take into account the statutory time limits applicable to appropriateness reviews by health systems agencies, and the need within the State for priority reviews of the services for which National Guidelines for Health Planning have been issued.

(3) The establishment of requirements for submission by providers of data to be used in performance of appropriateness reviews to the State Agency and to the health systems agencies, after consultation with the statewide health coordinating council and all the health systems agencies in the State, and the State Agency(s) and statewide health coordinating council(s) of any contiguous States where a health service area is shared by more than one State. At a minimum, the State Agency shall establish such data requirements for services provided by hospitals and nursing homes during the first and second years, respectively, of its reviews of appropriateness. Data requirements shall be limited to data reasonably needed for appropriateness reviews and the State Agencies shall use existing data sources to the maximum extent feasible.

(4) Plans for initiating appropriateness reviews:

(i) No later than 6 months after the effective date of these regulations if: (A) The State Agency is fully designated prior to the date of publication of these regulations, or (B) the State Agency is conditionally designated and the Secretary has determined that the State Agency is capable of performing appropriateness reviews (see 42 CFR 123.105) prior to the effective date of these regulations; or

(ii) In the case of a State Agency not covered by paragraph (b)(4)(i) of this section, no later than 6 months after: (A) The date of full designation, or (B) the date the Secretary determines that the State Agency, although conditionally designated, is capable of performing appropriateness reviews, whichever is earlier.

(5) Plans for completing areawide reviews of all existing institutional health services within 5 years of the date of the State Agency's initial full designation and during each succeeding 5-year period, but in any event

within 1 year of receipt of an appropriate health system agency recommendation. Review schedule priorities may be established, but such review priority setting shall not result in the exclusion from review of any existing institutional health service during any applicable time period.

§ 123.604 Adoption and public notice of review procedures and criteria.

The provisions of 42 CFR 123.406 apply to the adoption and public notice of review procedures and criteria under this subpart.

§ 123.605 Procedures for State Agency review.

(a) The procedures adopted and used by a State Agency for conducting the reviews covered by this subpart shall include at least the following:

(1) Written notification to affected persons of the beginning of a review. Written notification to members of the public may be provided through newspapers of general circulation in the area and public information channels; notifications to all other affected persons shall be by mail (which may be part of a newsletter). "Affected persons" include at a minimum, the person(s) whose service is being reviewed, the State Agency for each State in which all or any part of the agency's health service area is located, health systems agencies serving contiguous health service areas, health care facilities and HMOs located in the health service area which provide institutional health services, any agency which establishes rates for health care facilities or HMOS in its health service area, and those members of the public who are to be served by the service subject to review.

(2) Schedules for review which provide that no areawide review shall, to the extent practicable, take longer than 180 days from the date of notification to affected persons made in accordance with paragraph (a)(1) of this section to the date of the written findings made in accordance with paragraph (a)(4) of this section.

(3) Provisions for persons subject to a review to submit to the State Agency any information which the State

Agency may require in accordance with its work program under § 123.603(c) concerning the subject of the review in the form and manner and containing the information which the State Agency shall prescribe and publish. These information requirements may vary according to the purpose for which the particular review is being conducted or the type of health service being reviewed; however, the State Agency may require no information of a person subject to review which is not prescribed and published as being required in accordance with § 123.604.

(4) Provision for written findings which state the basis for any findings made by the State Agency.

(5) Notification of providers of health services and other persons subject to the State Agency review of the status of the State Agency's review of the institutional health services, findings made in the course of the review, and other appropriate information respecting the review.

(6) Provision for (i) public hearings in the course of the State Agency review if requested by persons affected by the review; and for (ii) public hearings, for good cause shown, respecting the State Agency finding.

(7) Preparation and publication of regular reports by the State Agency of the reviews being conducted (including a statement concerning the status of each review), and of the reviews completed by the State Agency (including a general statement of the findings made in the course of these reviews) since the publication of the last report.

(8) Access by the general public to all written materials pertinent to any State Agency review.

(9) Provision that if the State Agency makes a finding regarding the appropriateness of an existing institutional health service which is inconsistent with a recommendation made with respect thereto by the health systems agency making such recommendation pursuant to 42 CFR 122.508: (i) the finding (and the record upon which it was made) shall, upon request of the health systems agency, be reviewed, under an appeals mechanism consistent with State law governing

the practices and procedures of administrative agencies, by an agency of the State (other than the State health planning and development agency) designated by the Governor, and (ii) the finding of the reviewing agency shall be considered the final finding of the State Agency.

(10) Provision that a decision of the State Agency resulting in an institution-specific finding of inappropriateness shall, upon request of the person(s) providing that service, be reviewed, under an appeals mechanism consistent with State law governing the practices and procedures of administrative agencies, by an agency of the State (other than the State Agency) designated by the Governor. The decision of the reviewing agency shall be considered the final decision of the State Agency.

(11) Provision that if a State Agency (or a reviewing agency, under paragraph (a)(9) of this section) makes a finding regarding an existing institutional health service which the State Agency determines is not consistent with the goals of the applicable health systems plan (established under Section 1513(b)(2) of the Act) or the priorities of the applicable annual implementation plan (established under Section 1513(b)(3) of the Act, the State Agency (or the reviewing agency, as appropriate) shall submit to the appropriate health systems agency a detailed statement of the reasons for the inconsistency.

(b) Procedures adopted for reviews in accordance with paragraph (a) of this section may vary according to the type of health service being reviewed.

(c) The procedures adopted for reviews may provide that the requirements of paragraph (a)(3) of this section shall be deemed satisfied for any health service area within the State if the health systems agency has provided for a corresponding procedure.

§ 123.606 Exceptions to use of procedures.

A State Agency may, with respect to any type or group of reviews, request from the Secretary an exception to the requirement that it use review procedures which meet the requirements of § 123.605. The requirements of 42

CFR 123.408 apply to such a request for an exception.

§ 123.607 Criteria for State Agency review.

(a) The State Agency shall adopt, and use as appropriate, specific criteria for conducting the reviews covered by this subpart. These criteria shall relate to availability, accessibility, acceptability, continuity, cost, and quality and shall include at least the general considerations listed below, but in the case of areawide reviews which result in institution-specific findings of services provided by or through HMOS, the considerations shall be limited to those set forth in paragraph (a)(8) of this section.

(1) The relationship of the health services being reviewed to the applicable health systems plans, annual implementation plans, and State health plan.

(2) The relationship of the services reviewed to the long-range development plan (if any) of the person providing the services.

(3) The need that the population served has for the services, and the extent to which low income persons, racial and ethnic minorities, women, handicapped persons, and other underserved groups have access to those services.

(4) The availability of less costly or more effective alternative methods of providing the services.

(5) The relationship of the services reviewed to the existing health care system of the area in which the services are provided.

(6) The availability of resources (including health manpower, management personnel, and funds for capital and operating needs) for the provision of the services reviewed and the availability of alternative uses of these resources for the provision of other health services.

(7) The special needs and circumstances of those entities which provide a substantial portion of their services or resources or both, to individuals not residing in the health service areas in which the entities are located or in adjacent health services areas. These entities may include medical and other health professions schools, multidisciplinary clinics, and specialty centers.

(8) The special needs and circumstances of HMOs. In the case of areawide reviews which result in institution-specific findings regarding services provided by or through an HMO, the needs and circumstances shall be limited to:

(i) The needs of enrolled members and reasonably anticipated new members of the HMO for the existing institutional health services provided by the organization.

(ii) Whether the services could be obtained from non-HMO, or other HMO, providers in a reasonable and cost-effective manner which is consistent with the basic method of operation of the HMO.

(iii) Any other factors which the State Agency may propose and the Secretary may, in accordance with paragraph (c) of this section, find to be consistent with the purpose of Title XIII of the Act.

(9) The special needs and circumstances of biomedical and behavorial research projects which are designed to meet a national need and for which local conditions offer special advantages.

(10) The contribution of the existing institutional health services in meeting the health related needs of members of medically underserved groups and groups which have traditionally experienced difficulties in obtaining equal access to health services (for example, low income persons, racial and ethnic minorities, women, and handicapped persons) particularly those needs identified in the applicable health systems plan and annual implementation plan as deserving of priority.

(11) The special circumstances of health service institutions with respect to the need for conserving energy.

(12) In accordance with Section 1502(b) of the Act, the effect of competition on the supply of the health services being reviewed.

(13) Improvements or innovations in the financing and delivery of health services which foster competition, in accordance with Section 1502(b) of the Act, and serve to promote quality assurance and cost effectiveness.

(14) The quality of care provided by the services or facilities in the past.

(b) Criteria adopted for reviews in accordance with paragraph (a) of this section may vary according to the type of health service being reviewed and the purpose of the review. Furthermore, the criteria used in the review of a particular service need not address all six of the characteristics of appropriateness (availability, accessibility, acceptability, continuity, cost, and quality). Should an agency fail to use criteria addressing all six of the characteristics of appropriateness in a review, it must explain this in the finding.

(c) Where a State Agency proposes under paragraph (a)(8)(iii) of this section that it be permitted to base areawide reviews resulting in institution-specific findings of services provided by or through HMOs on criteria which consider factors not set forth in paragraph (a)(8) of this section, it shall do so in a written request to the Secretary, specifying the reasons for the proposal. The Secretary will approve the request if he finds the additional factors to be consistent with the purpose of Title XIII of the Act. Unless the Secretary has approved the additional factors, the State Agency shall base its review solely on the factors set forth in paragraph (a)(8) of this section.

§ 123.608 Required findings.

(a) A State Agency shall, in accordance with the requirements of this subpart, make public its findings with respect to the appropriateness of existing institutional health services.

(b) A State Agency may not make a finding that an existing institutional health service is inappropriate unless it has stated in writing that the service has not met one or more of the established criteria of the State Agency and the ways in which the service failed to meet the criteria, including any that are beyond the control of the person(s) providing that service.

(c) A State Agency, in conducting an areawide review resulting in institution-specific findings, may not make a finding that an existing institutional health service provided by or through an HMO is inappropriate solely because there is an HMO of the same type, as specified in section 1310(b) of

As used in this subpart:

(a) "Act" means the Public Health Service Act, as amended.

(b) "Construction" means construction of new buildings and initial equipment of such buildings and, in any case in which it will help to provide a service not previously provided in the community, equipment of any buildings. It includes architect's fees, but excludes the cost of off-site improvements and, except with respect to public health centers, the cost of the acquistion of land.

(c) "Cost" means the amount found by the Secretary to be necessary for construction or modernization under a project, except that such term does not include any amount found by the Secretary to be attributable to expansion of the bed capacity of any facility.

(d) "Equipment" means those items which are necessary for the functioning of the facility but does not include items of current operating expense such as food, fuel, pharmaceuticals, dressings, paper, printed forms, and housekeeping supplies.

(e) "Facility for long-term care" means a facility (including a skilled nursing care or intermediate care facility), providing inpatient care for convalescent or chronic disease patients who require skilled nursing or intermediate care and related medical services

(1) Which is a hospital (other than a hospital primarily for the care and treatment of mentally ill or tuberculosis patients) or is operated in connection with a hospital, or

(2) In which such care and medical services are prescribed by, or are performed under the general direction of, persons licensed to practice medicine or surgery in the State.

(f) "Health systems agency" means an agency which has been conditionally or fully designated pursuant to section 1515 of the Act and 42 CFR Part 122.

(g) "Hospital" includes general, tuberculosis, and other types of hospitals, and related facilities such as laboratories, outpatient departments, nurses' home facilities, extended care facilities, facilities related to programs for home health services, self-care units, and central service facilities, operated in connection with hospitals, and education or training facilities for health professional personnel operated as an integral part of a hospital, but does not include any facility furnishing primarily domiciliary care.

(h) "Major repair" means those repairs to an existing building, excluding routine maintenance, which restore the building to a sound state, the cost of which is a least 10 percent of plant value or $200,000, whichever is greater. "Plant value" means the historic book value of the building at the time of ap