Federal Register/Vol. 76, No. 149/Wednesday, August 3, 2011 /Proposed Rules

B. State Option To Retain Federal Funds
Pending Administrative Review and
Interest Charges on Properly Disallowed
Funds Retained by the State
Section 204 of the MIPPA (Review of
Administrative Claim Determination)
amended section 1116 of the Act by
striking "title XIX" from section 1116(d)
of the Act and adding section 1116(e) of
the Act which provides language that
the States may obtain review by the
Board of an agency decision or
reconsidered agency decision. Section
1903(d)(5) of the Act gives a State the
option of retaining the amount of
Federal payment in controversy when
such payment has been disallowed by
the Secretary pending a final
administrative determination upon
review. In other words, the statute
provides a State the option of retaining
(or returning) the entire amount of
Federal payment that has been
disallowed, while that disallowance is
being reconsidered by the agency, or
under appeal to the Board. If a final
administrative determination has been
made upholding the disallowance, the
State must return all disallowed
amounts with interest "for the period
beginning on the date such amount was
disallowed and ending on the date of
such final determination."
Specifically, we propose to revise
 433.38 to clarify the application of
interest when the State opts to retain
Federal funds. These regulations specify
the procedures that CMS and a State
must follow when the State chooses to
retain the funds pending a final
administrative determination. The
current regulations provide that a State
that chooses to retain the disallowed
funds during an appeal to the Board is
required to pay interest on any portion
of the disallowance that is ultimately
sustained by the Board. Section 433.38
would be revised to add language
clarifying that interest would accrue on
disallowed claims of FFP during both
the reconsideration process and the
Board appeal process. We are also
providing clarifying language regarding
interest charged on disallowed claims
during the repayment of Federal funds
by installments. If a State chooses to
retain the FFP when a claim is
disallowed and appeals the
disallowance, the interest will continue
to accrue through the reconsideration
and the Board decision. If the
disallowance is upheld, the State may
request a repayment of FFP by
installments.
We are also proposing two options for
the repayment of interest that accrues
from the date of the disallowance notice

State elects repayment by installments.
It has consistently been our policy that
once the State has exhausted all of its
administrative appeal rights and the
disallowance has been upheld, the
principal overpayment amount plus
interest through the date of final
determination becomes the new
overpayment amount. We are proposing
to provide States with an additional
option for repaying that interest during
a repayment schedule. Given States'
current fiscal situation, we believe that
allowing some flexibility in the
repayment of interest during the
repayment schedule may further assist
States with their budgetary concerns.
If a State chooses to repay the
overpayment by installments, the State
may choose the option of:
(1) Dividing the new overpayment
amount (principal plus initial interest)
by the 12-quarters of repayment. The
initial interest is interest from the date
of the disallowance notice until the first
payment. The State will still be required
to pay interest per quarter on the
remaining balance of the overpayment
until the final payment. To clarify how
this option would work, we provide an
example in Table 3; or
(2) Paying the first installment of the
principal plus all interest accrued from
the date of the disallowance notice
through the first payment. The first
installment would include the principal
payment plus interest calculated from
the date of the disallowance notice.
Each subsequent payment would
include the principal payment plus
interest calculated on the remaining
balance of the overpayment amount.
Under section 1903(d)(5) of the Act, a
State that wishes to retain the Federal
share of a disallowed amount will be
charged interest, based on the average of
the bond equivalent of the weekly 90-
day treasury bill auction rates, from the
date of the disallowance to the date of
a final determination.
A State that has given a timely written
notice of its intent to repay by
installments to CMS will accrue interest
during the repayment schedule on a
quarterly basis at the Treasury Current
Value Fund Rate (CVFR), from:
(1) The date of the disallowance
notice, if the State requests a repayment
schedule during the 60-day review
period and does not request
reconsideration by CMS or appeal to the
Board within the 60-day review period.
(2) The date of the final determination
of the administrative reconsideration, if
the State requests a repayment schedule
during the 60-day review period
following the CMS final determination

and does not appeal to the Board.

(3) The date of the final determination
by the Board, if the State requests a
repayment schedule during the 60-day
review period following the Board's
final determination.
The initial installment will be due by
the last day of the quarter in which the
State requests the repayment schedule.
If the request is made during the last 30
days of the quarter, the initial
installment will be due by the last day
of the following quarter. Subsequent
repayment amounts plus interest will be
due by the last day of each subsequent
quarter.
The CVFR is based on the Treasury
Tax and Loan (TT&L) rate and is
published annually in the Federal
Register, usually by October 31st
(effective on the first day of the next
calendar year), at the following Web
site: http://www.fms.treas.gov/cvfr/
index.html.
We are soliciting comments related to
these approaches and the best
application of interest when a State
chooses repayment of FFP by
installments. We are also interested in
any suggestions on alternative
approaches with respect to the
repayment of interest during the
repayment schedule.
C. Repayment of Federal Funds by
Installments
Currently,  430.48 provides that
States with significant repayment
obligations in proportion to the size of
their Medicaid programs may repay that
liability in installments. Current
regulations provide a 12-quarter time
period for repayment similar to the time
period implemented by the Federal
Claims Collection Act. The State must
meet two basic conditions for a
repayment of Federal funds by
installment. The amount to be repaid
must exceed 2.5 percent of the
estimated or actual annual State share of
the Medicaid program and the State
must provide written notice of intent to
repay by installments before the total
repayment is due.
Currently, the number of quarters
allowed for a repayment schedule is
determined on the basis of the ratio of
repayment amounts to the annual State
share of Medicaid expenditures. The
percentages of the annual State amounts
used to determine the proposed
amounts of quarterly installments are:
21/2; percent for each of the first 4
quarters; 5 percent for each of the
second 4 quarters; and 171/2; percent for
each of the last 4 quarters.
This proposed rule would amend
 430.48 to revise the repayment
schedule, providing more options for

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until the final Board decision when a

States electing a repayment schedule for