TITLE 1.ADMINISTRATION

Part 4. OFFICE OF THE SECRETARY OF STATE

Chapter 72. STATE SEAL

1 TAC §72.40

The Office of the Secretary of State proposes amendments to §72.40, concerning definitions for the State Seal. The amendments will update statutory references to conform to a codification of statutes. This is a non-substantive change.

House Bill 2812, 77th Legislature, Regular Session, repealed Article 6139f, Revised Civil Statutes. In its place the bill created a new Chapter 3101 of the Government Code concerning State Symbols. The proposed amendments will replace references to the old article numbers with the new Chapter 3101 citation.

Guy Joyner, Chief, Legal Support Unit, Statutory Documents Section has determined that for the first five year period that the proposed amendments are in effect there will be no fiscal implications for state or local government or small business as a result of enforcing the amendments.

Mr. Joyner also has determined that for each year of the first five years that the amendments are in effect the public benefit anticipated as a result of the amendments will be updated statutory references in the text of the rules. There will be no effect on large businesses, small businesses or micro-businesses. There will be no additional economic cost to individuals. There is no anticipated impact on local employment.

Comments on the proposed amendments may be submitted to Guy Joyner, Chief, Legal Support Unit, Statutory Documents Section, P.O. Box 12887, Austin, Texas 78711-2887.

The amendments are proposed under the Business and Commerce Code, §17.08(d), which provides the Secretary of State with the authority to adopt rules concerning the private use of the state seal, and Government Code, §3101.001(f) and §3101.002(b) which requires the Secretary of State to adopt rules concerning standard designs for the state seal, reverse of the state seal, and the state arms.

The amendments affect Texas Government Code, §3101.

§72.40.Definitions.

The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise. Unless otherwise expressly provided, the past, present, or future tense includes the other; the masculine, feminine, or neuter gender each includes the other; and the singular and plural number each includes the other.

(1) - (22) (No change.)

(23) Reverse of the state seal-has the meaning defined by Government Code, §3101.001 [ Article 6139f, Revised Civil Statutes ].

(24) - (25) (No change.)

(26) State arms-has the meaning defined by Government Code, §3101.002 [ Article 6139f, Revised Civil Statutes ].

(27) - (30) (No change.)

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 April 25, 2002.

TRD-200202552

David N. Roberts

General Counsel

Office of the Secretary of State

Earliest possible date of adoption: June 9, 2002

For further information, please call: (512) 463-5562


Part 15. TEXAS HEALTH AND HUMAN SERVICES COMMISSION

Chapter 355. MEDICAID REIMBURSEMENT RATES

Subchapter D. REIMBURSEMENT METHODOLOGY FOR THE INTERMEDIATE CARE FACILITIES FOR PERSONS WITH MENTAL RETARDATION (ICF/MR) PROGRAM

1 TAC §355.451

The Health and Human Services Commission (HHSC) proposes amendments to §355.451, governing definitions and general reimbursement information.

Background and Summary of Factual Basis for the Rules

Section 531.021, Government Code, entitled "Administration of Medicaid Program," provides, among other things, that HHSC adopt rules and standards to govern the determination of fees, charges, and rates for medical assistance payments under Chapter 32, Human Resources Code, in consultation with the agencies that operate the Medicaid program. The amendments describe how rates for service coordination for individuals served through the MRLA program will be established and how the service will be defined and limited.

Explanation

Subsection (a) of §355.451 is amended to state that cost data is required annually.

Fiscal Note

Don Green, Chief Financial Officer, has determined that for the first five years that the proposed amendments are in effect, there is no anticipated fiscal impact resulting from the adoption of the amendments. No additional costs will be borne by local governments as a result of the proposed amendments, nor is there any anticipated impact of revenues of state or local government.

Small and Micro-business Impact Analysis

The proposed amendments will not result in additional costs to persons required to comply with the rules, nor do the rules have any anticipated adverse effect on small or micro-businesses. The rules will not affect local employment.

Public Benefit

Steve Lorenzen, Director, Medicaid Rates Setting, has determined that during the first five years that the proposed amendments are in effect, the public benefit is that consumers and families, other stakeholders, and MRAs within the MRLA Program will have a better understanding of the MRLA service coordination activities for which an MRA may receive reimbursement.

Regulatory Analysis

HHSC has determined that none of the proposed amended rules is a "major environmental rule" as defined by §2001.0225, Government Code. "Major environmental rule" is defined to mean a rule the specific intent of which is to protect the environment or reduce risks to human health from environmental 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 the state or a sector of the state. The proposed amendments are not specifically intended to protect the environment or reduce risks to human health from environmental exposure.

Takings Impact Assessment

HHSC has assessed the takings impact of the proposed amended rules under Texas Government Code, §2007.043. HHSC has determined that this action does not restrict or limit an owner's right to property that would otherwise exist in the absence of governmental action and therefore does not constitute a taking. The proposed amended rules are reasonably taken to fulfill requirements of state law.

Public Comment

A hearing to accept oral and written testimony from members of the public concerning the proposal has been scheduled for 1:30 p.m., Monday, June 3, 2002, in the Texas Department of Mental Health and Mental Retardation Central Office Auditorium in Building 2 at 909 West 45th Street, in Austin, Texas. Persons requiring an interpreter for the deaf or hearing impaired should contact the department's Central Office operator at least 72 hours prior to the hearing at TDD (512) 206-5330. Persons requiring other accommodations for a disability should notify Medicaid Administration, at least 72 hours prior to the hearing at (512) 206-5753 or at the TDY phone number of Texas Relay, 1/800-735-2988.

Public comment may be submitted in writing to Mary Ann Roberts, Manager, HHSC Medicaid Rates and Analysis, Health and Human Services Commission, by mail to P.O. Box 12668, Austin, Texas 78711, or by fax to 512/206-5673. Comments must be submitted by 5:00 p.m., Monday, June 10, 2002. Further information may be obtained by calling Mary Ann Roberts at (512) 206-5682.

Statutory Authority

The amendments are proposed under §531.021(b), Government Code, which requires HHSC to adopt reasonable rules and standards to govern the determination of fees, charges, and rates for medical assistance payments under Chapter 32, Human Resources Code, in consultation with the agencies that operate the Medicaid program; and §531.033, Government Code, which provides the commissioner of health and human services with authority to adopt rules necessary to carry the duties of HHSC under Chapter 531, Government Code.

The proposed amended rules implement §531.021(b), Government Code, concerning the adoption of rules and standards to govern the determination of fees, charges, and rates for medical assistance payments under Chapter 32, Human Resources Code, and §32.0281, Human Resources Code, concerning the adoption of rules regarding Medicaid reimbursement rates.

§355.451.Definitions and General Reimbursement Information.

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

(1)-(2) (No change.)

(3) Full Cost Report - Cost data required annually by HHSC that includes all costs of providing services including direct services costs, administration, facility costs, and all other operating costs relevant to the provision of services.

(4)-(15) (No change.)

(b) (No change.)

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 April 29, 2002.

TRD-200202661

Marina S. Henderson

Executive Deputy Commissioner

Texas Health and Human Services Commission

Earliest possible date of adoption: June 9, 2002

For further information, please call: (512) 424-6576


Subchapter F. GENERAL REIMBURSEMENT METHODOLOGY FOR ALL MEDICAL ASSISTANCE PROGRAMS

1 TAC §§355.701, 355.743 - 355.746

The Health and Human Services Commission (HHSC) proposes amendments to §355.701 concerning definitions and general specifications and §355.743, concerning reimbursement methodology for Service Coordination and new §355.744 concerning Service Coordination definitions for Mental retardation Local Authority (MRLA) program, §355.745 concerning service limitations for Service Coordination through MRLA , and §355.746, concerning reimbursement methodology for MRLA Service Coordination.

Background and Summary of Factual Basis for the Rules

Section 531.021, Government Code, entitled "Administration of Medicaid Program," provides, among other things, that HHSC adopt rules and standards to govern the determination of fees, charges, and rates for medical assistance payments under Chapter 32, Human Resources Code, in consultation with the agencies that operate the Medicaid program. The amendments describe how rates for Service Coordination for individuals served through the MRLA program will be established and how the service will be defined and limited.

Explanation

Subsection (a) §355.743 is amended to state that cost data is required annually.

The amendments to §355.701 and new §§355.744-355.746 maximize the state's opportunity to draw federal funds to cover allowable costs in community settings. The amendments will create another service coordination rate for those individuals with Mental Retardation being served through the MRLA program. Currently, the state sets a single rate for service coordination provided to all individuals with mental retardation. The amendments will result in one rate for persons being served through the MRLA program and another rate for all other individuals with mental retardation.

Fiscal Note

Don Green, Chief Financial Officer, has determined that for the first five years that the proposed amendments are in effect, there is no anticipated fiscal impact resulting from the adoption of the amendments. No additional costs will be borne by local governments as a result of the proposed amendments, nor is there any anticipated impact of revenues of state or local government.

Public Benefit

Don Green, Chief Financial Officer, has determined that during the first five years that the proposed amendments and new sections are in effect, the public benefit is that consumers and families, other stakeholders, and MRAs within the MRLA Program will have a better understanding of the MRLA service coordination activities for which an MRA may receive reimbursement.

Small and Micro-business Impact Analysis

The proposed amendments will not result in additional costs to persons required to comply with the rules, nor do the rules have any anticipated adverse effect on small or micro-businesses. The rules will not affect local employment.

Regulatory Analysis

HHSC has determined that none of the proposed amended rules is a "major environmental rule" as defined by §2001.0225, Government Code. "Major environmental rule" is defined to mean a rule the specific intent of which is to protect the environment or reduce risks to human health from environmental 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 the state or a sector of the state. The proposed amendments are not specifically intended to protect the environment or reduce risks to human health from environmental exposure.

Takings Impact Assessment

HHSC has assessed the takings impact of the proposed amended rules under Texas Government Code, §2007.043. HHSC has determined that this action does not restrict or limit an owner's right to property that would otherwise exist in the absence of governmental action and therefore does not constitute a taking. The majority of the proposed amendments are administrative, non-substantive, and do not impose any new regulatory requirements. The proposed amended rules are reasonably taken to fulfill requirements of state law.

Public Comment

A hearing to accept oral and written testimony from members of the public concerning the proposal has been scheduled for 1:30 p.m., Monday, June 3, 2002, in the Texas Department of Mental Health and Mental Retardation Central Office Auditorium in Building 2 at 909 West 45th Street, in Austin, Texas. Persons requiring an interpreter for the deaf or hearing impaired should contact the department's Central Office operator at least 72 hours prior to the hearing at TDD (512) 206-5330. Persons requiring other accommodations for a disability should notify Medicaid Administration, at least 72 hours prior to the hearing at (512) 206-5753 or at the TDY phone number of Texas Relay, 1/800-735-2988.

Public comment may be submitted in writing to Mary Ann Roberts, Manager, HHSC Medicaid Rates and Analysis, Health and Human Services Commission, by mail to P.O. Box 12668, Austin, Texas 78711, or by fax to 512/206-5673. Comments must be submitted by 5:00 p.m., Monday, June 10, 2002. Further information may be obtained by calling Mary Ann Roberts at (512) 206-5682.

Statutory Authority

The amendments are proposed under §531.021(b), Government Code, which requires HHSC to adopt reasonable rules and standards to govern the determination of fees, charges, and rates for medical assistance payments under Chapter 32, Human Resources Code, in consultation with the agencies that operate the Medicaid program; and §531.033, Government Code, which provides the commissioner of health and human services with authority to adopt rules necessary to carry the duties of HHSC under Chapter 531, Government Code.

The proposed amended rules implement §531.021(b), Government Code, concerning the adoption of rules and standards to govern the determination of fees, charges, and rates for medical assistance payments under Chapter 32, Human Resources Code, and §32.0281, Human Resources Code, concerning the adoption of rules regarding Medicaid reimbursement rates.

§355.701.Definitions and General Specifications.

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

(1)-(2) (No change.)

(3) Full Cost Report - Cost data required annually by Texas Health and Human Services Commission (HHSC) that includes all costs of providing services including direct care costs, administration, facility costs, and all other operating costs relevant to the provision of services.

(4)-(11) (No change.)

(b) (No change.)

§355.743.Reimbursement Methodology for Service.

(a) The Texas Department of Mental Health and Mental Retardation (TDMHMR) reimburses qualified local authorities for service coordination provided to Medicaid-eligible individuals who are eligible for service coordination according to 25 Texas Administrative Code §412.455 [ of this title ] (relating to Eligibility [ Reimbursement Methodology for Service ]). HHSC determines reimbursement for service coordination. Reimbursement is:

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

(b)-(d) (No change.)

(e) Reimbursement methodology. HHSC determines reimbursement according to §355.701 of this title (relating to General Specifications). As specified in §355.706 of this title (relating to Adjusting Rates When New Legislation, Regulations, or Economic Factors Affect Costs), HHSC may also adjust reimbursements.

(1) Local [ For the reimbursement period beginning April 1, 1999, local ] authorities will be reimbursed a statewide rate comprising a modeled rate plus a statewide weighted average associated service add-on.

(A)-(B) (No change.)

(2)-(3) (No change.)

(f)-(h) (No change.)

§355.744.Service Coordination Definitions for Mental Retardation Local Authority (MRLA) Program.

The following words and terms, when used in §§355.744-355.746, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Allowable costs - Those expenses that are reasonable and necessary costs in the normal conduct of operations relating to case management services. See also definitions of "reasonable cost" and of "necessary cost" in this section and §355.743(e)(2) of this title (relating to Reimbursement Methodology for Service).

(2) MRLA - Mental Retardation Local Authority Program operated by TDMHMR.

(3) Necessary cost - A cost that is usual and customary in the operation of case management services and that meets the following requirements.

(A) The cost is not for personal or other activity not specifically related to the provision of case management services.

(B) The cost does not appear on the list of specific unallowable costs and is not unallowable under other federal, state, or local laws or regulations. See definition of "unallowable cost" in this section, and see §355.743(e)(3) of this title (relating to Reimbursement Methodology for Service).

(C) The cost bears a significant relationship to case management services. The test of significance is whether there would be an adverse impact on the delivery of case management services if the expenditure were eliminated.

(4) Prospective reimbursement - Reimbursement payment amounts that are determined for a future period of time and that are not to be readjusted during that period.

(5) Reasonable cost - The amount that does not exceed the cost that would be incurred by a prudent business operator seeking to contain costs.

(6) Unallowable cost - A cost that is not a reasonable or necessary cost for the provision of case management services. See definitions of "necessary cost" and of "reasonable cost" in this section.

§355.745.Service Limitations for Service Coordination through MRLA.

MRLA service coordination activities will not be reimbursable as a Medicaid service for which another payor is liable. Service coordination activities associated with the following are not reimbursable as an optional targeted case management service:

(1) Medicaid eligibility determinations and redeterminations;

(2) Medicaid eligibility intake processing;

(3) Medicaid preadmission screening;

(4) prior authorization for Medicaid services;

(5) required Medicaid utilization review;

(6) Texas Health Steps administration; and

(7) Medicaid "lock-in" provided for under §1915(a) of the Omnibus Reconciliation Act of 1987.

§355.746.Reimbursement Methodology for MRLA Service Coordination.

(a) The Texas Department of Mental Health and Mental Retardation (TDMHMR) reimburses qualified authorities for service coordination provided to Medicaid-eligible individuals who are eligible for service coordination and are enrolled in the MRLA program in accordance with 25 TAC, Chapter 409, Subchapter L (relating to Mental Retardation Local Authority (MRLA) Program). HHSC determines reimbursement for service coordination. Reimbursement is:

(1) uniform statewide;

(2) prospective; and

(3) cost related with a year-end settlement.

(b) Service coordination rates are set for services provided to individuals with mental retardation or a related condition who are enrolled in and receiving services through the MRLA Program;

(c) Local authority qualifications. 42 U.S.C. §1396n(g) is invoked to limit the provision of service coordination to the state mental retardation authorities, the state mental health authorities, TDMHMR, or its designated local authorities authorized under §534.054 of the Texas Health and Safety Code, which offer a service delivery system of required services as outlined in §534.053 of the Texas Health and Safety Code.

(d) Rules and procedures. TDMHMR has implemented rules and procedures to ensure that service coordination is provided by persons who meet the requirements specified by TDMHMR and is provided in compliance with federal and state laws, rules, and regulations.

(e) Reimbursement methodology. HHSC determines reimbursement according to §355.701 of this title (relating to General Specifications). As specified in §355.706 of this title (relating to Adjusting Rates When New Legislation, Regulations, or Economic Factors Affect Costs), HHSC may also adjust reimbursements.

(1) MRLA authorities will be reimbursed a statewide rate comprising a modeled rate plus a statewide weighted average associated service add-on.

(A) The modeled rate is based on cost calculations that include a statewide weighted average hourly wage for persons who provide service coordination as 100 percent of their job responsibilities, a predetermined caseload size, a statewide weighted average supervisory wage rate and span of control, and a statewide weighted average benefits factor.

(B) The associated service add-on includes clerical and support costs, travel and training costs, and other allowable operating costs (e.g., rent, utilities, office supplies, administration, and depreciation) necessary to provide service coordination.

(2) At the end of each reimbursement period HHSC will compare the difference between the statewide rate and each MRLA authority's service coordination costs as submitted on its cost report in accordance with subsection (g) of this section.

(A) If a MRLA authority's costs are less than 95 percent of the statewide rate, the MRLA authority will pay TDMHMR the difference between that MRLA authority's costs and 95 percent of the statewide rate. The MRLA authority will be notified of the amount due to TDMHMR by certified mail.

(i) The MRLA authority will have 30 days to make payment. If payment is not received from the MRLA authority within 30 days of the date that the notice was received, as specified on the certified mail receipt, HHSC will notify TDMHMR to place the MRLA authority on vendor hold.

(ii) A MRLA authority that has been placed on vendor hold may request an administrative hearing in accordance with §355.707 of this title (relating to Reviews and Administrative Hearings).

(B) If a MRLA authority's costs exceed the statewide rate, TDMHMR will reimburse the MRLA authority its costs up to 125 percent of the statewide rate. TDMHMR will notify the local authority by certified mail within 30 days of the date that the notice of the amount due to the local authority was received, as specified on the certified mail receipt.

(3) At such time as HHSC determines that cost data collected as described in subsection (g) of this section are reliable, statewide reimbursement rates will be developed based on the cost data submitted by MRLA authorities in the following manner:

(A) Total allowable costs for each provider for each rate will be determined from analyzing the allowable historical costs reported on the cost report.

(B) Each provider's total allowable costs are projected from the historical cost reporting period to the prospective reimbursement period using inflation factors according to §355.704 of this title (relating to Determination of Inflation Indices) for each covered contact.

(C) Each provider's projected cost per unit of service is calculated. The mean provider cost per contact is calculated, and the statistical outliers (those providers whose cost per contact exceeds plus or minus (+/-) two standard deviations from the mean provider cost per contact) are removed. After removal of the statistical outliers, the mean cost per contact is calculated. This mean cost per contact becomes the recommended cost per contact. Following each annual reimbursement period, allowable costs will be compared to reimbursement and any resulting monetary reconciliation will be made in accordance with paragraph (2) of this subsection.

(f) Reimbursable unit of service.

(1) The unit of service upon which reimbursement is made is a face-to-face contact with a Medicaid-eligible individual eligible for MRLA service coordination in accordance with 25 TAC, §409.505 (relating to Eligibility Criteria).

(2) Reimbursement is limited to one unit of service per Medicaid-eligible individual per month.

(g) Reporting of costs. HHSC or its designee collects from MRLA authorities statistical and cost data. The statistical data include, but are not limited to, the total number of individuals receiving service coordination, and the number of Medicaid-eligible individuals receiving service coordination. The cost data include direct costs, programmatic indirect costs, and general and administrative costs including salaries, benefits, and non-labor costs.

(1) Cost reports. Each MRLA authority must submit financial and statistical information in a cost report or survey format designated by HHSC or its designee. The cost report will capture the expenses of the MRLA authority including salaries and benefits, administration, building and equipment, utilities, supplies, travel, and indirect overhead costs related to the provision of service coordination. Only allowable cost information is used to compile the cost base, as defined in §355.741 of this title (relating to Definitions and General Specifications) and §355.708 of this title (relating to Allowable and Unallowable Costs).

(A) Accounting requirements. All information submitted on the cost reports must be based upon the accrual method of accounting unless the governmental entity operates on a cash or modified accrual basis. The MRLA authority must complete the cost report according to the prescribed statement of allowable and unallowable costs as referenced in §355.702 of this title (relating to Method of Cost Determination). Cost reporting should be consistent with generally accepted accounting principles (GAAP) in this subchapter. In cases in which cost reporting rules conflict with GAAP, Internal Revenue Service, or other authorities, the cost reporting rules take precedence.

(B) Reporting period. The MRLA authority must prepare the cost report according to §355.702 of this title (relating to Method of Cost Determination).

(2) Exclusions or adjustments. MRLA authorities must exclude unallowable costs from the cost report. HHSC or its designee excludes from the cost reimbursement base any unallowable costs included in the cost report and makes adjustments to expenses reported by MRLA authorities to ensure that the cost reimbursement base reflects costs that are consistent with efficiency, economy, and quality care, are necessary for the provision of service coordination services, and are consistent with federal and state Medicaid regulations as specified in §355.701 of this title (relating to Definitions and General Specifications). If there is doubt as to the accuracy of allowability of a significant part of the information reported, individual cost reports may be eliminated from the cost base.

(3) Desk reviews. As specified in §355.703 of this title (relating to Basic Objectives and Criteria for Review of Cost Reports), HHSC or its designee reviews such cost reports or surveys. Cost reports not completed according to instructions or rules will be corrected and resubmitted by the MRLA authority within the time frame prescribed by HHSC.

(4) On-site audit of cost reports. HHSC or its designee performs a sufficient number of audits each year to ensure the fiscal integrity of the service coordination reimbursement. The number of on-site audits actually performed each year may vary.

(A) HHSC or its designee notifies MRLA authorities of disallowances and adjustments to reported expenses made during desk reviews and on-site audits of cost reports according to §355.705 of this title (relating to Notification).

(B) Reviews of cost report disallowances. A MRLA authority which disagrees with HHSC or its designee on cost report disallowances may request a review of the disallowances as specified in §355.707 of this title (relating to Reviews and Administrative Hearings).

(5) Recordkeeping requirements. Each MRLA authority must maintain records according to the requirements specified in TDMHMR rules and the provider agreement. The MRLA authority must ensure that the records are accurate and sufficiently detailed to support the financial and statistical information reported in the cost report. If a MRLA authority does not maintain records that support the financial and statistical information submitted on the cost report, the MRLA authority will be notified by certified mail that the local authority has 90 days to correct this recordkeeping. HHSC will notify TDMHMR to place the MRLA authority on vendor hold if the correction is not made within 90 days from the date the MRLA authority receives notification.

(6) Access to records. The MRLA authority must allow HHSC access to any and all records necessary to verify information on the cost report.

(h) Billing and payment reviews. The provider must allow TDMHMR access to any and all records regarding service coordination.

(1) TDMHMR will conduct periodic billing and payment reviews utilizing TDMHMR's Billing and Payment Review Protocol.

(2) Recoupment will be taken according to the application of error calculations contained in TDMHMR's Billing and Payment Review Protocol.

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 April 29, 2002.

TRD-200202655

Marina S. Henderson

Executive Deputy Commissioner

Texas Health and Human Services Commission

Earliest possible date of adoption: June 9, 2002

For further information, please call: (512) 424-6630


Subchapter J. PURCHASED HEALTH SERVICES

6. RURAL HEALTH CLINICS

1 TAC §355.8101

The Health and Human Services Commission (HHSC) proposes an amendment to §355.8101. The proposed amendment incorporates federally-mandated changes to the reimbursement methodology for rural health clinics. The amendment also explains how reimbursement rates will be calculated. The proposed reimbursement methodology is either a prospective payment system (PPS) or an alternative payment system. The per visit rates for both payment systems will be derived from a facility's reasonable costs for a specified period of time.

Don Green, Chief Financial Officer, has determined that during the first five years the proposed rule is in effect there will be no fiscal implications for state or local government as a result of enforcing or administering the section.

Mr. Steve Lorenzen, Director of Rate Setting, has determined that during the first five years the proposed rule is in effect, it will benefit the public by providing a clear description of the RHC reimbursement methodology. Small businesses and micro-businesses will not be required to alter their business practices to comply with the proposed rule, so it will not effect these businesses. There are no anticipated economic costs to persons required to comply with the proposed rule, nor any impact on local employment.

HHSC has determined that this proposed rule 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 specified intent of which is to protect the environment or reduce risk to human health from environmental 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 a sector of the state. The proposed rule is not specifically intended t protect the environment or reduce risks to human health from environmental exposure.

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

Written comments on the proposed rule may be submitted to Jennifer Stansbury, Program Specialist, Medicaid/CHIP Benefits, Texas Health and Human Services Commission, 1100 W. 49th, Austin, Texas 78756, within 30 days of publication of this proposal in the Texas Register . In addition, a public hearing concerning the proposed rule will be held on May 21, 2002, 2:00 p.m. to 5:00 p.m., at the Texas Health and Human Services Commission, 12555 Riata Vista Circle, Bldg. #3, Austin, Texas. To comply with federal regulations, a copy of the proposal is being sent to each Texas Department of Human Services (DHS) office where it will be available for public review upon request.

The amendment is proposed under the Texas Government Code, §531.033, which provides the Commissioner of HHSC with broad rulemaking authority; Human Resources Code, §32.021 and the Texas Government Code, §531.021(a), which provide the Health and Human Services Commission (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 Government Code, Chapter 531. No other statutes, articles, or codes are affected by the proposed rule.

§355.8101.Reimbursement.

(a) Prospective Payment System. Rural health clinics (RHCs) employing the Prospective Payment System (PPS) methodology, in accordance with section 1902 (aa) of the Social Security Act as amended by the Benefits Improvement and Protection Act (BIPA) of 2000 (42 U.S.C. §1396a (aa)) effective for the RHC's fiscal year that includes dates of service occurring January 1, 2001, and after, RHC's will be reimbursed a PPS per visit rate for Medicaid covered services. There will no longer be a cost settlement for RHCs for dates of services on or after January 1, 2001.

(1) The PPS per visit rate for both hospital-based and freestanding RHCs will be calculated based on one hundred percent (100%) of the average of the RHC's reasonable costs for providing Medicaid covered services as determined from audited cost reports for the RHC's 1999 and 2000 fiscal years. The PPS per visit rates will be calculated by adding the total audited reimbursable costs as determined from the 1999 and 2000 cost reports and dividing by the total audited visits for these same two periods.

(2) For hospital-based RHCs, an interim PPS per visit rate for each RHC will be calculated based upon the encounter rate from the latest finalized cost report settlement, adjusted as provided for in paragraph (7) of this subsection . For freestanding RHCs, the interim PPS per visit rate for each RHC will be based upon the per visit rate in the Medicaid payment system as of December 31, 2000, adjusted as provided for in paragraph (7) of this subsection. When HHSC has determined a final PPS rate, interim payments will be reconciled back to January 1, 2001.

(3) Reasonable costs, as used in setting the interim PPS rate, the PPS rate or any subsequent effective rate, is defined as those costs that are allowable under Medicare Cost. Principles as outlined in 42 CFR part 413. The cost limits that were in place on December 31, 2000, shall be maintained in determining reasonable costs. Reasonable costs shall not include unallowable costs.

(4) Unallowable costs are expenses that are incurred by an RHC and that are not directly or indirectly related to the provision of covered services according to applicable laws, rules, and standards. An RHC may expend funds on unallowable cost items, but those costs must not be included in the cost report/survey, and they are not used in calculating a rate determination. Unallowable costs include, but are not necessarily limited to, the following:

(A) compensation in the form of salaries, benefits, or any form of compensation given to individuals who are not directly or indirectly related to the provision of covered services;

(B) personal expenses not directly related to the provision of covered services;

(C) management fees or indirect costs that are not derived from the actual cost of materials, supplies, or services necessary for the delivery of covered services, unless the operational need and cost effectiveness can be demonstrated;

(D) advertising expenses other than those for advertising in the telephone directory yellow pages, for employee or contract labor recruitment, and for meeting any statutory or regulatory requirement;

(E) business expenses not directly related to the provision of covered services. For example, expenses associated with the sale or purchase of a business or expenses associated with the sale or purchase of investments;

(F) political contributions;

(G) depreciation and amortization of unallowable costs, including amounts in excess of those resulting from the straight line depreciation method; capitalized lease expenses, less any maintenance expenses, in excess of the actual lease payment; and goodwill or any excess above the actual value of the physical assets at the time of purchase. Regarding the purchase of a business, the depreciable basis will be the lesser of the historical but not depreciated cost to the previous owner or the purchase price of the assets. Any depreciation in excess of this amount is unallowable;

(H) trade discounts and allowances of all types, including returns, allowances, and refunds received on purchases of goods or services. These are reductions of costs to which they relate and thus, by reference, are unallowable;

(I) donated facilities, materials, supplies, and services including the values assigned to the services of unpaid workers and volunteers whether directly or indirectly related to covered services, except as permitted in 42 C.F.R. Part 413;

(J) dues to all types of political and social organizations, and to professional associations whose functions and purpose are not reasonably related to the development and operation of patient care facilities and programs, or the rendering of patient care services;

(K) entertainment expenses except those incurred for entertainment provided to the staff of the RHC as an employee benefit. An example of entertainment expenses is lunch during the provision of continuing medical education on-site;

(L) board of director's fees, including travel costs and meals provided for these directors;

(M) fines and penalties for violations of statutes, regulations, and ordinances of all types;

(N) fund raising and promotional expenses except as noted in subparagraph (D) of this subsection;

(O) interest expenses on loans pertaining to unallowable items, such as investments. Also the interest expense on that portion of interest paid that is reduced or offset by interest income;

(P) insurance premiums pertaining to items of unallowable cost;

(Q) any accrued expenses that are not a legal obligation of the provider or are not clearly enumerated as to dollar amount;

(R) mileage expense exceeding the current reimbursement rate set by the federal government for its employee travel;

(S) cost for goods or services that are purchased from a related party and which exceed the original cost to the related party;

(T) out-of-state travel expenses not related to the provision of covered services, except out-of-state travel expenses for training courses that increase the quality of medical care and/or the operating efficiency of the RHC;

(U) over-funding contributions to self-insurance funds that do not represent payments based on current liabilities;

(5) A visit is a face-to-face encounter between an RHC patient and a physician, physician assistant, advanced nurse practitioner, certified nurse-midwife, visiting nurse, or clinical nurse practitioner. Encounters with more than one health professional and multiple encounters with the same health professional that take place on the same day and at a single location constitute a single visit, except where one of the following conditions exists:

(A) after the first encounter, the patient suffers illness or injury requiring additional diagnosis or treatment; or

(B) the RHC patient has a medical visit and an "other" health visit.

(6) A visit is a face-to-face encounter between an RHC patient and a physician, physician assistant, advanced nurse practitioner, certified nurse mid-wife, visiting nurse, or clinical nurse practitioner. An "other" health visit includes, but is not limited to, a face-to-face encounter between an RHC patient and a clinical social worker.

(7) Effective for each RHC's fiscal year that includes dates of services occurring on or after October 1, 2001, subsequent increases in an RHC's PPS per visit rate or the effective rate shall be the rate of change in the Medicare Economic Index (MEI) for Primary Care.

(8) The effective rate is the rate paid to the RHC for the current fiscal year. The effective rate equals the base rate plus the MEI for each of the RHC's fiscal years since the setting of its PPS rate. The effective rate shall be calculated at the start of each RHC's fiscal year and shall be applied prospectively for that fiscal year.

(9) An adjustment shall be made to the effective rate if change is due to a change in scope. An RHC or HHSC may request an adjustment of the effective rate equal to one hundred percent (100%) of reasonable costs by the filing of a cost report and the necessary documentation to support a claim that the RHC has undergone a change in scope. A cost report, filed to request an adjustment in the effective rate, may be filed at any time during an RHC's fiscal year but no later than five (5) calendar months after the end of the RHC's fiscal year. All requests for adjustment in the RHC's effective rate must include at least 6 months of financial data. Any effective rate adjustment granted as a result of such a filing must be completed within sixty (60) days of receipt of a workable cost report and documentation supporting the RHC's claim that it has undergone a change in scope. Within sixty (60) days of submitting a workable cost report, HHSC or its designee shall make a determination regarding a new effective rate. The new effective rate shall become effective the first day of the month immediately following its determination. All subsequent increases shall be calculated using the adjusted effective rate.

(10) Any request to adjust an effective rate must be accompanied by documentation showing that the RHC has had a change in scope.

(11) A change in scope of services provided by an RHC includes the addition or deletion of a service or a change in the magnitude, intensity, or character of services currently offered by an RHC or one of the RHC's sites. A change in scope includes:

(A) an increase in service intensity attributable to changes in the types of patients served, including but not limited to, HIV/AIDS, the homeless, elderly, migrant, other chronic diseases or special populations;

(B) any changes in services or provider mix provided by an RHC or one of its sites;

(C) changes in operating costs that have occurred during the fiscal year and that are attributable to capital expenditures, including new service facilities or regulatory compliance;

(D) Changes in operating costs attributable to changes in technology or medical practices at the RHC;

(E) indirect medical education adjustments and a direct graduate medical education payment that reflects the costs of providing teaching services to interns and residents; or

(F) any changes in scope approved by the Health Resources and Service Administration (HRSA).

(12) A workable cost report includes the following:

(A) for a hospital-based RHC, complete HCFA Form 2552 and HCFA Form 339 with certification by an officer or administrator including:

(i) M-1 (analysis of provider-based RHC costs);

(ii) M-2 (allocation of overhead to RHC services);

(iii) M-3 (calculation of reimbursement settlement for RHC services);

(iv) M-5 (analysis of payments to hospital-based RHC services rendered to program beneficiaries);

(v) S-8 (statistical data/information purposes);

(vi) RHC net expenses for allocation of costs for services rendered on or after January 1, 1998, reported on the hospital's worksheet A, column 7 traced properly to the RHC's total facility costs on line 32, column 7 on M-1 worksheet; and

(vii) hospital's overhead worksheet expenses allocated to each of the hospital-based RHC cost centers on worksheet B, Part I (column 27 minus column 0) traced properly to line 15, column 5 on M-2 worksheet for each hospital-based RHC.

(B) for a freestanding RHC, a complete HCFA 222 Form and HCFA 339 Form with certification by an officer of administrator.

(13) Once the base rate for an RHC has been calculated, the RHC will be paid its effective rate without the need to file a cost report. Except as specified in paragraph (14) of this subsection, a cost report will be required only if the RHC is seeking to adjust its effective rate as an RHC.

(14) New RHCs will file a projected cost report within 90 days of their designation to establish an initial payment rate. The cost report will contain the RHC's reasonable costs anticipated to be incurred during the RHC's initial fiscal year. The RHC will file a cost report within five (5) months of the end of the RHC's initial fiscal year. The cost settlement must be completed within six (6) months of receipt of a cost report. The cost per visit rate established by the cost settlement process shall be the base rate. Any subsequent increases will be calculated as provided herein. A new RHC location established by an existing RHC participating in the Medicaid program will receive the same effective rate as the RHC establishing the new location. An RHC establishing a new location may request an adjustment to its effective rate as provided herein if its costs have increased as a result of establishing a new location.

(15) In the event that the total amount paid to an RHC by a managed care organization is less than the amount the RHC would receive under PPS, the state will reimburse the difference on a quarterly basis. The state's quarterly supplemental payment obligation will be determined by subtracting the baseline payment under the contract for services being provided from the effective rate without regard to the effects of financial incentives that are linked to utilization outcomes, reductions in patient cost, or bonuses.

(16) An RHC shall submit a copy of its audited Medicare cost report to HHSC within 15 days of receipt.

[ (a) Reimbursement for rural health clinic services as defined in §29.1201 of this title (relating to Authorized Services by Rural Health Clinics) will be made on the basis of reasonable costs according to the principles specified in federal regulations at 42 Code of Federal Regulations §450.30(a)(10)(i).]

(b) Alternative Payment System. RHCs employing the alternative to the PPS methodology in accordance with section 1902 (aa) of the Social Security Act as amended by the Benefits Improvement and Protection Act (BIPA) of 2000 (42 U.S.C. §1396a (aa)) effective for the RHC fiscal year that includes dates of service occurring January 1, 2001, and after, will be reimbursed a per visit rate for Medicaid covered services. There will no longer be a cost settlement for RHCs for dates of services on or after January 1, 2001.

(1) Written and signed agreements will be obtained from all RHC providers agreeing to the alternative methodology.

(2) The alternative PPS per visit rate for both hospital-based and freestanding RHCs will be calculated based on one hundred percent (100%) of the average of the RHC's reasonable costs for providing Medicaid covered services as determined from audited cost reports for the RHC's 1999 and 2000 fiscal years. The alternative PPS per visit rates will be calculated by adding the total audited reimbursable costs as determined from the 1999 and 2000 cost reports and dividing by the total audited visits for these same two periods. The per visit rate using this alternative methodology will provide reimbursement equal to or greater than what would have occurred under PPS.

(3) For hospital-based RHCs, an interim alternative PPS per visit rate for each RHC will be calculated based upon the encounter rate from the latest cost report settlement, adjusted as provided for in paragraph (8) of this subsection. For freestanding RHCs, the interim alternative PPS per visit rate for each RHC will be based upon the per visit rate in the Medicaid payment system as of December 31, 2000, adjusted as provided for in paragraph (8) of this subsection. When HHSC has determined a final alternative PPS rate, interim payments will be reconciled back to January 1, 2001. Adjustments will be made only if the interim payments are less than what would have occurred under PPS.

(4) Reasonable costs, as used in setting the interim alternative PPS rate, the alternative PPS rate or any subsequent effective rate, is defined as those costs that are allowable under Medicare Cost Principles as outlined in 42 C.F.R. part 413. The cost limits that were in place on December 31, 2000, shall be maintained in determining reasonable costs. Reasonable costs shall not include unallowable costs.

(5) Unallowable costs are expenses that are incurred by an RHC and that are not directly or indirectly related to the provision of covered services according to applicable laws, rules, and standards. An RHC may expend funds on unallowable cost items, but those costs must not be included in the cost report/survey, and they are not used in calculating a rate determination. Unallowable costs include, but are not necessarily limited to, the following:

(A) compensation in the form of salaries, benefits, or any form of compensation given to individuals who are not directly or indirectly related to the provision of covered services;

(B) personal expenses not directly related to the provision of covered services;

(C) management fees or indirect costs that are not derived from the actual cost of materials, supplies, or services necessary for the delivery of covered services, unless the operational need and cost effectiveness can be demonstrated;

(D) advertising expenses other than those for advertising in the telephone directory yellow pages, for employee or contract labor recruitment, and for meeting any statutory or regulatory requirement;

(E) business expenses not directly related to the provision of covered services. For example, expenses associated with the sale or purchase of a business or expenses associated with the sale or purchase of investments;

(F) political contributions;

(G) depreciation and amortization of unallowable costs, including amounts in excess of those resulting from the straight line depreciation method; capitalized lease expenses, less any maintenance expenses, in excess of the actual lease payment; and goodwill or any excess above the actual value of the physical assets at the time of purchase. Regarding the purchase of a business, the depreciable basis will be the lesser of the historical but not depreciated cost to the previous owner or the purchase price of the assets. Any depreciation in excess of this amount is unallowable;

(H) trade discounts and allowances of all types, including returns, allowances, and refunds received on purchases of goods or services. These are reductions of costs to which they relate and thus, by reference, are unallowable;

(I) donated facilities, materials, supplies, and services including the values assigned to the services of unpaid workers and volunteers whether directly or indirectly related to covered services, except as permitted in 42 C.F.R. part 413;

(J) dues to all types of political and social organizations, and to professional associations whose functions and purpose are not reasonably related to the development and operation of patient care facilities and programs, or the rendering of patient care services;

(K) entertainment expenses except those incurred for entertainment provided to the staff of the RHC as an employee benefit. An example of entertainment expenses is lunch during the provision of continuing medical education on-site;

(L) board of director's fees, including travel costs and meals provided for these directors;

(M) fines and penalties for violations of statutes, regulations, and ordinances of all types;

(N) fund raising and promotional expenses except as noted in subparagraph (D) of this subsection;

(O) interest expenses on loans pertaining to unallowable items, such as investments. Also the interest expense on that portion of interest paid that is reduced or offset by interest income;

(P) insurance premiums pertaining to items of unallowable cost;

(Q) any accrued expenses that are not a legal obligation of the provider or are not clearly enumerated as to dollar amount;

(R) mileage expense exceeding the current reimbursement rate set by the federal government for its employee travel;

(S) cost for goods or services that are purchased from a related party and which exceed the original cost to the related party;

(T) out-of-state travel expenses not related to the provision of covered services, except out-of-state travel expenses for training courses that increase the quality of medical care and/or the operating efficiency of the RHC;

(U) over-funding contributions to self-insurance funds that do not represent payments based on current liabilities;

(6) A visit is a face-to-face encounter between an RHC patient and a physician, physician assistant, advanced nurse practitioner, certified nurse-midwife, visiting nurse, or clinical nurse practitioner. Encounters with more than one health professional and multiple encounters with the same health professional that take place on the same day and at a single location constitute a single visit, except where one of the following conditions exists:

(A) after the first encounter, the RHC patient suffers illness or injury requiring additional diagnosis or treatment; or

(B) the RHC patient has a medical visit and an "other" health visit.

(7) A visit is a face-to-face encounter between an RHC patient and a physician, physician assistant, advanced nurse practitioner, certified nurse mid-wife, visiting nurse, or clinical nurse practitioner. An "other" health visit includes, but is not limited to, a face-to-face encounter between an RHC patient and a clinical social worker.

(8) Effective for each RHC's fiscal year that includes dates of services occurring on or after October 1, 2001, subsequent increases in an RHC's alternative PPS per visit rate or the effective rate shall be the rate of change in the MEI for Primary Care.

(9) The effective rate is the rate paid to the RHC for the current fiscal year. The effective rate equals the base rate plus the MEI for each of the RHC's fiscal years since the setting of its alternative PPS rate. The effective rate shall be calculated at the start of each RHC's fiscal year and shall be applied prospectively for that fiscal year.

(10) An adjustment shall be made to the effective rate if change is due to a change in scope. An RHC or HHSC may request an adjustment of the effective rate equal to one hundred percent (100%) of reasonable costs by the filing of a cost report and the necessary documentation to support a claim that the RHC has undergone a change in scope. A cost report, filed to request an adjustment in the effective rate, may be filed at any time during an RHC's fiscal year but no later than five (5) calendar months after the end of the RHC's fiscal year. All requests for adjustment in the RHC's effective rate must include at least 6 months of financial data. Any effective rate adjustment granted as a result of such a filing must be completed within sixty (60) days of receipt of a workable cost report and documentation supporting the RHC's claim that it has undergone a change in scope. Within sixty (60) days of submitting a workable cost report, HHSC or its designee shall make a determination regarding a new effective rate. The new effective rate shall become effective the first day of the month immediately following its determination. All subsequent increases shall be calculated using the adjusted effective rate.

(11) Any request to adjust an effective rate must be accompanied by documentation showing that the RHC has had a change in scope.

(12) A change in scope of services provided by an RHC includes the addition or deletion of a service or a change in the magnitude, intensity, or character of services currently offered by an RHC or one of the RHC's sites. A change in scope includes:

(A) an increase in service intensity attributable to changes in the types of patients served, including but not limited to, HIV/AIDS, the homeless, elderly, migrant, other chronic diseases or special populations;

(B) any changes in services or provider mix provided by an RHC or one of its sites;

(C) changes in operating costs that have occurred during the fiscal year and that are attributable to capital expenditures including new service facilities or regulatory compliance;

(D) changes in operating costs attributable to changes in technology or medical practices at the RHC;

(E) indirect medical education adjustments and a direct graduate medical education payment that reflects the costs of providing teaching services to interns and residents; or

(F) any changes in scope approved by the Health Resources and Service Administration (HRSA).

(13) A workable cost report includes the following:

(A) for a hospital-based RHC, complete HCFA Form 2552 and HCFA Form 339 with certification by an officer or administrator including:

(i) M-1 (analysis of provider-based RHC costs);

(ii) M-2 (allocation of overhead to RHC services);

(iii) M-3 (calculation of reimbursement settlement for RHC services);

(iv) M-5 (analysis of payments to hospital-based RHC services rendered to program beneficiaries);

(v) S-8 (statistical data/information purposes);

(vi) RHC net expenses for allocation of costs for services rendered on or after January 1, 1998, reported on the hospital's worksheet A, column 7 traced properly to the RHC's total facility costs on line 32, column 7 on M-1 worksheet; and

(vii) hospital's overhead worksheet expenses allocated to each of the hospital-based RHC cost centers on worksheet B, Part I (column 27 minus column 0) traced properly to line 15, column 5 on M-2 worksheet for each hospital-based RHC.

(B) for a freestanding RHC, a complete HCFA 222 Form and HCFA 339 Form with certification by an officer of administrator.

(14) Once the base rate for an RHC has been calculated, the RHC will be paid its effective rate without the need to file a cost report. Except as specified in paragraph (15) of this subsection, a cost report will be required only if the RHC is seeking to adjust its effective rate as an RHC.

(15) New RHCs must file a projected cost report within 90 days of their designation to establish an initial payment rate. The cost report will contain the RHC's reasonable costs anticipated to be incurred during the RHC's initial fiscal year. The RHC will file a cost report within five (5) months of the end of the RHC's initial fiscal year. The cost settlement must be completed within six (6) months of receipt of a cost report. The cost per visit rate established by the cost settlement process will be the base rate. Any subsequent increases will be calculated as provided herein. A new RHC location established by an existing RHC participating in the Medicaid program will receive the same effective rate as the RHC establishing the new location. An RHC establishing a new location may request an adjustment to its effective rate as provided herein if its costs have increased as a result of establishing a new location.

(16) In the event that the total amount paid to an RHC by a managed care organization is less than the amount that the RHC would receive under the alternative PPS, the state will reimburse the difference on a quarterly basis. The state's quarterly supplemental payment obligation will be determined by subtracting the baseline payment under the contract for services being provided from the effective rate without regard to the effects of financial incentives that are linked to utilization outcomes, reductions in patient cost, or bonuses.

(17) An RHC shall submit a copy of its audited Medicare cost report to HHSC within 15 days of receipt.

[ (b) Reimbursement for other ambulatory services as defined in §29.1201 of this title (relating to Authorized Services by Rural Health Clinics), which are covered under the Texas Medical Assistance Program, will be made at rates and charges established under the program for payment to providers of these services in settings other than a rural health clinic. Payment for other ambulatory services is subject to the upper limits specified in federal regulations at 42 Code of Federal Regulations §450.30(b).]

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 April 29, 2002.

TRD-200202654

Marina S. Henderson

Executive Deputy Commissioner

Texas Health and Human Services Commission

Earliest possible date of adoption: June 9, 2002

For further information, please call: (512) 424-6630


14. FEDERALLY QUALIFIED HEALTH CENTER SERVICES

1 TAC §355.8261

The Health and Human Services Commission (HHSC) proposes an amendment to §355.8261. The proposed amendment incorporates federally-mandated changes to the reimbursement methodology for federally qualified health centers (FQHC). The amendment also explains how reimbursement rates will be calculated. The proposed reimbursement methodology is either a prospective payment system (PPS) or an alternative payment system. The per visit rates for both payment systems will be derived from a facility's reasonable costs for a specified period of time.

Don Green, Chief Financial Officer, has determined that during the first five years the proposed rule is in effect there will be no fiscal implications for state or local government as a result of enforcing or administering the section.

Mr. Steve Lorenzen, Director of Rate Analysis, has determined that during the first five years the proposed rule is in effect, it will benefit the public by providing a clear description of the FQHC reimbursement methodology. Small businesses and micro-businesses will not be required to alter their business practices to comply with the proposed rule, so it will not affect these businesses. There are no anticipated economic costs to persons required to comply with the proposed rule, nor any impact on local employment.

HHSC has determined that this proposed rule 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 specified intent of which is to protect the environment or reduce risk to human health from environmental 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. The proposed rule is not specifically intended t protect the environment or reduce risks to human health from environmental exposure.

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

Written comments on the proposed rule may be submitted to Jennifer Stansbury, Program Specialist, Medicaid/CHIP Benefits, Texas Health and Human Services Commission, 1100 W. 49th, Austin, Texas 78756, within 30 days of publication of this proposal in the Texas Register . In addition, a public hearing concerning the proposed rule will be held on May 21, 2002, 9:00 a.m. to 12:00 p.m., at the Texas Health and Human Services Commission, 12555 Riata Vista Circle, Bldg. #3, Austin, Texas. To comply with federal regulations, a copy of the proposed ruleis being sent to each Texas Department of Human Services (DHS) office where it will be available for public review upon request.

The amendment is proposed under the Texas Government Code, §531.033, which provides the Commissioner of HHSC with broad rulemaking authority; 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 Government Code, Chapter 531. No other statutes are affected by the proposed rule.

§355.8261.Reimbursement.

(a) Prospective Payment Methodology. Federally qualified health centers (FQHCs) employing the Prospective Payment System (PPS) methodology, in accordance with section 1902 (aa) of the Social Security Act, as amended by the Benefits Improvement and Protection Act (BIPA) of 2000, 42 U.S.C. § 1396a(aa), effective for the FQHCs fiscal year that includes dates of service occurring January 1, 2001, and after, will be reimbursed a PPS per visit rate for Medicaid covered services. There will no longer be a cost settlement for FQHCs for dates of service on or after January 1, 2001.

(1) The PPS per visit rate for each FQHC will be calculated based on one hundred percent (100%) of the average of the FQHCs reasonable costs for providing Medicaid covered services as determined from audited cost reports for the FQHCs 1999 and 2000 fiscal years. The PPS per visit rates will be calculated by adding the total audited reimbursable costs as determined from the 1999 and 2000 cost reports and dividing by the total audited visits for these same two periods.

(2) Prior to the Health and Human Services Commission's (HHSC) setting a PPS rate pursuant to subsection (a), each FQHC will be reimbursed on the basis of an interim per visit rate. The interim per visit rate for each FQHC will be the encounter rate from the latest finalized cost report settlement, adjusted as provided for in paragraph (7) of this subsection. When HHSC has determined a final PPS rate, interim payments will be reconciled back to January 1, 2001. The final PPS rate, as adjusted, will apply prospectively from the date of the final approval.

(3) Reasonable costs, as used in setting the base rate, the PPS rate, or any subsequent effective rate, is defined as those costs that are allowable under Medicare Cost Principles, as outlined in 42 C.F.R. part 413, with no productivity screens and no per visit payment limit. The administrative cost limit of thirty percent (30%) of total costs that was in place on December 31, 2000, will be retained in determining reasonable costs. Reasonable costs do not include unallowable costs.

(4) Unallowable costs. Unallowable costs are expenses that are incurred by an FQHC and that are not directly or indirectly related to the provision of covered services, according to applicable laws, rules, and standards. An FQHC may expend funds on unallowable cost items, but those costs must not be included in the cost report/survey, and they are not used in calculating a rate determination. Unallowable costs include, but are not necessarily limited to, the following:

(A) compensation in the form of salaries, benefits, or any form of compensation given to individuals who are not directly or indirectly related to the provision of covered services;

(B) personal expenses not directly related to the provision of covered services;

(C) management fees or indirect costs that are not derived from the actual cost of materials, supplies, or services necessary for the delivery of covered services, unless the operational need and cost effectiveness can be demonstrated;

(D) advertising expenses other than those for advertising in the telephone directory yellow pages, for employee or contract labor recruitment, and for meeting any statutory or regulatory requirement;

(E) business expenses not directly related to the provision of covered services. For example, expenses associated with the sale or purchase of a business or expenses associated with the sale or purchase of investments;

(F) political contributions;

(G) depreciation and amortization of unallowable costs, including amounts in excess of those resulting from the straight line depreciation method; capitalized lease expenses, less any maintenance expenses, in excess of the actual lease payment; and goodwill or any excess above the actual value of the physical assets at the time of purchase. Regarding the purchase of a business, the depreciable basis will be the lesser of the historical but not depreciated cost to the previous owner or the purchase price of the assets. Any depreciation in excess of this amount is unallowable;

(H) trade discounts and allowances of all types, including returns, allowances, and refunds, received on purchases of goods or services. These are reductions of costs to which they relate and thus, by reference, are unallowable;

(I) donated facilities, materials, supplies, and services including the values assigned to the services of unpaid workers and volunteers whether directly or indirectly related to covered services, except as permitted in 42 C.F.R. part 413;

(J) dues to all types of political and social organizations and to professional associations whose functions and purpose are not reasonably related to the development and operation of patient care facilities and programs or the rendering of patient care services;

(K) entertainment expenses, except those incurred for entertainment provided to the staff of the FQHC as an employee benefit. An example of entertainment expenses is lunch during the provision of continuing medical education on-site;

(L) board of director's fees, including travel costs and meals provided for directors;

(M) fines and penalties for violations of statutes, regulations, and ordinances of all types;

(N) fund raising and promotional expenses, except as noted in subparagraph (D) of this subsection;

(O) interest expenses on loans pertaining to unallowable items, such as investments. Also the interest expense on that portion of interest paid that is reduced or offset by interest income;

(P) insurance premiums pertaining to items of unallowable cost;

(Q) any accrued expenses that are not a legal obligation of the provider or are not clearly enumerated as to dollar amount;

(R) mileage expense exceeding the current reimbursement rate set by the federal government for its employee travel;

(S) cost for goods or services that are purchased from a related party and that exceed the original cost to the related party;

(T) out-of-state travel expenses not related to the provision of covered services, except out-of-state travel expenses for training courses that increase the quality of medical care and/or the operating efficiency of the FQHC;

(U) over-funding contributions to self-insurance funds that do not represent payments based on current liabilities;

(V) overhead costs beyond the thirty percent (30%) limitation established by the HHSC.

(5) A visit is a face-to-face encounter between an FQHC patient and a physician, physician assistant, nurse practitioner, nurse-midwife, visiting nurse, a qualified clinical psychologist, clinical social worker, other health professional for mental health services, dentist, dental hygienist, or an optometrist. Encounters with more than one health professional and multiple encounters with the same health professional that take place on the same day and at a single location constitute a single visit, except where one of the following conditions exist:

(A) after the first encounter, the patient suffers illness or injury requiring additional diagnosis or treatment; or

(B) the FQHC patient has a medical visit and an "other" health visit.

(6) A medical visit is a face-to-face encounter between an FQHC patient and a physician, physician assistant, nurse practitioner, nurse mid-wife, or visiting nurse. An "other" health visit includes, but is not limited to, a face-to-face encounter between an FQHC patient and a qualified clinical psychologist, clinical social worker, other health professional for mental health services, a dentist, a dental hygienist, an optometrist, or a Texas Health Steps Medical Screen.

(7) Effective for each FQHC's fiscal year that includes dates of services occurring on or after October 1, 2001, subsequent increases in an FQHC's base per visit rate or the effective rate shall be the rate of change in the Medicare Economic Index (MEI) for primary care.

(8) The effective rate is the rate paid to the FQHC for the current fiscal year. The effective rate equals the base rate plus the MEI for each of the FQHC's fiscal years since the setting of its base rate. The effective rate shall be calculated at the start of each FQHC's fiscal year and shall be applied prospectively for that fiscal year.

(9) An adjustment shall be made to the effective rate if the FQHC can show that the increase is due to a change in scope. An FQHC or the commission may request an adjustment of the effective rate equal to one hundred percent (100%) of reasonable costs by filing a cost report and the necessary documentation to support a claim that the FQHC has undergone a change in scope. A cost report, filed to request an adjustment in the effective rate, may be filed at any time during an FQHC's fiscal year but no later than five (5) calendar months after the end of the FQHC's fiscal year. All requests for adjustment in the FQHC's effective rate must include at least 6 months of financial data. Any effective rate adjustment granted as a result of such a filing must be completed within sixty (60) days of receipt of a workable cost report and documentation supporting the FQHC's claim that it has undergone a change in scope. Within sixty (60) days of submitting a workable cost report, HHSC or its designee shall make a determination regarding a new effective rate. The new effective rate shall become effective the first day of the month immediately following its determination. All adjustments shall be calculated using the effective rate and shall be applied prospectively.

(10) Any request to adjust an effective rate must be accompanied by documentation showing that the FQHC has had a change in scope. A change in scope of services provided by an FQHC includes the addition or deletion of a service or a change in the magnitude, intensity or character of services currently offered by an FQHC or one of the FQHC's sites. A change in scope includes:

(A) an increase in service intensity attributable to changes in the types of patients served including, but not limited to, HIV/AIDS, the homeless, elderly, migrant, and other chronic diseases or special populations;

(B) any changes in services or provider mix provided by an FQHC or one of its sites;

(C) changes in operating costs that have occurred during the fiscal year and which are attributable to capital expenditures, including new service facilities or regulatory compliance;

(D) changes in operating costs attributable to changes in technology or medical practices at the FQHC;

(E) indirect medical education adjustments and a direct graduate medical education payment that reflects the costs of providing teaching services to interns and residents; or

(F) any changes in scope approved by the Health Resources and Service Administration (HRSA).

(11) A workable cost report includes the following:

(A) an FQHC Statistical Data Coversheet with Certification by an Officer or Administrator;

(B) Medicaid Cost Report consisting of three (3) worksheets:

(i) Worksheet 1 - Reclassification and Adjustment of Trial Balance of Expenses;

(ii) Worksheet 2 - Provider Staff and Encounters; and

(iii) Worksheet 3 - Computation of Allowable Cost and Cost Settlement;

(D) Trial Balance with account titles. If the provider's Trial Balance has only account numbers, a Chart of Accounts will need to accompany the Trial Balance;

(E) a Mapping of the Trial Balance that shows the tracing of each Trial Balance account to a line and column on worksheet 1 of the Cost Report;

(F) documentation supporting the provider's reclassification and adjustments;

(G) a Schedule of Depreciation of depreciable assets;

(H) listing of all satellites, if applicable; and

(I) Federal Grant Award notices or changes in scope approved by HRSA.

(12) Once the base rate for an FQHC has been calculated, the FQHC will be paid its effective rate without the need to file a cost report. Except as specified in paragraph (13) of this subsection, a cost report will be required only if the FQHC is seeking to adjust its effective rate.

(13) New FQHCs must file a projected cost report within 90 days of their designation as an FQHC to establish an initial payment rate. The cost report will contain the FQHC's reasonable costs anticipated to be incurred during the FQHC's initial fiscal year. FQHC must file a cost report within five (5) months of the end of FQHC's initial fiscal year. The cost settlement must be completed within eleven (11) months of receipt of a cost report. The cost per visit rate established by the cost settlement process shall be the base rate. Any subsequent increases shall be calculated as provided herein. A new FQHC location established by an existing FQHC participating in the Medicaid program will receive the same effective rate as the FQHC establishing the new location. An FQHC establishing a new location may request an adjustment to its effective rate as provided herein if its costs have increased as a result of establishing a new location.

(14) In the event that the total amount paid to an FQHC by a managed care organization is less than the amount the FQHC would receive under PPS, the state will reimburse the difference on a quarterly basis. The state's quarterly supplemental payment obligation will be determined by subtracting the baseline payment under the contract for services being provided from the effective rate without regard to the effects of financial incentives that are linked to utilization outcomes, reductions in patient cost, or bonuses.

(15) Submission of Audited Medicare Cost Reports. An FQHC must submit a copy of its audited Medicare cost report to the state within 15 days of receipt.

[ (a) The Texas Department of Health (department) or its designee reimburses each federally qualified health center (FQHC) for covered services on the basis of 100% of the center's reasonable cost.]

(b) Alternative Payment Methodology. Federally qualified health centers (FQHCs) employing the alternative to the Prospective Payment System (PPS) methodology, in accordance with section 1902 (aa) of the Social Security Act, as amended by the Benefits Improvement and Protection Act (BIPA) of 2000, 42 U.S.C. § 1396a(aa), effective for the FQHC fiscal year that includes dates of service occurring January 1, 2001, and after, will be reimbursed a per visit rate for Medicaid covered services with cost settlement at the greater of one hundred percent (100%) of reasonable costs or the allowable per visit rate, as determined under the prospective payment system. Cost settlements will be determined from provider submitted cost reports.

(1) Written and signed agreements will be obtained from all FQHC providers agreeing to the alternative methodology.

(2) The alternative PPS per visit rate for each FQHC will be calculated based on one hundred percent (100%) of the average of the FQHC's reasonable costs for providing Medicaid covered services as determined from audited cost reports for the FQHC's 1999 and 2000 fiscal years.

(3) The alternative PPS per visit rates will be calculated by adding the total audited reimbursable costs as determined from the 1999 and 2000 cost reports and dividing by the total audited visits for these same two periods.

(4) Prior to HHSC's setting a final base rate pursuant to the alternative PPS methodology outlined in this subsection, each FQHC shall be reimbursed on the basis of an interim per visit rate. The interim per visit rate for each FQHC will be the encounter rate from the latest finalized cost report settlement, as adjusted pursuant to paragraph (9) of this subsection of the alternative PPS methodology. When HHSC has determined a final alternative PPS rate, interim payments will be reconciled back to January 1, 2001. If the total payments under the interim rates are less than the total amount calculated pursuant to this subsection, an adjustment will be made to account for the difference. If the interim payments are greater than the base rate calculation, no reconciliation will occur. The final base rate, as adjusted, will apply prospectively from the date of final approval.

(5) Reasonable costs, as used in setting the base rate, the alternative PPS rate, or any subsequent effective rate, is defined as those costs that are allowable under Medicare Cost Principles as outlined in 42 C.F.R. part 413 with no productivity screens and no per visit payment limit. The administrative cost limit of thirty percent (30%) of total costs that was in place on December 31, 2000, shall be maintained in determining reasonable costs. Reasonable costs shall not include unallowable costs.

(6) Unallowable costs are expenses that are incurred by an FQHC and that are not directly or indirectly related to the provision of covered services according to applicable laws, rules, and standards. An FQHC may expend funds on unallowable cost items, but those costs must not be included in the cost report/survey, and they are not used in calculating a rate determination. Unallowable costs include, but are not necessarily limited to, the following:

(A) compensation in the form of salaries, benefits, or any form of compensation given to individuals who are not directly or indirectly related to the provision of covered services;

(B) personal expenses not directly related to the provision of covered services;

(C) management fees or indirect costs that are not derived from the actual cost of materials, supplies, or services necessary for the delivery of covered services, unless the operational need and cost effectiveness can be demonstrated;

(D) advertising expenses other than those for advertising in the telephone directory yellow pages, for employee or contract labor recruitment, and for meeting any statutory or regulatory requirement;

(E) business expenses not directly related to the provision of covered services. For example, expenses associated with the sale or purchase of a business or expenses associated with the sale or purchase of investments;

(F) political contributions;

(G) depreciation and amortization of unallowable costs, including amounts in excess of those resulting from the straight line depreciation method; capitalized lease expenses, less any maintenance expenses, in excess of the actual lease payment; and goodwill or any excess above the actual value of the physical assets at the time of purchase. Regarding the purchase of a business, the depreciable basis will be the lesser of the historical but not depreciated cost to the previous owner or the purchase price of the assets. Any depreciation in excess of this amount is unallowable;

(H) trade discounts and allowances of all types, including returns, allowances, and refunds, received on purchases of goods or services. These are reductions of costs to which they relate and thus, by reference, are unallowable;

(I) donated facilities, materials, supplies, and services including the values assigned to the services of unpaid workers and volunteers whether directly or indirectly related to covered services, except as permitted in 42 C.F.R. part 413;

(J) dues to all types of political and social organizations and to professional associations whose functions and purpose are not reasonably related to the development and operation of patient care facilities and programs , or the rendering of patient care services;

(K) entertainment expenses except those incurred for entertainment provided to the staff of the FQHC as an employee benefit. An example of entertainment expenses is lunch during the provision of continuing medical education on-site;

(L) board of director's fees including travel costs and meals provided for directors;

(M) fines and penalties for violations of statutes, regulations, and ordinances of all types;

(N) fund raising and promotional expenses, except as noted in subparagraph (D) of this subsection;

(O) interest expenses on loans pertaining to unallowable items, such as investments. Also, the interest expense on that portion of interest paid that is reduced or offset by interest income;

(P) insurance premiums pertaining to items of unallowable cost;

(Q) any accrued expenses that are not a legal obligation of the provider or are not clearly enumerated as to dollar amount;

(R) mileage expense exceeding the current reimbursement rate set by the federal government for its employee travel;

(S) cost for goods or services that are purchased from a related party and that exceed the original cost to the related party;

(T) out-of-state travel expenses not related to the provision of covered services, except out-of-state travel expenses for training courses that increase the quality of medical care and/or the operating efficiency of the FQHC;

(U) over-funding contributions to self-insurance funds that do not represent payments based on current liabilities;

(V) overhead costs beyond the thirty percent (30%) limitation established by HHSC.

(7) A visit is a face-to-face encounter between an FQHC patient and a physician, physician assistant, nurse practitioner, nurse-midwife, visiting nurse, clinical psychologist, clinical social worker, other health professional for mental health services, dentist, dental hygienist or an optometrist. Encounters with more than one health professional and multiple encounters with the same health professional that take place on the same day and at a single location constitute a single visit, except where one of the following conditions exists:

(A) after the first encounter, the patient suffers illness or injury requiring additional diagnosis or treatment; or

(B) the FQHC patient has a medical visit and an "other" health visit.

(8) A medical visit is a face-to-face encounter between an FQHC patient and a physician, physician assistant, nurse practitioner, nurse mid-wife, or visiting nurse. An "other" health visit includes, but is not limited to, a face-to-face encounter between an FQHC patient and a clinical psychologist, clinical social worker, other health professional for mental health services, a dentist, a dental hygienist, an optometrist, or a Texas Health Steps Medical Screen.

(9) Effective for each FQHC's fiscal year that includes dates of services occurring on or after October 1, 2001, subsequent increases in an FQHC's base per visit rate or the effective rate shall be the rate of change in the Medical Economic Index (MEI) for primary care plus one and one-half percent (1.5%). If the increase in an FQHC's reasonable costs is greater than the MEI plus one and one-half percent for any fiscal year, an FQHC may request an adjustment of its effective rate equal to one hundred percent (100%) of reasonable costs.

(10) The effective rate is the rate paid to the FQHC for the current fiscal year. The effective rate equals the base rate plus the MEI plus one and one-half percent (1.5%) for each of the FQHC's fiscal years since the setting of its base rate. The effective rate shall be calculated at the start of each FQHC's fiscal year and shall be applied prospectively for that fiscal year.

(11) An adjustment will be made to the effective rate if the increase in an FQHC's reasonable costs are greater than the MEI plus one and one-half percent (1.5%) for any fiscal year in which the FQHC can show that it is operating in an efficient manner or that the increase is due to a change in scope. An FQHC or HHSC may request an adjustment of its effective rate equal to one hundred percent (100%) of reasonable costs by filing a cost report and the necessary documentation to support a claim that it is operating in an efficient manner or has undergone a change in scope. A cost report, filed to request an adjustment in the effective rate, may be filed at any time during an FQHC's fiscal year but no later than five (5) calendar months after the end of the FQHC's fiscal year. All requests for adjustment in the FQHC's effective rate must include at least 6 months of financial data. Any effective rate adjustment granted as a result of such a filing must be completed within sixty (60) days of receipt of a workable cost report and documentation supporting the FQHC's claim that it is operating in an efficient manner or has undergone a change in scope. Within sixty (60) days of submitting a workable cost report, HHSC or its designee shall make a determination regarding a new effective rate. The new effective rate shall become effective the first day of the month immediately following its determination. All subsequent increases shall be calculated using the adjusted effective rate.

(12) Any request by an FQHC to adjust its effective rate must be accompanied by documentation showing that the FQHC is operating in an efficient manner or that it has had a change in scope.

(13) Operating in an efficient manner shall include a showing that:

(A) the FQHC has implemented an outcome-based delivery system that includes prevention and chronic disease management. Prevention includes, but is not be limited to, programs such as immunization and medical screens. Disease Management must include, but not be limited to, programs such as those for diabetes, cardiovascular conditions, and asthma that can demonstrate an overall improvement in patient outcomes; and

(i) paying employee's salaries that do not exceed the rates of payment for similar positions in the area, taking into account experience and training as determined by the Texas Workforce Commission;

(ii) providing fringe benefits to its employees that do not exceed 12% of the FQHC's total costs;

(iii) implementing cost saving measures for its pharmacy and medical supplies expenditures by engaging in group purchasing; and

(iv) employing the Medicare concept of a "prudent buyer" in purchasing its contracted medical services.

(14) A change in scope of services provided by an FQHC includes the addition or deletion of a service or a change in the magnitude, intensity or character of services currently offered by an FQHC or one of the FQHC's sites. A change in scope includes:

(A) an increase in service intensity attributable to changes in the types of patients served, including but not limited to, HIV/AIDS, the homeless, elderly, migrant, other chronic diseases or special populations;

(B) any changes in services or provider mix provided by an FQHC or one of its sites;

(C) changes in operating costs that have occurred during the fiscal year and that are attributable to capital expenditures, including new service facilities or regulatory compliance;

(D) changes in operating costs attributable to changes in technology or medical practices at the FQHC;

(E) indirect medical education adjustments and a direct graduate medical education payment that reflects the costs of providing teaching services to interns and residents; or

(F) any changes in scope approved by the Health Resources and Service Administration (HRSA).

(15) A workable cost report includes the following:

(A) an FQHC Statistical Data Coversheet with Certification by an Officer or Administrator;

(B) Medicaid Cost Report consisting of three (3) worksheets:

(i) Worksheet 1 - Reclassification and Adjustment of Trial Balance of Expenses;

(ii) Worksheet 2 - Provider Staff and Encounters; and

(iii) Worksheet 3 - Computation of Allowable Cost and Cost Settlement;

(C) Trial Balance with account titles. If the provider's Trial Balance has only account numbers, a Chart of Accounts will need to accompany the Trial Balance;

(D) a Mapping of the Trial Balance that shows the tracing of each Trial Balance account to a line and column on worksheet 1 of the Cost Report;

(E) documentation supporting the provider's reclassification and adjustments;

(F) a Schedule of Depreciation of depreciable assets;

(G) listing of all satellites, if applicable; and

(H) Federal Grant Award notices or changes in scope approved by HRSA.

(16) Once the base rate for an FQHC has been calculated, the FQHC will be paid its effective rate without the need to file a cost report. Except as specified in paragraph (17) of this subsection, a cost report will be required only if the FQHC is seeking to adjust its effective rate.

(17) New FQHCs must file a projected cost report within 90 days of their designation as a FQHC to establish an initial payment rate. The cost report will contain the FQHC's reasonable costs anticipated to be incurred during the FQHC's initial fiscal year. FQHC must file a cost report within five (5) months of the end of FQHC's initial fiscal year. The cost settlement must be completed within eleven (11) months of receipt of a cost report. The cost per visit rate established by the cost settlement process will be the base rate. Any subsequent increases will be calculated as provided herein. A new FQHC location established by an existing FQHC participating in the Medicaid program will receive the same effective rate as the FQHC establishing the new location. An FQHC establishing a new location may request an adjustment to its effective rate as provided herein if its costs have increased as a result of establishing a new location.

(18) In the event that the total amount paid to an FQHC by a managed care organization is less than the amount the FQHC would receive under section 1902(aa)(1-4) of the Social Security Act, as applicable, the state will reimburse the difference on a quarterly basis. The state's quarterly supplemental payment obligation will be determined by subtracting the baseline payment under the contract for services being provided from the effective rate without regard to the effects of financial incentives that are linked to utilization outcomes, reductions in patient cost, or bonuses.

(19) It is the intent of the state to assure that centers are reimbursed at one hundred percent (100%) of their reasonable costs or the adjusted alternative PPS rate, whichever is greater. If the state can show that an FQHC is being reimbursed at an effective rate that exceeds one hundred and two percent (102%) of its reasonable costs, it may reduce the FQHC's effective rate to a rate that reflects one hundred percent (100%) of its reasonable costs or the alternative PPS rate without adjustments, whichever is greater. Any such adjustment in an FQHC's effective rate may only be applied prospectively. The state may request that an FQHC file a cost report for its most current fiscal year, plus any revisions to the cost report, within five (5) months of notification, when evidence indicates that an FQHC is receiving excess reimbursement. The adjusted alternative PPS rate means the base rate plus subsequent increases as defined herein, excluding any adjustment in the effective rate. The new effective rate will become effective the first day of the month immediately following its determination. All subsequent increases will be calculated using the adjusted effective rate. Payments made under this alternative methodology will at least be equal to what would have been paid under PPS.

(20) Submission of Audited Medicare Cost Reports. An FQHC shall submit a copy of its audited Medicare cost report to the state within 15 days of receipt.

[ (b) Reimbursement for covered services is on an interim or encounter rate basis subject to reconciliation at the end of the FQHC's cost reporting period. The department or its designee will adjust an FQHC's interim or encounter rate during the FQHC's fiscal year if the FQHC submits data that validates an adjustment of at least 10%.]

[ (c) Except as specified in subsection (g) of this section, the department or its designee uses the principles described in 42 Code of Federal Regulations (CFR), Part 413, to determine each FQHC's reasonable costs.]

[ (d) FQHCs must submit cost reports/surveys and other data as required by the department or its designee to verify the FQHC's reasonable costs. The department or its designee prescribes the format of the cost report/survey. The FQHC must submit the cost report/survey within five months of the end of the FQHC's fiscal year or within 45 days of a change in ownership.]

[ (e) The department or its designee conducts audits of cost reports/surveys provided by FQHCs to determine each FQHC's reasonable costs. The department or its designee may also conduct on-site audits.]

[ (f) The department or its designee completes the cost settlement reconciliation process within eleven months of receipt of a properly completed cost report/survey and notifies the FQHC of the results.]

[ (g) Unallowable costs. Unallowable costs are expenses which are incurred by an FQHC, and which are not directly or indirectly related to the provision of covered services according to applicable laws, rules, and standards. An FQHC may expend funds on unallowable cost items, but those costs must not be included in the cost report/survey, and they are not used in calculating a rate determination. Unallowable costs include, but are not necessarily limited to, the following:]

[ (1) Compensation in the form of salaries, benefits, or any form of compensation given to individuals who are not directly or indirectly related to the provision of covered services;]

[ (2) Personal expenses not directly related to the provision of covered services;]

[ (3) Management fees or indirect costs that are not derived from the actual cost of materials, supplies, or services necessary for the delivery of covered services, unless the operational need and cost effectiveness can be demonstrated;]

[ (4) Advertising expenses other than those for advertising in the telephone directory yellow pages, for employee or contract labor recruitment, and for meeting any statutory or regulatory requirement;]

[ (5) Business expenses not directly related to the provision of covered services. For example, expenses associated with the sale or purchase of a business or expenses associated with the sale or purchase of investments;]

[ (6) Political contributions;]

[ (7) Depreciation and amortization of unallowable costs, including amounts in excess of those resulting from the straight line depreciation method; capitalized lease expenses, less any maintenance expenses, in excess of the actual lease payment; and goodwill or any excess above the actual value of the physical assets at the time of purchase. Regarding the purchase of a business, the depreciable basis will be the lesser of the historical but not depreciated cost to the previous owner, or the purchase price of the assets. Any depreciation in excess of this amount is unallowable;]

[ (8) Trade discounts and allowances of all types, including returns, allowances, and refunds, received on purchases of goods or services. These are reductions of costs to which they relate and thus, by reference, are unallowable;]

[ (9) Donated facilities, materials, supplies, and services including the values assigned to the services of unpaid workers and volunteers whether directly or indirectly related to covered services, except as permitted in 42 CFR Part 413;]

[ (10) Dues to all types of political and social organizations, and to professional associations whose functions and purpose are not reasonably related to the development and operation of patient care facilities and programs, or the rendering of patient care services;]

[ (11) Entertainment expenses except those incurred for entertainment provided to the staff of the FQHC as an employee benefit. An example of entertainment expenses is lunch during the provision of continuing medical education on-site;]

[ (12) Board of Director's fees including travel costs and provided meals for these directors;]

[ (13) Fines and penalties for violations of regulations, statutes, and ordinances of all types;]

[ (14) Fund raising and promotional expenses except as noted in paragraph (4) of this subsection;]

[ (15) Interest expenses on loans pertaining to unallowable items, such as investments. Also the interest expense on that portion of interest paid which is reduced or offset by interest income;]

[ (16) Insurance premiums pertaining to items of unallowable cost;]

[ (17) Any accrued expenses that are not a legal obligation of the provider or are not clearly enumerated as to dollar amount;]

[ (18) Mileage expense exceeding the current reimbursement rate set by the federal government for its employee travel;]

[ (19) Cost for goods or services which are purchased from a related party and which exceed the original cost to the related party;]

[ (20) Out-of-state travel expenses not related to the provision of covered services, except out-of-state travel expenses for training courses which increase the quality of medical care and/or the operating efficiency of the FQHC;]

[ (21) Over-funding contributions to self-insurance funds which do not represent payments based on current liabilities;]

[ (22) Overhead costs beyond the 30% limitation established by the HHSC.]

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 April 29, 2002.

TRD-200202656

Marina S. Henderson

Executive Deputy Commissioner

Texas Health and Human Services Commission

Earliest possible date of adoption: June 9, 2002

For further information, please call: (512) 424-6576