TITLE 1.ADMINISTRATION

Part 12. COMMISSION ON STATE EMERGENCY COMMUNICATIONS

Chapter 251. REGIONAL PLANS--STANDARDS

1 TAC §251.1

The Commission on State Emergency Communications (CSEC) proposes amendments to §251.1, concerning regional plans for 9-1-1 service to include new criteria to accommodate Voice over the Internet Protocol (VoIP) telephone service, to streamline the rule in conjunction with development of related Program Policy Statement, and to delete references to Mobile PSAPs that are no longer applicable.

Paul Mallett, executive director, has determined that for the first five-year period the rule is in effect there will be no fiscal implications for state or local government as a result of enforcing or administering the rule.

Mr. Mallett has determined that for each year of the first five years the section is to be in effect, the public benefit anticipated as a result of enforcing the section will be improved effectiveness and reliability of 9-1-1 call delivery systems in the state program regions throughout the state. No historical data is available, however, there appears to be no direct impact on small or large businesses. There is no anticipated economic cost to persons who are required to comply with the section as proposed. There is no anticipated local employment impact as a result of enforcing the section.

Comments on the proposed rule may be submitted in writing within 30 days after publication of the proposal in the Texas Register to Paul Mallett, Executive Director, Commission on State Emergency Communications, 333 Guadalupe Street, Suite 2-212, Austin, Texas 78701-3942.

The amendments are proposed under Health and Safety Code, Chapter 771, §§771.051, 771.055, 771.056, 771.057, and 771.075; and Title 1 Texas Administrative Code, Part 12, Chapter 251, Regional Plan Standards, which provide the Commission on State Emergency Communications with the authority to plan, develop, provide provisions for and enhance the effectiveness and efficiency of 9-1-1 service.

No other statutes, articles or codes are affected by the proposed amendment.

§251.1.Regional Strategic Plans for 9-1-1 Service.

(a) - (e) (No change.)

(f) All regional plans for 9-1-1 service must include one Primary PSAP and the following equipment and service at all PSAPs :

(1) - (3) (No change.)

[ (4) One Primary PSAP per RPC. If there is more than one PSAP, the system may be arranged for two or more PSAPs to share the 24-hour duty requirement;]

(4) [ (5) ] TDD/TTY or TDD/TTY compatible equipment in compliance with the Americans with Disabilities Act (ADA) and in compliance with Commission Rule 251.4, Guidelines Accessibility Equipment;

(5) [ (6) ] A standby power supply for the 9-1-1 equipment;

(6) [ (7) ] Forced disconnect feature to allow the PSAP to clear incoming circuits when necessary;

(7) [ (8) ] The following redundant crucial service items [ at each PSAP ]:

(A) Network connections between each telephone central office or mobile switch and the SR;

(B) Network connections from the SR to the PSAP;

(C) Network connections from the ALI database to the PSAP;

(D) Database routers;

(E) Telephone sets and/or integrated ANI and ALI display call taking positions;

(F) Stand-alone TDD units [ as applicable ]; and

(G) Any other equipment essential to the 9-1-1 call-taking function.

(8) [ (9) ] A published ten-digit emergency telephone number that can accept emergency calls 24 hours a day, 7 days a week, 365 days a year and which is answered by a qualified 9-1-1 call taker ;

(9) [ (10) ] A positive response to each 9-1-1 call to include an audible ringing tone connecting to a PSAP where either the call is answered by personnel at the PSAP or a recorded announcement provides further information; and

(10) [ (11) ] The following required elements to ensure the reliability of the 9-1-1 equipment and service:

(A) Contingency routing plan;

(B) Network testing plan;

(C) Local monitoring plan;

(D) Capital asset plan;

(E) Network diagrams;

(F) Database maintenance plan; and

(G) Equipment maintenance plan.

(g) (No change.)

(h) Call Taking Positions. Requests for an increase in the number of positions within a PSAP should be submitted for approval with submission of [ in ] the regional strategic plan [ along with justification for the increase ]. If an increase in the number of positions is required after the regional plan has been approved [ and the addition of the position(s) will require no additional funding ], the RPC shall comply with Commission rules, policies and procedures. [ follow the requirements for amendment in accordance with Commission Rule 251.6, Guidelines for Strategic Plans, Amendments, and Revenue Allocation. If additional funding is required for the additional position(s), the request shall be submitted to the Commission for consideration and approval in accordance with Commission Rule 251.6, Guidelines for Strategic Plans, Amendments, and Revenue Allocation. No amendment request is necessary when increased call taking positions to a PSAP or PSAPs do not increase the total number of call taking positions within the region. Each PSAP shall be equipped with adequate call taking positions to meet anticipated call volume. Factors that may be considered in determining the proper number of positions include: ]

[ (1) Historical 9-1-1 call volume and growth;]

[ (2) Call duration information;]

[ (3) Anticipated area population growth; and]

[ (4) Peak 9-1-1 call volume patterns.]

(i) Adding a PSAP. Should there be a need to add a new PSAP within the region, the RPC shall follow the requirements for amendments in accordance with Commission Rule 251.6, Guidelines for Strategic Plans, Amendments, and Revenue Allocation. The amendment request shall comply with Commission rules, policies and procedures. [ provide the Commission written justification supporting the request. Appropriate justification shall include statistical information such as call volume and growth rates, or jurisdictional changes within the region. All requests for a new PSAP must include specific costs for equipment and services, as well as a complete written description and schematic illustrating the relationship of the proposed PSAP to the balance of the region’s network. These requirements apply to the addition of a remote or mobile PSAP, as well as, Primary and Secondary PSAPs. ]

[ (j) Mobile PSAP Procedures. When a RPC is approved to add a mobile PSAP, they must submit a Standard Operating Procedure (SOP) for that PSAP that includes, at a minimum:]

[ (1) Designation of responsible local agency;]

[ (2) Proposed hours of operation;]

[ (3) Primary location of operation;]

[ (4) Procedure for notification of relocation of PSAP;]

[ (5) Asset management plan or insurance coverage to safeguard the equipment;]

[ (6) Security plan for control of the equipment and data;]

[ (7) Revised Interlocal Agreement to include the mobile PSAP; and]

[ (8) Plan for equipment disposal upon termination of the use of the mobile PSAP.]

(j) [ (k) ] Contracts. The RPC shall execute interlocal agreements between itself and its local governments responsible for PSAPs relating to the planning, development, operation and provision of 9-1-1 service, the use of 9-1-1 funds and adherence to applicable law in accordance with Commission Rule 251.12, Contracts for 9-1-1 Services.

(k) [ (l) ] Procurement. The RPC shall use competitive procurement practices and procedures similar to those required by state law for cities or counties, as well as any additional Commission policies, in conjunction with the procurement of 9-1-1 Customer Premises Equipment, 9-1-1 Network, and 9-1-1 Database Services, and any other items to be obtained with 9-1-1 funds in accordance with Commission Rule 251.8, Guidelines for the Procurement of Equipment and Services with 9-1-1 funds.

(l) [ (m) ] Equipment Management. The RPC is responsible for the 9-1-1 equipment in accordance with Commission Rule 251.5, Guidelines for 9-1-1 Equipment Management and Disposition. Any integration of expanded third-party applications onto a call taking position must be in accordance with Commission Rule 251.7, Guidelines for Implementing Integrated Service. If changes or extensions of 9-1-1 service occur, the RPC is to administer and report them in accordance with Commission Rule 251.2, Guidelines for Changing or Extending 9-1-1 Service Arrangements.

(m) [ (n) ] Testing. The RPC shall test all 9-1-1 Customer Premises Equipment (including TDD/TTY), 9-1-1 Network, and 9-1-1 Database services. Testing shall occur when new service or equipment is installed, service or equipment is modified, and on a regular basis to ensure system reliability and compliance with ADA. A schedule for ongoing testing shall be developed by the RPC and shall be available to the Commission for monitoring.

(n) [ (o) ] Monitoring. The Commission reserves the right to perform on-site monitoring of the RPC and/or its performing local governments or PSAPs, including mobile PSAPs, for compliance with applicable law in accordance with Commission Rule 251.11, Monitoring Policies and Procedures.

(o) [ (p) ] Performance Reporting. A RPC shall submit financial and performance reports to the Commission at least quarterly on a schedule to be established by the Commission. The financial report shall identify actual implementation costs by county, strategic plan priority level, and component. The performance report shall reflect the progress of implementing the region’s strategic plan including, but not limited to, the status of equipment, services, and program deliverables in a format to be determined by the Commission.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 25, 2005.

TRD-200503016

Paul Mallett

Executive Director

Commission on State Emergency Communications

Earliest possible date of adoption: September 4, 2005

For further information, please call: (512) 305-6933


Chapter 254 POISON CONTROL CENTERS

1 TAC §254.1

The Commission on State Emergency Communications (CSEC) proposes new Chapter 254, §254.1, concerning operations and funding of Poison Control Centers.

Health and Safety Code, Chapter 777, §777.001(b) and §777.009(b) require that CSEC jointly adopt rules regarding Poison Control Centers with the Department of State Health Services (DSHS). DSHS has repealed and replaced its rules regarding the poison control center network (25 Texas Administrative Code §5.51 and §5.52). As required by statute, CSEC must post and adopt its own rule to mirror the intent and language of the DSHS rules.

Paul Mallett, executive director, has determined that for the first five-year period the rule is in effect there will be no fiscal implications for state or local government as a result of enforcing or administering the rule.

Mr. Mallett has determined that for each year of the first five years the section is to be in effect, the public benefit anticipated as a result of this section will be increased clarity and ease of understanding the rules. No historical data is available, however, there appears to be no direct impact on small or large businesses. There is no anticipated economic cost to persons who are required to comply with the section as proposed. There is no anticipated local employment impact as a result of enforcing the section.

Comments on the proposed rule may be submitted in writing within 30 days after publication of the proposal in the Texas Register to Paul Mallett, Executive Director, Commission on State Emergency Communications, 333 Guadalupe Street, Suite 2-212, Austin, Texas 78701-3942.

The new section is proposed under Health and Safety Code, Chapter 777, §777.001(b) and §777.009(b), which require that CSEC jointly adopt rules regarding Poison Control Centers with DSHS.

No other statutes, articles or codes are affected by the proposed new section.

§254.1.Operations and Funding of Poison Control Centers.

(a) Purpose. Health and Safety Code, Chapter 777, and 25 TAC §5.51, provide the Department of State Health Services (Department) and the Commission on State Emergency Communications (Commission) with the authority to establish a program to award grants to fund a network of regional poison control centers.

(b) Background. The Commission and the Department shall adopt a statewide telecommunications network plan. The plan may establish phased implementation of the network. The plan shall consider the following:

(1) uniform statewide 800-service availability for community and professional access for poison information and referral;

(2) direct access from Public Safety Answering Points to Poison Control Answering Points for emergency calls; and

(3) other features as appropriate and identified by this section.

(c) As required by Health and Safety Code, §777.001, the Texas Health and Human Services (HHS) regions shall define the service areas for the Poison Control Answering Points, except where telecommunications network design would greatly increase the cost of routing the system. The regions are as follows:

(1) The University of Texas Medical Branch at Galveston--HHS Regions 5 and 6;

(2) The Dallas County Hospital District/North Texas Poison Center--HHS Regions 3 and 4;

(3) The University of Texas Health Science Center at San Antonio--HHS Regions 8 and 11;

(4) R.E. Thomason General Hospital, El Paso County Hospital District--HHS Regions 9 and 10;

(5) Northwest Texas Hospital, Amarillo Hospital District--HHS Regions 1 and 2; and

(6) Scott and White Memorial Hospital, Temple--HHS Region 7.

(d) Eligibility for funding.

(1) The entities eligible to request funding are the regional poison control centers for the state, designated under the Health and Safety Code, Chapter 777, as follows:

(A) University of Texas Medical Branch at Galveston;

(B) Dallas County Hospital District/North Texas Poison Center;

(C) University of Texas Health Science Center at San Antonio;

(D) R.E. Thomason General Hospital, El Paso County Hospital District;

(E) Northwest Texas Hospital, Amarillo Hospital District; and

(F) Scott and White Memorial Hospital, Temple.

(2) In accordance with Health and Safety Code, §777.009, and 25 TAC §5.52, each poison control center must be certified by the American Association of Poison Control Centers (AAPCC) until a statewide system certification is achieved. The Commission and Department shall work together with the AAPCC to certify the statewide poison control network and/or individual centers as required.

(e) Funding criteria. As required by 25 TAC §5.52, applicants must meet all of the goals and objectives outlined in the annual Request for Proposals, including:

(1) the need of the region based on population served for poison control services, and the extent to which the grant would meet the identified need;

(2) a four-year strategic plan assuring provision of quality service;

(3) a demonstration that the Poison Control Answering Point is working toward achieving and/or maintaining certification as a poison control center with the AAPCC; and

(4) the availability of other funding sources; the maintenance of effort; and the development or existence of telecommunications systems.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 25, 2005.

TRD-200503015

Paul Mallett

Executive Director

Commission on State Emergency Communications

Earliest possible date of adoption: September 4, 2005

For further information, please call: (512) 305-6933


Part 15. TEXAS HEALTH AND HUMAN SERVICES COMMISSION

Chapter 353. MEDICAID MANAGED CARE

Subchapter A. GENERAL PROVISIONS

1 TAC §353.4

The Texas Health and Human Services Commission (HHSC) proposes new §353.4, detailing Medicaid managed care organizations requirements related to out-of-network providers.

Background and Justification

House Bill 2292, 78th Legislature, Regular Session, 2003, mandates that a managed care organization (MCO) that contracts with HHSC in the STAR or STAR+PLUS programs is subject to certain requirements involving out-of-network providers. Those requirements include network adequacy, appropriate payment rates for out-of-network services received by a Medicaid managed care member, and appropriate limits on the MCO's usage of out-of-network providers. The bill addresses provider complaints to HHSC regarding reimbursement for, or overuse of, out-of-network services and the time frame for HHSC to respond to those complaints. House Bill 2292 also requires HHSC to initiate a corrective action plan if an MCO does not meet the requirements related to reimbursement or network adequacy. The MCO is required to submit a report to HHSC with information regarding number, type, and scope of services provided by out-of-network providers.

To facilitate a better understanding of the practices and concerns associated with the issues addressed by House Bill 2292, HHSC commissioned The Lewin Group to conduct a study of out-of-network reimbursement and related policies. In its study, The Lewin Group conducted interviews with HHSC staff, provider associations, hospital providers, and Medicaid managed care contracted health plans. It also researched the experience of other states. From its findings, The Lewin Group made a number of policy recommendations to HHSC regarding out-of-network services.

HHSC also solicited stakeholder input concerning The Lewin Group's recommendations and how best to implement the mandates of House Bill 2292. Stakeholders from both the provider community and the managed care industry reviewed drafts of the proposed rule and provided comments and recommendations.

Using the mandates of House Bill 2292, findings and recommendations from The Lewin Group report, as well as input from stakeholders, HHSC developed the proposed rule concerning the responsibilities of Medicaid MCOs in the STAR and STAR+PLUS programs when one of their members receives services from an out-of-network provider as well as HHSC's oversight of those MCO responsibilities.

The rule mandates that Medicaid MCOs have an adequate network to meet the needs of their members and that they allow referrals to out-of-network providers under certain circumstances. The rule requires an MCO to reimburse out-of-area out-of-network and in-area out-of-network provider at a reasonable rate, which is established by the rule. Each MCO must provide information quarterly to HHSC related to services delivered by out-of-network providers. Using these reports and standards established in the proposed rule HHSC will determine if MCO member utilization of out-of-network providers is appropriate. If HHSC determines the MCO member utilization to be excessive, the rule describes the consequences for the MCO, including an increase in the reimbursement payable to out-of-network providers for specified timeframes. HHSC will accept and investigate complaints by providers related to out-of-network reimbursement or usage. If HHSC finds a complaint to be valid, HHSC must implement a corrective action plan and seek appropriate reimbursement from the MCO. The rule describes the circumstances and the contents of a corrective action plan.

Section-by-Section Summary

Subsection (a) of the rule identifies HHSC as the state agency with oversight for the Medicaid managed care program and confirms the responsibility of the participating managed care organizations (MCOs) to offer a provider network that meets the needs of their members. Subsection (b) outlines the steps for an appropriate referral to an out-of-network provider, use of out-of-network emergency services, and member access to other out-of-network services that may be necessary in other circumstances.

Subsection (c) describes the methodology used to determine the amount of reimbursement paid by an MCO for out-of-network services. Subsection (d) describes the timing and content of quarterly financial statistical reports to HHSC from MCOs. Subsection (e) concerns MCO member utilization of out-of-network services, including the standards by which excessive utilization will be determined and the special circumstances taken into consideration by HHSC in calculating an MCO's out-of-network utilization.

The provider complaint process is covered in subsection (f), including the timeframes for HHSC's response and for any action required from the MCO if HHSC determines that the complaint is valid. Subsection (g) describes when a corrective action plan will be required for an MCO, what the plan will require, and what actions are taken either by HHSC or the MCO as a result of the need for a corrective action plan.

Fiscal Note

Tom Suehs, Deputy Commissioner for Financial Services, has determined that during the first five-year period the proposed rule is in effect there will be a fiscal impact of $3.2 million in additional costs to state government. The proposed rule will not result in any fiscal implications for local health and human services agencies. Local governments will not incur additional costs.

Small and Micro-business Impact Analysis

Mr. Suehs has also determined that there will be no effect on small businesses or micro businesses to comply with the proposal, as they will not be required to alter their business practices as a result of the rule. There are no anticipated economic costs to persons who are required to comply with the proposed rule. There is no anticipated negative impact on local employment.

Public Benefit

Billy Millwee, Deputy Director of Health Plan Operations, has determined that for each year of the first five years the section is in effect, the public will benefit from the adoption and enforcement of the section. The anticipated public benefit will be improved health plan networks for Medicaid MCO members as well as increased provider access and choice for those members.

Regulatory Analysis

HHSC has determined that this proposal is not a "major environmental rule" as defined by §2001.0225 of the Texas Government Code. "Major environmental rule" is defined to mean a rule the specific intent of which is to protect the environment or reduce risk to human health from environment exposure and that may adversely affect, in a material way, the economy, a sector of the economy, productivity, competition, jobs, the environment or the public health and safety of a state or a sector of the state. This proposal is not specifically intended to protect the environment or reduce risks to human health from environment exposure.

Takings Impact Assessment

HHSC has determined that this proposal does not restrict or limit an owner's right to his or her property that would otherwise exist in the absence of government action and, therefore, does not constitute a taking under §2007.043 of the Government Code. No takings impact assessment is required.

Public Comment

Written comments on the proposal may be submitted to Lesa Ledbetter, at Health and Human Services, P.O. Box 85200, Austin, Texas 78708-5200, by fax to (512) 491-1953, or by e-mail to lesa.ledbetter@hhsc.state.tx.us within 30 days of publication of this proposal in the Texas Register .

Public Hearing

A public hearing is scheduled for August 17, 2005 from 3:00 PM to 4:00 PM (central time) in the public hearing room of the Texas Health and Human Services Commission, 11209 Metric Boulevard, Building H, Austin, Texas 78758. Persons requiring further information, special assistance, or accommodations should contact Carmen Capetillo at (512) 491-1104.

Statutory Authority

The new rule is proposed under the Texas Government Code, §531.033, which provides the Commissioner of HHSC with broad rulemaking authority; the Human Resources Code, §32.021 and the Texas Government Code, §531.021(a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas; and the Texas Government Code, §531.021(b), which provides HHSC with the authority to propose and adopt rules governing the determination of Medicaid reimbursements.

The proposed rule affects the Human Resources Code, Chapter 32, and the Texas Government Code, Chapters 531 and 533. No other statutes, articles, or codes are affected by this proposal.

§353.4.Requirements of STAR and STAR+PLUS Programs Concerning Out-of-Network Providers.

(a) Network adequacy. The Health and Human Services Commission (HHSC) is the state agency responsible for overseeing and monitoring the Medicaid managed care program. The managed care organizations (MCOs) participating in the Medicaid managed care program must offer a network of providers that is sufficient to meet the needs of the Medicaid population who are MCO members. HHSC will monitor MCO members' access to an adequate provider network through reports from the MCOs and complaints received from providers and members. The reporting requirements are discussed in subsection (d) of this section.

(b) MCO requirements concerning treatment of members by out-of-network providers.

(1) The MCO shall allow referral of its member(s) to an out-of-network provider, shall timely issue the proper authorization for such referral, and shall timely reimburse the out-of-network provider for authorized services provided when:

(A) Medicaid covered services are medically necessary and these services are not available through an in-network provider;

(B) A provider currently providing authorized services to the member requests authorization for such services to be provided to the member by an out-of-network provider; and

(C) The authorized services are provided within the time period specified in the MCO's authorization. If the services are not provided within the required time period, a new request for referral from the requesting provider must be submitted to the MCO prior to the provision of services.

(2) An MCO may not refuse to reimburse an out-of-network provider for emergency or post-stabilization services provided as a result of the MCO's failure to arrange for and authorize a timely transfer of a member.

(3) MCO requirements concerning emergency services.

(A) The MCO shall allow its members to be treated by any emergency services provider for emergency services and/or for services to determine if an emergency condition exists.

(B) The MCO is prohibited from requiring an authorization for emergency services or for services to determine if an emergency condition exists.

(4) MCOs may be required by contract with HHSC to allow members to obtain services from out-of-network providers in circumstances other than those described in paragraphs (1) - (3) of this subsection.

(c) Reasonable Reimbursement Methodology

(1) The MCO shall reimburse an out-of-network, in area service provider no less than the prevailing Medicaid Fee-For-Service (FFS) rate less 3 percent. The Medicaid Fee-For-Service rates are defined as those rates for providers of services in the Texas Medicaid Program for which reimbursement methodologies are specified in Chapter 355 of this title, exclusive of the rates and payment structures in Medicaid Managed Care.

(2) The MCO shall reimburse an out-of-network, out-of-area service provider at no less than 100 percent of the Medicaid Fee-For-Service rate.

(3) In accordance with §533.005(a)(12) and (b) of the Government Code, all post stabilization services provided to a member by an out-of-network provider must be reimbursed by the MCO at the rates for providers of services in the Texas Medicaid Program for which reimbursement methodologies are specified in Chapter 355 of this title, until the MCO arranges for the timely transfer of the member, as determined by the member's attending physician, to a provider in the MCO's network.

(d) Reporting requirements

(1) Each MCO that contracts with HHSC to provide health care services to members in a health care service region must submit quarterly information in its financial statistical report to HHSC. Each MCO must provide its financial statistical report to HHSC by the 30th calendar day of the month following the end of each quarter.

(2) Each financial statistical report submitted by an MCO must contain information about members enrolled in each HHSC Medicaid managed care program provided by the MCO. The report shall include the following information:

(A) The types of services provided by out-of-network providers for members of the MCO's Medicaid managed care plan.

(B) The scope of services provided by out-of-network providers to members of the MCO's Medicaid managed care plan.

(C) Total number of hospital admissions, as well as number of admissions that occur at each out-of-network hospital. Each out-of-network hospital must be identified.

(D) Total number of emergency room visits, as well as total number of emergency room visits that occur at each out-of-network hospital. Each out-of-network hospital must be identified.

(E) Total dollars billed for other outpatient services, as well as total dollars billed by out-of-network providers for other outpatient services.

(F) Any additional information required by HHSC.

(3) HHSC will determine the specific form of the report described above and will include the report form as part of the Medicaid managed care contract between HHSC and the MCOs.

(e) Utilization

(1) Upon review of the reports described in subsection (d) of this section that are submitted to HHSC by the MCOs, HHSC may determine that an MCO exceeded maximum Out-of-Network usage standards set by HHSC for out-of-network access to health care services during the reporting period.

(2) Out-of-Network Usage Standards

(A) Inpatient Admissions: No more than 25 percent of an MCO's total hospital admissions, by service delivery area, may occur in out-of-network facilities.

(B) Emergency Room Visits: No more than 30 percent of an MCO's total emergency room visits, by service delivery area, may occur in out-of-network facilities.

(C) Other Outpatient Services: No more than 30 percent of total dollars billed to an MCO for "other outpatient services" may be billed by out-of-network providers.

(3) Special Considerations in Calculating MCO Out-of-Network Usage of Inpatient Admissions and Emergency Room Visits.

(A) In the event that an MCO exceeds the maximum Out-of-Network usage standard set by HHSC for Inpatient Admissions or Emergency Room Visits, HHSC may modify the calculation of that MCO's Out-of-Network usage for that standard if:

(i) The admissions or visits to a single out-of-network facility account for 25% or more of the MCO's admissions or visits in a reporting period; and

(ii) HHSC determines that the MCO has made all reasonable efforts to contract with that out-of-network facility as a network provider without success.

(B) In determining whether the MCO has made all reasonable efforts to contract with the single out-of-network facility described above in subparagraph (A) of this paragraph, HHSC will consider at least the following information:

(i) How long the MCO has been trying to negotiate a contract with the out-of-network facility;

(ii) The in-network payment rates the MCO has offered to the out-of-network facility;

(iii) The other, non-financial contractual terms the MCO has offered to the out-of-network facility, particularly those relating to prior authorization and other utilization management policies and procedures;

(iv) The MCO's history with respect to claims payment timeliness, overturned claims denials, and provider complaints;

(v) The MCO's solvency status; and

(vi) The out-of-network facility's reasons for not contracting with the MCO.

(C) If the conditions described in subparagraph (A) of this paragraph are met, HHSC may modify the calculation of the MCO's Out-of-Network usage for the relevant reporting period and standard by excluding from the calculation the Inpatient Admissions or Emergency Room Visits to that single out-of-network facility.

(f) Provider Complaints.

(1) HHSC will accept provider complaints regarding reimbursement for or overuse of out-of-network providers and will conduct investigations into any such complaints.

(2) When a provider files a complaint regarding out-of-network payment, HHSC will require the relevant MCO to submit data to support its position on the adequacy of the payment to the provider. The data will include at a minimum a copy of the claim for services rendered and an explanation of the amount paid and of any amounts denied.

(3) Not later than the 60th day after HHSC receives a provider complaint, HHSC shall notify the provider who initiated the complaint of the conclusions of HHSC's investigation regarding the complaint. The notification to the complaining provider will include:

(A) A description of the corrective actions, if any, required of the MCO in order to resolve the complaint; and

(B) If applicable, a conclusion regarding the amount of reimbursement owed to an out-of-network provider.

(4) If HHSC determines through investigation that an MCO did not reimburse an out-of-network provider based on a reasonable reimbursement methodology as described within subsection (c) of this section, HHSC shall initiate a corrective action plan. Refer to subsection (g) of this section for information about the contents of the corrective action plan.

(5) If, after an investigation, HHSC determines that additional reimbursement is owed to an out-of-network provider, the MCO must:

(A) Pay the additional reimbursement owed to the out-of-network provider within 90 days from the date the complaint was received by HHSC or 30 days from the date the clean claim, or information required that makes the claim clean, is received by the MCO, whichever comes first; or,

(B) Submit a reimbursement payment plan to the out-of-network provider within 90 days from the date the complaint was received by HHSC. The reimbursement payment plan provided by the MCO must provide for the entire amount of the additional reimbursement to be paid within 120 days from the date the complaint was received by HHSC.

(6) If the MCO does not pay the entire amount of the additional reimbursement within 90 days from the date the complaint was received by HHSC, HHSC may require the MCO to pay interest on the unpaid amount. If required by HHSC, interest accrues at a rate of 18 percent simple interest per year on the unpaid amount from the 90th day after the date the complaint was received by HHSC, until the date the entire amount of the additional reimbursement is paid.

(7) HHSC will pursue any appropriate remedy authorized in the contract between the MCO and HHSC if the MCO fails to comply with a corrective action plan under subsection (g) of this section.

(g) Corrective Action Plan.

(1) A corrective action plan is required by HHSC in the following situations:

(A) The MCO exceeds a maximum standard established by HHSC for out-of-network access to health care services described in subsection (e) of this section; or

(B) The MCO does not reimburse an out-of-network provider based on a reasonable reimbursement methodology as described within subsection (c) of this section.

(2) A corrective action plan imposed by HHSC will require one of the following:

(A) Reimbursements by the MCO to out-of-network providers at rates that equal the allowable rates for the health care services as determined under §32.028 and §32.0281, Human Resources Code, for all health care services provided during the period:

(i) the MCO is not in compliance with a utilization standard established by HHSC; or

(ii) the MCO is not reimbursing out-of-network providers based on a reasonable reimbursement methodology, as described in subsection (c) of this section.

(B) Initiation of an immediate freeze by HHSC on the enrollment of additional recipients in the MCO's managed care plan until HHSC determines that the provider network under the managed care plan can adequately meet the needs of the additional recipients;

(C) Education by the MCO of recipients enrolled in the managed care plan regarding the proper use of the provider network under the health care plan; or

(D) Any other actions HHSC determines are necessary to ensure that Medicaid recipients enrolled in managed care plans provided by the MCO have access to appropriate health care services and that providers are properly reimbursed by the MCO for providing medically necessary health care services to those recipients.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 21, 2005.

TRD-200502978

Steve Aragón

Chief Counsel

Texas Health and Human Services Commission

Earliest possible date of adoption: September 4, 2005

For further information, please call: (512) 424-6900


Chapter 355. REIMBURSEMENT RATES

Subchapter J. PURCHASED HEALTH SERVICES

4. MEDICAID HOSPITAL SERVICES

1 TAC §355.8063

The Texas Health and Human Services (HHSC) proposes to amend §355.8063, Reimbursement Methodology for Inpatient Hospital Services in its Medicaid Reimbursement Rates chapter.

Background and Justification

The proposed amendment to §355.8063 removes obsolete language including replacing the term "department" with HHSC or the commission. Consistent with the amounts appropriated to the Texas Medicaid Program, the proposed amendment also extends the two provisions that would otherwise expire on August 31, 2005 to August 31, 2007. The first provision, contained in subsection (h), explains the time period during which HHSC will not rebase or recalculate the standard dollar amount (SDA) for each payment division. The second provision, contained in subsection (n)(2), explains the time period during which HHSC will not apply a cost of living index to the SDA. Finally, the proposed amendment increases the limit on the amount of high volume payments as explained in subsection (u).

Section-by-Section Summary

Subsection (a) deletes reference to the budgetary reduction factor and references dates.

Subsection (a) paragraph (7) removes sentence with reference to 1985 fiscal year.

Subsection (h) extends the period HHSC will not rebase or recalculate the standard dollar amount (SDA) for each payment division from September 1, 2003 through August 31, 2007.

Subsection (j) paragraph (1) subparagraph (A) removes reference to the Texas Board of Health.

Subsection (n) paragraph (1) removes sentence beginning with 1985 and the reference regarding beginning September 1, 1988.

Subsection (n) paragraph (1) removes subparagraph (C) and paragraph (2) extends the period during which HHSC will not apply the cost-of-living index to the SDA for admissions during the period September 1, 2003 through August 31, 2007.

Subsection (n) paragraph (2) subparagraph (A) removes reference to HCFA and replaced with CMS.

Subsection (r) removes reference regarding SY 1990.

Subsection (u) removes language describing availability of funds including paragraphs (1) and (2).

Subsection (u) starts with language contained in paragraph (3) High-volume payments.

Also, in subsection (u) High-volume payments; limits the high-volume payments to $26,400,000 for eligible providers.

Fiscal Note

Tom Suehs, Deputy Executive Commissioner for Financial Services, has determined that during the first 5-year period the amended rule is in effect there will be no fiscal impact to state government. The proposed rule will not result in any fiscal implications for local health and human services agencies. Local governments will not incur additional costs.

Small and Micro-business Impact Analysis

Mr. Suehs has also determined that there will be no effect on small businesses or micro businesses to comply with the amendment as they will not be required to alter their business practices as a result of the rule. There are no anticipated economic costs to persons who are required to comply with the proposed rule. There is no anticipated negative impact on local employment.

Public Benefit

Mr. Suehs has determined that for each year of the first five years the section is in effect, the public will benefit from the adoption of the section. The anticipated public benefit, as a result of enforcing the section, will be to maintain cost-effective reimbursement for hospital inpatient services within appropriated funds for the 2006-2007 biennium.

Regulatory Analysis

HHSC has determined that this proposal is not a "major environmental rule" as defined by §2001.0225 of the Texas Government Code. "Major environmental rule" is defined to mean a rule the specific intent of which is to protect the environment or reduce risk to human health from environment exposure and that may adversely affect, in a material way, the economy, a sector of the economy, productivity, competition, jobs, the environment or the public health and safety of a state or a sector of the state. This proposal is not specifically intended to protect the environment or reduce risks to human health from environment exposure.

Takings Impact Assessment

HHSC has determined that this proposal does not restrict or limit an owner's right to his or her property that would otherwise exist in the absence of government action and, therefore, does not constitute a taking under §2007.043 of the Government Code.

Public Comment

Written comments on the proposal may be submitted to Arnulfo Gomez, at HHSC (H-600), P.O. Box 85200-5200, Austin, Texas by fax to (512) 491-1953, or by e-mail to arnulfo.gomez@hhsc.state.tx.us within 30 days of publication of this proposal in the Texas Register .

Public Hearing

A public hearing is scheduled for August 30, 2005 at 1:00 p.m. in the Lone Star Room of Building H, Health and Human Services Commission, 11209 Metric Blvd., Austin, Texas 78758. Persons requiring further information, special assistance, or accommodations should contact Carmen Capetillo at (512) 491-1104.

To comply with federal regulations, a copy of the proposal is being sent to each Department of Aging and Disability Services office where it will be available for public review upon request.

Statutory Authority (Medicaid)

The amendment is proposed under the Texas Government Code, §531.033, which provides the Commissioner of HHSC with broad rulemaking authority; the Human Resources Code, §32.021 and the Texas Government Code, §531.021(a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas and the Texas Government Code, §531.021(b), which provides HHSC with the authority to propose and adopt rules governing the determination of Medicaid reimbursements).

The proposed amendment affects the Human Resources Code, Chapter 32, and the Texas Government Code, Chapter 531. No other statutes, articles, or codes are affected by this proposal.

§355.8063.Reimbursement Methodology for Inpatient Hospital Services.

(a) Introduction. Except as otherwise specified in subsection (q) of this section, the Texas Medical Assistance Program (Medicaid) reimburses hospitals, except in-state children's hospitals, for covered inpatient hospital services using a prospective payment system. In-state children's hospitals are reimbursed for covered inpatient hospital services using the methodology described in subsection (o) of this section. For hospitals other than in-state children's hospitals, the Health and Human Services Commission (HHSC) [ department ] or its designee groups hospitals into payment divisions using the average base year payment per case in each hospital after adjusting each hospital's base year payment per case by a case mix index[ , ] and a cost-of-living index[ , and a budgetary reduction factor of 10%. The budgetary reduction factor for admissions occurring in state fiscal year 1990 (September 1, 1989, through August 31, 1990) is 7.0% and the budgetary reduction factor for admissions occurring in state fiscal year 1991 (September 1, 1990, through August 31, 1991) is 5.5%. For admissions occurring in state fiscal year 1992 (September 1, 1991, through August 31, 1992) and subsequent state fiscal years, a budgetary reduction factor is not applied ]. The payment divisions are separated into $100 increments. If a payment division has less than ten observations for Medicaid data, the HHSC [ department ] or its designee considers that payment division to be statistically invalid. Hospitals within that payment division are placed into the nearest valid payment division.

(b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Diagnosis-related group (DRG)--The taxonomy of diagnoses as defined in the Medicare DRG system or as otherwise specified by the HHSC [ department ] or its designee.

(2) Case mix index--The hospital-specific average relative weight.

(3) Relative weight--The arithmetic mean of the dollars for a specific DRG divided by the arithmetic mean of the dollars for all cases.

(4) Standard dollar amount--The weighted mean base year payment for all hospitals in a payment division after adjusting each hospital's base year payment per case by a case mix index, and a cost-of-living index[ , and a budgetary reduction factor of 10%. The budgetary reduction factor for admissions occurring in state fiscal year 1990 (September 1, 1989, through August 31, 1990) is 7.0% and the budgetary reduction factor for admissions occurring in state fiscal year 1991 (September 1, 1990, through August 31, 1991) is 5.5%. For admissions occurring in state fiscal year 1992 (September 1, 1991, through August 31, 1992) and subsequent state fiscal years, a budgetary reduction factor is not applied ]. The HHSC [ department ] or its designee establishes a minimum standard dollar amount of $1,600 and applies it to those hospitals whose standard dollar amount is less than the minimum. The HHSC [ department ] or its designee applies cost-of-living indexes to the standard dollar amounts established for the base year to calculate standard dollar amounts for prospective years. A cost-of-living index is not applied to the minimum standard dollar amount.

(5) Base year--A 12-consecutive-month period of claims data selected by the HHSC [ department ] or its designee as the basis for establishing the payment divisions, standard dollar amounts, and relative weights. The HHSC [ department ] or its designee selects a new base year at least every three years.

(6) Base year payment per case--The payment that would have been made to a hospital if the HHSC [ department ] or its designee reimbursed the hospital under similar methods and procedures used in Title XVIII of the Social Security Act, as amended, effective October 1, 1982, by Public Law 97-248. In calculating the base year payment per case, the HHSC [ department ] or its designee uses the interim rate established at tentative or final settlement, if applicable, of the most recent cost reporting period up to and including the cost reporting period associated with the base year.

(7) Interim rate--Total reimbursable Title XIX inpatient costs, as specified in paragraph (6) of this subsection, divided by total covered Title XIX inpatient charges per tentative or final cost reporting period. [ Beginning with 1985 hospital fiscal year cost reporting periods, ] The [ the ] interim rate established at tentative settlement includes incentive/penalty payments to the extent that they continue to be permitted by federal law and regulation and continue to be included on Title XVIII cost reports.

(8) New hospital--A facility that has been in operation under present and previous ownership for less than three years and that initially enrolls as a Title XIX provider after the current base year. A new hospital must have been substantially constructed within the five previous years from the effective date of the prospective rate period.

(9) Children's hospital--A hospital within Texas that is recognized by Medicare as a children's hospital and is exempted by Medicare from the Medicare prospective payment system.

(10) Out-of-state children's hospital--A hospital outside of Texas that is recognized by Medicare as a children's hospital and is exempted by Medicare from the Medicare prospective payment system.

(c) Calculating relative weights and standard dollar amounts. The HHSC [ department ] or its designee uses recent Texas claims data to calculate both the relative weights and standard dollar amounts. A relative weight is calculated for each DRG and applied to all payment divisions. A separate standard dollar amount is calculated for each payment division. Except for border hospitals with a Texas Medicaid provider number beginning with an H and out-of-state children's hospitals, the HHSC [ department ] or its designee uses the overall arithmetic mean base year payment per case, including the cost of living update as specified in subsection (n) of this section, as the standard dollar amount to reimburse out-of-state hospitals. The overall arithmetic mean base year payment per case, including the cost of living update as specified in subsection (n) of this section, is also used as the standard dollar amount to reimburse military hospitals providing inpatient emergency services for admissions on or after October 1, 1993. The calculation of the standard dollar amount for out-of-state children's hospitals is described in subsection (r) of this section. Except for new hospitals, the overall arithmetic mean base year payment per case, including the cost of living update as specified in subsection (n) of this section, is also used as the standard dollar amount to reimburse hospitals that initially enroll as a Title XIX provider after the current base year. The standard dollar amount for new hospitals is the lesser of the overall arithmetic mean base year payment per case plus three percentile points, including the cost of living update as specified in subsection (n) of this section, or the hospital's average Medicaid cost per Medicaid discharge based on the tentative or final settlement, if applicable, of the hospital's first 12-month cost reporting period occurring after the hospital's enrollment as a Title XIX provider. In the event that the new hospital is a replacement facility for a hospital that is currently enrolled as a Title XIX provider, the hospital is reimbursed by using either the standard dollar amount of the existing provider or the standard dollar amount for new hospitals, whichever is greater. The use of the hospital's average Medicaid cost per Medicaid discharge, after adjusting for case-mix intensity, as its standard dollar amount is applied prospectively to the beginning of the next prospective year and is applicable only if the tentative or final settlement is completed and available at least 60 days before the beginning of the prospective year. The hospital's Medicaid costs are determined using similar methods and procedures used in Title XVIII of the Social Security Act, as amended, effective October 1, 1982, by Public Law 97-248. When two or more Title XIX participating providers merge, the HHSC [ department ] or its designee combines the Medicaid inpatient costs, as described in this subsection, of each of the individual providers to calculate a standard dollar amount, effective at the start of the next prospective period, to be used to reimburse the merged entity. Acquisitions and buyouts do not result in a recalculation of the standard dollar amount of the acquired provider unless acquisitions or buyouts result in the purchased or acquired hospital becoming part of another Medicaid participating provider. When the HHSC [ department ] or its designee determines that the HHSC [ department ] or its designee has made an error that, if corrected, would result in the standard dollar amount of the provider for which the error was made changing to a new payment division, either higher or lower, the HHSC [ department ] or its designee moves the provider into the correct payment division, and the HHSC [ department ] or its designee reprocesses claims paid using the initial, incorrect standard dollar amount that was in effect for the current state fiscal year by using the existing standard dollar amount of the payment division in which the provider was moved. In the determination of the corrected payment division, the HHSC [ department ] or its designee uses the relative weights that are currently in effect for the state fiscal year. The correction of this error condition only applies to the current state fiscal year payments. No corrections are made to payment rates for services provided in previous state fiscal years. If a specific DRG has less than ten observations for Medicaid data, the HHSC [ department ] or its designee uses the corresponding Medicare relative weight, except for DRGs relating to organ transplants. Relative weights for organ transplant DRGs with less than ten observations may be developed using Medicaid-specific data. The relative weights include organ procurement costs for both solid and nonsolid organs. The HHSC [ department ] or its designee makes no distinction between urban and rural hospitals and there is no federal/national portion within the payment.

(d) Add-on payments. There are no separate add-on payments. The HHSC [ department ] or its designee:

(1) includes capital costs in the standard dollar amount for each payment division;

(2) includes the cost of indirect medical education in the standard dollar amount for each payment division;

(3) includes the cost of malpractice insurance in the standard dollar amount for each payment division; and

(4) includes return on equity in the standard dollar amount for each payment division.

(e) Calculating the payment amount. The HHSC [ department ] or its designee reimburses each hospital for covered inpatient hospital services by multiplying the standard dollar amount established for the hospital's payment division by the appropriate relative weight. The patient's DRG classification is primarily based on the patient's principal diagnosis. The resulting amount is the payment amount to the hospital.

(f) Patient transfers. If a patient is transferred, the HHSC [ department ]or its designee establishes payment amounts as specified in paragraphs (1) - (4) of this subsection. If appropriate, the HHSC [ department ] or its designee manually reviews transfers for medical necessity and appropriate payment.

(1) If the patient is transferred to a skilled nursing facility or intermediate care facility, the HHSC [ department ] or its designee pays the transferring hospital the total payment amount of the patient's DRG.

(2) If the patient is transferred to another hospital, the HHSC [ department ] or its designee pays the receiving hospital the total payment amount of the patient's DRG. The HHSC [ department ] or its designee pays the transferring hospital a DRG per diem. The DRG per diem is based on the following formula: (DRG relative weight x standard dollar amount)/DRG mean length of stay (LOS) x LOS. The LOS is the lesser of the DRG mean LOS, the claim LOS, or 30 days. The 30-day factor is not used in establishing a DRG per diem amount for a medically necessary stay of a recipient less than age one in a Title XIX participating hospital or a recipient less than age six in a disproportionate share hospital as defined by the HHSC [ department ].

(3) If the HHSC [ department ] or its designee determines that the transferring hospital provided a greater amount of care than the receiving hospital, the HHSC [ department ] or its designee reverses the payment amounts. The transferring hospital is paid the total payment amount of the patient's DRG and the receiving hospital is paid the DRG per diem.

(4) The HHSC [ department ] or its designee makes multiple transfer payments by applying the per diem formula to the transferring hospitals and the total DRG payment amount to the discharging hospital.

(g) Split billing. The HHSC [ department ] or its designee does not allow interim billings by providers. The hospital may bill the HHSC [ department ] or its designee when the patient exceeds his 30-day inpatient hospital limit or is discharged. The HHSC [ department ] or its designee bases payment on the diagnosis codes known at billing. The payment is final.

(h) Rebasing the standard dollar amounts. The HHSC or its designee rebases the standard dollar amount for each payment division at least every three years. HHSC will not rebase or recalculate the standard dollar amounts for each payment division for admissions during the period September 1, 2003 through August 31, 2007 [ 2005 ]. The relative weights are recalibrated whenever the standard dollar amounts are recalculated. The standard dollar amounts are not rebased on an interim basis unless the HHSC or its designee determines that special circumstances warrant rebasing.

(i) Recalibrating the relative weights. The HHSC [ department ] or its designee recalibrates the relative weights whenever the standard dollar amounts are rebased.

(j) Revising the diagnosis related groups. The HHSC [ department ] or its designee parallels the taxonomy of diagnoses as defined in the Medicare DRG prospective payment system unless a revision is required based on Texas claims data or other factors as determined by the HHSC [ department ] or its designee.

(k) Appeals.

(1) A hospital may appeal individual claims as specified in other HHSC [ department ] rules. As specified in subparagraphs (A) - (C) of this paragraph, a hospital may also appeal mechanical, mathematical, and data entry errors in base year claims data and incorrectly computed subsequent adjustments to the hospital's base year claims data because of the base year's tentative or final settlement.

(A) If a hospital believes that the HHSC [ department ] or its designee made a mechanical, mathematical, or data entry error in computing the hospital's base year claims data, the hospital may request a review of the disputed calculation by the HHSC [ department ] or, at the HHSC [ department's ] direction, its designee. A hospital may not request a review if the disputed calculation is the result of the hospital's submittal of incorrect data or the result of the HHSC [ department's ] or its designee's application of an interim rate to the base year claims data derived from a cost reporting period occurring before the base year. Upon the provider hospital's request, the HHSC [ department ] or its designee provides the applicable available data used in calculating the hospital's base year claims data to the provider hospital. The hospital must submit a specific written request for review and appropriate specific documentation supporting its contention that there has been a mechanical, mathematical, or data entry error to the HHSC [ department ] or its designee. Except as specified in subparagraph (C) of this paragraph, the request must be submitted within 60 days after the hospital receives initial notification of its payment division and standard dollar amount. The HHSC [ department ] or its designee conducts the review as quickly as possible and notifies the hospital of the results. If the hospital is dissatisfied with the results of the review, the hospital may request a formal hearing under the procedures, including the expedited processing provisions, [ contained in Chapter 1 of this title (relating to the Texas Board of Health), ] except that, in the event of any conflict, the procedures contained in this section apply. Except as specified in subparagraph (C) of this paragraph, if the review or appeal is completed at least 60 days before the beginning of the next prospective year, any adjustment required after the completion of the review or appeal is applied to that next prospective year. If the review or appeal is not completed at least 60 days before the beginning of the next prospective year, any adjustment required after the completion of the review or appeal is applied only to the subsequent prospective year. The base year claims data used by the HHSC [ department ] or its designee pending the review or appeal is the base year claims data established by the HHSC [ department ] or its designee.

(B) If a hospital believes that the HHSC [ department ] or its designee incorrectly computed subsequent adjustments to the hospital's base year claims data because of the base year's tentative or final settlement, the hospital may request a review of the disputed calculation related to the tentative or final settlement by the HHSC [ department ] or, at the HHSC [ department's ] direction, its designee. The hospital's request may also include a request to review the tentative or final settlement. The hospital must submit a specific written request for review and appropriate specific documentation supporting its contention that the tentative or final settlement is incorrect to the HHSC [ department ] or its designee. Except as specified in subparagraph (C) of this paragraph, the request must be submitted within 60 days after the hospital receives notification of a tentative or final settlement of the base year data. The HHSC [ department ] or its designee conducts the review as quickly as possible and notifies the hospital of the results. If the hospital is dissatisfied with the results of the review, the hospital may request a formal hearing under the procedures, including the expedited processing provisions, contained in Chapter 1 of this title (relating to the Texas Board of Health), except that, in the event of any conflict, the procedures contained in this section apply. Except as specified in subparagraph (C) of this paragraph, if the review or appeal is completed at least 60 days before the beginning of the next prospective year, any adjustment required after the completion of the review or appeal is applied to that next prospective year. If the review or appeal is not completed at least 60 days before the beginning of the next prospective year, any adjustment required after the completion of the review or appeal is applied only to the subsequent prospective year. The interim rate applied to the base year claims data pending the review or appeal is the interim rate established by the HHSC [ department ] or its designee.

(C) If a hospital believes that the HHSC [ department ] or its designee incorrectly computed the hospital's 1985 base year claims data as specified in subparagraph (A) of this paragraph, the hospital may submit a specific written request for review and appropriate specific documentation supporting its contention within 60 days after the effective date of this section. If a hospital believes that the HHSC [ department ] or its designee incorrectly computed the tentative or final settlement of the cost reporting period associated with the 1985 base year as specified in subparagraph (B) of this paragraph, the hospital may submit a specific written request for review and appropriate specific documentation supporting its contention within 60 days after the effective date of this section. The hospital must follow the process described in subparagraph (A) or (B) of this paragraph, as appropriate. If the review or appeal is completed by December 31, 1987, any adjustment required after the completion of the review or appeal is applied to the March 1, 1988, adjustment described in subsection (n) of this section. If the review or appeal is not completed by December 31, 1987, any adjustment required after the completion of the review or appeal is applied to the next prospective year.

(2) A hospital may not appeal the prospective payment methodology used by the HHSC [ department ] or its designee, including:

(A) the payment division methodologies;

(B) the DRGs established;

(C) the methodology for classifying hospital discharges within the DRGs;

(D) the relative weights assigned to the DRGs; and

(E) the amount of payment as being inadequate to cover costs.

(l) Cost reports. Each hospital must submit a cost report at periodic intervals as prescribed by Medicare or as otherwise prescribed by the HHSC [ department ] or its designee. The HHSC [ department ] or its designee uses data from these reports in rebasing years, in making adjustments as described in subsections (n) and (q) of this section, and in completing cost settlements for children's hospitals.

(m) Cost settlements. If a hospital has already begun its fiscal year on September 1, 1986, cost settlement for that portion of the hospital's fiscal year which occurs before September 1, 1986, is based on reimbursement for covered inpatient hospital services under similar methods and procedures used in the Social Security Act, Title XVIII, as amended, effective October 1, 1982, by Public Law 97-248. Except as otherwise specified in subsection (q) of this section, there are no cost settlements for services provided to recipients admitted as inpatients to hospitals reimbursed under the prospective payment system on or after the implementation date of the prospective payment system.

(n) Adjustments to base year claims data.

(1) Beginning with 1985 hospital fiscal year cost reporting periods, the HHSC [ department ] or its designee adjusts each hospital's base year claims data and resulting payment division and standard dollar amount to reflect the interim rate established at tentative and final settlement, if applicable, of the cost reporting period associated with the base year. The adjustments are applied only to claims data for months within the base year that coincide with months within the hospital's cost reporting period. The claims data for months within the base year that do not coincide with months within the hospital's cost reporting period remain unchanged until the tentative or final settlement of the cost reporting period containing those months has been completed. The adjustments are applied to the next prospective year beginning September 1, 1988, except as specified in subparagraphs (A), (B), and (C) of this paragraph.

(A) If the tentative or final settlement is not completed and available at least 60 days before the beginning of the next prospective year, any adjustment required because of the settlement is applied to the subsequent prospective year.

(B) If a review or appeal of a tentative or final settlement is not completed at least 60 days before the beginning of the next prospective year, the interim rate applied to the claims data on which the hospital's payment division and standard dollar amount are established is the interim rate established at tentative or final settlement by the department or its designee. Any adjustment required after the completion of the review or appeal is applied only to the subsequent prospective year.

(C) The HHSC [ department ] or its designee makes a March 1, 1988, adjustment [ to each hospital's 1985 base year claims data and resulting payment division and standard dollar amount to reflect the interim rate established at tentative and final settlement, if applicable, of the cost reporting period associated with the 1985 base year. Any additional adjustments required as a result of reviews and appeals described in subsection (k) of this section and completed by December 31, 1987, are also reflected in the March 1, 1988, adjustment. Future adjustments as described in this subsection and subsection (k) of this section are made at the beginning of each prospective year. ]

(2) The HHSC or its designee updates the standard dollar amount each year for each payment division by applying a cost-of-living index to the standard dollar amount established for the base year. The cost-of-living index for state fiscal years 2003, 2004, [ and ] 2005 , 2006 and 2007 will not be applied to the standard dollar amount for admissions during the period September 1, 2003 through August 31, 2007 [ 2005 ]. The index used to update the standard dollar amounts is the greater of:

(A) the Health Care Financing Administration's (HCFA) Market Basket Forecast (PPS Hospital Input Price Index) based on the report issued for the federal fiscal year quarter ending in March of each year, adjusted for the state fiscal year by summing one-third of the annual forecasted rate of the index for the current calendar year and two-thirds of the annual forecasted rate of the index for the next calendar year; or

(B) an amount determined by selecting the lesser of the following two measures:

(i) the change in total charges per case for the latest year available compared to total charges per case for the previous year; or

(ii) the change in the Texas medical consumer price index-urban (that is, the arithmetic mean of the Houston and Dallas/Fort Worth medical consumer price indices for urban consumers) for the latest year available compared to the Texas medical consumer price index-urban for the previous year.

(o) Reimbursement to in-state children's hospitals. The HHSC or its designee reimburses in-state children's hospitals under similar methods and procedures used in the Social Security Act, Title XVIII, as amended, effective October 1, 1982, by Public Law 97-248, Tax Equity and Fiscal Responsibility Act (TEFRA) except for the cost of direct graduate medical education (DGME). For cost reporting periods beginning on or after September 1, 2003, children's hospitals with allowable DGME costs as determined under TEFRA principles will receive a pro rata share of their annual TEFRA DGME cost based on appropriations or allocations from appropriations made specifically for this purpose. The amount and frequency of interim payments will also be subject to the availability of appropriations made specifically for this purpose. Interim payments are subject to settlement at both tentative and final audit of a hospital's cost report. The HHSC or its designee establishes target rates and stipulates payments per discharge, incentives, and percentage of payments. The HHSC [ department ] or its designee uses each hospital's 1987 final audited cost reporting period (fiscal year ending during calendar year 1987) as its target base period. The target base period for hospitals recognized by Medicare as children's hospitals after the implementation of this subsection is the hospital's first full 12-month cost reporting period occurring after its recognition by Medicare. The HHSC or its designee annually increases each hospital's target amount for the target base period by the cost-of-living index described in subsection (n) of this section. The HHSC or its designee selects a new target base period at least every three years. The HHSC or its designee bases interim payments to each hospital upon the interim rate derived from the hospital's most recent tentative or final Medicaid cost report settlement. If a Title XIX participating hospital is subsequently recognized by Medicare as a children's hospital after the implementation of this subsection, the hospital must submit written notification to the HHSC or its designee and include adequate documentation and claims data. Upon receipt of the written notification from the hospital, the HHSC or its designee reserves the right to take 90 days to convert the hospital's reimbursement to the reimbursement methodology described in this subsection.

(p) Day and cost outliers. Effective for inpatient hospital services provided on or after July 1, 1991, the HHSC or its designee pays day or cost outliers for medically necessary inpatient services provided to clients less than age one in all Title XIX participating hospitals and clients less than age six in disproportionate share hospitals, as defined by the HHSC, that are reimbursed under the prospective payment system. For purposes of outlier payment adjustments, disproportionate share hospitals are defined as those hospitals identified by the HHSC during the previous state fiscal year as disproportionate share hospitals. If an admission qualifies for both a day and a cost outlier, only the outlier resulting in the highest payment to the hospital is paid. (Note: This subsection does not address reimbursement for the provision of other necessary inpatient hospital services under the Early and Periodic Screening, Diagnosis, and Treatment Program, as required by the Omnibus Budget and Reconciliation Act of 1989.)

(1) To establish day outliers, the HHSC or its designee first removes from the current base year data those admissions whose actual lengths of stay are greater than or equal to plus or minus three standard deviations from the arithmetic mean length of stay for each DRG. The HHSC or its designee then recomputes the arithmetic mean length of stay and the standard deviations for each DRG. Inpatient days, which exceed two standard deviations beyond the arithmetic mean length of stay for the DRG are eligible for a day outlier. Payment is based on 70% of a per diem amount of a full DRG payment. The per diem amount is established by dividing the full DRG payment amount by the arithmetic mean length of stay for the DRG.

(2) To establish cost outliers, the HHSC or its designee first determines what the amount of reimbursement for the admission would have been if the HHSC or its designee reimbursed the hospital under similar methods and procedures used in the Social Security Act, Title XVIII, as amended, effective October 1, 1982, by Public Law 97-248, Tax Equity and Fiscal Responsibility Act (TEFRA). The HHSC or its designee then determines the outlier threshold by using the greater of the full DRG payment amount multiplied by 1.5 or an amount determined by selecting the lesser of the universe mean of the current base year data multiplied by 11.14, or the hospital's standard dollar amount multiplied by 11.14. The hospital's standard dollar amount is the amount that the HHSC or its designee uses to reimburse the hospital under the prospective payment system. The outlier threshold is subtracted from the amount of reimbursement for the admission established under the TEFRA principles. The HHSC or its designee multiplies any remainder by 70% to determine the actual amount of the cost outlier payment.

(3) If a recipient less than age one is admitted to and remains in a hospital past his or her first birthday, medically necessary inpatient days and hospital charges after the child reaches age one are included in calculating the amount of any day or cost outlier payment.

(q) Hospitals with 100 or fewer licensed beds and certain hospitals with more than 100 licensed beds. The policies in this subsection apply only to hospital fiscal years beginning on or after September 1, 1989 for hospitals with 100 or fewer licensed beds at the beginning of the hospital's fiscal year or hospital fiscal years beginning on or after September 1, 2003 for hospitals with more than 100 licensed beds at the beginning of the hospital's fiscal year, located in a county that is not in a metropolitan statistical area (MSA) as defined by the U.S. Office of Management and Budget (OMB) and designated by the Center for Medicare & Medicaid Services as a Sole Community Provider (SCH) or Rural Referral Center RCC. At tentative cost settlement of the hospital's fiscal year (with subsequent adjustment at final cost settlement, if applicable), the HHSC or its designee determines what the amount of reimbursement during the fiscal year would have been if the HHSC or its designee reimbursed the hospital under similar methods and procedures used in Title XVIII of the Social Security Act, as amended, effective October 1, 1982, by Public Law 97-248, Tax Equity and Fiscal Responsibility Act (TEFRA). This determination is made without imposing a TEFRA cap. If the amount of reimbursement under the TEFRA principles is greater than the amount of reimbursement received by the hospital under the prospective payment system, the HHSC or its designee reimburses the difference to the hospital.

(r) Reimbursement to out-of-state children's hospitals. For admissions on or after September 1, 1991, the standard dollar amount for out-of-state children's hospitals is calculated as specified in this subsection. The HHSC [ department ] or its designee calculates the overall average cost per discharge for in-state children's hospitals based on tentative or final settlement of cost reporting periods ending in calendar year 1990. The overall average cost per discharge is adjusted for intensity of service by dividing it by the average relative weight for all admissions from in-state children's hospitals during state fiscal year 1990 (September 1, 1989 through August 31, 1990). The adjusted cost per discharge is updated each year by applying the cost-of-living index described in subsection (n) of this section. The resulting product is the standard dollar amount to be used for payment of claims as described in subsection (e) of this section. The HHSC [ department ] or its designee selects a new cost reporting period and admissions period from the in-state children's hospitals at least every three years for the purpose of calculating the standard dollar amount for out-of-state children's hospitals.

(s) Reimbursement of inpatient direct graduate medical education (GME) costs. The Medicaid allowable inpatient direct graduate medical education cost, as specified under similar methods and procedures used in the Social Security Act, Title XVIII, as amended, effective October 1, 1982, by Public Law 97-248, is calculated for each hospital having inpatient direct graduate medical education costs on its tentative or final audited cost report. Those inpatient direct medical education costs are removed from the calculation of the interim rate described in subsection (b)(7) of this section and not used in the calculation of the provider's standard dollar amount described in subsection (c) of this section. Those allowable inpatient direct graduate medical education costs for services delivered to Medicaid eligible patients with inpatient admission dates on or after September 1, 1997, will be subject to the cost determination and settlement provisions as described in this subsection. No Medicaid inpatient direct graduate medical education cost settlement provisions are applied to inpatient hospital admissions prior to September 1, 1997. For cost reporting periods beginning on or after September 1, 2003, providers with Medicaid allowable direct graduate medical education costs as described in this subsection will receive a pro rata share of their annual GME cost based on appropriations or allocations from appropriations made specifically for this purpose. The amount and frequency of interim payments will also be subject to the availability of appropriations made specifically for this purpose. Interim payments are subject to settlement at both tentative and final audit of a provider's cost report.

(t) Non-State Owned Urban Hospital Supplemental Inpatient Payments. Notwithstanding other provisions of this chapter, supplemental payments will be made each state fiscal year in accordance with this subsection to eligible hospitals that serve high volumes of Medicaid and uninsured patients.

(1) Supplemental payments are available under this subsection for inpatient hospital services provided by a publicly-owned hospital or hospital affiliated with a hospital district in Bexar, Dallas, Ector, El Paso, Harris, Lubbock, Nueces, Midland, Potter, Randall, Tarrant, and Travis. Supplemental payments will be made for inpatient services on or after July 6, 2001 for Bexar, Dallas, Ector, El Paso, Harris, Lubbock, Nueces, Tarrant, and Travis counties. Supplemental payments will be made for inpatient services on or after February 7, 2004 for Midland County. Supplemental payments will be made for inpatient services on or after May 29, 2004 for Potter and Randall counties.

(2) State funding for supplemental payments authorized under this paragraph will be limited to and obtained through intergovernmental transfers of local or hospital district funds. The supplemental payments described in this paragraph will be made in accordance with the applicable regulations regarding the Medicaid upper limit provisions codified at 42 C.F.R. §447.272.

(3) In each county listed in paragraph (1) of this subsection, the publicly-owned hospital or hospital affiliated with a hospital district that incurs the greatest amount of cost for providing services to Medicaid and uninsured patients, will be eligible to receive supplemental high volume payments. The supplemental payments authorized under this paragraph are subject to the following limits:

(A) In each state fiscal year the amount of any inpatient supplemental payments and outpatient supplemental payments may not exceed the hospital's "hospital specific limit," as determined under §355.8065(f)(2)(E) of this chapter (relating to Reimbursement to Disproportionate Share Hospitals (DSH)); and

(B) The amount of inpatient supplemental payments and fee-for-service Medicaid inpatient payments the hospital receives in a state fiscal year may not exceed Medicaid inpatient billed charges for inpatient services provided by the hospital to fee-for-service Medicaid recipients in accordance with 42 CFR §447.271.

(4) An eligible hospital will receive quarterly supplemental payments. The quarterly payments will be limited to one-fourth of the lesser of:

(A) The difference between the hospital's Medicaid inpatient billed charges and Medicaid payments the hospital receives for services provided to fee-for-service Medicaid recipients. Medicaid billed charges and payments will be based on a twelve consecutive-month period of fee-for-service claims data selected by HHSC; or

(B) The difference between the hospital's "hospital specific limit," as determined under §355.8065(f)(2)(E) of this chapter and the hospital's DSH payments as determined by the most recently finalized DSH reporting period.

(5) For purposes of calculating the "hospital specific limit" in paragraph (4)(B) of this subsection, the "cost of services to uninsured patients, " as defined by §355.8065(b)(5) of this chapter and "Medicaid shortfall," as defined by §355.8065(b)(16) of this chapter, will be adjusted as follows:

(A) The amount of Medicaid payments (including inpatient and outpatient supplemental payments) that exceed Medicaid cost will be subtracted from the "Medicaid shortfall."

(B) The amount of the "Medicaid shortfall," as adjusted in accordance with subparagraph (A) of this paragraph, will be subtracted from the "cost of services to uninsured patients" to ensure that, during any state fiscal year, a hospital does not receive more in total Medicaid payments (inpatient and outpatient rate payments, graduate medical education payments, supplemental payments and disproportionate share hospital payments) than its cost of serving Medicaid patients and patients with no health insurance.

(u) [ In accordance with this subsection and subject to the availability of funds, a high volume adjustment factor will be included in the calculation of the state fiscal year 2003 (September 1, 2002 through August 31, 2003) Standard Dollar Amount described in subsection (a)(4) of this section for eligible hospitals. For purposes of this subsection, payments made in state fiscal year 2004, prior to the effective date of this subsection, may be adjusted in accordance with the methodology set out in this subsection. Notwithstanding paragraphs (1) and (2) of this subsection, all non-state owned or operated, non public, DRG reimbursed hospitals located in urban counties with a population greater than 100,000, and Medicaid days in greater than 175% of the mean Medicaid days in state fiscal year 2002 (September 1, 2001 through August 31, 2002) will be eligible for a high volume adjustment to their state fiscal year 2004 SDA. Medicaid days will be based on hospital claims data selected by HHSC. County population will be based on the 2000 United States census. Eligible hospitals in counties with a population less than 1,000,000 will receive a high volume adjustment factor of 3.25%; eligible hospitals in counties with a population greater than 1,000,000 will receive a high volume adjustment factor of 5.125%. Effective September 1, 2004, high-volume payments previously made as an add-on percentage to standard dollar amount shall be made according to paragraph (3) of this subsection. ]

[(1) Eligible Hospitals. All non-state owned or operated, non public, DRG reimbursed hospitals located in urban counties with a population greater than 100,000, and Medicaid days greater than 175% of the mean Medicaid days in state fiscal year 2001 (September 1, 2000 through August 31, 2001) will be eligible for a high volume adjustment to their SDA. Medicaid days will be based on hospital claims data selected by HHSC. County population will be based on the 2000 United States census.]

[(2) All eligible hospitals in counties with a population less than 1,000,000 will receive a high volume adjustment factor of 6.50%; eligible hospitals in counties with a population greater than 1,000,000 will receive a high volume adjustment factor of 10.25%. High-volume payments will be made to eligible hospitals that serve as a safety net in providing emergency and inpatient care.]

[ (3) ] High-volume payments recognize the higher medical assistance costs and indigent care cost of hospitals that treat higher levels of low-income and indigent patients. Eligible hospitals are defined as non-state owned or operated, non-public, hospitals located in urban counties with Medicaid days greater than 160% of the mean Medicaid days. High-volume payments not exceeding $26,400,000 [ totaling $22,500,000 ] shall be allocated in proportion to uncompensated care loss for eligible hospitals participating in the current year DSH program. [ High-volume payments totaling $63,808,065 shall be made to eligible hospitals in proportion to Medicaid inpatient days of service. ] Payments under this provision will be made annually based on current year finalized Medicaid DSH claims data. The state shall adjust the high volume payments in accordance with applicable Medicaid charge upper limit regulations. Any adjustment shall be made on a proportional basis in order to allow eligible hospitals to participate to the fullest extent possible within the limits on disproportionate share hospital payments. HHSC shall use current year DSH data to determine Medicaid days. County population will be based on the 2000 United States census.

(v) State Owned Hospital Supplemental Inpatient Payments. Notwithstanding other provisions of this attachment, supplemental payments will be made each state fiscal year in accordance with this subsection to state government-owned or operated hospitals for inpatient services provided to Medicaid patients.

(1) Supplemental payments are available under this subsection for inpatient hospital services provided by state government-owned or operated hospitals on or after December 13, 2003. To qualify for a supplemental payment, the hospital must be owned or operated by the state of Texas.

(2) The aggregate supplemental payment amount will be the annual difference between the aggregate upper payment limit and the inpatient fee-for-service Medicaid payments made to the state government-owned or operated hospitals under this attachment. The aggregate upper payment limit will be calculated, based on Medicare payment principles and in accordance with the federal upper limit regulations at 42 CFR §447.272, using the most recent cost report data available.

(3) The amount of the supplemental payment made to each state government-owned or operated hospital will be determined by:

(A) dividing each hospital's fee-for-service Medicaid payments by the sum of the Medicaid fee-for-service payments of all state government-owned of operated hospitals;

(B) multiplying the percentage calculated in subparagraph (A) of this paragraph by the aggregate supplemental payment calculated in paragraph (2) of this subsection.

(4) Supplemental payments determined under this subsection will be calculated annually and paid quarterly.

(5) Supplemental payments made under this subsection when combined with other inpatient payments made under this section shall not exceed the maximum amounts allowable under applicable federal regulations at 42 CFR §447.271.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 25, 2005.

TRD-200503020

Steve Aragón

Chief Counsel

Texas Health and Human Services Commission

Earliest possible date of adoption: September 4, 2005

For further information, please call: (512) 424-6900


1 TAC §355.8065

The Texas Health and Human Services Commission (HHSC) proposes to amend §355.8065 concerning Additional Reimbursement to Disproportionate Share Hospitals, in its Medicaid Reimbursement Rates chapter.

Background and Justification

Consistent with the amounts appropriated to the Texas Medicaid Program, this amendment is necessary to support the efforts of local safety net hospitals to provide for health care services for the indigent population in their community. HHSC proposes to change the current applied conversion factors for hospitals based on available funds. Also, due to the consolidation of Health and Human Services Commission agencies, a terminology change throughout the chapter replaces the term "The Texas Department of Health" and "Texas Department of Mental Health and Mental Retardation" with the "Department of State Health Services" or DSHS. References to TDHS were deleted.

Section-by-Section Summary

Subsection (c) paragraph (7) removes the reference to pediatric, adolescent facilities and trauma facilities.

Subsection (c) paragraph (7) subparagraph (A) changes the reference to Bureau of Emergency Management to Office of EMS/Trauma Systems Coordination.

Subsection (f) paragraph (2) subparagraph (C) changes DSH conversion factors from certain hospital districts and children's hospitals.

Subsection (f) paragraph (2) subparagraph (D) allows for changes in the state fiscal years that the monthly disproportionate share payment is calculated.

Subsection (f) paragraph (2) subparagraph (D) clause (i) - clause (iv) change the conversion factors used to calculate the monthly DSH payment.

Fiscal Note

Tom Suehs, Deputy Executive Commissioner for Financial Services, has determined that during the first 5-year period the amended rule is in effect there will be no fiscal impact to state government. The proposed rule will not result in any fiscal implications for local health and human services agencies. Local governments will not incur additional costs.

Small and Micro-business Impact Analysis

Mr. Suehs has also determined that there will be no effect on small businesses or micro businesses to comply with the amendment as they will not be required to alter their business practices as a result of the rule. There are no anticipated economic costs to persons who are required to comply with the proposed rule. There is no anticipated negative impact on local employment.

Public Benefit

Mr. Suehs has determined that for each year of the first five years the §355.8063 is in effect, the public will benefit from the adoption of the section. The anticipated public benefit, as a result of enforcing the section, will be extending the State's program to support urban safety net hospitals that treat indigent patients.

Regulatory Analysis

HHSC has determined that this proposal is not a "major environmental rule" as defined by §2001.0225 of the Texas Government Code. "Major environmental rule" is defined to mean a rule the specific intent of which is to protect the environment or reduce risk to human health from environment exposure and that may adversely affect, in a material way, the economy, a sector of the economy, productivity, competition, jobs, the environment or the public health and safety of a state or a sector of the state. This proposal is not specifically intended to protect the environment or reduce risks to human health from environment exposure.

Takings Impact Assessment

HHSC has determined that this proposal does not restrict or limit an owner's right to his or her property that would otherwise exist in the absence of government action and, therefore, does not constitute a taking under §2007.043 of the Government Code.

Public Comment

Written comments on the proposal may be submitted to Arnulfo Gomez, at HHSC (H-600), P.O. Box 85200-5200, Austin, Texas, by fax to (512) 491-1953, or by e-mail to arnulfo.gomez@hhsc.state.tx.us within 30 days of publication of this proposal in the Texas Register .

Public Hearing

A public hearing is scheduled for August 30, 2005 at 1:00 p.m. in the Lone Star Room of Building H, Health and Human Services Commission, 11209 Metric Blvd., Austin, Texas 78758. Persons requiring further information, special assistance, or accommodations should contact Carmen Capetillo at (512) 491-1104.

Statutory Authority

The amendment is proposed under the Texas Government Code, §531.033, which provides the Commissioner of HHSC with broad rulemaking authority; the Human Resources Code, §32.021 and the Texas Government Code, §531.021(a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas and the Texas Government Code, §531.021(b), which provides HHSC with the authority to propose and adopt rules governing the determination of Medicaid reimbursements).

The proposed amendment affects the Human Resources Code, Chapter 32, and the Texas Government Code, Chapter 531. No other statutes, articles, or codes are affected by this proposal.

§355.8065.Additional Reimbursement to Disproportionate Share Hospitals.

(a) Introduction. Hospitals participating in the Texas Medical Assistance (Medicaid) program that meet the conditions of participation and that serve a disproportionate share of low-income patients are eligible for additional reimbursement from the disproportionate share hospital fund. The single state agency or its designee shall establish each hospital's eligibility for and amount of reimbursement as specified in this section. For purposes of Medicaid disproportionate share eligibility determination, a multi-site hospital is considered as one provider unless it has separate Medicaid cost reports for each site. To verify data referred to in this section, hospitals must allow state personnel access to the hospital and its records.

(b) Definitions. For purposes of this section, the following words and terms shall have the following meanings, unless the context clearly indicates otherwise.

(1) Adjusted hospital specific limit--A hospital specific limit trended forward to account for inflation update factor since the base year.

(2) Bad debt charges--Uncollectible inpatient and outpatient charges that result from the extension of credit.

(3) Charity care--The unreimbursed cost to a hospital of providing, funding, or otherwise financially supporting health care services on an inpatient or outpatient basis to a person classified by the hospital as financially or medically indigent or providing, funding, or otherwise financially supporting health care services provided to financially indigent patients through other nonprofit or public outpatient clinics, hospitals, or health care organizations.

(4) Charity charges--Total amount of hospital charges for inpatient and outpatient services attributed to charity care in a hospital fiscal year. These charges do not include bad debt charges, contractual allowances or discounts (other than for indigent patients not eligible for medical assistance under the approved Medicaid state plan); that is, reductions or discounts in charges given to other third party payers such as, but not limited to, health care maintenance organizations, Medicare or Blue Cross. The amount of total charity charges must be consistent with the amount reported on the Department of State Health Services [ Texas Department of Health's ] annual hospital survey.

(5) Cost of services to uninsured patients--Inpatient and outpatient charges to patients who have no health insurance or other source of third party payment for services provided during the year, multiplied by the hospital's ratio of costs to charges (inpatient and outpatient), less the amount of payments made by or on behalf of those patients. Uninsured patients are patients who have no health insurance or other source of third party payments for services provided during the year. Uninsured patients include those patients who do not possess health insurance that would apply to the service for which the individual sought treatment.

(6) Cost-to-charge ratio (inpatient only)--Hospital's overall inpatient cost-to-charge ratio, as determined from its Medicaid cost report it submitted for its fiscal year ending in the previous calendar year. The latest available Medicaid cost report will be used in the absence of the cost report for the hospital fiscal year ending in the previous calendar year.

(7) Cost-to-charge ratio (inpatient and outpatient)--Hospital's overall cost-to-charge ratio, as determined from its Medicaid cost report it submitted for its fiscal year ending in the previous calendar year. The latest available Medicaid cost report will be used in the absence of the cost report for the hospital fiscal year ending in the previous calendar year.

(8) Financially indigent--An uninsured or underinsured person who is accepted for care with no obligation or a discounted obligation to pay for the services rendered based on the hospital's eligibility system.

(9) Gross inpatient revenue--Amount of gross inpatient revenue (charges) reported by the hospital in the appropriate part of the Medicaid cost report it submitted for its fiscal year ending in the previous calendar year. Gross inpatient revenue excludes revenue related to the professional services of hospital-based physicians, swing bed facilities, skilled nursing facilities, intermediate care facilities, and other revenue that is unidentified. The latest available Medicaid cost report will be used in the absence of the cost report for the hospital fiscal year ending in the previous calendar year.

(10) Hospital eligibility criteria--The financial criteria used by a hospital to determine if a patient is eligible for charity care. The system includes income levels and means testing indexed to the federal poverty guidelines; provided, however that a hospital may not establish an eligibility system that sets the income level eligible for charity care lower than that required by counties under the Texas Health and Safety Code, §61.023, or higher, in the case of the financially indigent, than 200% of the federal poverty guidelines. A hospital may determine that a person is financially or medically indigent pursuant to the hospital's eligibility system after health care services are provided.

(11) Hospital specific limit--The sum of the following two measurements:

(A) the Medicaid shortfall; and

(B) cost of services to uninsured patients.

(12) Inflation update factor--The commission or its designee applies a cost of living index to a hospital's unreimbursed Medicaid costs and its cost of treating uninsured patients. The index used is the greater of:

(A) the Centers for Medicare and Medicaid Services (CMS) Market Basket Forecast (PPS Hospital Input Price Index) based on the report issued for the federal fiscal year quarter ending in March of each year, adjusted for the state fiscal year by summing one-third of the annual forecasted rate of the index for the current calendar year and two-thirds of the annual forecasted rate of the index for the next calendar year; or

(B) an amount determined by selecting the lesser of the following two measures:

(i) the change in total charges per case for the latest year available compared to total charges per case for the previous year; or

(ii) the change in the Texas medical consumer price index-urban (that is, the arithmetic mean of the Houston and Dallas/Fort Worth medical consumer price indices for urban consumers) for the latest year available compared to the Texas medical consumer price index-urban for the previous year.

(13) Low-income days--Number of days derived by multiplying a hospital's total inpatient census days by its low-income utilization rate.

(14) Low-income utilization rate--The result of the following computation: ((Title XIX inpatient hospital payments plus inpatient payments received from state and local governments) divided by (gross inpatient revenue multiplied by cost-to-charge ratio)) plus ((total inpatient charity charges minus inpatient payments received from state and local governments) divided by (gross inpatient revenue)).

(15) Medicaid inpatient utilization rate--Fraction expressed as a percentage, the numerator of which is the hospital's number of inpatient days attributable to patients who (for these days) were eligible for medical assistance under a state plan, and the denominator of which is the total number of the hospital's inpatient days in that period. The term "inpatient day" includes each day in which an individual (including a newborn) is an inpatient in the hospital, whether or not the individual is in a specialized ward and whether or not the individual remains in the hospital for lack of suitable placement elsewhere.

(16) Medicaid shortfall--The cost of services (inpatient and outpatient) furnished to Medicaid patients, less the amount paid under the nondisproportionate share hospital payment method under the state plan.

(17) Medically indigent--A person whose medical or hospital bills after payment by third-party payers exceed a specified percentage of the patient's annual gross income, determined in accordance with the hospital's eligibility system, and the person is financially unable to pay the remaining bill.

(18) Medicare inpatient utilization rate--Medicare inpatient days divided by total inpatient census days.

(19) Payments received--Payments received from uninsured patients from or on behalf of uninsured patients as defined in paragraph (5) of this subsection.

(20) Rural area--Area outside a Metropolitan Statistical Area (MSA) or a Primary Metropolitan Statistical Area (PMSA). MSA and PMSA are defined by the Office of Management and Budget.

(21) Total inpatient census days--Total number of a hospital's inpatient census days during its fiscal year ending in the previous calendar year.

(22) Total inpatient charity charges--Total amount (excluding bad debt charges) of the hospital's charges for inpatient hospital services attributed to charity care (care provided to individuals who have no source of payment, third-party or personal resources) in a cost reporting period. The total inpatient charges attributable to charity care does not include contractual allowances and discounts (other than for indigent patients not eligible for medical assistance under an approved Medicaid State Plan); that is, reduction or discounts, in charges given to other third-party payers such as but not limited to HMOs, Medicare, or Blue Cross. The amount of total inpatient charity charges must be consistent with the amount reported on the commission or its designee's annual hospital survey.

(23) Total Medicaid inpatient days--Total number of Title XIX inpatient days based on the latest available state fiscal year data for patients eligible for Title XIX benefits. The term excludes days for patients who are covered for services which are fully or partially reimbursable by Medicare. The term includes Medicaid-eligible days of care billed to managed care organizations. Total Medicaid inpatient days includes days that were denied payment for reasons other than eligibility. Included are inpatient days of care provided to patients eligible for Medicaid at the time the service was provided, regardless of whether the claim was filed or paid. These denied claims include, but are not limited to, claims for patients whose spell of illness limits are exhausted, or claims that were filed late. The term excludes days attributable to Medicaid patients between the ages of 21 and 65 who live in an institution for mental diseases. The term includes days attributable to individuals eligible for Medicaid in other states. Total Medicaid inpatient days includes days with dates of admissions between September 1 and August 31 (state fiscal year) and claims finalized dates within the fiscal year and for nine months after the end of the fiscal year (May 31).

(24) Total Medicaid inpatient hospital payments--Total amount of Title XIX funds, excluding Medicaid disproportionate share funds, a hospital received for admissions during the latest available state fiscal year for inpatient services. The term includes dollars received by a hospital for inpatient services from managed care organizations. The term includes Medicaid inpatient payments received by a hospital for patients eligible for Medicaid in other states. Total Medicaid inpatient hospital payments includes payments associated with dates of admissions between September 1 and August 31 (state fiscal year) and dates of payments within the fiscal year and for nine months after the end of the fiscal year (May 31).

(25) Total operating costs--Total operating costs of a hospital during its fiscal year ending in the calendar year before the start of the current federal fiscal year, according to the hospital's Medicaid cost report (tentative, or final audited cost report, if available).

(26) Total state and local revenue--Total amount of state and local payments a hospital received for inpatient care, excluding all Title XIX payments, during its fiscal year ending in the previous calendar year. Sources of state and local payments include but are not limited to County Indigent Health Care, Children with Special Health Care Needs, Kidney Health Care, and tax funds. Payment sources containing federal dollars are not to be included in state and local payments. These sources include, but are not limited to: Substance Abuse and Mental Health Services Administration, Ryan White Title I, Ryan White Title II, Ryan White Title III, and TRICARE Foundation Health, Medicare, and Medicare/Medicaid contractual funds and allowances. The commission or its designee adjusts tax dollars for hospitals that report all or none of their tax dollars received as inpatient tax dollars. To make adjustments, the commission or its designee uses the appropriate parts of the Medicaid cost report that the hospital submitted for its fiscal year ending in the previous calendar year.

(27) Urban--Area inside an MSA or PMSA.

(28) Weighted low-income days--Low-income days multiplied by an appropriate weighing factor.

(29) Weighted Medicaid days--Medicaid days multiplied by an appropriate weighing factor.

(30) Available fund (state mental and chest hospitals)--Sum of 100% of their adjusted hospital specific limits.

(31) Available fund (hospitals other than mental and chest hospitals)--Total federal fiscal year cap (state disproportionate share hospital allotment) minus the available fund for state teaching hospitals minus the available fund for state mental and chest hospitals.

(c) Conditions of participation. Before the beginning of each state fiscal year, which begins September 1, the single state agency or its designee shall survey Medicaid hospitals to determine which hospitals meet the state's conditions of participation. Hospitals must allow state personnel access to the hospital and its records to ensure compliance with the conditions of participation. Failure to meet all of the conditions of participation shall result in ineligibility for participation in the program. These conditions of participation do not apply to state-owned teaching hospitals as specified in §355.8067 of this title (relating to Disproportionate Share Hospital Reimbursement Methodology for State-Owned Teaching Hospitals). The conditions of participation are as follows.

(1) Hospital eligibility criteria for indigent patients needing medical care. Each Medicaid hospital must submit to the state Medicaid director its hospital eligibility criteria for indigent patients and the procedures for identifying those indigent patients eligible for emergency and nonemergency medical care. Hospital eligibility criteria should address financially indigent people as well as the medically indigent and are indexed to the federal poverty guidelines. Hospitals must identify the number of patients to whom they provide charity care and must make available to state personnel sufficient records to document the amount of charity care provided to those patients. A hospital must allow state personnel to observe the implementation of its stated charity policy and must permit state personnel access to the hospital or its records evidencing charity care. Exception: State mental hospitals and state chest hospitals are exempt. Indigent care criteria for these hospitals are defined in state law.

(2) Charity charge requirements. Exceptions: Urban hospitals with combined Medicaid and Medicare inpatient utilization rates equal to or greater than 80% are exempt. Rural and children's hospitals with combined Medicare and Medicaid inpatient utilization rates equal to or greater than 65% are exempt. Any hospital that qualifies for Medicaid disproportionate share funds in a state fiscal year, and that did not get Medicaid disproportionate share funds in the previous year, is exempt from this specific condition. State mental hospitals and state chest hospitals are exempt. The ratio of a hospital's total inpatient and outpatient charity charges of a hospital fiscal year must be equal to or greater than 25% of its net disproportionate share payments received in the next state fiscal year.

(3) Posting requirements. Each hospital must annually provide assurances to the state Medicaid director that it posts policies informing patients and prospective patients of its eligibility and charity care. These policies must be posted prominently and continuously in common, patient-entry points. Hospitals must advise all patients of the availability of no-cost medical care and the application procedures. The posting must be in English and Spanish.

(4) Reporting requirements. Each hospital must report receipt and expenditure of Medicaid disproportionate share funds to the commission or its designee at least once a year. Each hospital must maintain records for the receipt and expenditure of its disproportionate share funds for five years.

(5) Community health care assessment. Each hospital, or group of hospitals, must annually furnish to the commission or its designee a copy, developed at the direction of the hospital's governing board, of its assessment of the health care needs of its community. The assessment must contain a socioeconomic and demographic description of the hospital's service area and an assessment of the service area's existing health care resources. The assessment must demonstrate how the hospital is using its disproportionate share funds to address its community health needs. Exceptions: State mental hospitals and state chest hospitals are exempt because their expenditures are governed by state law.

(6) Alternative access to primary care. Each hospital must annually report to the commission or its designee the availability of alternative access (other than emergency care) to primary care in its community. Alternative access to primary care includes, but is not limited to, primary care physician offices, minor emergency centers, and primary care clinics. Hospitals must have plans to arrange for nonemergency patients to receive care that is not in their emergency rooms, unless they can demonstrate that there is no feasible alternative in the community. This kind of plan includes, but is not limited to, a hospital-based clinic for nonemergent patients referred to after triage. Hospitals also must report their progress in treating nonemergency patients apart from their emergency rooms. Exceptions: The following hospitals are exempt from this condition: State mental and state chest hospitals; psychiatric hospitals licensed by the Department of State Health Services (DSHS) [ Texas Department of Mental Health and Mental Retardation (TXMHMR) ]; and certain hospitals licensed as "special" by the DSHS [ Texas Department of Health (department) ] (i.e., long-term care hospitals, ventilator hospitals, burn institutes, and alcohol-chemical dependency hospitals); rehabilitation hospitals; maternity hospitals; college infirmaries; contagious disease hospitals; and hospitals for the terminally ill.

(7) Trauma system. Disproportionate share hospitals must actively participate in the development of a regional trauma system, which includes trauma facility designation as defined in the state trauma laws (Health and Safety Code, §§773.111 - 773.120) and Department of State Health Services (DSHS) [ department ] rules. This condition shall apply only if rules and procedures to designate facilities have been adopted. Exceptions: The following hospitals are exempt from the trauma system condition: State mental and state chest hospitals; psychiatric hospitals licensed by DSHS [ TXMHMR ]; and certain hospitals licensed as "special" by DSHS [ the department ] (i.e., long term care hospitals, ventilator hospitals, burn institutes, and alcohol-chemical dependency hospitals); rehabilitation hospitals; maternity hospitals; college infirmaries; contagious disease hospitals; and hospitals for the terminally ill. Pediatric and adolescent facilities are exempt from trauma facility designation requirements until the time that state law authorizes the designation of pediatric and/or adolescent trauma facilities.

(A) Hospitals qualifying for the disproportionate share program for the first time must meet the regional trauma system development participation requirement in the first year of their participation in the disproportionate share program, regional trauma system development participation and application for trauma facility designation in the second year of their participation in the disproportionate share program, regional trauma system development participation and confirmation that a consultation survey has been scheduled or a complete designation application packet has been submitted to the Office of EMS/Trauma Systems Coordination [ Bureau of Emergency Management ] in the third year of their participation in the disproportionate share program, regional trauma system development participation and confirmation that a verification or designation survey has been scheduled in the fourth year of their participation in the disproportionate share program and continued participation and completed verification or designation survey in the fifth year of their participation in the disproportionate share program, continued participation and trauma facility designation in the sixth year of their participation in the disproportionate share program, and continued participation and maintenance of trauma facility designation in their subsequent years of participation in the disproportionate share program. By March 1 of each year, the Office of EMS/Trauma Systems Coordination [ Bureau of Emergency Management ] reports hospital participation in regional trauma system development, application for trauma facility designation, and trauma facility designation status to the disproportionate share program.

(B) Hospitals shall be designated as trauma facilities under four levels that range from "basic" (stabilization and transfer of major and severe trauma patients) to "comprehensive" (care and management of all trauma patients, plus education and research

(8) Maintenance of effort. Hospital districts and city/county hospitals with greater than 250 licensed beds in the state's largest MSAs and PMSAs are not eligible for disproportionate share payments if local revenues are reduced as a result of disproportionate share funds received.

(9) Two-physician requirement. In order to qualify for disproportionate share hospital payments, each hospital must have at least two physicians (M.D. or D.O.) who have hospital staff privileges and who have agreed to provide nonemergency obstetrical services to Medicaid recipients [ clients ]. The two-physician requirement does not apply to hospitals whose inpatients are predominantly under 18 years old or that did not offer nonemergency obstetrical services as of December 22, 1987.

(d) Qualifying formulas for determining disproportionate share status. Each hospital must have a Medicaid inpatient utilization rate, at a minimum, of 1.0%. The single state agency or its designee shall identify the qualifying Medicaid disproportionate share providers from among the hospitals that meet the two-physician requirement and the state's conditions of participation, as specified in subsection (c)(1) - (9) of this section, by using the following formulas. In the case of hospitals that have merged to form a single Medicaid provider, the single state agency or its designee shall aggregate the data points from the individual hospitals that now make up the single provider to determine whether the single Medicaid provider qualifies as a Medicaid disproportionate share hospital. Medicaid disproportionate share hospitals shall receive payments if they merge with other hospitals during the fiscal year, if they continue to meet the two-physician requirement, and if they meet the other conditions of participation. Children's hospitals that do not otherwise qualify as disproportionate share hospitals shall be deemed disproportionate share hospitals. The formulas are as follows:

(1) a Medicaid inpatient utilization rate at least one standard deviation above the mean Medicaid inpatient utilization rate for all hospitals participating in the Medicaid program: Title XIX Inpatient Days/Total Inpatient Census Days;

(2) for rural hospitals, a Medicaid inpatient utilization rate greater than the mean Medicaid inpatient utilization rate for all hospitals participating in the Medicaid program; or

(3) a low-income utilization rate exceeding 25% but not more than 100%. For a hospital, the low-income utilization rate is the sum (expressed as a percentage) of the fractions calculated as follows:

(A) the total Medicaid inpatient payments paid to the hospital, plus the amount of payments received directly from state and local governments for inpatient hospital care, excluding all Title XIX payments, in a hospital fiscal year, divided by a hospital's gross inpatient revenue multiplied by the hospital's inpatient cost-to-charge ratio for the same cost-reporting period: (Title XIX Inpatient Hospital Payments + Total State and Local Revenue)/(Gross Inpatient Revenue x Cost to Charge Ratio).

(B) the total amount of the hospital's charges for inpatient hospital services attributable to charity care (care provided to individuals who have no source of payment, third-party or personal resources), excluding bad debt charges, in a cost reporting period, minus the amount of payments for inpatient hospital services received directly from state and local governments, excluding all Title XIX payments, in a hospital fiscal year, divided by the total amount of the hospital's charges for inpatient services in the hospital in the same period. The total inpatient charges attributable to charity care will not include contractual allowances and discounts (other than for indigent patients not eligible for medical assistance under an approved Medicaid state plan); that is, reductions or discounts in charges given to other third-party payers such as but not limited to HMOs, Medicare, or Blue Cross: (Total Inpatient Charity Charges - Total State and Local Payments)/Gross Inpatient Revenue.

(4) total Medicaid inpatient days at least one standard deviation above the mean Medicaid inpatient days for all hospitals participating in the Medicaid program.

(5) Total Medicaid inpatient days at least 75 percent of one standard deviation above the mean Medicaid inpatient days for all hospitals, participating in the Medicaid program, in urban counties with populations of 250,000 persons or less, according to the most recent decennial census.

(e) Determining disproportionate share status. To determine Medicaid disproportionate share status:

(1) the single state agency arrays each hospital's Medicaid utilization rate in descending order. The single state agency first selects hospitals meeting the two-physician requirement or one of the exceptions to the requirement whose Medicaid utilization rates are at least one standard deviation above the mean Medicaid inpatient utilization rate for all hospitals participating in the Medicaid program. The state considers these hospitals to be Medicaid disproportionate share hospitals;

(2) the single state agency arrays each rural hospital's Medicaid utilization rate in descending order. The single state agency then selects rural hospitals meeting the two-physician requirement or one of the exceptions to the requirement whose Medicaid utilization rate is above the mean Medicaid utilization rate for all hospitals participating in the Medicaid program. The state considers these hospitals to be Medicaid disproportionate share hospitals;

(3) the single state agency then arrays each remaining hospital's low income utilization rate in descending order. The single state agency selects hospitals meeting the two-physician requirement or one of the exceptions to the requirement whose low income utilization rates are greater than 25%. The state considers these hospitals to be Medicaid disproportionate share hospitals;

(4) the single state agency arrays each remaining hospital's total Medicaid inpatient days in descending order. The single state agency selects hospitals meeting the two-physician requirement or one of the exceptions to the requirement whose total inpatient Medicaid days is at least one standard deviation above the mean Medicaid inpatient days for all hospitals participating in the Medicaid program. The state considers these hospitals to be Medicaid disproportionate share hospitals.

(5) the single state agency arrays each remaining hospital's total Medicaid inpatient days in descending order. The single state agency selects hospitals, located in urban counties with populations of 250,000 persons or less, meeting the two-physician requirement or one of the exceptions to the requirement, whose total Medicaid inpatient days is at least 75 percent of one standard deviation above the mean Medicaid inpatient days for all hospitals participating in the Medicaid program in urban counties of 250,000 persons or less, according to the most recent decennial census. The state considers these hospitals to be Medicaid disproportionate share hospitals.

(f) Reimbursing Medicaid disproportionate share hospitals. The commission shall reimburse Medicaid disproportionate share hospitals on a monthly basis. Monthly payments will equal one twelfth of annual payments unless it is necessary to adjust the amount because payments will not be made for a full 12-month period, to comply with the annual state disproportionate share hospital allotment, or to comply with other state or federal disproportionate share hospital program requirements. Before the start of the next state fiscal year, the commission determines the size of the available funds to reimburse disproportionate share hospitals for the next state fiscal year, which begins each September 1. The funds available to reimburse the state chest hospitals and state mental hospitals equal the total of their adjusted hospital specific limits. The available fund for the remaining hospitals equals the lesser of the funds remaining in the state's annual disproportionate share allotment or the sum of qualifying hospitals' adjusted hospital specific limits. Payments shall be made in the following manner, unless the commission determines the hospital's proposed reimbursement has exceeded its specific limit.

(1) A state chest hospital meets the requirements for disproportionate share status and provides inpatient hospital services receives annually up to 175 percent f its adjusted hospital specific limit. A state mental hospital that meets the requirements of disproportionate share status and provides inpatient psychiatric services receives 100 percent of its adjusted hospital specific limit.

(2) For the remaining hospitals, payments will be made based on both weighted inpatient Medicaid days and weighted low-income days. The commission weights each hospital's total inpatient Medicaid days and low-income days by the appropriate weighting factor. The commission defines a low-income day as a day derived by multiplying a hospital's total inpatient census days from its fiscal year ending the previous calendar year by its low-income utilization rate. Hospital districts and city/county hospitals with greater than 250 licensed beds in the state's largest MSAs shall receive weights based proportionally on the MSA population according to the most recent decennial census. MSAs with populations greater than or equal to 121,000, according to the most recent decennial census, are considered "the largest MSAs." Children's hospitals also shall receive weights because of the special nature of the services they provide. All other hospitals receive weighting factors of 1.0. The inpatient Medicaid days of each hospital shall be based on the latest available state fiscal year data for patients entitled to Title XIX benefits. The available fund shall be divided into two parts. One half of the available fund will reimburse each qualifying hospital by its percent of the total inpatient Medicaid days. One-half of the available fund will reimburse each qualifying hospital by its percent of low income days. The commission determines whether hospitals in rural areas will receive 5.5% or more of the gross disproportionate share hospital funds for non-state hospitals. If hospitals in rural areas will receive at least 5.5 % of the gross non-state hospital funds, the commission will reimburse them using existing principles. If hospitals in rural areas will not receive at least 5.5 % of non-state hospital funds, the commission will reimburse them at 5.5 percent of non-state hospital funds, using existing principles. Reimbursement for the remaining hospitals is determined as follows:

(A) The single state agency or its designee determines the average monthly number of weighted Medicaid inpatient days and weighted low-income days of each qualifying hospital.

(B) A qualifying hospital receives a monthly disproportionate share payment based on the following formula:

Figure: 1 TAC §355.8065(f)(2)(B) (No change.)

(C) All MSA population data are from the most recent decennial census. The specific weights for certain hospital districts and children's hospitals are as follows:

(i) Children's hospitals are weighted at 1.25.

(ii) MSAs with populations greater than or equal to 121,000 and less than 300,000 are weighted at 2.75.

(iii) MSAs with populations greater than or equal to 300,000 and less than 1,000,000 are weighted at 3.0.

(iv) MSAs with populations greater than or equal to 1,000,000 and less than 3,000,000 are weighted at 3.25.

(v) MSAs with populations greater than or equal to 3,000,000 are weighted at 3.75.

(D) For state fiscal year 2006 [ 2004 ] (September 1, 2005 [ 2003 ] through August 31, 2006 [ 2004 ]), and state fiscal year 2007 [ 2005 ] (September 1, 2006 [ 2004 ] through August 31, 2007 [ 2005 ]), the monthly disproportionate share payment calculated under subparagraph (C) of this paragraph is subject to a conversion factor that is applied as follows:

(i) A conversion factor of 1.10 [ 1.0875 ] is applied to payments made to hospital districts located in MSAs with populations greater than 3 million.

(ii) A conversion factor of 1.01 [ 1.02 ] is applied to payments made to hospital districts located in MSAs with populations between 1 and 3 million.

(iii) A conversion factor of .97 [ .974 ] is applied to payments made to children's hospitals.

(iv) A conversion factor of .93 [ .94 ] is applied to payments made to private, urban, general hospitals located in a MSA.

(v) A conversion factor of 1.0 is applied to payments made to all other hospitals.

(vi) For purposes of this section, a private, urban, general hospital is defined as a hospital that is not operated by a political subdivision of the state, is not licensed under Chapter 577, Health and Safety Code, to provide mental health services or is not exempted from the Medicare and Medicaid prospective payment systems as a children's hospital, and is eligible for additional reimbursement from the disproportionate share hospital fund.

(E) The commission or its designee determines the hospital specific limit for each disproportionate share hospital. This limit is the sum of a hospital's Medicaid shortfall, as defined in subsection (b)(16) of this section, and its cost of services to uninsured patients, as defined in subsection (b)(5) of this section, multiplied by the appropriate inflation update factor, as provided for in subsection (g)(2)(E) of this section.

(i) The Medicaid shortfall includes total Medicaid billed charges and any Medicaid payment made for the corresponding inpatient and outpatient services delivered to Texas Medicaid clients, as determined from the hospital's fiscal year claims data, regardless of whether the claim was paid. These denied claims include, but are not limited to, patients whose spell of illness claims were exhausted, or payments were denied due to late filing. See subsection (b)(16) of this section for definition of "Medicaid shortfall."

(ii) The total Medicaid billed charges for each hospital are converted to cost, utilizing a calculated cost-to-charge ratio (inpatient and outpatient). The commission or its designee determines that ratio by using the hospital's Form HCFA 2552, Hospital and Hospital Health Care Complex Cost Report, that was submitted for the fiscal year ending in the previous calendar year. The commission or its designee uses the latest available Medicaid cost report in the absence of the Medicaid cost report submitted in the fiscal year ending in the previous calendar year. To determine the cost-to-charge ratio (inpatient and outpatient) for each hospital, the commission or its designee uses the total cost from the HCFA 2552, Worksheet B, Part I, Column 25, and total charges from the HCFA 2552, Worksheet C Part I, Column 6. The ratio is the total cost divided by the total gross patient charges.

(iii) The commission or its designee determines the cost of services to patients who have no health insurance or source of third party payments for services provided during the fiscal year for each hospital. Hospitals are surveyed each year to determine charges that can be attributed to patients without insurance or other third party resources. The charges from reporting hospitals are multiplied by each hospital's cost-to-charge ratio (inpatient and outpatient) to determine the cost.

(iv) After the commission or its designee determines each disproportionate share hospital's cost of services to patients who have no health insurance or source of third party payments for services provided during the year, the commission or its designee subtracts from each hospital's cost of services the amount of payments made by or on behalf of those patients who have no health insurance or source of third party payments for services provided during the year.

(F) The commission or its designee shall trend each hospital's "hospital specific limit" calculated from its historical base period cost report to the state's fiscal year disproportionate share program. For hospitals without a full 12-month fiscal year cost report, the commission or its designee shall convert their costs to annualized hospital specific limits. The commission or its designee shall use the inflation rates described in subsection (b)(12) of this section. The commission or its designee shall calculate the number of months from the mid-point of the hospital's cost reporting period to the mid-point of the state fiscal year disproportionate share program. The commission or its designee shall then multiply the portion of the hospital's cost report year occurring in the state fiscal year by the inflation update factor used for each state fiscal year in the calculation of hospital reimbursement rates for each state fiscal year. The product of these calculations shall be multiplied by each hospital's "hospital specific limit" to obtain each hospital's "adjusted hospital specific limit."

(G) The commission or its designee compares the projected payment for each disproportionate share hospital, as determined by subsections (d) and (e) of this section, with its adjusted hospital specific limit, as determined by subparagraphs (E) and (F) of this paragraph. If the hospital's projected payment is greater than its adjusted hospital specific limit, the commission or its designee reduces the hospital's payment to its adjusted hospital specific limit.

(H) If there are disproportionate share hospital funds left in the available fund for the remaining hospitals, because some hospitals have had their disproportionate share hospital payments reduced to their adjusted hospital specific limits, the commission or its designee distributes the excess funds according to the provisions in this section. For hospitals whose projected disproportionate share hospital payments are less than their adjusted hospital specific limits, the commission or its designee does the following:

(i) calculate the difference between its adjusted hospital specific limit and its projected disproportionate share hospital payment;

(ii) add all of the differences from clause (i) of this subparagraph;

(iii) calculate a ratio for each hospital by dividing the difference from clause (i) of this subparagraph by the sum for clause (ii) of this subparagraph; and

(iv) multiply the ratio from clause (iii) of this subparagraph by the remaining available fund. Remaining Available Fund x

(I) Only those hospitals that are below their adjusted hospital specific limits are eligible to participate in this distribution. The disproportionate share hospital funds remaining in the available fund are distributed to the hospitals that have not already reached their adjusted hospital specific limits. Each hospital's total disproportionate share payment (including the redistribution of excess funds) cannot exceed its adjusted hospital specific limit.

(g) Review of agency determination. The commission or its designee notified hospitals of their tentative eligibility or ineligibility and the estimated amount of payment before the beginning of the state fiscal year. Any hospital, including those hospitals that do not qualify or that contend the amount of payment is incorrect, is allowed to request a review by the state. The actual amount of payment also may vary if a successful review request by one or more hospitals necessitates an adjustment in the amount of payments to the other hospitals in the program. Because of the state's ongoing review of data elements used in the formulas before the first monthly payment, it is possible that a hospital may either gain or lose eligibility after receiving tentative notification, which would also affect payment amounts. The hospital's written request for a review must be made to commission or its designee and must be received within 10 business days after the hospital receives notification of its eligibility or ineligibility. The hospital's request must contain specific documentation supporting its contention that factual or calculation errors were made, which, if corrected, would result in the hospital qualifying for payments or receiving payment in a corrected amount. The state will accept documentation from hospitals seeking reviews for 30 business days after the hospital receives notification of its eligibility or ineligibility.

(1) The hospital's written request for a review must be made to the director of acute care services and must be received by the director within 10 business days after the hospital receives notification of its eligibility or ineligibility. The hospital's request must contain specific documentation supporting its contention that factual or calculation errors were made, which, if corrected, would result in the hospital qualifying for payments or receiving payment in a corrected amount.

(2) The review is:

(A) limited to allegations of factual or calculation errors;

(B) limited to a review of documentation submitted by the hospital or used by the single state agency or its designee in making its original determination; and

(C) not conducted as an adversary hearing.

(3) The commission or its designee conducts the review as quickly as possible and makes its decision before the first monthly payment is made for that fiscal year. Hospitals that have requested a review are notified of the results of the review at the time of the first monthly payment. Any adjustments made as a result of these reviews will not exceed the limits of available funds for implementing the applicable disproportionate share program. Once the first monthly payment is made, no additional review or appeal is available to hospitals, with one exception. If a hospital, receiving a tentative eligibility letter and not requesting a review, then receives a letter stating the hospital is now ineligible for DSH funding, that hospital may now request a review of eligibility determination according to the terms of paragraph (1) of this subsection.

(h) Disproportionate share funds held in reserve.

(1) Hospitals participating in the disproportionate share program are required to comply at all times with the conditions of participation specified in subsection (c) of this section. If the commission or its designee has reason to believe that a hospital is not complying with the conditions of participation, the commission or its designee notifies the hospital of possible noncompliance. Upon receipt of the notice of possible noncompliance, the hospital has 30 days to demonstrate its compliance with conditions of participation. If the hospital fails to demonstrate its compliance within 30 days, the commission or its designee has the authority to hold that hospital's disproportionate share payments in reserve until the:

(A) hospital can demonstrate its compliance with the conditions of participation;

(B) decision to hold payments in reserve is reviewed and the decision results in favor of the hospital; or

(C) date the last monthly payment in the relevant state fiscal year occurs; whichever occurs first.

(2) If a hospital's disproportionate share payments are being held in reserve on the date of the last monthly payment in the state fiscal year, the amount of the payments is divided proportionately among the hospitals receiving a last monthly payment and is not restored to the hospital. If the hospital demonstrates its compliance with the conditions of participation or if the hospital receives a favorable review decision, the funds are restored to the hospital.

(3) Hospitals that have had disproportionate share payments held in reserve may request a review by the single state agency or its designee.

(A) The hospital's written request for a review must:

(i) be made to the commission or its designee;

(ii) be received by the commission or its designee within 10 days after the hospital's disproportionate share payments are held in reserve; and

(iii) contain specific documentation supporting its contention that it is in compliance with the conditions of participation.

(B) The review is:

(i) limited to allegations of compliance with conditions of participation;

(ii) limited to a review of documentation submitted by the hospital or used by the commission or its designee in making its original determination; and

(iii) not conducted as an adversary hearing.

(C) The commission or its designee conducts the review as quickly as possible and notifies hospitals requesting the review of the results. Once the last monthly payment for the relevant state fiscal year is made, no additional review or appeal is available to hospitals.

(4) If a hospital that is already receiving Medicaid disproportionate share funds closes, loses its license, loses its Medicare or Medicaid eligibility, that hospital's disproportionate share funds are reallocated among the remaining disproportionate share hospitals. If the hospital reopens, as the same hospital type, regains similar licensure or Medicare and Medicaid eligibility during the same fiscal year, that hospital receives monthly disproportionate share payments for the remaining months in the state fiscal year, as determined by the appropriate reimbursement formula and from available funds.

(i) Provision for reduction in federal disproportionate share cap. If the federal government reduces the amount of Medicaid disproportionate share funds allotted to Texas, the state must reduce the net amount allotted to each disproportionate share hospital during the state fiscal year by the same percentage.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on July 25, 2005.

TRD-200503021

Steve Aragón

Chief Counsel

Texas Health and Human Services Commission

Earliest possible date of adoption: September 4, 2005

For further information, please call: (512) 424-6900