and the grantee, pursuant to the Department's patent regulations (45 CFR Parts 6 and 8).

(ii) Copyright royalties, whether received during or after the grant period, shall first be used to reduce the Federal share of the grant to cover the costs of publishing or producing the materials, and any royalties in excess of publishing or producing the materials shall be distributed in accordance with Chapter 1-420 of the Department of Health, Education, and Welfare Grants Administration Manual.2

(d) Audit. Where a grantee is a local government as defined in Subpart A of 45 CFR Part 74, audits shall be conducted as provided in 45 CFR 74.61. Where a grantee is not a local government as so defined, it shall arrange for an annual independent financial audit of the approved activity.

§ 122.212 Applicability of 45 CFR Part 74.

The provisions of 45 CFR Part 74, establishing uniform administrative requirements and cost principles, shall apply to all grants under this subpart to local governments as defined in Subpart A of that Part 74. The relevant provisions of the following subparts of 45 CFR Part 74 shall also apply to all other grantee organizations under this subpart.

K-Grant Payment Requirements.

L-Budget Revision Procedures.

123.301

M-Grant Close-out, Suspension, and Ter

123.302

mination.

123.303 Composition.

O-Property.

P-Procurement Standards.

Q-Cost Principles.

2 The Department of Health, Education, and Welfare Grants Administration Manual is available for public inspection and copying at the Department's and Regional Offices' information centers listed in 45 CFR 5.31 and may be purchased from the Superintendent of Documents, U.S. Government Printing Office, Washington, D.C. 20402.

§ 123.1

Subpart A-Definitions
Definitions.

As used in this part:

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

(b) "Conditionally designated State Agency" means an agency of the government of a State which has been designated as a State health planning and development agency on a conditional basis pursuant to section 1521(b) (2) of the Act.

(c) "Designation agreement" means an agreement entered into or renewed pursuant to section 1521 of the Act.

(d) "Fully designated State Agency" means an agency of the government of a State which has been designated as a State health planning and development agency pursuant to section 1521(b) (3) of the Act.

(e) "Governor" means the chief executive officer of a State or his designee.

(f) "Grant period" means the period with respect to which assistance is provided under Subpart C of this part.

(g) "Health service area" means an area designated by the Secretary pursuant to section 1511 of the Act as a health service area.

(h) "Health systems agency" means a conditionally or fully designated health systems agency designated pursuant to section 1515 of the Act and 42 CFR Part 122.

(i) "Provider of health care" means an individual

(1) who is a direct provider of health care (including (but not limited to) a physician, dentist, nurse, podiatrist, or physician assistant) in that the individual's primary current activity is the provision of health care to individuals or the administration of facilities or institutions (including hospitals, long-term care facilities, outpatient facilities, and health maintenance organizations) in which such care is provided and, when required by State law, the individual has received professional training in the provision of such care or in such administration and is licensed or certified for such provision or administration, or

(2) who is an indirect provider of health care in that the individual:

(i) holds a fiduciary position with or has a fiduciary interest in, an entity described in paragraph (i) (2) (ii) (B) or (D) of this section; (for purposes of this

paragraph, a "fiduciary position or interest" as applied to any entity means a position or interest with respect to such entity affected with the character of a trust, including members of boards of directors and officers, majority shareholders, agents and attorneys);

(ii) receives (either directly or through his spouse) more than one-tenth of his gross annual income from any one or combination of the following:

(A) fees or other compensation for research into or instruction in the provision of health care;

(B) entities (or associations or organizations composed of such entities) engaged (or comprised of individuals who are engaged) in the provision of health care or in such research or instruction;

(C) producing or supplying drugs or other articles for individuals or entities for use in the provision of or in research into or instruction in the provision or health care; and

(D) entities (or associations or organizations composed of such entities) engaged in producing drugs or such other articles;

(iii) is a member of the immediate family of an individual described in paragraph (1)(1) or paragraph (i) (2) (i), (ii), or (iv) of this section (for purposes of this paragraph, "immediate family" as applied to any individual includes only his parents, spouse, children, brothers and sisters who reside in the same household); or

(iv) is engaged in issuing any policy or contract of individual or group health insurance or hospital or medical service benefits.

(j) "Secretary" means the Secretary of Health, Education, and Welfare and any other officer or employee of the Department of Health, Education, and Welfare to whom the authority involved has been delegated.

(k) "State" means any one of the several States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Trust Territory of the Pacific Islands, and American Samoa.

(1) "State health planning and development agency" or "State Agency" means an agency of State government selected by the Governor and designated in an agreement entered into pursuant to section 1521 of the Act to carry out the

e & descopot of the existing

teali pang and development actodes of the Bae mcnding & descmptron of the existing and proposed reistrousops between the agency selected by the Governor as the State Agency and Diner agences of Bate government responsible for belt programs of the Base, meinding the agences responsible for programs in alcoholism, drug abuse, mental health, and health manpower education and training (such as the Board of Figher Education or CommisFIOL OF Education, and the manner in work planning for these programs will be coordinated with long-range health service needs within the State.

A statement as to whether the State intends to develop a State medical facilities plan for the purpose of participating in the program authorized by Title XVI of the Act, and, if the State does so intend, a description of the manner in which such plan will be administered by the State health planning and development agency in accordance with section 1603 of the Act and applicable regulations of the Secretary.

123.104 State administrative program.

(a) General. A State administrative program (hereinafter referred to as the "State Program") is a program for the performance within the State by its State

Agency of the functions prescribed by section 1523 of the Act and § 123.106(b) of this subpart. The Secretary may not approve a State Program for a State unless it

(1) Meets the applicable requirements of paragraph (b) of this section;

(2) Has been submitted to the Secretary by the Governor of the State as part of the application for a designation agreement; and

(3) Has been submitted to the Secretary only after the Governor of the State has afforded to members of the general public of the State a reasonable opportunity to express their views on the proposed State Program.

(b) Program requirements. To be approved by the Secretary under this subpart, a State Program must

(1) Provide for the performance within the State (after the designation of a State Agency and in accordance with the designation agreement) of the functions prescribed by section 1523 of the Act and § 123.106(b) of this subpart and specify the State Agency of the State as the sole agency for the performance of such functions; Provided, that

(i) Subject to the limitations of § 123.107 of this subpart, any such functions may be performed by another agency of the State government upon request of the Governor under an agreement with the State Agency; and

(ii) In the case of a State Agency designated on a conditional basis, the State Program shall provide for the performance of such functions in accordance with the plan for the orderly assumption and implementation of the health planning and development functions contained in the application;

(2) Contain or be supported by evidence satisfactory to the Secretary that the State Agency has under State law the authority to carry out the functions described in paragraph (b)(1) of this section;

(3) Contain a complete budget for the operation of the State Agency during the period of the proposed designation agreement for the conduct of activities to be performed by such agency pursuant to such agreement. Where the State Agency proposes to administer or supervise the administration of the State medical facilities plan approved by the Secretary pursuant to Title XVI of the

Act, such budget shall also include expenditures to be incurred in the administration of such plan;

(4) Provide for adequate consultation with the Statewide Health Coordinating Council in carrying out the State Program, and contain

(i) In the case of a State Agency designated on a conditional basis in a State which has no such Council at the time of such designation, a plan for the establishment of the Council in accordance with Subpart D of this Part, or

(ii) In the case of a fully designated agency, evidence satisfactory the Secretary of authority under State law for such Council.

(5) Set forth in such detail as the Secretary may prescribe the qualifications for personnel having responsibilities in the performance of the functions described in § 123.106(b) of this subpart and the State Program and require the State agency to have a professional staff for planning and a professional staff for development, which staffs shall be of such size and meet such qualifications as the Secretary may prescribe;

(6) Provide methods of administration appropriate for the proper and efficient administration of the functions described in § 123.106(b) of this subpart and the State program, including the establishment and maintenance of personnel standards on a merit basis for persons employed by the State in carrying out the State Program. Conformity with the Standards for a Merit System of Personnel Administration, 45 CFR Part 70, issued by the Secretary of Health, Education, and Welfare, including any amendments thereto, and any standards prescribed by the U.S. Civil Service Commission pursuant to section 208 of the Intergovernmental Personnel Act of 1970 (Public Law 91-648; 84 Stat. 1915) modifying or superseding such standards, will be deemed to meet this requirement as determined by said Commission;

(7) Require the State Agency to perform its functions in accordance with procedures and criteria established and published by it, which procedures and criteria shall, with respect to any reviews of proposed or existing health services, conform to the requirements of section 1532 of the Act and the applicable regulations of the Secretary;

(8) Require the State Agency to conduct its business meetings in public and