These rules amend the Public Health Service (PHS) regulations by implementing certain changes made by the HMO Amendments of 1978 with respect to grants and loan guarantees for planning and initial development costs (Subpart D) and to loans and loan guarantees for initial costs of operation (Subpart E). These regulations change Subpart D by including projects for the "expansion of services" of an HMO among the projects eligible for initial development assistance. In addition, they change the limits on the amount of assistance permitted for initial development projects. These regulations also change Subpart E by substituting the words "costs of operation" for the words "operating costs," thereby expanding the scope of assistance for initial operations (1) to include costs of certain small capital expenditures for equipment and alterations and renovations of facilities and (2) to incorporate into the regulations a longstanding policy which specifies the amount of preaward balance sheet liabilities which may be paid for with funds under operating loans (whether made directly or guaranteed by the Secretary).