals, NFs, or ICFs/MR;
    (3) Except for the availability of respiratory care services, would 
require respiratory care as an inpatient in a hospital, NF, or ICF/MR 
and would be eligible to have payment made for inpatient care under the 
State plan;
    (4) Has adequate social support services to be cared for at home;

[[Page 247]]

    (5) Wishes to be cared for at home; and
    (6) Receives services under the direction of a physician who is 
familiar with the technical and medical components of home ventilator 
support, and who has medically determined that in-home care is safe and 
feasible for the individual.
    (b) For purposes of paragraphs (a)(4) and (5) of this section, a 
recipient's home does not include a hospital, NF, ICF/MR or other 
institution as defined in Sec. 435.1009.

[59 FR 37717, July 25, 1994]



      Subpart B_Requirements and Limits Applicable to All Services



Sec. 440.200  Basis, purpose, and scope.

    (a) This subpart implements the following statutory requirements--
    (1) Section 1902(a)(10), regarding comparability of services for 
groups of recipients, and the amount, duration, and scope of services 
described in section 1905(a) of the Act that the State plan must provide 
for recipients;
    (2) Section 1902(a)(22)(D), which provides for standards and methods 
to assure quality of services;
    (3) Section 1903(v)(1), which provides that no payment may be made 
to a State under this section for medical assistance furnished to an 
alien who is not lawfully admitted for permanent residence or otherwise 
permanently residing in the United States under color of law;
    (4) Section 1903(v)(2) which provides that FFP will be available for 
services necessary to treat an emergency medical condition of an alien 
not described in paragraph (a)(3) of this section if that alien 
otherwise meets the eligibility requirements of the State plan;
    (5) Section 1907 on observance of religious beliefs;
    (6) Section 1915 on exceptions to section 1902(a)(10) and waivers of 
other requirements of section 1902 of the Act; and
    (7) Sections 245A(h), 210 and 210A of the Immigration and 
Nationality Act which provide that certain aliens who are legalized may 
be eligible for Medicaid.
    (b) The requirements and limits of this subpart apply for all 
services defined in subpart A of this part.

[55 FR 36822, Sept. 7, 1990]



Sec. 440.210  Required services for the categorically needy.

    (a) A State plan must specify that, at a minimum, categorically 
needy recipients are furnished the following services:
    (1) The services defined in Sec. Sec. 440.10 through 440.50, 
440.70, and (to the extent nurse-midwives and nurse practitioners are 
authorized to practice under State law or regulation) the services 
defined in Sec. Sec. 440.165 and 440.166, respectively.
    (2) Pregnancy-related services and services for other conditions 
that might complicate the pregnancy.
    (i) Pregnancy-related services are those services that are necessary 
for the health of the pregnant woman and fetus, or that have become 
necessary as a result of the woman having been pregnant. These include, 
but are not limited to, prenatal care, delivery, postpartum care, and 
family planning services.
    (ii) Services for other conditions that might complicate the 
pregnancy include those for diagnoses, illnesses, or medical conditions 
which might threaten the carrying of the fetus to full term or the safe 
delivery of the fetus; and
    (3) For women who, while pregnant, applied for, were eligible for, 
and received Medicaid services under the plan, all services under the 
plan that are pregnancy-related for an extended postpartum period. The 
postpartum period begins on the last day of pregnancy and extends 
through the end of the month in which the 60-day period following 
termination of pregnancy ends.
    (b) A State plan must specify that eligible aliens as defined in 
Sec. Sec. 435.406(a) and 436.406(a) of this subchapter will receive at 
least the services provided in paragraph (a) of this section.
    (c) A State plan must specify that aliens not defined in Sec. Sec. 
435.406(a) and 436.406(a) of this subchapter will only

[[Page 248]]

be provided the limited services specified in Sec. 440.255.

[56 FR 24010, May 28, 1991, as amended at 60 FR 19862, Apr. 21, 1995]



Sec. 440.220  Required services for the medically needy.

    (a) A State plan that includes the medically needy must specify that 
the medically needy are provided, as a minimum, the following services:
    (1) Prenatal care and delivery services for pregnant women.
    (2) Ambulatory services, as defined in the State plan, for:
    (i) Individuals under age 18; and
    (ii) Groups of individuals entitled to institutional services.
    (3) Home health services (Sec. 440.70) to any individual entitled 
to skilled nursing facility services.
    (4) If the State plan includes services in an institution for mental 
diseases (Sec. 440.140 or Sec. 440.160) or in an intermediate care 
facility for the mentally retarded (Sec. 440.150(c)) for any group of 
medically needy, either of the following sets of services to each of the 
medically needy groups:
    (i) The services contained in Sec. Sec. 440.10 through 440.50 and 
(to the extent nurse-midwives are authorized to practice under State law 
or regulation) Sec. 440.165; or
    (ii) The services contained in any seven of the sections in 
Sec. Sec. 440.10 through 440.165.
    (5) For women who, while pregnant, applied for, were eligible as 
medically needy for, and received Medicaid services under the plan, 
services under the plan that are pregnancy-related (as defined in Sec. 
440.210(a)(2)(i) of this subpart) for an extended postpartum period. The 
postpartum period begins on the last day of pregnancy and extends 
through the end of the month in which the 60-day period following 
termination of pregnancy ends.
    (b) A State plan must specify that eligible aliens as defined in 
Sec. Sec. 435.406(a) and 436.406(a) of this subchapter will receive at 
least the services provided in paragraphs (a)(4) (i) and (ii) of this 
section.
    (c) A State plan must specify that aliens defined in Sec. Sec. 
435.406(b), 435.406(c), 436.406(b) and 436.406(c) of this subchapter 
will only be provided the limited services specified in Sec. 440.255.

[56 FR 24011, May 28, 1991, as amended at 58 FR 4938, Jan. 19, 1993]



Sec. 440.225  Optional services.

    Any of the services defined in subpart A of this part that are not 
required under Sec. Sec. 440.210 and 440.220 may be furnished under the 
State plan at the State's option.

[60 FR 19862, Apr. 21, 1995]



Sec. 440.230  Sufficiency of amount, duration, and scope.

    (a) The plan must specify the amount, duration, and scope of each 
service that it provides for--
    (1) The categorically needy; and
    (2) Each covered group of medically needy.
    (b) Each service must be sufficient in amount, duration, and scope 
to reasonably achieve its purpose.
    (c) The Medicaid agency may not arbitrarily deny or reduce the 
amount, duration, or scope of a required service under Sec. Sec. 
440.210 and 440.220 to an otherwise eligible recipient solely because of 
the diagnosis, type of illness, or condition.
    (d) The agency may place appropriate limits on a service based on 
such criteria as medical necessity or on utilization control procedures.

[46 FR 47993, Sept. 30, 1981]



Sec. 440.240  Comparability of services for groups.

    Except as limited in Sec. 440.250--
    (a) The plan must provide that the services available to any 
categorically needy recipient under the plan are not less in amount, 
duration, and scope than those services available to a medically needy 
recipient; and
    (b) The plan must provide that the services available to any 
individual in the following groups are equal in amount, duration, and 
scope for all recipients within the group:
    (1) The categorically needy.
    (2) A covered medically needy group.

[46 FR 47993, Sept. 30, 1981]

[[Page 249]]



Sec. 440.250  Limits on comparability of services.

    (a) Skilled nursing facility services (Sec. 440.40(a)) may be 
limited to recipients age 21 or older.
    (b) Early and periodic screening, diagnosis, and treatment (Sec. 
440.40(b)) must be limited to recipients under age 21.
    (c) Family planning services and supplies must be limited to 
recipients of childbearing age, including minors who can be considered 
sexually active and who desire the services and supplies.
    (d) If covered under the plan, services to recipients in 
institutions for mental diseases (Sec. 440.140) must be limited to 
those age 65 or older.
    (e) If covered under the plan, inpatient psychiatric services (Sec. 
440.160) must be limited to recipients under age 22 as specified in 
Sec. 441.151(c) of this subchapter.
    (f) If Medicare benefits under Part B of title XVIII are made 
available to recipients through a buy-in agreement or payment of 
premiums, or part or all of the deductibles, cost sharing or similar 
charges, they may be limited to recipients who are covered by the 
agreement or payment.
    (g) If services in addition to those offered under the plan are made 
available under a contract between the agency or political subdivision 
and an organization providing comprehensive health services, those 
additional services may be limited to recipients who reside in the 
geographic area served by the contracting organization and who elect to 
receive services from it.
    (h) Ambulatory services for the medically needy (Sec. 
440.220(a)(2)) may be limited to:
    (1) Individuals under age 18; and
    (2) Groups of individuals entitled to institutional services.
    (i) Services provided under an exception to requirements allowed 
under Sec. 431.54 may be limited as provided under that exception.
    (j) If CMS has approved a waiver of Medicaid requirements under 
Sec. 431.55, services may be limited as provided by the waiver.
    (k) If the agency has been granted a waiver of the requirements of 
Sec. 440.240 (Comparability of services) in order to provide for home 
or community-based services under Sec. Sec. 440.180 or 440.181, the 
services provided under the waiver need not be comparable for all 
individuals within a group.
    (l) If the agency imposes cost sharing on recipients in accordance 
with 447.53, the imposition of cost sharing on an individual who is not 
exempted by one of the conditions in section 447.53(b) shall not require 
the State to impose copayments on an individual who is eligible for such 
exemption.
    (m) Eligible legalized aliens who are not in the exempt groups 
described in Sec. Sec. 435.406(a) and 436.406(a), and considered 
categorically needy or medically needy must be furnished only emergency 
services (as defined in Sec. 440.255), and services for pregnant women 
as defined in section 1916(a)(2)(B) of the Social Security Act for 5 
years from the date the alien is granted lawful temporary resident 
status.
    (n) Aliens who are not lawful permanent residents, permanently 
residing in the United States under color of law, or granted lawful 
status under section 245A, 210 or 210A of the Immigration and 
Nationality Act, who, otherwise meet the eligibility requirements of the 
State plan (except for receipt of AFDC, SSI or a State Supplementary 
payment) must be furnished only those services necessary to treat an 
emergency medical condition of the alien as defined in Sec. 440.255(c).
    (o) If the agency makes respiratory care services available under 
Sec. 440.185, the services need not be made available in equal amount, 
duration, and scope to any individual not eligible for coverage under 
that section. However, the services must be made available in equal 
amount, duration, and scope to all individuals eligible for coverage 
under that section.
    (p) A State may provide a greater amount, duration, or scope of 
services to pregnant women than it provides under its plan to other 
individuals who are eligible for Medicaid, under the following 
conditions:
    (1) These services must be pregnancy-related or related to any other 
condition which may complicate pregnancy, as defined in Sec. 
440.210(a)(2) of this subpart; and
    (2) These services must be provided in equal amount, duration, and 
scope to

[[Page 250]]

all pregnant women covered under the State plan.

[43 FR 45224, Sept. 29, 1978, as amended at 45 FR 24889, Apr. 11, 1980; 
46 FR 48541, Oct. 1, 1981; 48 FR 5735, Jan. 8, 1983; 51 FR 22041, June 
17, 1986; 55 FR 36822, Sept. 7, 1990; 56 FR 24011, May 28, 1991; 57 FR 
29156, June 30, 1992; 58 FR 4939, Jan. 19, 1993; 59 FR 37717, July 25, 
1994]



Sec. 440.255  Limited services available to certain aliens.

    (a) FFP for services. FFP is available for services provided to 
aliens described in this section which are necessary to treat an 
emergency medical condition as defined in paragraphs (b)(1) and (c) or 
services for pregnant women described in paragraph (b)(2).
    (b) Legalized aliens eligible only for emergency services and 
services for pregnant women. Aliens granted lawful temporary resident 
status, or lawful permanent resident status under sections 245A, 210 or 
210A of the Immigration and Nationality Act, who are not in one of the 
exempt groups described in Sec. Sec. 435.406(a)(3) and 436.406(a)(3) 
and who meet all other requirements for Medicaid will be eligible for 
the following services--
    (1) Emergency services required after the sudden onset of a medical 
condition manifesting itself by acute symptoms of sufficient severity 
(including severe pain) such that the absence of immediate medical 
attention could reasonably be expected to result in:
    (i) Placing the patient's health in serious jeopardy;
    (ii) Serious impairment to bodily functions; or
    (iii) Serious dysfunction of any bodily organ or part.
    (2) Services for pregnant women which are included in the approved 
State plan. These services include routine prenatal care, labor and 
delivery, and routine post-partum care. States, at their option, may 
provide additional plan services for the treatment of conditions which 
may complicate the pregnancy or delivery.
    (c) Effective January 1, 1987, aliens who are not lawfully admitted 
for permanent residence in the United States or permanently residing in 
the United States under the color of law must receive the services 
necessary to treat the condition defined in paragraph (1) of this 
section if--
    (1) The alien has, after sudden onset, a medical condition 
(including emergency labor and delivery) manifesting itself by acute 
symptoms of sufficient severity (including severe pain) such that the 
absence of immediate medical attention could reasonably be expected to 
result in:
    (i) Placing the patient's health in serious jeopardy;
    (ii) Serious impairment to bodily functions; or
    (iii) Serious dysfunction of any bodily organ or part, and
    (2) The alien otherwise meets the requirements in Sec. Sec. 
435.406(c) and 436.406(c) of this subpart.

[55 FR 36823, Sept. 7, 1990; 56 FR 10807, Mar. 14, 1991]



Sec. 440.260  Methods and standards to assure quality of services.

    The plan must include a description of methods and standards used to 
assure that services are of high quality.



Sec. 440.270  Religious objections.

    (a) Except as specified in paragraph (b) of this section, the agency 
may not require any individual to undergo any medical service, 
diagnosis, or treatment or to accept any other health service provided 
under the plan if the individual objects, or in the case of a child, a 
parent or guardian objects, on religious grounds.
    (b) If a physical examination is necessary to establish eligibility 
based on disability or blindness, the agency may not find an individual 
eligible for Medicaid unless he undergoes the examination.



PART 441_SERVICES: REQUIREMENTS AND LIMITS APPLICABLE TO SPECIFIC SERVICES--Table of Contents




Sec.
441.1 Purpose.

                      Subpart A_General Provisions

441.10 Basis.
441.11 Continuation of FFP for institutional services.
441.12 Inpatient hospital tests.
441.13 Prohibitions on FFP: Institutionalized individuals.

[[Page 251]]

441.15 Home health services.
441.16 Home health agency requirements for surety bonds; Prohibition on 
          FFP.
441.17 Laboratory services.
441.20 Family planning services.
441.21 Nurse-midwife services.
441.22 Nurse practitioner services.
441.25 Prohibition on FFP for certain prescribed drugs.
441.30 Optometric services.
441.35 Organ transplants.
441.40 End-stage renal disease.

Subpart B_Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) 
                       of Individuals Under Age 21

441.50 Basis and purpose.
441.55 State plan requirements.
441.56 Required activities.
441.57 Discretionary services.
441.58 Periodicity schedule.
441.59 Treatment of requests for EPSDT screening services.
441.60 Continuing care.
441.61 Utilization of providers and coordination with related programs.
441.62 Transportation and scheduling assistance.

 Subpart C_Medicaid for Individuals Age 65 or Over in Institutions for 
                             Mental Diseases

441.100 Basis and purpose.
441.101 State plan requirements.
441.102 Plan of care for institutionalized recipients.
441.103 Alternate plans of care.
441.105 Methods of administration.
441.106 Comprehensive mental health program.

Subpart D_Inpatient Psychiatric Services for Individuals Under Age 21 in 
                   Psychiatric Facilities or Programs

441.150 Basis and purpose.
441.151 General requirements.
441.152 Certification of need for services.
441.153 Team certifying need for services.
441.154 Active treatment.
441.155 Individual plan of care.
441.156 Team developing individual plan of care.
441.180 Maintenance of effort: General rule.
441.181 Maintenance of effort: Explanation of terms and requirements.
441.182 Maintenance of effort: Computation.

                           Subpart E_Abortions

441.200 Basis and purpose.
441.201 Definition.
441.202 General rule.
441.203 Life of the mother would be endangered.
441.204-441.205 [Reserved]
441.206 Documentation needed by the Medicaid agency.
441.207 Drugs and devices and termination of ectopic pregnancies.
441.208 Recordkeeping requirements.

                        Subpart F_Sterilizations

441.250 Applicability.
441.251 Definitions.
441.252 State plan requirements.
441.253 Sterilization of a mentally competent individual aged 21 or 
          older.
441.254 Mentally incompetent or instititionalized individuals.
441.255 Sterilization by hysterectomy.
441.256 Additional condition for Federal financial participation (FFP).
441.257 Informed consent.
441.258 Consent form requirements.
441.259 Review of regulations.

Appendix to Subpart F--Required Consent Form

    Subpart G_Home and Community-Based Services: Waiver Requirements

441.300 Basis and purpose.
441.301 Contents of request for a waiver.
441.302 State assurances.
441.303 Supporting documentation required.
441.304 Duration of a waiver.
441.305 Replacement of recipients in approved waiver programs.
441.306 Cooperative arrangements with the Maternal and Child Health 
          program.
441.307 Notification of a waiver termination.
441.308 Hearings procedures for waiver terminations.
441.310 Limits on Federal financial participation (FFP).

Subpart H_Home and Community-Based Services Waivers for Individuals Age 
                    65 or Older: Waiver Requirements

441.350 Basis and purpose.
441.351 Contents of a request for a waiver.
441.352 State assurances.
441.353 Supporting documentation required.
441.354 Aggregate projected expenditure limit (APEL).
441.355 Duration, extension, and amendment of a waiver.
441.356 Waiver termination.
441.357 Hearing procedures for waiver denials.
441.360 Limits on Federal financial participation (FFP).
441.365 Periodic evaluation, assessment, and review.

[[Page 252]]

       Subpart I_Community Supported Living Arrangements Services

441.400 Basis and purpose.
441.402 State plan requirements.
441.404 Minimum protection requirements.

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

    Source: 43 FR 45229, Sept. 29, 1978, unless otherwise noted.



Sec. 441.1  Purpose.

    This part sets forth State plan requirements and limits on FFP for 
specific services defined in part 440 of this subchapter. Standards for 
payments for services provided in intermediate care facilities and 
skilled nursing facilities are set forth in part 442 of this subchapter.



                      Subpart A_General Provisions



Sec. 441.10  Basis.

    This subpart is based on the following sections of the Act which 
state requirements and limits on the services specified or provide 
Secretarial authority to prescribe regulations relating to services:
    (a) Section 1102 for end-stage renal disease (Sec. 441.40).
    (b) Section 1138(b) for organ procurement organization services 
(Sec. 441.13(c)).
    (c) Sections 1902(a)(10)(A) and 1905(a)(21) for nurse practitioner 
services (Sec. 441.22).
    (d) Sections 1902(a)(10)(D) and 1905(a)(7) for home health services 
(Sec. 441.15).
    (e) Section 1903(i)(1) for organ transplant procedures (Sec. 
441.35).
    (f) Section 1903(i)(5) for certain prescribed drugs (Sec. 441.25).
    (g) Section 1903(i)(6) for prohibition (except in emergency 
situations) of FFP in expenditures for inpatient hospital tests that are 
not ordered by the attending physician or other licensed practitioner 
(Sec. 441.12).
    (h) Section 1903(i)(18) for the requirement that each home health 
agency provide the Medicaid agency with a surety bond (Sec. 441.16).
    (i) Section 1905(a)(4)(C) for family planning (Sec. 441.20).
    (j) Sections 1905 (a)(12) and (e) for optometric services (Sec. 
441.30).
    (k) Section 1905(a)(17) for nurse-midwife services (Sec. 441.21).
    (l) Section 1905(a) (following (a)(24)) for prohibition of FFP in 
expenditures for certain services (Sec. 441.13).

[60 FR 19862, Apr. 21, 1995, as amended at 63 FR 310, Jan. 5, 1998]



Sec. 441.11  Continuation of FFP for institutional services.

    (a) Basic conditions for continuation of FFP. FFP may be continued 
for up to 30 days after the effective date of termination or expiration 
of a provider agreement, if the following conditions are met:
    (1) The Medicaid payments are for recipients admitted to the 
facility before the effective date of termination or expiration.
    (2) The State agency is making reasonable efforts to transfer those 
recipients to other facilities or to alternate care.
    (b) When the 30-day period begins. The 30-day period begins on one 
of the following:
    (1) The effective date of termination of the facility's provider 
agreement by CMS;
    (2) The effective date of termination of the facility's Medicaid 
provider agreement by the Medicaid agency on its own volition; or
    (3) In the case of an ICF/MR, the later of--
    (i) The effective date of termination or nonrenewal of the 
facility's provider agreement by the Medicaid agency on its own 
volition; or
    (ii) The date of issuance of an administrative hearing decision that 
upholds the agency's termination or nonrenewal action.
    (c) Services for which FFP may be continued. FFP may be continued 
for any of the following services, as defined in subpart A of part 440 
of this chapter:
    (1) Inpatient hospital services.
    (2) Inpatient hospital services for individuals age 65 or older in 
an institution for mental diseases.
    (3) Nursing facility services for individuals age 21 or older.
    (4) Nursing facility services for individuals age 65 or older in an 
institution for mental diseases.
    (5) Inpatient psychiatric services for individuals under age 21.

[[Page 253]]

    (6) Nursing facility services for individuals under 21.
    (7) Intermediate care facility services for the mentally retarded.

[59 FR 56234, Nov. 10, 1994]



Sec. 441.12  Inpatient hospital tests.

    Except in an emergency situation (see Sec. 440.170(e)(1) of this 
chapter for definition), FFP is not available in expenditures for 
inpatient hospital tests unless the tests are specifically ordered by 
the attending physician or other licensed practitioner, acting within 
the scope of practice as defined under State law, who is responsible for 
the diagnosis or treatment of a particular patient's condition.

[46 FR 48554, Oct. 1, 1981]



Sec. 441.13  Prohibitions on FFP: Institutionalized individuals.

    (a) FFP is not available in expenditures for services for--
    (1) Any individual who is in a public institution, as defined in 
Sec. 435.1009 of this subchapter; or
    (2) Any individual who is under age 65 and is in an institution for 
mental diseases, except an individual who is under age 22 and receiving 
inpatient psychiatric services under subpart D of this part.
    (b) With the exception of active treatment services (as defined in 
Sec. 483.440(a) of this chapter for residents of ICFs/MR and in Sec. 
441.154 for individuals under age 21 receiving inpatient psychiatric 
services), payments to institutions for the mentally retarded or persons 
with related conditions and to psychiatric facilities or programs 
providing inpatient psychiatric services to individuals under age 21 may 
not include reimbursement for formal educational services or for 
vocational services. Formal educational services relate to training in 
traditional academic subjects. Subject matter rather than setting, time 
of day, or class size determines whether a service is educational. 
Traditional academic subjects include, but are not limited to, science, 
history, literature, foreign languages, and mathematics. Vocational 
services relate to organized programs that are directly related to the 
preparation of individuals for paid or unpaid employment. An example of 
vocational services is time-limited vocational training provided as a 
part of a regularly scheduled class available to the general public.
    (c) FFP is not available in expenditures for services furnished by 
an organ procurement organization on or after April 1, 1988, that does 
not meet the requirements of part 485, subpart D of this chapter.

[43 FR 45229, Sept. 29, 1978, as amended at 51 FR 22041, June 17, 1986; 
53 FR 6549, Mar. 1, 1988; 57 FR 54709, Nov. 20, 1992]



Sec. 441.15  Home health services.

    With respect to the services defined in Sec. 440.70 of this 
subchapter, a State plan must provide that--
    (a) Home health services include, as a minimum--
    (1) Nursing services;
    (2) Home health aide services; and
    (3) Medical supplies, equipment, and appliances.
    (b) The agency provides home health services to--
    (1) Categorically needy recipients age 21 or over;
    (2) Categorically needy recipients under age 21, if the plan 
provides skilled nursing facility services for them; individuals; and
    (3) Medically needy recipients to whom skilled nursing facility 
services are provided under the plan.
    (c) The eligibility of a recipient to receive home health services 
does not depend on his need for or discharge from institutional care.
    (d) The agency providing home health services meets the 
capitalization requirements included in Sec. 489.28 of this chapter.

[43 FR 45229, Sept. 29, 1978, as amended at 45 FR 24889, Apr. 11, 1980; 
63 FR 310, Jan. 5, 1998]



Sec. 441.16  Home health agency requirements for surety bonds; Prohibition on FFP.

    (a) Definitions. As used in this section, unless the context 
indicates otherwise--
    Assets includes but is not limited to any listing that identifies 
Medicaid recipients to whom home health services were furnished by a 
participating or formerly participating HHA.

[[Page 254]]

    Participating home health agency means a ``home health agency'' 
(HHA) as that term is defined at Sec. 440.70(d) of this subchapter.
    Surety bond means one or more bonds issued by one or more surety 
companies under 31 U.S.C. 9304 to 9308 and 31 CFR parts 223, 224, and 
225, provided the bond otherwise meets the requirements of this section.
    Uncollected overpayment means an ``overpayment,'' as that term is 
defined under Sec. 433.304 of this subchapter, plus accrued interest, 
for which the HHA is responsible, that has not been recouped by the 
Medicaid agency within a time period determined by the Medicaid agency.
    (b) Prohibition. FFP is not available in expenditures for home 
health services under Sec. 440.70 of this subchapter unless the home 
health agency furnishing these services meets the surety bond 
requirements of paragraphs (c) through (l) of this section.
    (c) Basic requirement. Except as provided in paragraph (d) of this 
section, each HHA that is a Medicaid participating HHA or that seeks to 
become a Medicaid participating HHA must--
    (1) Obtain a surety bond that meets the requirements of this section 
and instructions issued by the Medicaid agency; and
    (2) Furnish a copy of the surety bond to the Medicaid agency.
    (d) Requirement waived for Government-operated HHAs. An HHA operated 
by a Federal, State, local, or tribal government agency is deemed to 
have provided the Medicaid agency with a comparable surety bond under 
State law, and is therefore exempt from the requirements of this section 
if, during the preceding 5 years, the HHA has not had any uncollected 
overpayments.
    (e) Parties to the bond. The surety bond must name the HHA as 
Principal, the Medicaid agency as Obligee, and the surety company (and 
its heirs, executors, administrators, successors and assignees, jointly 
and severally) as Surety.
    (f) Authorized Surety and exclusion of surety companies. An HHA may 
obtain a surety bond required under this section only from an authorized 
Surety.
    (1) An authorized Surety is a surety company that--
    (i) Has been issued a Certificate of Authority by the U.S. 
Department of the Treasury in accordance with 31 U.S.C. 9304 to 9308 and 
31 CFR parts 223, 224, and 225 as an acceptable surety on Federal bonds 
and the Certificate has neither expired nor been revoked;
    (ii) Has not been determined by the Medicaid agency to be an 
unauthorized Surety for the purpose of an HHA obtaining a surety bond 
under this section; and
    (iii) Meets other conditions, as specified by the Medicaid agency.
    (2) The Medicaid agency may determine that a surety company is an 
unauthorized Surety under this section--
    (i) If, upon request by the Medicaid agency, the surety company 
fails to furnish timely confirmation of the issuance of, and the 
validity and accuracy of information appearing on, a surety bond that an 
HHA presents to the Medicaid agency that shows the surety company as 
Surety on the bond;
    (ii) If, upon presentation by the Medicaid agency to the surety 
company of a request for payment on a surety bond and of sufficient 
evidence to establish the surety company's liability on the bond, the 
surety company fails to timely pay the Medicaid agency in full the 
amount requested up to the face amount of the bond; or
    (iii) For other good cause.
    (3) The Medicaid agency must specify the manner by which public 
notification of a determination under paragraph (f)(2) of this section 
is given and the effective date of the determination.
    (4) A determination by the Medicaid agency that a surety company is 
an unauthorized Surety under paragraph (f)(2) of this section--
    (i) Has effect only within the State; and
    (ii) Is not a debarment, suspension, or exclusion for the purposes 
of Executive Order No. 12549 (3 CFR 1986 Comp., p. 189).
    (g) Amount of the bond.
    (1) Basic rule. The amount of the surety bond must be $50,000 or 15 
percent of the annual Medicaid payments made to the HHA by the Medicaid 
agency for home health services furnished under this subchapter for 
which FFP is available, whichever is greater.

[[Page 255]]

    (2) Computation of the 15 percent: Participating HHA. The 15 percent 
is computed by the Medicaid agency on the basis of Medicaid payments 
made to the HHA for the most recent annual period for which information 
is available as specified by the Medicaid agency.
    (3) Computation of 15 percent: An HHA that seeks to become a 
participating HHA by obtaining assets or ownership interest. For an HHA 
that seeks to become a participating HHA by purchasing the assets or the 
ownership interest of a participating or formerly participating HHA, the 
15 percent is computed on the basis of Medicaid payments made by the 
Medicaid agency to the participating or formerly participating HHA for 
the most recent annual period as specified by the Medicaid agency.
    (4) Computation of 15 percent: Change of ownership. For an HHA that 
undergoes a change of ownership (as ``change of ownership'' is defined 
by the State Medicaid agency) the 15 percent is computed on the basis of 
Medicaid payments made by the Medicaid agency to the HHA for the most 
recent annual period as specified by the Medicaid agency.
    (5) An HHA that seeks to become a participating HHA without 
obtaining assets or ownership interest. For an HHA that seeks to become 
a participating HHA without purchasing the assets or the ownership 
interest of a participating or formerly participating HHA, the 15 
percent computation does not apply.
    (6) Exception to the basic rule. If an HHA's overpayment in the most 
recent annual period exceeds 15 percent, the State Medicaid agency may 
require the HHA to secure a bond in an amount up to or equal to the 
amount of the overpayment, provided the amount of the bond is not less 
than $50,000.
    (7) Expiration of the 15 percent provision. For an annual surety 
bond, or for a rider on a continuous surety bond, that is required to be 
submitted on or after June 1, 2005, notwithstanding any reference in 
this section to 15 percent as a basis for determining the amount of the 
bond, the amount of the bond or rider, as applicable, must be $50,000 or 
such amount as the Medicaid agency specifies in accordance with 
paragraph (g)(6) of this section, whichever amount is greater.
    (h) Additional requirements of the surety bond. The surety bond that 
an HHA obtains under this section must meet the following additional 
requirements:
    (1) The bond must guarantee that, upon written demand by the 
Medicaid agency to the Surety for payment under the bond and the 
Medicaid agency furnishing to the Surety sufficient evidence to 
establish the Surety's liability under the bond, the Surety will timely 
pay the Medicaid agency the amount so demanded, up to the stated amount 
of the bond.
    (2) The bond must provide that the Surety is liable for uncollected 
overpayments, as defined in paragraph (a), provided such uncollected 
overpayments are determined during the term of the bond and regardless 
of when the overpayments took place. Further, the bond must provide that 
the Surety remains liable if the HHA fails to furnish a subsequent 
annual bond that meets the requirements of this subpart or fails to 
furnish a rider for a year for which a rider is required to be 
submitted, or if the HHA's provider agreement terminates and that the 
Surety's liability shall be based on the last bond or rider in effect 
for the HHA, which shall then remain in effect for an additional 2-year 
period.
    (3) The bond must provide that the Surety's liability to the 
Medicaid agency is not extinguished by any of the following:
    (i) Any action by the HHA or the Surety to terminate or limit the 
scope or term of the bond. The Surety's liability may be extinguished, 
however, when--
    (A) The Surety furnishes the Medicaid agency with notice of such 
action not later than 10 days after receiving notice from the HHA of 
action by the HHA to terminate or limit the scope of the bond, or not 
later than 60 days before the effective date of such action by the 
Surety; or
    (B) The HHA furnishes the Medicaid agency with a new bond that meets 
the requirements of both this section and the Medicaid agency.
    (ii) The Surety's failure to continue to meet the requirements of 
paragraph (f)(1) of this section or the Medicaid agency's determination 
that the surety company is an unauthorized surety under paragraph (f)(2) 
of this section.

[[Page 256]]

    (iii) Termination of the HHA's provider agreement described under 
Sec. 431.107 of this subchapter.
    (iv) Any action by the Medicaid agency to suspend, offset, or 
otherwise recover payments to the HHA.
    (v) Any action by the HHA to--
    (A) Cease operation;
    (B) Sell or transfer any assets or ownership interest;
    (C) File for bankruptcy; or
    (D) Fail to pay the Surety.
    (vi) Any fraud, misrepresentation, or negligence by the HHA in 
obtaining the surety bond or by the Surety (or by the Surety's agent, if 
any) in issuing the surety bond, except that any fraud, 
misrepresentation, or negligence by the HHA in identifying to the Surety 
(or to the Surety's agent) the amount of Medicaid payments upon which 
the amount of the surety bond is determined shall not cause the Surety's 
liability to the Medicaid agency to exceed the amount of the bond.
    (vii) The HHA's failure to exercise available appeal rights under 
Medicaid or to assign such rights to the Surety (provided the Medicaid 
agency permits such rights to be assigned).
    (4) The bond must provide that actions under the bond may be brought 
by the Medicaid agency or by an agent that the Medicaid agency 
designates.
    (i) Term and type of bond. (1) Initial term: Each participating HHA 
that is not exempted by paragraph (d) of this section must submit to the 
State Medicaid agency a surety bond for a term beginning January 1, 
1998. If an annual bond is submitted for the initial term it must be 
effective for an annual period specified by the State Medicaid agency.
    (2) Type of bond. The type of bond required to be submitted by an 
HHA, under this section, may be either--
    (i) An annual bond (that is, a bond that specifies an effective 
annual period that corresponds to an annual period specified by the 
Medicaid agency); or
    (ii) A continuous bond (that is, a bond that remains in full force 
and effect from term to term unless it is terminated or canceled as 
provided for in the bond or as otherwise provided by law) that is 
updated by the Surety for a particular period, via the issuance of a 
``rider,'' when the bond amount changes. For the purposes of this 
section, ``Rider'' means a notice issued by a Surety that a change to a 
bond has occurred or will occur. If the HHA has submitted a continuous 
bond and there is no increase or decrease in the bond amount, no action 
is necessary by the HHA to submit a rider as long as the continuous bond 
remains in full force and effect.
    (3) HHA that seeks to become a participating HHA.
    (i) An HHA that seeks to become a participating HHA must submit a 
surety bond before a provider agreement described under Sec. 431.107 of 
this subchapter can be entered into.
    (ii) An HHA that seeks to become a participating HHA through the 
purchase or transfer of assets or ownership interest of a participating 
or formerly participating HHA must also ensure that the surety bond is 
effective from the date of such purchase or transfer.
    (4) Change of ownership. An HHA that undergoes a change of ownership 
(as ``change of ownership'' is defined by the State Medicaid agency) 
must submit the surety bond to the State Medicaid agency by such time 
and for such term as is specified in the instructions of the State 
Medicaid agency.
    (5) Government-operated HHA that loses its waiver. A government-
operated HHA that, as of January 1, 1998, meets the criteria for waiver 
of the requirements of this section but thereafter is determined by the 
Medicaid agency to not meet such criteria, must submit a surety bond to 
the Medicaid agency within 60 days after it receives notice from the 
Medicaid agency that it does not meet the criteria for waiver.
    (6) Change of Surety. An HHA that obtains a replacement surety bond 
from a different Surety to cover the remaining term of a previously 
obtained bond must submit the new surety bond to the Medicaid agency 
within 60 days (or such earlier date as the Medicaid agency may specify) 
of obtaining the bond from the new Surety for a term specified by the 
Medicaid agency.
    (j) Effect of failure to obtain, maintain, and timely file a surety 
bond.
    (1) The Medicaid agency must terminate the HHA's provider agreement 
if the HHA fails to obtain, file timely,

[[Page 257]]

and maintain a surety bond in accordance with this section and the 
Medicaid agency's instructions.
    (2) The Medicaid agency must refuse to enter into a provider 
agreement with an HHA if an HHA seeking to become a participating HHA 
fails to obtain and file timely a surety bond in accordance with this 
section and instructions issued by the State Medicaid agency.
    (k) Evidence of compliance.
    (1) The Medicaid agency may at any time require an HHA to make a 
specific showing of being in compliance with the requirements of this 
section and may require the HHA to submit such additional evidence as 
the Medicaid agency considers sufficient to demonstrate the HHA's 
compliance.
    (2) The Medicaid agency may terminate the HHA's provider agreement 
or refuse to enter into a provider agreement if an HHA fails to timely 
furnish sufficient evidence at the Medicaid agency's request to 
demonstrate compliance with the requirements of this section.
    (l) Surety's standing to appeal Medicaid determinations. The 
Medicaid agency must establish procedures for granting appeal rights to 
Sureties.
    (m) Effect of conditions of payment. If a Surety has paid the 
Medicaid agency an amount on the basis of liability incurred under a 
bond obtained by an HHA under this section, and the Medicaid agency 
subsequently collects from the HHA, in whole or in part, on such 
overpayment that was the basis for the Surety's liability, the Medicaid 
agency must reimburse the Surety such amount as the Medicaid agency 
collected from the HHA, up to the amount paid by the Surety to the 
Medicaid agency, provided the Surety has no other liability under the 
bond.

[63 FR 310, Jan. 5, 1998, as amended at 63 FR 10731, Mar. 4, 1998; 63 FR 
29654, June 1, 1998; 63 FR 41170, July 31, 1998]



Sec. 441.17  Laboratory services.

    (a) The plan must provide for payment of laboratory services as 
defined in Sec. 440.30 of this subchapter if provided by--
    (1) An independent laboratory that meets the requirements for 
participation in the Medicare program found in Sec. 405.1316 of this 
chapter;
    (2) A hospital-based laboratory that meets the requirements for 
participation in the Medicare program found in Sec. 482.27 of this 
chapter;
    (3) A rural health clinic, as defined in Sec. 491.9 of this 
chapter; or
    (4) A skilled nursing facility--based clinical laboratory, as 
defined in Sec. 405.1128(a) of this chapter.
    (b) Except as provided under paragraph (c), if a laboratory or other 
entity is requesting payment under Medicaid for testing for the presence 
of the human immunodeficiency virus (HIV) antibody or for the isolation 
and identification of the HIV causative agent as described in Sec. 
405.1316(f) (2) and (3) of this chapter, the laboratory records must 
contain the name and other identification of the person from whom the 
specimen was taken.
    (c) An agency may choose to approve the use of alternative 
identifiers, in place of the requirement for patient's name, in 
paragraph (b) of this section for HIV antibody or causative agent 
testing of Medicaid recipients.

[54 FR 48647, Dec. 2, 1988. Redesignated at 63 FR 310, Jan. 5, 1998.]



Sec. 441.20  Family planning services.

    For recipients eligible under the plan for family planning services, 
the plan must provide that each recipient is free from coercion or 
mental pressure and free to choose the method of family planning to be 
used.



Sec. 441.21  Nurse-midwife services.

    If a State plan, under Sec. 440.210 or 440.220 of this subchapter, 
provides for nurse-midwife services, as defined in Sec. 440.165, the 
plan must provide that the nurse-midwife may enter into an independent 
provider agreement, without regard to whether the nurse-midwife is under 
the supervision of, or associated with, a physician or other health care 
provider.

[47 FR 21051, May 17, 1982]



Sec. 441.22  Nurse practitioner services.

    With respect to nurse practitioner services that meet the definition 
of Sec. 440.166(a) and the requirements of either Sec. 440.166(b) or 
Sec. 440.166(c), the State

[[Page 258]]

plan must meet the following requirements:
    (a) Provide that nurse practitioner services are furnished to the 
categorically needy.
    (b) Specify whether those services are furnished to the medically 
needy.
    (c) Provide that services furnished by a nurse practitioner, 
regardless of whether the nurse practitioner is under the supervision 
of, or associated with, a physician or other health care provider, may--
    (1) Be reimbursed by the State Medicaid agency through an 
independent provider agreement between the State and the nurse 
practitioner; or
    (2) Be paid through the employing provider.

[60 FR 19862, Apr. 21, 1995]



Sec. 441.25  Prohibition on FFP for certain prescribed drugs.

    (a) FFP is not available in expenditures for the purchase or 
administration of any drug product that meets all of the following 
conditions:
    (1) The drug product was approved by the Food and Drug 
Administration (FDA) before October 10, 1962.
    (2) The drug product is available only through prescription.
    (3) The drug product is the subject of a notice of opportunity for 
hearing issued under section 505(e) of the Federal Food, Drug, and 
Cosmetic Act and published in the Federal Register on a proposed order 
of FDA to withdraw its approval for the drug product because it has 
determined that the product is less than effective for all its labeled 
indications.
    (4) The drug product is presently not subject to a determination by 
FDA, made under its efficacy review program (see 21 CFR 310.6 for an 
explanation of this program), that there is a compelling justification 
of the drug product's medical need.
    (b) FFP is not available in expenditures for the purchase or 
administration of any drug product that is identical, related, or 
similar, as defined in 21 CFR 310.6, to a drug product that meets the 
conditions of paragraph (a) of this section.

[46 FR 48554, Oct. 1, 1981]



Sec. 441.30  Optometric services.

    The plan must provide for payment of optometric services as 
physician services, whether furnished by an optometrist or a physician, 
if--
    (a) The plan does not provide for payment for services provided by 
an optometrist, except for eligibility determinations under Sec. Sec. 
435.531 and 436.531 of this subchapter, but did provide for those 
services at an earlier period; and
    (b) The plan specifically provides that physicians' services include 
services an optometrist is legally authorized to perform.



Sec. 441.35  Organ transplants.

    (a) FFP is available in expenditures for services furnished in 
connection with organ transplant procedures only if the State plan 
includes written standards for the coverage of those procedures, and 
those standards provide that--
    (1) Similarly situated individuals are treated alike; and
    (2) Any restriction on the practitioners or facilities that may 
provide organ transplant procedures is consistent with the accessibility 
of high quality care to individuals eligible for the procedures under 
the plan.
    (b) Nothing in paragraph (a) permits a State to provide, under its 
plan, services that are not reasonable in amount, duration, and scope to 
achieve their purpose.

[56 FR 8851, Mar. 1, 1991]



Sec. 441.40  End-stage renal disease.

    FFP in expenditures for services described in subpart A of part 440 
is available for facility treatment of end-stage renal disease only if 
the facility has been approved by the Secretary to furnish those 
services under Medicare. This requirement for approval of the facility 
does not apply under emergency conditions permitted under Medicare (see 
Sec. 482.2 of this chapter).

[43 FR 45229, Sept. 29, 1978, as amended at 51 FR 22041, June 17, 1986]

[[Page 259]]



Subpart B_Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) 
                       of Individuals Under Age 21

    Source: 49 FR 43666, Oct. 31, 1984, unless otherwise noted.



Sec. 441.50  Basis and purpose.

    This subpart implements sections 1902(a)(43) and 1905(a)(4)(B) of 
the Social Security Act, by prescribing State plan requirements for 
providing early and periodic screening and diagnosis of eligible 
Medicaid recipients under age 21 to ascertain physical and mental 
defects, and providing treatment to correct or ameliorate defects and 
chronic conditions found.



Sec. 441.55  State plan requirements.

    A State plan must provide that the Medicaid agency meets the 
requirements of Sec. Sec. 441.56-441.62, with respect to EPSDT 
services, as defined in Sec. 440.40(b) of this subchapter.



Sec. 441.56  Required activities.

    (a) Informing. The agency must--
    (1) Provide for a combination of written and oral methods designed 
to inform effectively all EPSDT eligible individuals (or their families) 
about the EPSDT program.
    (2) Using clear and nontechnical language, provide information about 
the following--
    (i) The benefits of preventive health care;
    (ii) The services available under the EPSDT program and where and 
how to obtain those services;
    (iii) That the services provided under the EPSDT program are without 
cost to eligible individuals under 18 years of age, and if the agency 
chooses, to those 18 or older, up to age 21, except for any enrollment 
fee, premium, or similar charge that may be imposed on medically needy 
recipients; and
    (iv) That necessary transportation and scheduling assistance 
described in Sec. 441.62 of this subpart is available to the EPSDT 
eligible individual upon request.
    (3) Effectively inform those individuals who are blind or deaf, or 
who cannot read or understand the English language.
    (4) Provide assurance to CMS that processes are in place to 
effectively inform individuals as required under this paragraph, 
generally, within 60 days of the individual's initial Medicaid 
eligibility determination and in the case of families which have not 
utilized EPSDT services, annually thereafter.
    (b) Screening. (1) The agency must provide to eligible EPSDT 
recipients who request it, screening (periodic comprehensive child 
health assessments); that is, regularly scheduled examinations and 
evaluations of the general physical and mental health, growth, 
development, and nutritional status of infants, children, and youth. 
(See paragraph (c)(3) of this section for requirements relating to 
provision of immunization at the time of screening.) As a minimum, these 
screenings must include, b