The Secretary of HHS Must Consult with the States Before Issuing Regulations Changing the Treatment of IGTs

Our previous article, In Defense of IGTs from Governmental Health Care Providers, noted that the Secretary of the Department of Health and Human Services (“HHS”) is required to “consult with the States” before issuing any regulations changing the treatment of intergovernmental transfers (“IGTs”). We received requests for further information about this requirement following the publication of that article, and the requirement gained additional attention following the Secretary’s February 27, 2026, request for information (“RFI”) seeking stakeholder feedback on various issues, including “What ways CMS can improve the prevention, identification, and resolution of fraud, waste, and abuse related to non-federal share financing sources, including intergovernmental transfers (IGT)?”[1],[2] Accordingly, this article provides an overview of the legal basis for the requirement that the Secretary consult with the States before issuing any regulations changing the treatment of IGTs.

I. The Secretary Is Obligated to “Consult with the States” Before Issuing “Any” Regulations Changing the Treatment of IGTs

In 1991, Congress passed Public Law 102-234, known as the Medicaid Voluntary Contribution and Provider-Specific Tax Amendments of 1991 (the “1991 Act”). The 1991 Act addresses a variety of matters relevant to the States’ funding of the non-federal share of their Medicaid expenditures, including, but not limited to, IGTs. The 1991 Act not only delineates the fiscal tools available to the States for their Medicaid funding, but it also sets the ground rules for the process by which CMS may administratively implement the 1991 Act’s provisions regarding those fiscal tools, including the process by which CMS may administratively change the treatment of IGTs. Specifically, section 5 of the 1991 Act states the following:

(a) IN GENERAL ‒ Subject to subsection (b), the Secretary of Health and Human Services shall issue such regulations (on an interim final or other basis) as may be necessary to implement this Act and the amendments made by this Act.

(b) REGULATIONS CHANGING TREATMENT OF INTERGOVERNMENTAL TRANSFERS ‒ The Secretary may not issue any interim final regulation that changes the treatment . . . of public funds as a source of State share of financial participation under title XIX of the Social Security Act, except as may be necessary to permit the Secretary to deny Federal financial participation for public funds described in section 1903(w)(6)(A) of such Act (as added by section 2(a) of this Act) that are derived from donations or taxes that would not otherwise be recognized as the non-Federal share under section 1903(w) of such Act.

(c) CONSULTATION WITH STATES ‒ The Secretary shall consult with the States before issuing any regulations under this Act.” (emphasis added)

Read together, sections 5(a) and 5(b) operate to authorize the Secretary of HHS to issue regulations, on an interim, final or some other basis, as may be necessary to implement the various matters addressed in the 1991 Act; except that the Secretary may not use interim final regulations to change the treatment of IGTs (unless an interim final rule is necessary to deny federal financial participation for IGTs that are derived from impermissible provider donations or impermissible health care-related taxes). Moreover, and most importantly for purposes of this memorandum, section 5(c) of the 1991 Act mandates that the Secretary “consult with the States” before issuing “any” regulations implementing the 1991 Act, including any regulations changing the treatment of IGTs.

II. The Scope and Nature of the Required Consultation with the States

Following Congress’s passage of the 1991 Act, the Secretary of HHS, through the Health Care Financing Administration (“HCFA,” which is now CMS), issued a November 24, 1992, interim final rule[3] (the “1992 Regulations”) implementing various aspects of the 1991 Act (but not changing the treatment of IGTs[4]). In the preamble to the interim final rule, HCFA acknowledged its obligation, per section 5(c) of the 1991 Act, to consult with the States before issuing any regulations under the 1991 Act. Moreover, HCFA identified the groups it consulted with in order to comply with section 5(c):

Section 5(c) of Public Law 102-234 required HCFA to consult with the States before issuing regulations to implement the legislation. We have met this requirement by conducting a series of meetings with representatives of the National Governors Association, the National Council of State Legislatures, the National Association of Counties, the National Association of State Budget Officers, and the American Public Welfare Association. During these meetings, HCFA received written and oral input from these groups concerning the issues involved in developing these rules. To the extent possible, their views and ideas have been accommodated in the rules.”[5] (emphasis added)

In sum, in order to satisfy its obligation to “consult with the States” regarding “any” regulations under the 1991 Act, HCFA had direct engagement with several bipartisan national organizations that were qualified to thoughtfully opine on matters affecting state interests and policies. Equally important, in order to comply with the consultation requirement, HCFA actually met with those organizations and received their oral and written input.

The 1992 Regulations were the first regulations issued under the 1991 Act, and, consequently, the 1992 Regulations were the first regulations subject to the “consult with the States” requirement of section 5(c) of the 1991 Act. The proximity in time between Congress’s passage of the 1991 Act (December 12, 1991) and HCFA’s issuance of the 1992 Regulations (November 24, 1992) supports the conclusion that HCFA’s outreach to the above-described national organizations is indicative of what Congress meant by “consult with the States” before issuing any regulations. Moreover, the Secretary of HHS must consult with the States before issuing any regulations changing the treatment of IGTs ‒ and the scope and nature of that consultation, akin to the scope and nature of the consultation undertaken by HCFA for the 1992 Regulations, must involve direct engagement (including meetings) with multiple bipartisan national organizations that are capable of thoughtfully informing the Secretary about how any contemplated IGT changes would impact the States and their Medicaid programs.

III. In 2007, CMS Claimed Its Obligation to “Consult with the States” No Longer Applied

A. The 1992 and 1993 Regulations Issued Under the 1991 Act

As noted above, the 1992 Regulations were the first regulations issued under the 1991 Act. The 1992 Regulations were issued as an interim final rule with a comment period. The 1992 Regulations established limitations on federal financial participation (“FFP”) in State Medicaid expenditures when States receive funds from provider-related donations and revenues generated by certain health care-related taxes. The 1992 Regulations also added provisions establishing limits on the aggregate amount of payments a State may make to disproportionate share hospitals for which FFP is available. As previously mentioned, the 1992 Regulations did not change the treatment of IGTs.[6] Among other things, this means the 1992 Regulations did not prohibit or otherwise limit IGTs from governmental health care providers (except for IGTs derived from impermissible health care-related taxes or impermissible provider-related donations).[7] 

The second set of regulations under the 1991 Act was issued on August 13, 1993 (the “1993 Regulations”).[8] The 1993 Regulations were issued as a final rule. According to HCFA, the 1993 Regulations merely revised the 1992 Regulations by clarifying HCFA’s policies concerning provider-related donations and health care-related taxes and revising provisions regarding disproportionate share hospital spending limitations.[9] As with the 1992 Regulations, the 1993 Regulations did not change the treatment of IGTs.

On May 29, 2007, CMS issued a final rule that would have made multiple programmatic changes to the Medicaid program affecting governmental health care providers, including, but not limited to, changes to the treatment of IGTs.[10] The rule was the first and only final rule issued since the passage of the 1991 Act, changing the treatment of IGTs.[11] However, the rule was vacated because it violated a congressional moratorium prohibiting CMS from issuing the rule.[12]

So, what is the relevance of the 1992 Regulations and 1993 Regulations regarding the May 29, 2007, final rule? In the preamble to the final rule, CMS claimed that the “consult with the States” requirement under section 5(c) of the 1991 Act no longer applied. CMS stated that the consultation requirement was fully satisfied, and therefore was no longer applicable, by virtue of the process undertaken by HCFA when the 1992 Regulations and the 1993 Regulations were issued:

“Section 5(c) of the Medicaid Voluntary Contribution and Provider-Specific Tax Amendments of 1991, Public Law 102-234, required the Secretary to ‘consult with the State before issuing any regulations under this Act.’ CMS interprets this provision as a check on the authorization to use interim final rulemaking procedures in section 5(a). We thus read the reference to ‘any regulations’ to refer to the regulations specifically authorized under section 5(a) to be issued ‘on an interim final or other basis’ to initially implement the Act. We do not read the condition as a permanent limitation on Secretarial rulemaking authority. We believe the condition was fully satisfied by the process the Secretary undertook when the regulations implementing that Act were issued in 1992 and 1993. Even if the condition were read to extend in perpetuity, however, we believe it has been met with respect to these regulations. Over the years, in the course of reviewing State plan amendments, CMS is in constant dialogue with States over issues relating to the financing of the Medicaid program. The general principles contained in this regulation have been explored with States over the years. Moreover, this Administration has announced its intentions with respect to this regulation in the President’s Budget, and we have undertaken full notice and comment rulemaking procedures. In this process, we have received and considered numerous comments from States and other interested parties.” (emphasis added)

As noted in In Defense of IGTs from Governmental Health Care Providers, this May 29, 2007, final rule was hurriedly issued by CMS in an unsuccessful attempt to avoid a congressional moratorium prohibiting CMS’s issuance of the rule. CMS’s decision not to consult with the States about the rule may have resulted from a realization by CMS that, if it was to have any chance of finalizing the rule before the looming onset of the moratorium, it must forego consulting with the States.[13] Given the circumstances, CMS’s claim that the consultation requirement no longer applied may have simply been a contrivance to excuse CMS’s violation of section 5(c) in regard to the rule.

B. CMS’s 2007 Interpretation of Section 5(c) Would Not Have Survived the Loper Bright Doctrine (or the Chevron Doctrine)

In Loper Bright Enterprises v. Raimondo,[14] a 2024 decision of the U.S. Supreme Court, the Court held that, when reviewing a federal agency’s interpretation of a statute, courts must use all relevant tools of statutory construction and exercise independent judgment to determine whether the agency’s interpretation of the statute was the single best interpretation of the statute.[15],[16] One of these tools of statutory construction requires courts to give words their plain and ordinary meaning.[17] The U.S. Supreme Court has repeatedly held that when Congress uses “any” in statutory language, it constitutes “expansive language” and “offers no indication whatever that Congress intended a limiting construction.”[18]

CMS’s 2007 claim that the section 5(c)’s consultation requirement no longer applied was premised on its interpretation of “any regulations” in section 5(c) as actually only meaning regulations to “initially” implement the 1991 Act. CMS’s interpretation would have failed judicial scrutiny under the Loper Bright doctrine.

Applying the Loper Bright framework, the text of section 5(c) is neither ambiguous nor limited in the manner CMS claimed: it states that the Secretary of HHS “shall consult with the States before issuing any regulations under this Act,” language that is categorical and unqualified. CMS’s claim that the consultation requirement of section 5(c) refers only to regulations issued “to initially implement” the 1991 Act would impermissibly transform a clear, permanent, ongoing procedural constraint (i.e., consultation with the States before issuing “any regulations” under the 1991 Act) into a two-time historical event (the 1992 Regulations and the 1993 Regulations), despite nothing in the statutory text (in either section 5(c) or section 5(a)) supporting that temporal limitation.

In conjunction with its interpretation that section 5(c) only pertains to regulations issued “to initially implement” the 1991 Act, CMS also interpreted section 5(c) as only applying to “interim final rulemaking procedures in section 5(a).” Recall that, pursuant to section 5(b), CMS is prohibited from using interim final regulations to change the treatment of IGTs. Therefore, if section 5(c)’s consultation requirement does not apply to rulemaking that is not interim final rulemaking (as claimed by CMS), and if regulations changing the treatment of IGTs may only be promulgated through rulemaking that is not interim final rulemaking (as required by section 5(b)), CMS’s interpretation of section 5(c) means that CMS would not be required to “consult with the States” before issuing regulations changing the treatment of IGTs (in fact, this may have been CMS’s goal all along).

As noted, under Loper Bright, courts must exercise independent judgment to determine whether an agency’s interpretation of a statute is the single best interpretation of the statute. Applying that rationale here, the plain text of section 5(c) forecloses CMS’s cramped interpretation: the provision states that the Secretary of HHS shall consult with the States before issuing “any regulations under this Act.” This is broad, absolute language that gives no indication whatsoever that it is limited to a subset of CMS administrative rulemaking. CMS’s attempt to recast section 5(c) as nothing more than a procedural check on the interim final rulemaking authority in section 5(a) is directly contradicted by section 5(a) itself, which expressly authorizes regulations issued “on an interim final or other basis” ‒ language that Congress plainly used to cover all forms of rulemaking under the 1991 Act, not just interim final rules. If Congress had intended section 5(c)’s consultation requirement to apply only to interim final rulemaking, it could easily have said so (for example, Congress in section 5(b) expressly carved out interim final regulations as a means to change the treatment of IGTs). Instead, Congress chose to impose the consultation obligation across “any regulations” under the 1991 Act, mirroring the same comprehensive scope as the rulemaking authority granted in section 5(a). For these reasons, the Loper Bright doctrine would not have sustained CMS’s interpretation that the consultation requirement of section 5(c) only applies to interim final rulemaking procedures.

In issuing its decision in Loper Bright, the Supreme Court overruled the Chevron doctrine, which had long governed how courts review an agency’s interpretation of the statutes it administers. Under Chevron, established in Chevron U.S.A., Inc. v. Natural Resources Defense Council,[19] courts applied a two-step framework when reviewing an agency’s statutory interpretation: at “Step One,” the court asked whether Congress had directly spoken to the precise question at issue, and if the statute was clear, that plain meaning controlled; at “Step Two,” if the court found the statute ambiguous or silent on the question, the court was required to defer to the agency’s interpretation so long as it was reasonable ‒ even if the court would have construed the statute differently on its own. The Chevron doctrine effectively transferred significant interpretive authority from the courts to federal agencies for the 40 years it was in effect. The Loper Bright decision reversed all that.

The Chevron doctrine was in effect in 2007 when CMS provided its interpretations of section 5(c) of the 1991 Act discussed above. It is reasonable to conclude that CMS’s interpretations would not have survived analysis under the Chevron doctrine. For the same reasons noted above, it is unlikely that the interpretations would have lasted through Chevron’s above-described “Step One” (because the language of section 5(c) is plain and clear). Even if CMS’s interpretations made it to Chevron’s “Step Two,” they would have failed due to their unreasonableness.

The Loper Bright Court emphasized that prior judicial decisions applying Chevron remain binding under principles of stare decisis.[20] Interestingly, the Court’s approach to prior decisions appears not to apply to prior administrative decisions (formal or otherwise) that relied on Chevron and were never reviewed and adjudged by courts.

C. CMS Did Not Claim That Section 5(c) Did Not Apply to Regulations Changing the Treatment of IGTs

It is important to note that CMS did not claim that the consultation requirement of section 5(c) did not apply to regulations changing the treatment of IGTs. To the contrary, as indicated in the above-cited excerpt from the preamble to the May 29, 2007, final rule, CMS stated that, in the event section 5(c) applied, it had satisfied the consultation requirement because of these activities:

(i) “Over the years, in the course of reviewing State plan amendments, CMS is in constant dialogue with States over issues relating to the financing of the Medicaid program;”

(ii) “The general principles contained in this regulation have been explored with States over the years;”

(iii) [T]his Administration has announced its intentions with respect to this regulation in the President’s Budget;” and

(iv) “[W]e have undertaken full notice and comment rulemaking procedures. In this process, we have received and considered numerous comments from States and other interested parties.”

If CMS believed section 5(c)’s consultation requirement did not apply to regulations changing the treatment of IGTs, it would have plainly said so. It would not have resorted to claiming that these various activities listed above constituted the requisite consultation with the States (an overview of why these activities do not constitute “consultation with the States” is provided later in this memorandum).

In this regard, it should be noted that Congress made its intention clear that any regulations changing the treatment of IGTs would require the Secretary of HHS to “consult with the States” beforehand. Section 5(c)’s consultation requirement applies to any regulations issued pursuant to section 5(a), and regulations changing the treatment of IGTs are regulations that may be issued pursuant to section 5(a). The fact that section 5(a) pertains to regulations changing the treatment of IGTs is evidenced by the fact that, by its own terms, section 5(a) is subject to section 5(b) (which prohibits the Secretary from using interim final regulations to change the treatment of IGTs). This unavoidably means that any regulations changing the treatment of IGTs (except interim final regulations) are authorized under section 5(a) and are, therefore, necessarily subject to the “consult with the States” requirement of section 5(c).

Furthermore, the legislative history of the 1991 Act confirms that the threat of regulations changing the treatment of IGTs was a primary reason for Congress’s passage of the 1991 Act. For example, a review of H.R. Rep. No. 102-310 (1991), which was reported by the House Committee on Energy and Commerce on November 12, 1991,[21] shows that the legislation (which, during the legislative process, was H.R. 3595) was a direct response to the HCFA’s proposed Medicaid financing rules published on September 12 and October 31, 1991. The rules affected “intergovernmental transfers,” “voluntary contributions” and “provider-specific taxes.” The report stated the Committee’s view that the September 12 rule “radically” altered the treatment of IGTs.[22] The report made a particular note of HCFA’s lack of information regarding the impact the September 12 and October 31 rules would have on States that rely on IGTs.[23] The report also referenced the two oversight hearings (September 30 and October 16, 1991) held by the Committee’s Subcommittee on Health and Environment that were prompted by HCFA’s September 12, 1991, rule (a review of the transcripts of the hearings confirms substantial concern by States about changes to the treatment of IGTs).[24]

As passed out of the House, the legislation prohibited the Secretary of HHS from issuing “any regulation” changing the treatment of IGTs. The prohibition was permanent and applied to all public funds used as a source of the non-federal share, regardless of whether the public entity contributing the funds was a health care provider:

“(b) MAINTAINING TREATMENT OF INTERGOVERNMENTAL TRANSFERS ‒ The Secretary shall not issue any regulation that changes the treatment (specified in section 433.45(a) of title 42, Code of Federal Regulations) of public funds as a source of State share of financial participation under title XIX of the Social Security Act, including the treatment of such funds as a source of State share of financial participation under such title regardless of whether the public agency contributing the funds provides services under the State plan under such title.”[25]

Arriving in the Senate from the House, the legislation was referred to the Senate’s Committee on Finance. The Committee stripped the bill and inserted new legislative text. Regarding IGTs, the Committee’s legislative text prohibited the Secretary of HHS from issuing, prior to April 1, 1992, any regulation changing the then-current treatment of IGTs.[26] However, during the full Senate’s consideration and vote to approve the legislation, the Committee’s legislative text (including the IGT-related text) was stripped from the bill, and new legislative text was inserted.[27] Regarding IGTs, the new legislative text only prohibited the Secretary from restricting the States’ use of certain specified types of IGTs,[28] thereby leaving other types of IGTs open to regulatory changes by the Secretary. However, the new text also included this provision requiring the Secretary to consult with the States when issuing regulations:

“The Secretary of Health and Human Services shall issue such regulations (on an interim final or other basis) as may be necessary to implement this Act and the amendments made by this Act. The Secretary of Health and Human Services shall consult with the States before issuing any regulations under this Act.”[29]

Following passage by the Senate, the legislation went to a conference committee of the House and Senate. The conferees reached an agreement on a final version of the legislation (i.e., the 1991 Act). Among other things, the conferees agreed to amend the Senate’s above-cited legislative text regarding the issuance of regulations by the Secretary of HHS. Specifically, they agreed to add legislative text prohibiting the Secretary from using interim final regulations to change the treatment of IGTs. In short, the conferees agreed to section 5(b) of the 1991 Act cited earlier in this memorandum. The conferees also agreed to sections 5(a) and 5(c) of the 1991 Act cited earlier in this memorandum.[30]

The House and Senate each passed the 1991 Act on November 17, 1991. President Bush signed the 1991 Act on December 12, 1991.

In sum, it is clear that Congress was significantly concerned about regulatory changes to the treatment of IGTs, and it is equally clear that this concern was a major reason for Congress’s passage of the 1991 Act. Given this background, CMS was plainly wrong in 2007 when it claimed, due to the process undertaken by HCFA for the 1992 Regulations and the 1993 Regulations ‒ neither of which addressed IGTs ‒ that section 5(c) was no longer applicable and, therefore, it was free to forgo consulting with the States concerning the changes to the treatment of IGTs set forth in its May 29, 2007 final rule.

D. Soliciting and Receiving Public Comments and Similar Activities Do Not Satisfy the Requirement to “Consult with the States”

As indicated above, CMS, in an apparent attempt to hedge its bet in the event the consultation requirement of section 5(c) remains in effect, claimed that it nevertheless satisfied the consultation requirement in regard to the May 29, 2027, final rule. CMS stated that it satisfied the “consult with the States” requirement by, among other activities, engaging in “full notice and comment rulemaking procedures” when promulgating the final rule.

As a threshold matter, CMS’s position that soliciting and receiving public comments is equivalent to consultation with the States would render section 5(a) and section 5(c) redundant. Needless to say, as a fundamental principle of statutory construction, federal courts avoid interpretations rendering statutory provisions redundant or meaningless.[31] If soliciting and receiving public comments (assuming the States submit comments) means the same as “consult with the States,” there was no reason for Congress to use distinct language in section 5(a) and section 5(c).

Moreover, federal courts consistently recognize that statutory consultation requirements impose obligations beyond the solicitation and receipt of public comments. For example, in Cal. Wilderness Coal. v. U.S. Dep’t of Energy,[32] the Ninth Circuit Court of Appeals held that the Department of Energy’s solicitation and receipt of public comments from States was insufficient to satisfy a statutory requirement that the Department conduct a study (concerning electric transmission congestion) “in consultation with the affected States.” The court found that the requirement for “consultation” with the affected States “clearly means” that the Department should have “greater interaction” with the States than it need have when providing an opportunity for comment from the States.[33] The court reasoned that to “consult” means “to have discussions or confer with (someone), typically before undertaking a course of action,” and that “[c]onsultation requires an exchange of information and opinions before the agency makes a decision.”[34] For these reasons, the court concluded that the Department’s opportunity for public comments fell far short of this standard.

The California Wilderness Coalition decision cites another case that draws a sharp distinction between the statutory requirement to “consult” and the solicitation and receipt of public comments, U.S. Steel Corp. v. United States.[35] In that case, U.S. Steel challenged the Department of Commerce’s decision to suspend an investigation into Brazilian steel exporters in exchange for Brazil entering into an agreement with certain limits on its steel exports to the United States. In countering the Department’s arguments, the court stated that it was not enough for the Department to solicit and receive comments from the domestic producers before entering into the agreement (the applicable statutory provisions required the Department to solicit such comments), because the Department was also required (pursuant to other statutory provisions) to engage in consultations with the domestic producers. The court stated as follows:

“Throughout this action, the Government has persisted in conflating Commerce’s notice-and-comment obligations with its consultation obligations. And, to some extent, the Government has also conflated its consultation obligations under one part of the statute with its consultation obligations under another part. However, the statute is clear: Commerce’s consultation obligations are separate and distinct from (albeit related to) its notice-and-comment obligations.”[36]

What types of efforts constitute appropriate “consultation”? Again, the court in California Wilderness Coalition cites an informative case. In Environmental Defense Center v. EPA,[37] various groups brought petitions for review of an Environmental Protection Agency rule mandating that discharges from small municipal storm sewers and construction sites be subject to certain permitting requirements. Among other issues addressed, the Ninth Circuit Court of Appeals held that the EPA satisfied a statutory requirement mandating the EPA to consult with state and local officials about the subject rule. In doing so, the court noted with approval these efforts by the EPA:

“We conclude that the overall record indicates EPA met its statutory duty of consultation. A draft of the first report was circulated to States, EPA regional offices, the Association of State and Interstate Water Pollution Control Administrators (“ASIWPCA”), and other stakeholders in November 1993, and was revised based on comments received. EPA established the Urban Wet Weather Flows Federal Advisory Committee (“FACA Committee”), balancing membership between EPA’s various outside stakeholder interests, including representatives from States, municipalities, Tribes, commercial and industrial sectors, agriculture, and environmental and public interest groups. 64 Fed. Reg. 68,724. The 32 members of the Phase II FACA Subcommittee, reflecting the same balance of interests, met fourteen times over three years, and state and municipal representatives provided substantial input regarding the draft reports, the ultimate Phase II Rule, and the supporting data. EPA instituted the Phase II Subcommittee meetings in addition to the standard APA notice and comment procedures, which EPA also followed.”[38]

In claiming that the notice and comment procedures it utilized with regard to the May 29, 2007, final rule satisfied section 5(c)’s consultation requirement, CMS failed to explain how its receipt of comments constituted “consultation.”[39] Based on the analyses set forth in the above-cited court decisions, there is no reasonable basis for concluding that CMS’s receipt of public comments (even assuming that at least some States submitted comments) is the equivalent of consulting with the States.

Essentially, each of the above-cited court decisions applies the terms “consult” and “consultation” as requiring the subject federal agency to affirmatively facilitate substantial input from the parties the agency is required to confer with. In these decisions, “consult” and “consultation” necessarily mean an interactive process between the subject federal agency and the parties with which the agency is required to confer. Given how the terms “consult” and “consultation” are applied in these decisions, the other above-listed activities claimed by CMS to satisfy the “consult with the States” requirement are clearly insufficient. For example:

(i) The Administration announcing “its intentions with respect to this regulation in the President’s Budget” is obviously not the same as an interactive process between CMS and the States regarding the changes to the treatment of IGTs and the other changes that would have been imposed by the May 29, 2007, final rule.

(ii) Exploring with States “over the years” the “general principles” contained in the May 29, 2007, final rule falls far short of affirmatively engaging with the States to afford them an opportunity to provide substantial input regarding the specific changes to the treatment of IGTs and the other changes that would have been imposed by the final rule.

(iii) When “reviewing State plan amendments,” having “constant dialogue with States over issues relating to the financing of the Medicaid program,” certainly does not mean that CMS and the States had “dialogue” about the specific changes to the treatment of IGTs and the other changes that would have been imposed by the final rule. CMS performs reviews of State plan amendments to make sure the amendments comply with then-existing law. The final rule’s changes to the treatment of IGTs and the rule’s other changes would not have been part of the existing law when those previous State plan amendments were submitted and reviewed. Consequently, the “dialogue” occurring between CMS and States (which would have been only those States that submitted a State plan amendment bearing upon Medicaid financing mechanisms) would not have involved exchanges of information and opinions of a scope and nature sufficient to qualify as “consultation” with “the States” concerning the changes to the treatment of IGTs and the other changes that would have been imposed by the final rule.

One final point. As noted at the beginning of this article, the Secretary of HHS recently published an RFI seeking stakeholder feedback on various issues, including ways CMS can improve the prevention, identification and resolution of fraud, waste and abuse related to non-federal share financing sources, including IGTs. For the reasons noted above, it is clear that the RFI, and any responses to the RFI submitted by States, will not be sufficient for CMS to satisfy the consultation requirement of section 5(c) of the 1991 Act in the event CMS attempts to issue any regulation changing the treatment of IGTs.

 IV. Practical Takeaways

As noted in the previous article, In Defense of IGTs from Governmental Health Care Providers, some of the same groups that lobbied for the Medicaid provider tax restrictions in last year’s H.R. 1 are now turning their attention to IGTs. The RFI recently issued by the Secretary of HHS regarding IGTs appears to presuppose heightened concern regarding fraud, waste and abuse associated with IGTs. If these developments presage CMS regulations changing the treatment of IGTs, States and stakeholder health care providers should know that, as shown above, the Secretary is required to consult with the States before issuing any regulations changing the treatment of IGTs (in fact, section 5(c) of the 1991 Act requires, and has required since 1991, the Secretary to consult with the States before issuing any regulations under the 1991 Act).

If you have any questions or would like additional information on these topics, please contact:

• Tim Kennedy at (317) 977-1436 or tkennedy@hallrender.com;
• Camilla Moreno Jimenez at (317) 429-3679 or cjimenez@hallrender.com; or
• Your primary Hall Render contact.

Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.