ings or tell how this information may be obtained.

(d) Publication of notice. The notice must

(1) Be published before the proposed effective date of the change;

(2) Appear as a public announcement in

(i) A State register similar to the FEDERAL REGISTER;

(ii) The newspaper of widest circulation in each city with a population of 50,000 or more; or

(iii) The newspaper of widest circulation in the State, if there is not a city with a population of 50,000 or more; and

(3) Be sent to the HCFA Regional Office upon publication.

$447.255 Submittal of assurances and related information.

(a) Assurances. The Medicaid agency must submit the assurances in § 447.252(c) before the end of the calendar quarter that includes the date on which the rate has been in effect for one year, or whenever the agency wishes to make a significant change in its methods and standards for determining the rate, whichever is earlier.

(b) Related information. The Medicaid agency must submit, with the assurances described in § 447.252(c), the following information:

(1) The amount of the average proposed payment rate for each type of provider (hospital, SNF, ICF, or ICF/ MR), and the amount by which that average rate increased or decreased relative to the average payment rate in effect for each type of provider for the immediately preceding rate period; (2) A quantified estimate of the short-term and, to the extent feasible, long-term effect the change in the rate will have on

(i) The availability of services on a Statewide and geographic area basis; (ii) The type of care furnished (for example, secondary or tertiary care); (iii) The extent of provider participation; and

(iv) The degree to which costs are covered in hospitals that serve a disproportionate number of low income patients with special needs.

§ 447.256 Procedures for HCFA action on

assurances.

(a) Time limit for action. HCFA will review the related information described in § 447.255 to determine the reasonableness of significant changes in the items specified in paragraph (b)(2) of that section that result from a change in the average proposed payment rate. HCFA will notify the agency of its determination as to whether the agency's assurances regarding a proposed rate are acceptable within 60 days of the date HCFA receives the assurances described in paragraph (c) of § 447.252 and the related information described in paragraph (b) of § 447.255. If HCFA does not notify the agency of its determination within this time limit, the assurances will be deemed accepted.

(b) Effective date. (1) Except as specified in paragraph (b)(2) of this section, a proposed payment rate with respect to which HCFA has accepted assurances or with respect to which an assurance has been deemed accepted under this section will be effective on the date specified in the agency's as

surances.

(2) A payment rate with respect to which HCFA has accepted assurances or with respect to which an assurance has been deemed accepted under this section will not be effective for any period beginning before the first day of the calendar quarter in which the agency submits the assurances and related information described in § 447.255.

PROVIDER APPEALS

§ 447.258 Provider appeals of State rate determinations.

The agency must provide an appeals procedure that allows individual providers an opportunity to submit additional evidence and request prompt administrative review of payment rates.

COST REPORTING

§ 447.260 Provider cost reporting.

The agency must provide for the filing of uniform cost reports by each participating provider.

AUDITS

§ 447.265 Audit requirement.

The agency must provide for periodic audits of the financial and statistical records of participating providers.

UPPER LIMITS

§ 447.271 Upper limits based on customary charges.

(a) Except as provided in paragraph (b) of this section, the agency may not pay a provider more for inpatient hospital services under Medicaid than the provider's customary charges to the general public for the services.

(b) The agency may pay a public provider that provides services free or at a nominal charge at the same rate that would be used if the provider's charges were equal to or greater than its costs.

§ 447.272 Upper limits based on Medicare payments.

(a) An agency may not pay more in the aggregate for inpatient hospital services or long-term care facility services than the amount that would be paid for the services under the Medicare principles of reimbursement under Part 405, Subpart D of this chapter. Payments meet this requirement

(1) If, in a random sample of all Medicaid providers, the payment is not more than the amount that would have been paid under Medicare in at least 90 percent of the providers in the sample; or

(2) If the average payment to all providers in a class is not more than the average amount that would have been paid under Medicare.

(b) To determine what would have been paid for a class of providers under Medicare

(1) For providers that participate in Medicare, the interim rate paid to the provider under Medicare (adjusted for services not included in the State plan and for the Medicare inpatient routine nursing salary cost differential paid under § 405.430 of this chapter) may be used to determine the upper limit; and

(2) For hospitals and SNFs that do not participate in Medicare and for

ICFS, the agency must estimate the amounts Medicare would have paid those providers. These estimates must be consistent with the intent that payments do not exceed amounts (adjusted for services not included in the State plan and for the Medicare inpatient routine nursing salary cost dif ferential paid under § 405.430 of this chapter) that would be determined using Medicare's principles.

SWING-BED HOSPITALS

§ 447.280 Hospital providers of SNF and ICF services (swing-bed hospitals). (a) If the State plan provides for SNF services furnished by a swing-bed hospital, as specified in § 440.40(a) of this chapter, the methods and standards used to determine payments rates must provide for payment for the routine SNF services at the average rate per patient day paid to SNFs for routine services furnished during the previous calendar year.

(b) If the State plan provides for ICF services furnished by a swing-bed hospital, as specified in § 440.150(f) of this chapter, the methods and standards used to determine payment rates must provide for payment for the routine ICF services at the average rate per patient day paid to ICFs, other than ICFs for the mentally retarded, for routine services furnished during the previous calendar year.

[47 FR 31533, July 20, 1982]

Subpart D-Payment Methods for Other Institutional and Noninstitutional Services

SOURCE: 43 FR 45253, Sept. 29, 1978, unless otherwise noted. Redesignated at 46 FR 47973, Sept. 30, 1981.

§ 447.300 Basls and purpose.

In this subpart, §§ 447.302 through 447.334 and 447.361 implement section 1902(a)(30) of the Act, which requires that payments be consistent with efficiency, economy and quality of care. Section 447.342 of this subpart implements section 1902(a)(43) of the Act, which permits the State plan to provide for payment to a physician for laboratory services which the physi

cian did not personally perform or supervise. Section 447.371 implements section 1902(a)(13)(F) of the Act, which requires that the State plan provide for payment for rural health clinic services in accordance with regulations prescribed by the Secretary.

[46 FR 48560, Oct. 1, 1981]

§ 447.302 State plan requirements.

A State plan must provide that the requirements of this subpart are met. [46 FR 48560, Oct. 1, 1981]

§ 447.304 Adherence to upper limits; FFP. (a) The Medicaid agency must not pay more than the upper limits described in this subpart.

(b) In the case of payments made under the plan for deductibles and coinsurance payable on an assigned Medicare claim for noninstitutional services, those payments may be made only up to the reasonable charge under Medicare.

(c) FFP is available in expenditures for payments for services that do not exceed the upper limits.

NOTE: The Secretary may waive any limitation on reimbursement imposed by Subpart D of this part for experiments conducted under section 402 of Pub. L. 90-428, Incentives for Economy Experimentation, as amended by section 222(b) of Pub. L. 92-603, and under section 222(a) of Pub. L. 92-603. [46 FR 48560, Oct. 1, 1981; 46 FR 54744, Nov. 4, 1981]

OUTPATIENT HOSPITAL AND CLINIC
SERVICES

§ 447.321 Outpatient hospital services and clinic services: Upper limits of payment.

The agency may not pay more than the combined payments the provider gets from the beneficiaries and carriers or intermediaries for providing comparable services under comparable circumstances under Medicare.

OTHER INPATIENT AND OUTPATIENT FACILITIES

§ 447.325 Other inpatient and outpatient facility services: Upper limits of payment.

The agency may pay the customary charges of the provider but must not pay more than the prevailing charges in the locality for comparable services under comparable circumstances.

DRUGS

§ 447.331 Drugs: Upper limits of payment.

(a) The agency may not pay more for prescribed drugs than the lower of ingredient cost plus a reasonable dispensing fee or the provider's usual and customary charge to the general public.

(b) Cost must be determined in accordance with § 447.332.

(c) The dispensing fee must be set by the agency under § 447.333.

[43 FR 45253, Sept. 29, 1978, as amended at 45 FR 24889, Apr. 11, 1980]

§ 447.332 Cost of drugs.

(a) Multiple-source drugs. A "multiple-source drug" means a drug marketed or sold by two or more manufacturers or labelers or a drug marketed or sold by the same manufacturer or labeler under two or more different proprietary names or both under a proprietary name and without such a name. Except as specified in paragraph (b), the cost of each multiple source drug designated by the Pharmaceutical Reimbursement Board (45 CFR Part 19) and published in the FEDERAL REGISTER must be the lower of

(1) The maximum allowable cost (MAC) established by the Board and published in the FEDERAL REGISTER; or (2) The estimated acquisition cost as described in paragraph (c) of this section.

(b) Exception: Certification of brand name drugs. (1) The cost of a multiplesource drug is not limited to the MAC if a physician certifies in his own handwriting that, in his medical judgment, a specific brand is medically necessary for a particular recipient.

(2) The agency must decide what certification form and procedure are used.

(3) A checkoff box on a form is not acceptable but a notation like "brand necessary" is allowable.

(4) The agency may allow providers to keep the certification forms if the forms will be available for inspection by the agency or HHS.

(c) All other drugs. (1) The agency must set the cost of all other prescribed drugs at the estimated acquisition cost.

(2) "Estimated acquisition cost" means the agency's best estimate of what price providers generally are paying for a drug.

(3) The basis for the estimate must be the package size providers buy most frequently.

NOTE: To help Medicaid agencies with these estimates, HHS makes available information, on a current basis, on the acquisition cost of the most frequently prescribed drugs.

§ 447.333 Dispensing fee.

(a) The agency may set the dispensing fee by taking into account the results of surveys of the costs of pharmacy operation. The agency must periodically survey pharmacy operations including

(1) Operational data;

(2) Professional services data; (3) Overhead data; and

(4) Profit data.

(b) The dispensing fee may vary according to

(1) Size and location of pharmacy; (2) Whether the drug is a legend item (for which Federal law requires a prescription) or nonlegend item; and

(3) Whether the drug is dispensed by a physician or an outpatient department of an institution.

(c) The dispensing fee may also vary for drugs furnished recipients in institutions by a pharmacy using a unit dose system. In those cases

(1) The dispensing fee is added to the ingredient cost of the drug actually used; and

(2) The fee is either

(ii) A daily or monthly capitation rate per recipient being furnished drugs.

§ 447.334 Upper limits for drugs furnished as part of services.

The upper limits for payment for prescribed drugs in this subpart also apply to payment for drugs provided as part of skilled nursing facility serv ices and intermediate care facility services and under prepaid capitation arrangements.

CLINICAL LABORATORY SERVICES

§ 447.342 Physician billing for clinical laboratory services.

(a) This section applies when a State plan provides for payments to physicians for clinical laboratory services. (b) [Reserved]

(c) A state plan may provide for pay. ment to a physician who bills for clini cal laboratory services performed by an outside laboratory. Under these circumstances, the plan must provide that the agency will not pay the physi cian more than the amount that would be authorized under Medicare in accordance with § 405.515 (b), (c), and (d) of this chapter.

[46 FR 48560, Oct. 1, 1981]

(i) An amount added to the cost of each unit dose; or

$440.20(c) of this subchapter, as follows:

(a) For provider clinics, the agency must pay the reasonable cost of rural health clinic services and other ambulatory services on the basis of the cost reimbursement principles in Subpart D of Part 405 of this chapter. For purposes of this section, a provider clinic is an integral part of a hospital, skilled nursing facility, or home health agency that is participating in Medicare and is licensed, governed, and supervised with other departments of the facility.

(b) For clinics other than provider clinics that do not offer any ambulatory services other than rural health clinic services, the agency must pay for rural health clinic services at the reasonable cost rate per visit determined by a Medicare carrier under $405.2426 through 405.2429 of this chapter.

(c) For clinics other than provider clinics that do offer ambulatory services other than rural health clinic services, the agency must pay for the other ambulatory services by one of the following methods:

(1) The agency may pay for other ambulatory services and rural health clinic services at a single rate per visit that is based on the cost of all services furnished by the clinic. The rate must be determined by a Medicare carrier under §§ 405.2426 through 405.2429 of this chapter.

(2) The agency may pay for other ambulatory services at a rate set for each service by the agency. The rate must not exceed the upper limits in this subpart. The agency must pay for rural health clinic services at the Medicare reimbursement rate per visit, as specified in § 405.2426 of this chapter.

(3) The agency may pay for dental services at a rate per visit that is based on the cost of dental services furnished by the clinic. The rate must be determined by a Medicare carrier under §§ 405.2426 through 405.2429 of this chapter. The agency must pay for ambulatory services other than dental services under paragraph (c) (1) or (2) of this section.

(d) For purposes of paragraph (c) (1) and (3) of this section, "visit” means a