pated enrollment to be drawn from the medically underserved area. Medically underserved areas are designated by the Secretary taking into consideration at least the following factors:

(1) Ratio of primary care physicians to population;

(2) Infant mortality rate;

(3) Percentage of the population which is age 65 or over; and

(4) Percentage of the population with family income below the poverty level.

The Secretary will designate these areas only after consideration of the comments, if any, of the appropriate health systems agency or State health planning and development agency whose plan covers any part of the area in which the population group resides.1

(e) Health planning agency reviews. Each applicant must show in its application that it has sent to each health systems agency whose health service area covers any part of the area to be served by the HMO for which the application is submitted (or if there is no such agency, the State health planning and development agency whose State includes any part of the area to be served) a copy of the application. The agency may then review and comment on the application in accordance with § 417.113.

(f) Health planning agency approvals. If applicable State law provides that the application may not be submitted without the approval of the health systems agency, or State health planning and development agency, the applicant shall obtain this approval which must be included as a part of the application.

(g) Other projects under the Public Health Service Act. The application shall provide written information describing the applicant's development and operation of any prior projects which were supported by grants or by loans or loan guarantees under title XIII of the Public Health Service Act.

1A list of medically underserved areas already designated may be obtained by writing the Regional Health Administrator in the appropriate Regional Office of the Department of Health and Human Services at the addresses set forth at 45 CFR 5.31(b).

Applicants must also describe projects for the planning or operation of health service delivery programs supported under any other titles of the Public Health Service Act, or for which applications under the Public Health Service Act are currently under consideration.

(h) Other applications under title XIII of the Public Health Service Act. Applicants for more than one grant, loan, or loan guarantee under title XIII of the Public Health Service Act, simultaneously or over the course of time, are not required to submit duplicate information, but shall indicate where the information was previously contained and shall update appropriate information with each subsequent application. Upon receiving a written request, the HMO shall submit to the appropriate planning agency referred to in paragragph (e) any previous applications for grants, loans, or loan quarantees under Title XIII of the Public Health Service Act not already submitted to that agency.

[44 FR 42076, July 18, 1979, as amended at 50 FR 6175, Feb. 14, 1985. Redesignated at 52 FR 36746, Sept. 30, 1987]

§ 417.113 What are the standards and procedures for review and comment by the appropriate health systems agency or State health planning and development agency?

(a) Time, manner and considerations for review and comment. If the appropriate health systems agency or State health planning and development agency elects to review and comment upon the application, it shall within 67 days after receiving an application for financial assistance under this subpart provide to the Secretary comments and recommendations regarding the application. Except as provided in paragraph (c) of this section, the agency shall base its review and comment solely on the following considerations:

(1) The needs of enrolled members and reasonably anticipated new members of the HMO or proposed HMO applying for assistance for the health services proposed to be provided by the organization.

1

(2) The availability of the proposed health services from non-HMO providers or other HMOs in a reasonable and cost-effective manner which is consistent with the basic method of operation of the HMO or proposed HMO applying for assistance. In assessing the availability of health services from these providers, the agency shall consider only whether the services from these providers:

(i) Would be available under a contract of at least five years duration;

(ii) Would be available and conveniently accessible through physicians and other health professionals associated with the HMO or proposed HMO (for example: Whether physicians associated with the HMO have or will have full staff privileges at a nonHMO hospital);

(iii) Would cost no more than if the services were provided by the HMO or proposed HMO; and

(iv) Would be available in a manner which is administratively feasible to the HMO or proposed HMO.

(b) Inappropriate considerations for review and comment. (1) The health * systems agency or State health planJ ning and development agency should not recommend against approval of an application solely because there is an HMO of the same type, as specified in section 1310(b) of the Public Health Service Act, in the same area, or solely because the services being reviewed are not discussed in the applicable health systems plan, annual implementation plan, State health plan, or State medical facilities plan.

(2) The health systems agency or State health planning and development agency should not recommend against approval of an application for financial assistance for planning or initial development or initial operating costs under §§ 417.120 through 417.126 and 417.130 through 417.137, which is consistent with the basic objectives, time schedules, and plans of an application which it previously approved or recommended for approval.

(c) Additional considerations for review and comment. A health systems agency or State health planning and development agency may propose to the Secretary that it be permitted to base its reviews and comments on

additional considerations not set forth in paragraph (a) of this section. Any agency making such a request for permission to use additional considerations shall do so in writing, specifying the reasons for the proposal, and shall send a copy of the request to any applicants for financial assistance under this subpart whose applications are then being reviewed by the agency. No pending reviews may be delayed because the agency has submitted such a request to the Secretary. The Secretary will approve the request if he finds the additional considerations to be consistent with the purpose of Title XIII of the Public Health Service Act. Unless the Secretary has approved the use of the additional considerations, the agency shall base its reviews and comments solely on the considerations set forth in paragraph (a) of this section.

[44 FR 42076, July 18, 1979, as amended at 50 FR 6176, Feb. 14, 1985. Redesignated at 52 FR 36746, Sept. 30, 1987]

8417.114 What additional conditions may the Secretary impose?

(a) The Secretary may, with respect to the approval of any grant, contract, loan, or loan guarantee, impose additional conditions prior to or at the time of any approval when, in his judgment, these conditions are necessary to assure or protect the advancement of the approved project, the interests of public health, or the conservation of project funds.

(b) In approving any application under section 1303 or 1304 of the Public Health Service Act for feasibility, planning, or initial development, the Secretary may reserve the right to approve the project director.

[44 FR 42076, July 18, 1979. Redesignated and amended at 45 FR 55122, Aug. 18, 1980. Redesignated at 52 FR 36746, Sept. 30, 1987]

§ 417.115 What confidentiality requirements apply?

(a) Except as set forth in paragraph (b) of this section, each recipient of assistance under this subpart shall hold confidential all information obtained by its personnel about participants in the project related to their examina

tion, care, and treatment and shall not divulge it without the individual's authorization, unless it is required by law or is necessary to provided service to the individual or in compelling circumstances to protect the health or safety of an individual.

(b) Information may be disclosed in summary, statistical, or other form which does not identify particular individuals. Information may be disclosed, whether or not authorized by the participants, to the Secretary or the Comptroller General if it is necessary for the performance of their duties under the Public Health Service Act. Records pertaining to project participants may be disclosed, whether or not authorized by the participants, to qualified personnel for the purpose of conducting scientific research, but these personnel may not identify, directly or indirectly, any individual participant in any report of the research or otherwise disclose participant identities in any manner.

(c) Separate HHS regulations at 42 CFR part 2, set forth standards for maintaining the confidentiality of alcohol and drug abuse patient records. Under § 2.12 of the regulations, the applicability of these requirements extends, for example, to all HMOs which have received a loan from the Secretary under section 1305 of the Public Health Service Act or which have been granted a tax exempt status by the United States Internal Revenue Service. To the extent that an HMO subject to part 2 would be authorized under paragraph (b) of this section to make a disclosure prohibited by part 2, the provisions of Part 2 would control. [44 FR 42076, July 18, 1979. Redesignated at 45 FR 55122 and 55123, Aug. 18, 1980. Redesignated at 52 FR 36746, Sept. 30, 1987]

§ 417.116 For what purposes may grant funds be used?

A grantee may spend funds it receives under this subpart only according to the approved application and budget, title XIII of the Public Health Service Act, the terms and conditions of the grant award, the applicable cost principles specified in subpart Q of 45 CFR part 74, and the regulations of this subpart.

[45 FR 55123, Aug. 18, 1980. Redesignated at 50 FR 6176, Feb. 14, 1985. Redesignated at 52 FR 36746, Sept. 30, 1987]

§ 417.117 What is the effect of a grantee's failure to become or to remain a qualified HMO?

The failure of a grantee to become a qualified HMO in accordance with §§ 417.140 through 417.144 of this subpart, or to remain a qualified HMO, is a material failure to comply with the terms of the grant. Upon this failure, the subsequent use and disposition of any property acquired with grant funds will be governed by 45 CFR part 74.

(a) If the grant project period has not yet expired, this failure is grounds for termination of the grant under 45 CFR part 74.115(a).

(b) If the grant period has expired, property acquired with grant funds will be deemed, under 45 CFR part 74, subpart O, to be no longer needed for the program or project for which it was acquired.

[45 FR 55123, Aug. 18, 1980. Redesignated at 50 FR 6176, Feb. 14, 1985. Redesignated at 52 FR 36746, Sept. 30, 1987]

§ 417.118 What obligation does the Federal Government have to continue support for an approved project?

(a) The notice of award specifies how long the Secretary intends to support the project without requiring the project to recompete for funds. For feasibility grants under and planning grants and loan guarantees under §§ 417.120 through 417.126, this period, called the project period, will usually be for, and cannot exceed, one year. For initial development grants and loan guarantees under §§ 417.120 through 417.126, the project period will usually be for 1-3 years and cannot exceed three years.

(b) Generally, the initial development grant or loan guarantee will be for one year initially and subsequent continuation awards will also generally be for one year at a time. Although the project period for a feasibility grant and for a planning grant or loan guarantee is limited to one year, the Secretary may either make one additional grant or loan guarantee for

such a project or permit additional time (up to one year) for completion of the project. A grantee or a recipient of a loan guarantee must submit a separate application to have the support continued for each subsequent year. Decisions regarding continuation awards and the assistance level of such awards will be made after consideration of such factors as the progress and management practices of the grantee or recipient of the loan guarantee, and the availability of funds. In all cases, continuation awards require a determination by the Secretary that continued assistance is in the best interest of the Federal government.

(c) Neither the approval of any application nor the making of an award commits or obligates the Federal government in any way to make an additional, supplemental, continuation, or other award with respect to any approved application or portion of an approved application.

[45 FR 55123, Aug. 1, 1980. Redesignated at 50 FR 6176, Feb. 14, 1985. Redesignated at 52 FR 36746, Sept. 30, 1987]

§ 417.119 What is the effect of a grantee's change from non-profit to for-profit status?

(a) Any non-profit private entity which received a grant under section 1304 of the Public Health Service Act and which becomes a for-profit private entity, shall notify the Secretary of this change of status within 30 days of the change.

(b) Any grantee which becomes a for-profit entity after receiving a grant under section 1304 of the Public Health Service Act shall immediately upon demand by the Secretary repay to the Secretary the total amount of grant funds received under section 1304, unless the Secretary determines for good cause that waiver of all or part of this amount would be in the interest of the United States. This sum constitutes a debt owed by the grantee to the Federal Government, and the Government may recover it from the grantee or its successors or assignees by setoff or other action as provided by law.

[44 FR 42076, July 18, 1979. Redesignated at 45 FR 55123, Aug. 1, 1980, and amended at 47 FR 19340, May 5, 1982. Redesignated at

50 FR 6176, Feb. 14, 1985. Redesignated at 52 FR 36746, Sept. 30, 1987]

GRANTS AND LOAN GUARANTEES FOR PLANNING AND INITIAL DEVELOP

MENT COSTS

SOURCE: 43 FR 6023, Feb. 10, 1978, unless otherwise noted. Redesignated at 52 FR 36746, Sept. 30, 1987.

8417.120 Applicability.

(a) The regulations of §§ 417.120 through 417.126, in addition to the regulations of §§ 417.110 through 417.119 of this subpart, apply to:

(1) Grants awarded under section 1304 of the Public Health Service Act for projects for the planning and for the initial development of HMOs.

(2) Guarantees made under section 1304 of the Public Health Service Act to non-Federal lenders of payment of the principal of and the interest on loans made for projects for the planning and initial development of HMOS.

(b)(1) Planning projects include projects for (i) the establishment of an HMO, and (ii) the significant expansion (as defined in § 417.111) of the membership or of the area served by an HMO.

(2) Initial development projects include projects for (i) the establishment of an HMO, (ii) the significant expansion (as defined in § 417.111) of the membership or of the area served by an HMO, and (iii) the expansion of the services (as defined in § 417.111) of an HMO.

[45 FR 6059, Jan. 24, 1980. Redesignated at 52 FR 36746, Sept. 30, 1987]

§ 417.121 Eligible applicants.

Any public entity or nonprofit private entity which is, or which proposes to become, an HMO and which received a grant or contract under section 1303 or section 1304 of the Public Health Service Act on or before September 30, 1981 is eligible to apply for a grant or a loan guarantee under §§ 417.120 through 417.126. A forprofit private entity which is, or which proposes to become, an HMO is only eligible to apply for a loan guarantee under this §§ 417.120 through 417.126.

(a) In the case of a for-profit private entity, the applicant must demonstrate that at least 10 percent of the projected membership of the HMO to be established or expanded will be from medically underserved populations.

(b) Only HMOs qualified under §§ 417.140 through 417.144 of this subpart are eligible to apply for projects for the significant expansion of their membership or of their service areas or for the expansion of their services.

[45 FR 6059, Jan. 24, 1980, as amended at 47 FR 19341, May 5, 1982. Redesignated at 52 FR 36746, Sept. 30, 1987]

§ 417.122 Project elements for planning. An approvable application must provide:

(a) Statements which describe in detail:

(1) The goals and objectives of the proposed health maintenance organization;

(2) The administrative, managerial, and organizational arrangements;

(3) The resources to be used including consultants whose tasks must be defined adequately to permit an evaluation of the need for such consultants;

(4) The existing or proposed composition of the Board of Directors of the applicant organization and its duties;

(5) The proposed service area and the surrounding community, the number of employed persons and number of primary care physicians located in the proposed service area; and

(6) The intended financial participation of the applicant, specifying the type of contribution such as cash or services, loans of full- or part-time staff, equipment, space, materials, facilities, or other contributions.

(b) An assurance that the applicant will cooperate with the appropriate health systems agency and State health planning and development agency.

(c) Written evidence of notification to the local medical society or societies of the applicant's intention to apply for assistance.

(d) Evidence that there is support for the project by organizations, or institutions, or employer groups which may participate in the development of

the proposed health maintenance organization.

(e) A detailed report of the results of the activities performed during the feasibility survey or study which established the feasibility of developing the health maintenance organization, as well as of any other activities relating to the development of the health maintenance organization undertaken prior to application for planning assistance. With regard to the report of the feasibility survey, information on the following must be included:

(1) Status of the applicant in terms of pertinent State laws, regulations, and practices relating to operating as a health maintenance organization;

(2) Organizational structure of the proposed health maintenance organization;

(3) The types of population groups which would be sources of prepayment for an operational health maintenance organization and other potential sources of payment for services when operational;

(4) Providers of basic health services who have agreed or might reasonably be expected to agree to provide health benefits;

(5) Sources of payment and operational support including:

(i) Preliminary estimate of the amount to be charged for basic health benefits when the proposed health maintenance organization becomes operational; and

(ii) Estimate of enrollment and income required to reach the financial breakeven point; and

(6) A preliminary estimate of facilities required for operational status.

(f) Concise plans for accomplishing planning stage activities, which must include at a minimum, a description of tasks for each activity listed below, accompanied by a time-phased milestone chart indicating proposed funding and manpower to be allocated to each such activity (where circumstances indicate that it would be appropriate and consistent with the intent of the Public Health Service Act, additional activities may be proposed):

(1) Recruitment of key project staff which shall include the employment of a full-time project director;