Letter from Deputy Administrator Herb B. Kuhn to Mr. Alan Levine (Louisiana) announcing the availability of an additional $19.1 million in grant funds to be divided between two of the States impacted by Hurricane Katrina.

Enclosure B

DEFICIT REDUCTION ACT HURRICANE KATRINA HEALTHCARE RELATED PROVIDER STABILIZATION GRANT

Under the current schedule, post-Katrina wage rates will be reflected in Medicare payment methodologies beginning in October 2009. Because of this requirement, this grant program is to fund State payments to those general acute care and inpatient psychiatric facilities (IPFs) that been most significantly, negatively affected by continuous financial pressures, as determined by the State because of local changing wage rates. These hospitals and IPFs must be located in impacted communities.

Funding under this grant program must be used by the State to make payments to Medicare participating general acute care hospitals and IPFs that are currently paid under a Medicare PPS in the impacted communities. Impacted communities are those counties/parishes (or any subset thereof) located in the States of Louisiana and Mississippi that the Federal Emergency Management Agency (FEMA) has continued to designate to receive Individual and Public Assistance as authorized by Section 408 of the Robert T. Stafford Act.

Different than the two previous rounds of the PSG, the State has full discretion to determine what are its most significant, negatively impacted hospitals and/or its most significantly, negatively impacted communities from among those designated by FEMA (see above), Based on the presenting needs, the State may target all or part of its allotment to make awards to general acute care hospitals and IPFs to meet those needs.

The State may develop its own payment methodology to make payments during a specified time period. The State may develop its own provider selection methodology, including discretion to limit payments to a much smaller number of Medicare participating providers, and to a much smaller number of counties/parishes. The State’s method is subject to CMS approval. As required in the two previous PSGs, grant funds may not be distributed to general acute care hospitals and IPFs that are not in operation. Upon request, CMS will make available to each State the list of Medicare-participating PPS general acute care hospitals and IPFs in the State, and the 2006 Medicare payments, that the Secretary used in allocating the available funds to each State.

States’ payment methodologies should specify the relevant time periods, financial criteria, and all other factors that it will consider to determine those hospitals and IPFs to which it will distribute available grant funds, according to the principles specified above, and are subject to approval by CMS. All payments must be made under this grant program by the end of federal fiscal year 2009.

Additionally, in recognition that there may yet be an immediate unmet healthcare infrastructure need that objective data indicate was caused as a direct result of Hurricane Katrina and/or its subsequent flooding, and that would require only a very small amount of funds to bring about its complete resolution, then if the state so chooses, it may also propose to CMS for approval to use a portion of the funds (not to exceed 20% of its allotment) to address such need. As part of its additional proposal, the State must justify how the benefit to be achieved by diverting PSG funds for this additional purpose would outweigh the need experienced for fully paying its allotment to its IPPS hospitals and IPFs. The State is responsible to ensure that no hospital or IPF on the Office of the Inspector General’s (OIG) exclusion list receives Federal grant funds.

Any mechanism for distributing the available grant funds must recognize that only Medicare providers that are currently in operation are eligible for funds and the funds are intended to help relieve the financial pressures facilities face in hiring and retaining health care workers. The State’s methodology, calculations, and proposed distribution of funding must be submitted with the grant application for approval by CMS.

Payments to general acute care hospitals and IPFs under this program are not to be considered payments for Medicare, Medicaid or other specific services, and are not available as the non-Federal share of expenditures or for supplemental disproportionate share hospital payments. Payments cannot be made conditional on the provision of any particular items or services by the facilities. Grant applications requesting funds to be used for the non-Federal share of Medicaid or other federal grant expenditures or for supplemental Medicaid disproportionate share hospital payments will not be considered.

The grant application will be evaluated on its anticipated effectiveness in addressing the grant purposes and the proposed grant program should be designed to maximize the intended distributions and minimize administrative costs. The grant application will require a statement describing as measurably as possible, what already has been accomplished by each State’s disbursement of its share of the prior $181.7 M dollars PSG award.

Grant determinations are not subject to appeal. Grant reporting will be made in accordance with instructions provided by CMS, and funding will be available on an advance basis through an account for each State established under the Department’s Payment Management System, and through which each State will be authorized to “draw down” funds.

Furthermore, payments under this grant will be conditioned on the submission of an annual report by the State. The required annual report must include information on the following: (1) a description of how all of the PSG funds awarded to the State are being used to restore access to healthcare; (2) a description of the specific impacted communities; (3)a listing of the specific impacted providers receiving grant funding; and (4) a listing of the prevailing wage rates pre-Katrina and at the time of the PSG award. Details will be outlined in the terms and conditions, including reporting on PSG funds used to meet any other unmet health infrastructure needs. Financial information will also be required including the distribution of grant funds by provider types.