The Texas Department of Health (department) adopts the repeal of existing §101.5, and adopts new §101.5 concerning the reporting of nicotine content of cigarettes. Section 101.5 is adopted without changes to the proposed text as published in the October 8, 1999, issue of the Texas Register (24 TexReg 8705) and therefore the sections will not be republished.

The new section, §101.5 substantially rewrote the repealed section, §101.5. This change was in response to a petition for rulemaking submitted to the department by Brown & Williamson Tobacco Corporation, Lorillard Tobacco Company, Phillip Morris Incorporated, and R.J. Reynolds Tobacco Company through their attorneys, Covington and Burling. The change will more effectively implement Health and Safety Code Chapter 161, Subchapter P. The new section will allow the tobacco companies to provide information to the department less expensively by using a mathematical model to determine the nicotine yield of their products, with no diminution in the accuracy of the information. The information on nicotine yield will allow increased access by the public to information about cigarettes, which will make their decision to use cigarettes better informed.

The new section details the methods used to obtain the information on nicotine yield to be submitted to the department to comply with Health and Safety Code Chapter 161, Subchapter P.

The following comment was received concerning the proposed section. Following the comment is the department's response.

Comment: Concerning new §101.5, the department received one comment. The comment was generally favorable, but noted that the due date for reporting nicotine yield contained in another section of Chapter 101 occured before this new rule could be made final. They requested that the due date for reporting under these rules be delayed until February 1, 2000.

Response: The department agrees with the concerns. Although the due date cannot be changed because this was not part of the proposed new rule, the department agrees that it will pursue no action against any company until the effective date of this rule. Because this rule will be approved by the Board of Health on January 14, 2000, and becomes effective 20 days after submission to the Texas Register, the effective date of these rules can be no sooner than February 3, 2000.

The commenter was Brown & Williamson Tobacco Corporation, Lorillard Tobacco Company, Phillip Morris Incorporated, and R.J. Reynolds Tobacco Company through their attorneys, Covington and Burling.

25 TAC §101.5

The repeal is adopted under Texas Health and Safety Code Chapter 161, §161.353 which requires the Texas Board of Health to adopt standards on the nicotine yield rating of cigarettes and tobacco products, and §12.001 which provides the Texas Board of Health with the authority to adopt rules for the performance of every duty imposed by law on the board, the department, and the commissioner of health. .

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 14, 2000.

TRD-200000272

Susan K. Steeg

General Counsel

Texas Department of Health

Effective date: February 3, 2000

Proposal publication date: October 8, 1999

For further information, please call: (512) 458-7236

The new section is adopted under Texas Health and Safety Code Chapter 161, §161.353 which requires the Texas Board of Health to adopt standards on the nicotine yield rating of cigarettes and tobacco products, and §12.001 which provides the Texas Board of Health with the authority to adopt rules for the performance of every duty imposed by law on the board, the department, and the commissioner of health.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 14, 2000.

TRD-200000273

Susan K. Steeg

General Counsel

Texas Department of Health

Effective date: February 3, 2000

Proposal publication date: October 8, 1999

For further information, please call: (512) 458-7236

Chapter 102. DISTRIBUTION OF TOBACCO SETTLEMENT PROCEEDS TO POLITICAL SUBDIVISIONS

25 TAC §§102.1 - 102.5

The Texas Department of Health (department) adopts new §§102.1 - 102.5 relating to the distribution of tobacco settlement proceeds to political subdivisions. Sections 102.3 and 102.5 are adopted with changes to the proposed text as published in the December 3, 1999, issue of the Texas Register (24 TexReg 10721). Sections 102.1 - 102.2 and 102.4 are adopted without changes and therefore will not be republished.

The sections are adopted to implement a part of Acts 1999, 76th Legislature, Chapter 753, Article 2 (House Bill (HB) 1161), which designates the department's responsibilities under the Agreement Regarding Disposition of Tobacco Settlement Proceeds (agreement) filed on July 24, 1998, in United States District Court, Eastern District of Texas, in the case styled The State of Texas v. The American Tobacco Co., et al., No. 5-96CV-91. The department will collect information and certify amounts of the tobacco settlement proceeds for annual distribution to political subdivisions. The term "political subdivision" means a hospital district, another local political subdivision owning or maintaining a public hospital, or a county of the State of Texas responsible for providing indigent health care to the general public. The Texas Health and Safety Code, Chapter 61 defines which entities are responsible for providing indigent health care to the general public.

The sections accomplish the following: state the purpose of the legislation and define terms, provide the distribution schedule and amounts, describe the annual claims process, describe regular audits, and describe the dispute process.

Based on staff comments and consideration by the Tobacco Settlement Permanent Trust Account Administration Advisory Committee concerning certain sections of the rules, the department is making the following minor changes to clarify the intent and improve the accuracy of these sections.

Change: Concerning §102.3(a), clarification is needed regarding the term "unreimbursed expenditures." Therefore, the following sentence was added to §102.3(a): The term "unreimbursed expenditures" does not include contractual allowances or discounts for health care services required under a third party payor agreement.

Change: Concerning §102.3(b)(1)(J), counties may not count unreimbursed expenditures for first responder services, since these are not within the scope of services that hospital districts are authorized by law to provide. Therefore, §102.3(b)(1)(J) has been deleted and the subsequent subparagraphs were relettered. The purchase of automated external defibrillators (AEDs), used in emergency medical services and also in first responder services, is a countable expenditure.

Change: Concerning §102.3(b)(1)(M), now relettered as §102.3(b)(1)(L), clarification was needed regarding medical supplies or equipment that could be claimed for reimbursement by a political subdivision. Therefore, the phrase "used for the provision of health care services to the general public" was added to the end of §102.3(b)(1)(M).

Change: Concerning §102.3(b)(2)(C), clarification is needed to indicate that counties not wholly within a hospital district may not count amounts not actually expended for health care services from a trust or reserve account. Therefore, the clause "but not actually expended for such services" has been added to the end of this provision.

Change: Concerning §102.3(b)(2)(I), since unreimbursed expenditures for first responder services may not be claimed for reimbursement by a political subdivision, the phrase "not provided under medical direction" is not needed. Therefore, this phrase has been deleted.

Change: Concerning §102.3(e)(1), clarification is needed regarding political subdivisions that have sold or leased a public health care facility, as indicated in bold type below:

"When a political subdivision has sold or leased its public health care facility(s) and accepted an agreement from the new owner or lessee of the facility(s) to provide indigent health care services, the political subdivision is receiving contracted services in lieu of cash as consideration for the sale or lease of the facility(s)."

Change: Concerning proposed §102.3(e)(1)(B), the agreement does not allow political subdivisions that have sold or leased a health care facility to claim the unreimbursed expenditures provided by the new owner or lessee under the sale or lease agreement for individuals who are not residents of the political subdivision. Therefore, §102.3(e)(1)(B) has been deleted.

Change: Concerning §102.3(e)(2), the words "received by a hospital district" were added since tax collections cannot be counted by other political subdivisions under the tobacco settlement agreement.

Change: Concerning §102.5(f), clarification was needed on the monetary penalty the department may impose on a political subdivision for which an audit indicates an overstatement. Therefore, the previous wording, "may be in the amount of ten%," was changed to "may not exceed ten%."

The following public comments were received concerning the proposed rules. Following each comment is the department's response and any resulting changes.

Comment: Concerning §102.1(b), one commenter asked that "hospital authority" be included as a category entitled to receive tobacco settlement proceeds.

Response: The department disagrees. Hospital authorities are not addressed in the agreement. To include a new category under the term "political subdivision" would require a modification of the tobacco settlement agreement, necessitating a reconvening of the parties to the lawsuit and a return to federal court. The department has no authority to expand the coverage of the agreement. No change was made as a result of this comment.

Comment: Concerning §102.3(e)(2), a political subdivision should be allowed to count expenditures of the interest or investment proceeds from profits or payments received through its sale of lease of a health care facility.

Response: The department agrees. Therefore, the clause "including the interest or investment proceeds from such profits or payments" has been added to the end of §102.3(e)(2).

Comment: Concerning §102.5(f), the department should not impose a monetary penalty against a political subdivision that submits an incorrect expenditure statement if the political subdivision made a good faith effort to comply with the applicable requirements.

Response: The department agrees. Additional language has been inserted in §102.(f) stating that a monetary penalty may be imposed if the political subdivision failed to exercise reasonable diligence to comply with the applicable requirements.

Comment: Concerning §102.5(g), if the department elects to impose a monetary penalty on a political subdivision, the hearings officer should issue findings of fact and conclusions of law about whether the political subdivision made a good faith effort to comply with the applicable requirements.

Response: The department agrees. Additional language has been inserted in §102.5(g) requiring the hearings officer to issue findings of fact and conclusions of law before imposing a monetary penalty.

The comments on the proposed rules received by the department during the comment period were submitted by Uvalde Memorial Hospital, the American Heart Association, and Amarillo Hospital District. The commenters were generally neither for nor against the rules in their entirety. However, they raised questions and suggested clarifying language concerning specific provisions in the rules, as discussed in the summary of comments.

The Tobacco Settlement Permanent Trust Account Administration Advisory Committee (committee), created by HB 1161, collaborated with the department in the development of these rules. The final rules were approved by the committee on January 7, 2000, as required by the Health and Safety Code, §12.138.

The new sections are adopted under the Health and Safety Code, Chapter 12, Subchapter J, which provides the Texas Board of Health (board) with the authority to adopt rules concerning the tobacco settlement proceeds; HB 1161, §2.04, which provides the board with the authority to adopt rules relating to the tobacco settlement proceeds in the lump sum trust account; and Health and Safety Code §12.001, which provides the board with authority to adopt rules for the performance of every duty imposed by law on the board, the department, and the commissioner of health.

§102.3.Annual Claims.

(a)

General. Beginning in calendar year 2000, a political subdivision may claim a pro rata share of the annual distribution based on its "unreimbursed health care expenditures" in the previous calendar year. These expenditures are defined in the agreement as "those actual expenditures made by a Political Subdivision which are directly attributable to the provision of health care services to the general public, either directly or by contract or agreement with a third party provider, and for which no reimbursement is made by or expected from any third party source or fund. (Lump Sum Trust Account or Permanent Trust Account payments shall not count as reimbursement.)" The term "unreimbursed expenditures" does not include contractual allowances or discounts for health care services required under a third party payor agreement.

(b)

Counties not wholly within a hospital district. For a county not wholly within a hospital district, the agreement further states that unreimbursed expenditures are to be calculated as "all unreimbursed amounts, including unreimbursed jail health care, expended by such county for health care services to the general public during that year, plus 15% of that total."

(1)

The following are examples for which expenditures, if unreimbursed, may be counted:

(A)

services within the scope of services that hospital districts are authorized by law to provide. These will typically be diagnostic and treatment services for individuals;

(B)

health care screening, laboratory, and health care case management services;

(C)

oral health care services;

(D)

expenditures made from funds in a trust or reserve account for the provision of health care services;

(E)

health care outreach and prevention efforts, including but not limited to media campaigns, education, counseling, and production and distribution of promotional literature. Typical target areas for these efforts include teenage smoking, child safety, and health hazards affecting the general public;

(F)

medical transportation, including transportation to and from medical appointments;

(G)

behavioral health care services;

(H)

capital expenditures for direct health care services, such as construction of ambulance facilities or clinics;

(I)

overhead costs for a health care facility;

(J)

employee salary and benefits to the extent the employee is engaged in patient health care or other health care services such as the activities described in subparagraph (E) of this paragraph;

(K)

emergency medical services; and

(L)

medical supplies or equipment used for the provision of health care services to the general public.

(2)

The following are examples for which expenditures may not be counted:

(A)

general administrative or overhead costs of the county not directly related to the provision of health care services such as costs of the county auditor, the county attorney or county commissioner meetings. These general administrative costs are considered to be included within the 15% added to the unreimbursed expenditures;

(B)

administrative supplies such as computer paper;

(C)

amounts deposited in a trust or reserve account for the provision of health care services but not actually expended for such services;

(D)

environmental services such as mosquito control, water testing, and septic tank inspection;

(E)

rental assistance for mental health patients;

(F)

the amount of a tax abatement given in exchange for an agreement to provide health care services;

(G)

regulatory activities such as restaurant inspection;

(H)

911 services;

(I)

first responder services; and

(J)

services to the extent to which the county has received reimbursement or funds through federal or state programs including, but not limited to, county indigent health care, tertiary medical care, emergency medical services grants, permanent fund for children and public health grants, public health block grants, Title XVIII of the Social Security Act (Medicare), Title XIX of the Social Security Act (Medicaid), or crime victims compensation fund.

(3)

If the county expects to receive reimbursement or funds through federal or state programs, such as those listed in paragraph (2)(J) of this subsection, but has not received reimbursement or funds at the time the county files its annual expenditure statement with the department:

(A)

the county may include those expenditures which qualify as unreimbursed expenditures under this subsection in its annual expenditure statement filed with the department; and

(B)

once the county receives reimbursement or funds for the expenditures or any portion of the expenditures described in subparagraph (A) of this paragraph, the county shall subtract the amount of the reimbursement or funds from the amount of unreimbursed expenditures claimable on its next expenditure statement filed with the department.

(c)

Hospital districts. For a hospital district, the agreement further states that unreimbursed expenditures are to be calculated as "the total amount of taxes collected by the hospital district, together with the unreimbursed amounts expended by a county coterminous with such hospital district for jail health care."

(1)

The expenditures are the amount of taxes collected in the year for which the annual expenditure statement is filed, not the amount of taxes assessed. A hospital district may count taxes that are owed from previous years if those taxes are collected in the year for which the annual expenditure statement is filed.

(2)

A hospital district is entitled to claim the amount of its tax collections as unreimbursed expenditures, even if it does not own or operate a hospital.

(d)

Non-hospital district public hospitals. For a non-hospital district public hospital owned by a political subdivision, the agreement further states that unreimbursed expenditures are to be calculated as "the total unreimbursed amount of political subdivision funds paid to such public hospital by any political subdivision during that year."

(1)

A payment for unreimbursed expenditures of a non-hospital district public hospital shall be made to the political subdivision(s) which owns the hospital, not to the hospital itself.

(2)

A county eligible for a pro rata share of the annual distribution under both subsection (b) and this subsection shall file an expenditure statement for each. Such a county may receive a single warrant from the comptroller.

(3)

If a county or city handles the financial transactions of its public hospital, rather than the public hospital handling those transactions directly, the county or city may count the unreimbursed expenditures it makes on behalf of the public hospital as funds paid to that hospital.

(e)

Political subdivisions that have sold or leased a public health care facility.

(1)

When a political subdivision has sold or leased its public health care facility(s) and accepted an agreement from the new owner or lessee of the facility(s) to provide indigent health care services, the political subdivision is receiving contracted services in lieu of cash as consideration for the sale or lease of the facility(s). In submitting its expenditure statement for the distribution, the political subdivision may claim the value of the health care services for indigent residents of the political subdivision performed by the purchaser or lessee of the facility as if they had been reimbursed using either the Medicaid Diagnosis Related Group (DRG) for the individual patients or the Medicaid interim rate for the facility.

(2)

When a political subdivision has sold or leased its public health care facility(s) and accepted profits or payments in consideration of the sale or lease, additional non-tax operating funds may result from the profits or payments attributable to the sale or lease. These profits or payments may be used to fund ongoing operations, indigent care obligations, or other statutorily authorized expenditures not otherwise funded by taxes. The profits or payments from the sale or lease that are expended on operations, indigent care, or other statutorily authorized expenditures in any given calendar year are countable, in addition to tax collections received by a hospital district, as unreimbursed expenditures under the agreement. As a result, the expenditures claimable by a political subdivision are increased by the amount of non-tax funding the political subdivision has spent from its accounts containing the profits or payments attributable to the sale or lease of the political subdivision's public health care facility(s), including the interest or investment proceeds from such profits or payments.

(f)

Procedures.

(1)

A political subdivision must deliver an annual expenditure statement to the department by March 31 of each year, documenting its eligible expenditures for the preceding calendar year. A political subdivision may deliver a copy of the statement by fax or electronic mail with the original mailed and postmarked by March 31.

(2)

If a statement is not delivered to the department by March 31, the political subdivision shall not receive a pro rata share of the annual distribution.

(3)

The department will designate the required format for the documentation. There will be a separate format for hospital districts, counties not wholly in a hospital district, and public hospitals not in a hospital district.

(4)

To calculate the percentage of the annual distribution to be paid to each political subdivision, the department will combine the eligible expenditures from all statements received, thus obtaining a statewide total. The department will then divide the statewide total into the amount in the expenditure statement submitted by each political subdivision.

(5)

By April 15 of each year, the department will certify to the comptroller the percentage of the annual distribution to be paid to each eligible political subdivision, based on the expenditure statements.

§102.5.Disputes.

(a)

A political subdivision or agency of this state may dispute information submitted by another political subdivision. A dispute shall be initiated by filing written notice with the department of the issue(s) disputed.

(b)

A dispute may concern a political subdivision's calculation of unreimbursed expenditures, not whether a political subdivision is entitled to a share of the annual distribution.

(c)

A dispute must be filed by December 31 of the year in which the disputed information was submitted.

(d)

An audit of the political subdivision that submitted the disputed information may be performed.

(1)

The audit shall be initiated by the department or the comptroller. The department or the comptroller shall choose the auditor which may be the department, the comptroller, an outside auditor, or another state agency.

(2)

The political subdivision shall fully cooperate in the audit. The audit may include a review of any audit of the political subdivision.

(e)

The filing of a dispute will not affect the percentage of the annual distribution to be paid to the political subdivision for the year for which the information that is the subject of the dispute was submitted.

(f)

A political subdivision for which an audit indicates an overstatement may request in writing a hearing on the matter within 20 days of receiving written notice from the department of the audit findings. The notice shall state whether a monetary penalty is proposed. A monetary penalty may not exceed ten% of the overstated unreimbursed health care costs. A monetary penalty may be imposed if the political subdivision failed to exercise reasonable diligence to comply with the requirements of these rules.

(g)

If a hearing is requested, the hearing shall be a contested case under the Administrative Procedure Act, Government Code, Chapter 2001, and the department's formal hearing rules in Chapter 1 of this title (relating to the Texas Board of Health). If the department elects to impose a monetary penalty, the hearings officer shall consider from the parties evidence regarding, and issue findings of fact and conclusions of law about, whether the political subdivision failed to exercise reasonable diligence to comply with the requirements of these rules.

(h)

If a political subdivision fails to timely request a hearing or to appear at a scheduled hearing, the findings of the audit and any penalty amount shall be considered final and reported to the comptroller.

(i)

If after a hearing the department's hearing examiner, on behalf of the Board of Health, finds an overstatement, the findings shall be considered final and reported to the comptroller.

(j)

The costs of the audit shall be paid by the party to the dispute (the entity which originally invoked the dispute process or the political subdivision on which the audit was performed) which does not prevail in the dispute.

(k)

After a final decision following an audit and the opportunity for a hearing, if a political subdivision has overstated unreimbursed health care expenditures in the information submitted for any year, the department shall report that fact to the comptroller and shall reduce that political subdivision's percentage of the subsequent annual distribution appropriately.

(l)

If a monetary penalty is applied, the department shall also reduce the political subdivision's percentage of the subsequent annual distribution appropriately.

(m)

If a political subdivision is assessed the cost of an audit, the department shall report the amount assessed to the comptroller, and the comptroller may withhold that amount from the political subdivision's subsequent annual distribution. The comptroller may use the amount withheld to reimburse the general revenue fund for the cost of the audit.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 14, 2000.

TRD-200000266

Susan K. Steeg

General Counsel

Texas Department of Health

Effective date: February 3, 2000

Proposal publication date: December 3, 1999

For further information, please call: (512) 458-7236

Chapter 217. MILK AND DAIRY

The Texas Department of Health (department) adopts the repeal of existing §§217.1 - 217.7, 217.21 - 217.25, 217.31 - 217.34, 217.41 - 217.56, 217.61 - 217.76, and 217.81 - 217.82, and adopts new §§217.1 - 217.3, 217.21 - 217.33, 217.61 - 217.71, 217.81 - 217.85, and 217.91 - 217.93 concerning the regulation of milk and dairy products. Sections 217.1, 217.65, and 217.82 are adopted with changes to the proposed text as published in the November 5, 1999, issue of the Texas Register (24 TexReg 9749). The repeal of §§217.1 - 217.7, 217.21 - 217.25, 217.31 - 217.34, 217.41 - 217.56, 217.61 - 217.76, and 217.81 - 217.82, and new §§217.2 - 217.3, 217.21 - 217.33, 217.61 - 217.64, 217.66 - 217.71, 217.81, 217.83 - 217.85, and 217.91 - 217.93 are adopted without changes, and therefore the sections will not be republished.

The new sections cover grade specifications and requirements for milk, Grade A raw for retail milk and milk products, requirements for the production and sale of frozen desserts, bulk milk hauling regulations, and fees. Some former sections were found to be redundant, others were preempted by changes in federal regulations, and some definitions and references to other laws and rules were no longer accurate. The new sections correct these deficiencies and arrange the sections in a logical order. No new regulations are imposed upon the regulated industry.

Pursuant to the Government Code, §2001.039, each state agency is required to review and consider for readoption each rule adopted by that agency. Existing §§217.1 - 217.7, 217.21 - 217.25, 217.31 - 217.34, 217.41 - 217.56, 217.61 - 217.76, and 217.81 - 217.82 have been reviewed and the department has determined that reasons for adopting the sections continue to exist. However, numerous changes were needed and were presented in the proposed rules.

No comments were received concerning the proposed sections during the public comment period.

The department is making the following changes as corrections to the proposed text as printed in the Texas Register .

Change: Concerning adopted §217.1(85), the word "ans" was spelled incorrectly and changed to "and".

Change: Concerning §217.65(f)(1), the word "and" was added.

Change: Concerning Subchapter D, the title was changed from "Bulk Miler Haulers" to "Bulk Milk Regulations".

Change: Concerning adopted §217.82, the words "milk holding tanks" in the section title were capitalized to be consistent with the other sections.

Subchapter A. GRADE SPECIFICATIONS AND REQUIREMENTS FOR MILK

25 TAC §§217.1-217.7

The repeals are adopted under the Health and Safety Code, §§435.001 - 435.009 and §§440.001 - 440.032, which provide the department with the authority to adopt rules for the regulation of milk, dairy products and frozen desserts; and §12.001, which provides the Texas Board of Health (board) with the authority to adopt rules for the performance of every duty imposed by law on the board, the department, and the commissioner of health.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 14, 2000.

TRD-200000284