---
kind: "section"
citation: "42 U.S.C. § 1320a–1"
title: "42"
title_heading: "The Public Health and Welfare"
number: "1320a–1"
heading: "Limitation on use of Federal funds for capital expenditures"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/42/1320a-1"
units:
  - "Chapter 7 — Social Security"
  - "Subchapter XI — General Provisions, Peer Review, and Administrative Simplification"
  - "Part A — General Provisions"
---

# §1320a–1. Limitation on use of Federal funds for capital expenditures

- (a) **Use of reimbursement for planning activities for health services and facilities—** The purpose of this section is to assure that Federal funds appropriated under subchapters XVIII and XIX are not used to support unnecessary capital expenditures made by or on behalf of health care [facilities](/usc/42/1320a–3.md?p=c-5-B) which are reimbursed under any of such subchapters and that, to the extent possible, reimbursement under such subchapters shall support planning activities with respect to health services and [facilities](/usc/42/1320a–3.md?p=c-5-B) in the various [States](/usc/42/619.md?p=5).
- (b) **Agreement between Secretary and State for submission of proposed capital expenditures related to health care facilities and procedures for appeal from recommendations—** The [Secretary](/usc/42/1301.md?p=a-6), after consultation with the Governor (or other chief executive officer) and with appropriate local public officials, shall make an agreement with any [State](/usc/42/619.md?p=5) which is able and willing to do so under which a designated planning [agency](/usc/42/1397n–12.md?p=1) (which shall be an [agency](/usc/42/1397n–12.md?p=1) described in [clause (ii)](#d-1-B-ii) of subsection (d)(1)(B) that has a governing body or advisory board at least half of whose members represent consumer interests) will—
  - (1) make, and submit to the [Secretary](/usc/42/1301.md?p=a-6) together with such supporting materials as he may find necessary, findings and recommendations with respect to capital expenditures proposed by or on behalf of any health care [facility](/usc/42/1320a–3.md?p=c-5-B) in such [State](/usc/42/619.md?p=5) within the field of its responsibilities,
  - (2) receive from other [agencies](/usc/42/1397n–12.md?p=1) described in [clause (ii)](#d-1-B-ii) of subsection (d)(1)(B), and submit to the [Secretary](/usc/42/1301.md?p=a-6) together with such supporting material as he may find necessary, the findings and recommendations of such other [agencies](/usc/42/1397n–12.md?p=1) with respect to capital expenditures proposed by or on behalf of health care [facilities](/usc/42/1320a–3.md?p=c-5-B) in such [State](/usc/42/619.md?p=5) within the fields of their respective responsibilities, and
  - (3) establish and maintain procedures pursuant to which a [person](/usc/42/1301.md?p=a-3) proposing any such capital expenditure may appeal a recommendation by the designated [agency](/usc/42/1397n–12.md?p=1) and will be granted an opportunity for a fair hearing by such [agency](/usc/42/1397n–12.md?p=1) or [person](/usc/42/1301.md?p=a-3) other than the designated [agency](/usc/42/1397n–12.md?p=1) as the Governor (or other chief executive officer) may designate to hold such hearings,

  whenever and to the extent that the findings of such designated [agency](/usc/42/1397n–12.md?p=1) or any such other [agency](/usc/42/1397n–12.md?p=1) indicate that any such expenditure is not consistent with the [standards](/usc/42/1320d.md?p=7), criteria, or plans developed pursuant to the Public Health Service Act [[42 U.S.C. 201](/usc/42/201.md) et seq.] to meet the need for adequate health care [facilities](/usc/42/1320a–3.md?p=c-5-B) in the area covered by the plan or plans so developed.

- (c) **Manner of payment to States for carrying out agreement—** The [Secretary](/usc/42/1301.md?p=a-6) shall pay any such [State](/usc/42/619.md?p=5) from the general fund in the Treasury, in advance or by way of reimbursement as may be provided in the agreement with it (and may make adjustments in such payments on account of overpayments or underpayments previously made), for the reasonable cost of performing the functions specified in [subsection (b)](#b).
- (d) **Determination of amount of exclusions from Federal payments—**
  - (1) Except as provided in [paragraph (2)](#d-2), if the [Secretary](/usc/42/1301.md?p=a-6) determines that—
    - (A) neither the planning [agency](/usc/42/1397n–12.md?p=1) designated in the agreement described in [subsection (b)](#b) nor an [agency](/usc/42/1397n–12.md?p=1) described in [clause (ii)](#d-1-B-ii) of subparagraph (B) of this paragraph had been given notice of any proposed capital expenditure (in accordance with such procedure or in such detail as may be required by such [agency](/usc/42/1397n–12.md?p=1)) at least 60 days prior to obligation for such expenditure; or
    - (B)
      - (i) the planning [agency](/usc/42/1397n–12.md?p=1) so designated or an [agency](/usc/42/1397n–12.md?p=1) so described had received such timely notice of the intention to make such capital expenditure and had, within a reasonable period after receiving such notice and prior to obligation for such expenditure, notified the [person](/usc/42/1301.md?p=a-3) proposing such expenditure that the expenditure would not be in conformity with the [standards](/usc/42/1320d.md?p=7), criteria, or plans developed by such [agency](/usc/42/1397n–12.md?p=1) or any other [agency](/usc/42/1397n–12.md?p=1) described in [clause (ii)](#d-1-B-ii) for adequate health care [facilities](/usc/42/1320a–3.md?p=c-5-B) in such [State](/usc/42/619.md?p=5) or in the area for which such other [agency](/usc/42/1397n–12.md?p=1) has responsibility, and
      - (ii) the planning [agency](/usc/42/1397n–12.md?p=1) so designated had, prior to submitting to the [Secretary](/usc/42/1301.md?p=a-6) the findings referred to in [subsection (b)](#b)—
        - (I) consulted with, and taken into consideration the findings and recommendations of, the [State](/usc/42/619.md?p=5) planning [agencies](/usc/42/1397n–12.md?p=1) established pursuant to sections 314(a) and 604(a) of the Public Health Service Act [[42 U.S.C. 246(a)](/usc/42/246.md?p=a), 291d(a)] (to the extent that either such [agency](/usc/42/1397n–12.md?p=1) is not the [agency](/usc/42/1397n–12.md?p=1) so designated) as well as the public or [nonprofit](/usc/42/300s–3.md?p=3) private [agency](/usc/42/1397n–12.md?p=1) or organization responsible for the comprehensive regional, metropolitan area, or other local area plan or plans referred to in section 314(b) of the Public Health Service Act [[42 U.S.C. 246(b)](/usc/42/246.md?p=b)] and covering the area in which the health care [facility](/usc/42/1320a–3.md?p=c-5-B) proposing such capital expenditure is located (where such [agency](/usc/42/1397n–12.md?p=1) is not the [agency](/usc/42/1397n–12.md?p=1) designated in the agreement), or, if there is no such [agency](/usc/42/1397n–12.md?p=1), such other public or [nonprofit](/usc/42/300s–3.md?p=3) private [agency](/usc/42/1397n–12.md?p=1) or organization (if any) as performs, as determined in accordance with criteria included in regulations, similar functions, and
        - (II) granted to the [person](/usc/42/1301.md?p=a-3) proposing such capital expenditure an opportunity for a fair hearing with respect to such findings;

    then, for such period as he finds necessary in any case to effectuate the purpose of this section, he shall, in determining the Federal payments to be made under subchapters XVIII and XIX with respect to services furnished in the health care [facility](/usc/42/1320a–3.md?p=c-5-B) for which such capital expenditure is made, not include any amount which is attributable to depreciation, interest on borrowed funds, a return on equity capital (in the case of proprietary [facilities](/usc/42/1320a–3.md?p=c-5-B)), or other expenses related to such capital expenditure. With respect to any organization which is reimbursed on a per capita or a fixed fee or negotiated rate basis, in determining the Federal payments to be made under subchapters XVIII and XIX, the [Secretary](/usc/42/1301.md?p=a-6) shall exclude an amount which in his judgment is a reasonable equivalent to the amount which would otherwise be excluded under this subsection if payment were to be made on other than a per capita or a fixed fee or negotiated rate basis.

  - (2) If the [Secretary](/usc/42/1301.md?p=a-6), after submitting the matters involved to the advisory council established or designated under [subsection (i)](#i), determines that an exclusion of expenses related to any capital expenditure of any health care [facility](/usc/42/1320a–3.md?p=c-5-B) would discourage the operation or expansion of such [facility](/usc/42/1320a–3.md?p=c-5-B) which has demonstrated to his satisfaction proof of capability to provide comprehensive health care services ([including](/usc/42/1301.md?p=b) institutional services) efficiently, effectively, and economically, or would otherwise be inconsistent with the effective organization and delivery of health services or the effective [administration](/usc/42/1301.md?p=a-10) of subchapter XVIII or XIX, he shall not exclude such expenses pursuant to [paragraph (1)](#d-1).
- (e) **Treatment of lease or comparable arrangement of any facility or equipment for a facility in determining amount of exclusions from Federal payments—** Where a [person](/usc/42/1301.md?p=a-3) obtains under lease or comparable arrangement any [facility](/usc/42/1320a–3.md?p=c-5-B) or part thereof, or equipment for a [facility](/usc/42/1320a–3.md?p=c-5-B), which would have been subject to an exclusion under [subsection (d)](#d) if the [person](/usc/42/1301.md?p=a-3) had acquired it by purchase, the [Secretary](/usc/42/1301.md?p=a-6) shall (1) in computing such [person](/usc/42/1301.md?p=a-3)’s rental expense in determining the Federal payments to be made under subchapters XVIII and XIX with respect to services furnished in such [facility](/usc/42/1320a–3.md?p=c-5-B), deduct the amount which in his judgment is a reasonable equivalent of the amount that would have been excluded if the [person](/usc/42/1301.md?p=a-3) had acquired such [facility](/usc/42/1320a–3.md?p=c-5-B) or such equipment by purchase, and (2) in computing such [person](/usc/42/1301.md?p=a-3)’s return on equity capital deduct any amount deposited under the terms of the lease or comparable arrangement.
- (f) **Reconsideration by Secretary of determinations—** Any [person](/usc/42/1301.md?p=a-3) dissatisfied with a determination by the [Secretary](/usc/42/1301.md?p=a-6) under this section may within six months following notification of such determination request the [Secretary](/usc/42/1301.md?p=a-6) to reconsider such determination. A determination by the [Secretary](/usc/42/1301.md?p=a-6) under this section shall not be subject to administrative or judicial review.
- (g) **“Capital expenditure” defined—** For the purposes of this section, a “capital expenditure” is an expenditure which, under generally accepted accounting principles, is not properly chargeable as an expense of operation and maintenance and which (1) exceeds $600,000 (or such lesser amount as the [State](/usc/42/619.md?p=5) may establish), (2) changes the bed capacity of the [facility](/usc/42/1320a–3.md?p=c-5-B) with respect to which such expenditure is made, or (3) substantially changes the services of the [facility](/usc/42/1320a–3.md?p=c-5-B) with respect to which such expenditure is made. For purposes of clause (1) of the preceding sentence, the cost of the studies, surveys, designs, plans, working drawings, specifications, and other activities essential to the acquisition, improvement, expansion, or replacement of the plant and equipment with respect to which such expenditure is made shall be included in determining whether such expenditure exceeds the dollar amount specified in clause (1).
- (h) **Applicability to Christian Science sanatoriums—** The provisions of this section shall not apply to a religious nonmedical health care institution (as defined in [section 1395x(ss)(1) of this title](/usc/42/1395x.md?p=ss-1)).
- (i) **National advisory council; establishment or designation of existing council; functions; consultations with other appropriate national advisory councils; composition; compensation and travel expenses—**
  - (1) The [Secretary](/usc/42/1301.md?p=a-6) shall establish a national advisory council, or designate an appropriate existing national advisory council, to advise and assist him in the preparation of general regulations to carry out the purposes of this section and on policy matters arising in the [administration](/usc/42/1301.md?p=a-10) of this section, [including](/usc/42/1301.md?p=b) the coordination of activities under this section with those under other parts of this chapter or under other Federal or federally assisted health programs.
  - (2) The [Secretary](/usc/42/1301.md?p=a-6) shall make appropriate provision for consultation between and coordination of the work of the advisory council established or designated under [paragraph (1)](#i-1) and the Federal [Hospital](/usc/42/300s–3.md?p=1) Council, the National Advisory Health Council, the Health Insurance Benefits Advisory Council, and other appropriate national advisory councils with respect to matters bearing on the purposes and [administration](/usc/42/1301.md?p=a-10) of this section and the coordination of activities under this section with related Federal health programs.
  - (3) If an advisory council is established by the [Secretary](/usc/42/1301.md?p=a-6) under [paragraph (1)](#i-1), it shall be composed of members who are not otherwise in the regular full-time employ of the [United States](/usc/42/1301.md?p=a-2), and who shall be appointed by the [Secretary](/usc/42/1301.md?p=a-6) without regard to the civil service laws from among leaders in the fields of the fundamental sciences, the medical sciences, and the organization, delivery, and financing of health care, and [persons](/usc/42/1301.md?p=a-3) who are [State](/usc/42/619.md?p=5) or local officials or are active in community affairs or public or civic affairs or who are representative of minority groups. Members of such advisory council, while attending meetings of the council or otherwise serving on business of the council, shall be entitled to receive compensation at rates fixed by the [Secretary](/usc/42/1301.md?p=a-6), but not exceeding the maximum rate specified at the time of such service for grade GS–18 in [section 5332 of title 5](/usc/5/5332.md), [including](/usc/42/1301.md?p=b) traveltime, and while away from their homes or regular places of business they may also be allowed travel expenses, [including](/usc/42/1301.md?p=b) per diem in lieu of subsistence, as authorized by [section 5703](/usc/5/5703.md) of such [title 5](/usc/5.md) for [persons](/usc/42/1301.md?p=a-3) in the Government service employed intermittently.
- (j) **Capital expenditure review exception for eligible organization health care facilities—** A capital expenditure made by or on behalf of a health care [facility](/usc/42/1320a–3.md?p=c-5-B) shall not be subject to review pursuant to this section if 75 percent of the patients who can reasonably be expected to use the service with respect to which the capital expenditure is made will be individuals enrolled in an eligible organization as defined in [section 1395mm(b) of this title](/usc/42/1395mm.md?p=b), and if the [Secretary](/usc/42/1301.md?p=a-6) determines that such capital expenditure is for services and [facilities](/usc/42/1320a–3.md?p=c-5-B) which are needed by such organization in order to operate efficiently and economically and which are not otherwise readily accessible to such organization because—
  - (1) the [facilities](/usc/42/1320a–3.md?p=c-5-B) do not provide common services at the same site (as usually provided by the organization),
  - (2) the [facilities](/usc/42/1320a–3.md?p=c-5-B) are not available under a contract of reasonable duration,
  - (3) full and equal medical staff privileges in the [facilities](/usc/42/1320a–3.md?p=c-5-B) are not available,
  - (4) arrangements with such [facilities](/usc/42/1320a–3.md?p=c-5-B) are not administratively feasible, or
  - (5) the purchase of such services is more costly than if the organization provided the services directly.

## Source credit

(Aug. 14, 1935, ch. 531, title XI, § 1122, as added Pub. L. 92–603, title II, § 221(a), Oct. 30, 1972, 86 Stat. 1386; amended Pub. L. 93–233, § 18(z), (z–1), Dec. 31, 1973, 87 Stat. 973; Pub. L. 95–559, § 14(b), Nov. 1, 1978, 92 Stat. 2141; Pub. L. 96–32, § 2(c), July 10, 1979, 93 Stat. 82; Pub. L. 97–35, title XXI, § 2193(c)(3), Aug. 13, 1981, 95 Stat. 827; Pub. L. 97–248, title I, § 137(a)(5), Sept. 3, 1982, 96 Stat. 376; Pub. L. 98–21, title VI, § 607(a), (b)(1), (c), Apr. 20, 1983, 97 Stat. 171, 172; Pub. L. 98–369, div. B, title III, § 2354(a)(1), (2), July 18, 1984, 98 Stat. 1100; Pub. L. 105–33, title IV, § 4454(c)(1), Aug. 5, 1997, 111 Stat. 431.)

## Notes

### Editorial Notes

### References in Text

The Public Health Service Act, referred to in subsec. (b), is act July 1, 1944, ch. 373, 58 Stat. 682, which is classified generally to chapter 6A (201 et seq.) of this title. For complete classification of this Act to the Code, see Short Title note set out under section 201 of this title and Tables.

### Amendments

1997—Subsec. (h). Pub. L. 105–33 substituted “a religious nonmedical health care institution (as defined in section 1395x(ss)(1) of this title).” for “Christian Science sanatoriums operated, or listed and certified, by the First Church of Christ, Scientist, Boston, Massachusetts.”

1984—Subsec. (b). Pub. L. 98–369, § 2354(a)(1), substituted a comma for the period at end of par. (1), and struck out “(or the Mental Retardation Facilities and Community Mental Health Centers Construction Act of 1963)” before “to meet the need” in provisions following par. (3).

Subsec. (i)(3). Pub. L. 98–369, § 2354(a)(2), substituted “5703” for “5703(b)”.

1983—Subsec. (c). Pub. L. 98–21, § 607(a), substituted “the general fund in the Treasury” for “the Federal Hospital Insurance Trust Fund”.

Subsec. (g). Pub. L. 98–21, § 607(b)(1), substituted “$600,000 (or such lesser amount as the State may establish)” for “$100,000” and Pub. L. 98–21, § 607(b)(1)(B), substituted “the dollar amount specified in clause (1)” for “$100,000” the second time it appeared.

Subsec. (j). Pub. L. 98–21, § 607(c), added subsec. (j).

1982—Subsec. (d)(2). Pub. L. 97–248 amended directory language of Pub. L. 97–35, § 2193(c)(3)(B), to correct typographical error, and did not involve any change in text. See 1981 Amendment note below.

1981—Subsec. (a). Pub. L. 97–35, § 2193(c)(3)(A), substituted “subchapters XVIII and XIX” for “subchapters V, XVIII, and XIX”.

Subsec. (d)(1). Pub. L. 97–35, § 2193(c)(3)(A), substituted in provision following subpar. (B)(ii)(II) “subchapters XVIII and XIX” for “subchapters V, XVIII, and XIX” in two places.

Subsec. (d)(2). Pub. L. 97–35, § 2193(c)(3)(B), as amended by Pub. L. 97–248, § 137(a)(5), substituted “subchapter XVIII or XIX” for “subchapter V, XVIII, or XIX”.

Subsec. (e). Pub. L. 97–35, § 2193(c)(3)(A), substituted “subchapters XVIII and XIX” for “subchapters V, XVIII, and XIX”.

1979—Pub. L. 96–32 amended directory language of Pub. L. 95–559 and required no change in text of section. See 1978 Amendment notes below.

1978—Subsecs. (a), (b). Pub. L. 95–559, § 14(b)(1), (2), as amended by Pub. L. 96–32, struck out references to health maintenance organizations wherever appearing.

Subsec. (d). Pub. L. 95–559, § 14(b)(1), (3), as amended by Pub. L. 96–32, struck out references to health maintenance organizations wherever appearing and in par. (2) “or organization, or of any facility of such organization,” after “expansion of such facility”.

1973—Subsec. (d)(1). Pub. L. 93–233, § 18(z), inserted “or a fixed fee or negotiated rate” after “per capita” wherever appearing in last sentence.

Subsec. (d)(2). Pub. L. 93–233, § 18(z–1), substituted “exclude” for “include” where last appearing.

### Statutory Notes and Related Subsidiaries

### Effective Date of 1997 Amendment

Amendment by Pub. L. 105–33 effective Aug. 5, 1997, and applicable to items and services furnished on or after such date, with provision that Secretary of Health and Human Services issue regulations to carry out such amendment by not later than July 1, 1998, see section 4454(d) of Pub. L. 105–33, set out as an Effective Date note under section 1395i–5 of this title.

### Effective Date of 1984 Amendment

Pub. L. 98–369, div. B, title III, § 2354(e), July 18, 1984, 98 Stat. 1102, provided that: Except as provided in paragraph (2), the amendments made by this section [amending this section and sections 1316, 1320a–7a, 1320a–8, 1395f, 1395i, 1395i–2, 1395k, 1395l, 1395n, 1395p, 1395s to 1395z, 1395aa, 1395cc, 1395ff, 1395ii, 1395ll, 1395mm, 1395oo, 1395rr, and 1395ww of this title and section 162 of Title 26, Internal Revenue Code, and amending provisions set out as notes under sections 1320c, 1395x, and 1395mm of this title] shall be effective on the date of the enactment of this Act [July 18, 1984]; but none of such amendments shall be construed as changing or affecting any right, liability, status, or interpretation which existed (under the provisions of law involved) before that date. The amendments made by paragraphs (1) [amending section 1395f of this title and provisions set out as a note under section 1395x of this title], (2) [amending section 1316 of this title], and (3) [amending provisions set out as notes under sections 1320c and 1395mm of this title] of subsection (c) shall be effective as if they had been originally included in Public Laws 96–499, 97–35, and 97–248, respectively.”

### Effective Date of 1982 Amendment

Amendment by Pub. L. 97–248 effective as if originally included as part of this section as this section was amended by the Omnibus Budget Reconciliation Act of 1981, Pub. L. 97–35, see section 137(d)(2) of Pub. L. 97–248, set out as a note under section 1396a of this title.

### Effective Date of 1981 Amendment, Savings, and Transitional Provisions

For effective date, savings, and transitional provisions relating to amendment by Pub. L. 97–35, see section 2194 of Pub. L. 97–35, set out as a note under section 701 of this title.

### Effective Date

Pub. L. 92–603, title II, § 221(b), Oct. 30, 1972, 86 Stat. 1389, provided that: “The amendment made by subsection (a) [enacting this section] shall apply only with respect to a capital expenditure the obligation for which is incurred by or on behalf of a health care facility or health maintenance organization subsequent to whichever of the following is earlier: (A) December 31, 1972, or (B) with respect to any State or any part thereof specified by such State, the last day of the calendar quarter in which the State requests that the amendment made by subsection (a) of this section [enacting this section] apply in such State or such part thereof.”

### Termination of Advisory Councils

Advisory councils in existence on Jan. 5, 1973, to terminate not later than the expiration of the 2-year period following Jan. 5, 1973, unless, in the case of a council established by the President or an officer of the Federal Government, such council is renewed by appropriate action prior to the expiration of such 2-year period, or in the case of a council established by the Congress, its duration is otherwise provided by law. Advisory councils established after Jan. 5, 1973, to terminate not later than the expiration of the 2-year period beginning on the date of their establishment, unless, in the case of a council established by the President or an officer of the Federal Government, such council is renewed by appropriate action prior to the expiration of such 2-year period, or in the case of a council established by the Congress, its duration is otherwise provided by law. See sections 1001(2) and 1013 of Title 5, Government Organization and Employees.

### References in Other Laws to GS–16, 17, or 18 Pay Rates

References in laws to the rates of pay for GS–16, 17, or 18, or to maximum rates of pay under the General Schedule, to be considered references to rates payable under specified sections of Title 5, Government Organization and Employees, see section 529 [title I, § 101(c)(1)] of Pub. L. 101–509, set out in a note under section 5376 of Title 5.

### Expenditures or Obligations of Health Care Facilities Providing Health Care Services Prior to December 18, 1970; Limitations on Federal Participation

Pub. L. 92–603, title II, § 221(d), Oct. 30, 1972, 86 Stat. 1389, provided that: “In the case of a health care facility providing health care services as of December 18, 1970, which on such date is committed to a formal plan of expansion or replacement, the amendments made by the preceding provisions of this section [enacting this section and amending sections 705, 706, 709, 1395x, 1396a, and 1396b of this title] shall not apply with respect to such expenditures as may be made or obligations incurred for capital items included in such plan where preliminary expenditures toward the plan of expansion or replacement (including payments for studies, surveys, designs, plans, working drawings, specifications, and site acquisition, essential to the acquisition, improvement, expansion, or replacement of the health care facility or equipment concerned) of $100,000 or more, had been made during the three-year period ended December 17, 1970.”