Proposed Rules Title 1

TITLE 1. ADMINISTRATION

Part 15. TEXAS HEALTH AND HUMAN SERVICES COMMISSION

Chapter 355. REIMBURSEMENT RATES

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

The Texas Health and Human Services Commission (HHSC) proposes the repeal of §355.454, Frequency of Reporting Costs, and proposes to amend §355.457, Fiscal Accountability.

Background and Justification

Section 355.454 concerning Frequency of Reporting Costs outlined the requirements for reporting direct service costs for the ICF/MR program and the HCS waiver program; however, HHSC proposes its repeal as this rule has been superseded by other rules.

Section 355.457 establishes the fiscal accountability process for the Intermediate Care Facilities for Persons with Mental Retardation (ICF/MR) program. HHSC, under its authority and responsibility to administer and implement rates, proposes to update this rule to clarify and formalize certain requirements relating to required documentation and allowable costs, add procedures for determining recoupments when a provider fails to submit a cost report, and formalize procedures for allowing providers with control of multiple component codes in the program to request to aggregate their reports for purposes of determining compliance with spending requirements.

In addition, the proposed amendment updates administrative procedures relating to notification of recoupment amounts and recoupment of those amounts; removes outdated language; and adds definitions or updates references to other rules due to changes in those rules. The proposed amendment revises allowable cost limitations and the point in the recoupment determination process at which HHSC will notify providers of their recoupment amount. HHSC also proposes to delete obsolete language regarding: 1) a transitional add-on, 2) references to a subsection that no longer exists, and 3) descriptions of ICF/MR fiscal accountability processes prior to January 1, 1999.

Cost reports are necessary to determine whether providers met their fiscal accountability requirements and if they did not meet their requirements, to determine the amount of funds to be recouped by HHSC or its designee. Currently, the only enforcement tool available to HHSC when a provider fails to submit a cost report is to place the provider's vendor payments on hold until the report is submitted. While vendor hold is an effective enforcement tool in cases where a provider's contract is active, it is not effective in cases where the provider's contract has been terminated. The amended rule creates an incentive for providers whose contracts have been terminated to submit required reports by establishing a process to determine dollars to be recouped from such providers if they do not submit the required reports. The amended rule will make the fiscal accountability system more equitable by ensuring that terminated contracts are subject to fiscal accountability requirements along with ongoing contracts.

Currently, controlling entities are permitted to request evaluation of spending requirements for all of their controlled entities within the ICF/MR program in the aggregate, but there are no rules defining an entity or control for this purpose. This lack of rules leads to difficulties and confusion in the administration of the aggregation process. The proposed amendment formalizes current administrative procedures, which should result in an increased understanding of the aggregation process and of provider requirements. The proposed amendment should also reduce areas of disagreement between providers and HHSC as to how the aggregation process is applied.

Additional changes are proposed to update the rule to clarify and formalize current administrative practices, to delete other outdated language and to ensure that documentation requirements, spending requirements notification requirements, and recoupment collection processes are clearly outlined in rule.

Section-by-Section Summary

HHSC proposes to repeal §355.454.

HHSC proposes to make the following amendments to §355.457:

Revise subsection (b)(1) to reference the definition of Qualified Mental Retardation Professional contained in the Code of Federal Regulations.

Remove from subsection (b)(1) obsolete language relating to direct service supervision information.

Clarify and formalize in subsection (b)(1) that direct service costs include costs related to wages rather than costs related to wage rates.

Revise subsection (b)(2)(B) to replace reporting and documentation requirements for staff whose duties include work other than the provision of direct services with a reference to 1 TAC §355.105 relating to General Reporting and Documentation Requirements, Methods and Procedures.

Remove from subsection (b)(2)(C) an obsolete reference to subsection (a)(2) and reference to the term "operator".

Revise subsection (b)(2)(C) to apply to owner and related-party employees who provide multiple types of direct service and/or both direct hands-on support and first-level supervision of direct care workers in addition to owner and related-party employees who provide both direct and indirect services.

Modify subsection (b)(2)(C) to indicate the following. First, owner and related-party hours, hourly wage rates and benefits for direct service work are limited to the lesser of actual hours worked, hourly wage rate paid and benefits or the hours, hourly wage rate and benefits for a comparable direct care staff person assumed in the fully-funded model. Second, if at least 40 percent of total labor hours in the related-party's direct service type were provided by non-related-parties, the related-party's hourly wage rate is limited to the higher of the model assumption for that direct service type or the non-related party average for that direct service type. Third, at no time will the allowable related-party hourly wage exceed the related-party's actual hourly wage.

Modify subsection (b)(2)(C) to indicate that during any single fiscal year, the sum of all direct care hours reported on ICF/MR cost report(s) for any individual owner or related-party cannot exceed 2,600.

Add a new subsection (b)(2)(C)(v) which indicates that owner and related-party hours, hourly wage rates and benefits above the limits described in the subparagraph are to be reported as administrative hours, hourly wages and benefits.

Delete subsection (b)(3) which refers to obsolete language in §355.456 pertaining to annual inflation and re-designate subsection (b)(4) as subsection (b)(3).

Modify re-designated subsection (b)(3) to add contract termination as a trigger for vendor hold and to change "fiscal accountability report" to "cost report" since there is no stand-alone fiscal accountability report for this program.

Add new subsection (b)(4) which mandates the recoupment of funds related to fiscal accountability if a provider fails to submit an acceptable cost report within 60 days of a change of ownership or contract termination and that the recoupment become permanent if no cost report is received within 365 days of the date of the change of ownership or contract termination.

Add new subsection (b)(5) which mandates the recoupment of funds related to fiscal accountability if a provider fails to submit an acceptable cost report within 60 days of the placement of a vendor hold due to the failure to submit a cost report and that the recoupment become permanent if no cost report is received within 365 days of the report due date and renumber the subsequent paragraphs.

Add new subsection (b)(8) indicating that Informal Reviews and Formal Appeals of HHSC's exclusions and adjustments are governed by §355.110.

Delete subsection (c)(1) and (2) which describe ICF/MR fiscal accountability processes prior to January 1, 1999 and re-designate subsequent paragraphs.

Revise re-designated subsection (c)(1)(B) to replace "DADS" with "HHSC or its designee".

Revise re-designated subsection (c)(1)(C) to replace "DADS" with "HHSC or its designee" and to apply the recoupment described in that subparagraph to providers whose direct service costs are less than 90 percent but greater than or equal to 85 percent of direct service revenues. The current language applies this recoupment to providers whose direct service costs are between 85 percent and 90 percent of direct service revenues.

Add new subsection (c)(1)(D) which states that providers who fail to submit acceptable cost reports within the timeframes detailed in (b)(4) and (5) will be required to pay to DADS the difference between 65 percent of direct services revenues and 95 percent of direct services revenues.

Delete subsection (c)(4) which describes an outdated notification and recoupment process and replace it with new subsection (c)(2) which indicates that providers will be notified of any amount to be repaid to HHSC or its designee within 90 days of the determination of their recoupment amount by HHSC, that if a subsequent review by HHSC or audit results in adjustments to the cost report that change the amount to be repaid, the provider will be notified of the adjustments and the adjusted amount to be repaid, and that owed amounts will be automatically recouped from a provider's vendor payment following the date of the notification letter.

Modify re-designated subsection (c)(4) to describe in detail how recoupments will be collected from terminated contracts, including implications for other contracts controlled by the same responsible entity if funds identified for recoupment are not repaid in a timely fashion.

Add new subsection (c)(5) which formalizes requirements for compliance with spending requirements to be calculated in the aggregate for entities which control more than one ICF/MR component code.

Delete subsection (c)(7) which becomes extraneous with the adoption of new (b)(8).

Delete subsection (d) which refers to an obsolete transitional add-on.

Fiscal Note

Gordon E. Taylor, Chief Financial Officer for the Department of Aging and Disability Services, has determined that during the first five-year period the proposal is in effect there will be no fiscal impact to state government. The proposal will not result in any fiscal implications for local health and human services agencies. There are no fiscal implications for local governments as a result of enforcing or administering the sections.

Small Business and Micro-business Impact Analysis

HHSC has determined that there is no adverse economic effect on small businesses or micro-businesses as a result of enforcing or administering the proposal. The implementation of the proposed rule amendment does not require any changes in practice or any additional cost to the contracted provider.

HHSC does not anticipate that there will be any economic cost to persons who are required to comply with this proposal. The proposal will not affect local employment.

Public Benefit

Carolyn Pratt, Director of Rate Analysis, has determined that for each of the first five years the amendment is in effect, the expected public benefit is that obsolete rule language will be eliminated and that the rule will provide clear guidance to agency staff and providers on documentation requirements; the recoupment determination, notification and payment collection processes; determining recoupments when a provider fails to submit a cost report; and requirements for compliance with spending requirements to be calculated in the aggregate for entities which control more than one ICF/MR component code.

Takings Impact Assessment

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

Regulatory Analysis

HHSC has determined that this proposal is not a "major environmental rule" as defined by §2001.0225 of the Texas Government Code. "Major environmental rule" is defined to mean a rule the specific intent of which is to protect the environment or reduce risk to human health from 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. This proposal is not specifically intended to protect the environment or reduce risks to human health from environmental exposure.

Public Comment

Questions about the content of this proposal may be directed to Pam McDonald in the HHSC Rate Analysis Department by telephone at (512) 491-1373. Written comments on the proposal may be submitted to Ms. McDonald by facsimile at (512) 491-1998, by e-mail to pam.mcdonald@hhsc.state.tx.us, or by mail to HHSC Rate Analysis, Mail Code H-400, P.O. Box 85200, Austin, Texas 78708-5200, within 30 days of publication of this proposal in the Texas Register.

1 TAC §355.454

(Editor's note: The text of the following section proposed for repeal will not be published. The section may be examined in the offices of the Texas Health and Human Services Commission or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

Statutory Authority

The repeal is proposed under Texas Government Code §531.033, which authorizes the Executive Commissioner of HHSC to adopt rules necessary to carry out the commission's duties; Texas Human Resources Code §32.021 and Texas Government Code §531.021(a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas; and Texas Government Code §531.021(b), which establishes HHSC as the agency responsible for adopting reasonable rules governing the determination of fees, charges, and rates for medical assistance payments under the Human Resources Code, Chapter 32.

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

§355.454.Frequency of Reporting Costs.

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 February 4, 2008.

TRD-200800663

Steve Aragón

Chief Counsel

Texas Health and Human Services Commission

Earliest possible date of adoption: March 16, 2008

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

1 TAC §355.457

The amendment is proposed under Texas Government Code §531.033, which authorizes the Executive Commissioner of HHSC to adopt rules necessary to carry out the commission's duties; Texas Human Resources Code §32.021 and Texas Government Code §531.021(a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas; and Texas Government Code §531.021(b), which establishes HHSC as the agency responsible for adopting reasonable rules governing the determination of fees, charges, and rates for medical assistance payments under the Human Resources Code, Chapter 32.

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

§355.457.Fiscal Accountability.

(a) General principles. The Texas Health and Human Services Commission (HHSC) applies the general principles of cost determination as specified in §355.101 of this title (relating to Introduction). Fiscal accountability is a process used to gauge the ongoing financial performance under the non-state operated facility reimbursement rates.

(b) Annual reporting. Fiscal accountability will consist of the annual reporting of direct service costs from all non-state operated providers. The data will be collected on a cost report designed by HHSC in accordance with §355.105(b) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures).

(1) Direct service costs include costs associated with personnel who provide direct hands-on support for consumers and include personnel such as direct care workers, first-level supervisors of direct care staff, Qualified Mental Retardation Professional (QMRPs), as defined in 42 Code of Federal Regulations, Part 483, Subpart I, §483.430 [ ~~QMRPs~~ ], registered nurses, and licensed vocational nurses. Direct service costs include: costs related to wages [ ~~wage rates~~ ], benefits, payroll taxes, and contracts for direct services [ ~~, and direct service supervision information~~ ]. Accrued leave (sick or annual) can only be considered a direct service cost if the employee has a right to the cash value of that leave upon termination.

(2) The provider is responsible for submission of the fiscal accountability cost report to HHSC, and payment of amounts owed in accordance with subsection (c) of this section, regardless of whether the provider contracts with another entity for the management or operation of the ICF/MR.

(A) If the provider contracts with another entity for the management or operation of the ICF/MR, the provider must report the specific direct services costs of that entity as required in the cost report instructions and not the amount for which the provider is contracting for the entity's services.

(B) For staff whose duties include work other than the provision of direct services for the provider, time spent providing [ ~~, the proportion of work that is spent on~~ ] direct services and associated expenses may be reported as [ ~~included in the~~ ] direct service costs if properly documented in accordance with §355.105 of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures) . [ The proportion of their salary and benefits that is compensation for direct services work can be included in the direct service cost report. The facility must have a procedure that specifies how direct service work time is allocated. ]

(C) Allowable compensation for owners and related parties and definitions of owners and related parties are specified in §355.102(i) and §355.103(b)(2) of this title (relating to General Principles of Allowable and Unallowable Costs and Specifications for Allowable and Unallowable Costs).

(i) Owners and related-parties who provide multiple types of direct service, both direct care and indirect services and/or both direct hands-on support and first-level supervision of direct care workers must maintain daily time sheets that record the time spent on activities in each area. The provider must maintain documentation relating to the compensation, bonuses, and benefits of each owner or related party in accordance with §355.105(b)(2)(B)(xi) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures).

(ii) Allowable hours, hourly wage rate and benefits for direct service work must be the lesser of the actual hours worked, hourly wage rate paid and benefits paid or the hours, hourly wage rate and benefits for a comparable direct care staff person assumed in the fully-funded model. The fully-funded model is the model as calculated under §355.456(d) of this title (relating to Reimbursement Methodology) prior to any adjustments made in accordance with §355.101 of this title (relating to Introduction) and §355.109 of this title (relating to Adjusting Reimbursement When New Legislation, Regulations or Economic Factors Affect Costs) for the rate period.

(iii) If at least 40 percent of total labor hours in a specific related-party's direct service type were provided by non-related-parties, the related-party's hourly wage rate may be the higher of the model assumption for that direct service type described in clause (ii) of this subparagraph or the non-related party average for that direct service type, so long as the non-related party average does not exceed the related-party's actual hourly wage.

(iv) During any single fiscal year, the sum of all direct care hours reported on ICF/MR cost report(s) for any individual owner or related party cannot exceed 2,600.

(v) Hours, hourly wages and benefits above the limits described in clauses (ii) - (iv) of this subparagraph are to be reported as administrative hours, hourly wages and benefits.

[ ~~(C)~~ If the staff providing direct services is an owner, operator, or a related party as defined in §§355.102(i) - 355.103(b)(2) of this title (relating to General Principles of Allowable and Unallowable Costs and Specifications for Allowable and Unallowable Costs), the salary and benefits must be the lesser of the actual wages and benefits paid or the wages and benefits for a comparable staff person assumed in the model. Owner and related party employees who provide both direct care and indirect services must maintain daily time sheets that record the time spent on activities in each area. The provider must maintain documentation relating to compensation, bonuses, and benefits of each owner or related party in accordance with §355.105(b)(2)(B)(xi) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures). The maximum hours per fiscal year that an owner and related party employee may report on the cost report is 2080 hours per fiscal year.]

~~[ ~~(3)~~ The direct service portions of the current rate model are inflated on an annual basis as specified in §355.456(d)(2) of this title (relating to Rate Setting Methodology).]~~

(3) [ ~~(4)~~ ] The Department of Aging and Disability Services (DADS) will place a vendor hold on a prior owner at a change of ownership which results in the execution of a new provider agreement or a contract termination . The prior owner must submit a cost [ ~~fiscal accountability~~ ] report to HHSC for the current reporting period. Upon receipt of an acceptable cost [ ~~fiscal accountability~~ ] report and resolution of any outstanding balances, the vendor hold will be released.

(4) Providers with an ownership change from one legal entity to a different legal entity or a contract termination that do not submit a cost report for the fiscal year of the ownership change or contract termination within 60 days of the change of ownership or contract termination are subject to recoupment of funds related to fiscal accountability as described in subsection (c)(1)(D) of this section. The recouped funds will not be restored until the provider submits an acceptable cost report and has paid the actual amount due as specified in subsection (c)(1)(A) - (C) of this section. If an acceptable cost report is not received within 365 days of the change of ownership or contract termination date, the recoupment will become permanent.

(5) Providers that do not submit a cost report completed in accordance with all applicable rules and instructions within 60 days of the placement of a vendor hold due to the failure to submit the cost report are subject to an immediate recoupment of funds related to fiscal accountability as described in subsection (c)(1)(D) of this section. The recouped funds will not be restored until the provider submits an acceptable cost report and has paid the actual amount due as specified in subsection (c)(1)(A) - (C) of this section. If an acceptable cost report is not received within 365 days of the due date, the recoupment will become permanent.

(6) [ ~~(5)~~ ] For cost reports pertaining to providers' fiscal years ending in calendar year 2004 and subsequent years the following applies:

(A) Providers must follow the cost-reporting guidelines as specified in §355.105 of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures).

(B) Providers must follow the guidelines in determining whether a cost is allowable or unallowable as specified in §355.102 and §355.103 of this title (relating to General Principles of Allowable and Unallowable Costs, and Specifications for Allowable and Unallowable Costs).

(7) [ ~~(6)~~ ] Field Audit and Desk Review. Desk reviews or field audits are performed on cost reports for all contracted providers. The frequency and nature of the field audits are determined by HHSC to ensure the fiscal integrity of the program. Desk reviews and field audits will be conducted in accordance with §355.106 of this title (relating to Basic Objectives and Criteria for Audit and Desk Review of Cost Reports), and providers will be notified of the results of a desk review or a field audit in accordance with §355.107 of this title (relating to Notification of Exclusions and Adjustments).

(8) Reviews of exclusions or adjustments. An ICF/MR provider who disagrees with HHSC's exclusion or adjustment of items in cost reports may request an informal review and, when appropriate, an administrative hearing as specified in §355.110 of this title (relating to Informal Reviews and Formal Appeals).

(c) HHSC will require providers to report all direct costs incurred in their annual fiscal year. HHSC will compare the reported direct service costs to the direct service cost component of the modeled rates.

[ ~~(1)~~ Paragraph (2) of this subsection, concerning the fiscal accountability repayment, applies to that portion of the provider's fiscal year that occurs after April 5, 1998. Paragraph (3) of this subsection, concerning the fiscal accountability repayment, applies to that portion of the provider's fiscal year that begins on or after January 1, 1999.]

[ ~~(2)~~ The total direct service revenue of the modeled rates is the direct service portion of the rate multiplied by the number of allowable units paid for services provided during the reporting period.]

~~[ ~~(A)~~ Providers whose direct service costs are 90% or more of the direct service revenues will not be subject to repayment under this section.]~~

[ ~~(B)~~ Providers whose direct service costs are less than 80% of the direct service revenues will be required to pay to DADS the difference between the direct service costs and 95% of the direct service revenues.]

[ ~~(C)~~ Providers whose direct service costs are between 80% and 85% of the direct service revenues will be required to pay to DADS 100% of the difference between the direct service costs and 85% of the direct service revenues plus 50% of the difference between 85% and 90% of the direct service revenues.]

[ ~~(D)~~ Providers whose direct service costs are between 85% and 90% of the direct service revenues will be required to pay to DADS 50% of the difference between the direct service costs and 90% of the direct service revenues.]

(1) [ ~~(3)~~ ] The total direct service revenue of the modeled rates is the direct service portion of the rate multiplied by the number of allowable units paid for services provided during the reporting period.

(A) Providers whose direct service costs are 90% or more of the direct service revenues will not be subject to repayment under this section.

(B) Providers whose direct service costs are less than 85% of the direct service revenues will be required to pay to HHSC or its designee [ ~~DADS~~ ] the difference between the direct service costs and 95% of the direct service revenues.

(C) Providers whose direct service costs are less than 90% but greater than or equal to 85% [ ~~between 85% and 90%~~ ] of the direct service revenues will be required to pay to HHSC or its designee [ ~~DADS~~ ] 75% of the difference between the direct service costs and 90% of the direct service revenues.

(D) Providers who do not submit an acceptable cost report as described in subsection (b)(4) or (5) of this section will be assumed to have direct service costs equal to 65% of the direct services revenues and HHSC or its designee will recoup the difference between 65% of the direct services revenues and 95% of the direct service revenues, subject to the provisions of subsection (b)(4) or (5) of this section.

[ ~~(4)~~ The fiscal accountability calculation shows an estimated amount due for repayment. A provider's repayment status may change as a result of the desk review or onsite audit of the cost report or adjustments to claims paid to the provider for services provided in the cost reporting period. The provider will be notified of the results of the desk reviews or onsite audits in accordance with §355.107 of this title (relating to Notification of Exclusions and Adjustments). If the adjustments and or exclusions result in an amount due, or if the original estimated amount due calculation is upheld, HHSC will notify the provider of the amount due and the provider will remit the repayment amount no later than 60 calendar days after the date of the notification was received by the provider.]

(2) Providers will be notified, by certified mail, within 90 days of the determination of their recoupment amount by HHSC of the amount to be repaid to HHSC or its designee. If a subsequent review by HHSC or audit results in adjustments to the Cost Report as described in subsection (b)(7) of this section that changes the amount to be repaid to HHSC or its designee, the provider will be notified in writing of the adjustments and the adjusted amount to be repaid. HHSC or its designee will recoup any amount owed from a provider's vendor payment(s) following the date of the notification letter.

(3) [ ~~(5)~~ ] Repayment will be collected from the following:

(A) the provider or legal entity submitting the report;

(B) any other legal entity responsible for the debts or liabilities of the submitting entity; or

[ ~~(6)~~ Providers will be jointly and severally liable for any repayment due. Failure to repay the amount due by the 61st calendar day after the provider has received notification may result in a vendor hold on all of the ICF/MR payments to a provider.]

(4) For providers undergoing an ownership change or contract termination, HHSC or its designee will recoup any amount owed from the provider's vendor payments that are being held. In cases where funds identified for recoupment cannot be repaid from the held vendor payments, the responsible entity from paragraph (3) of this subsection will be jointly and severally liable for any additional payment due to HHSC or its designee. Failure to repay the amount due or submit an acceptable payment plan within 60 days of notification will result in the recoupment of the owed funds from other Medicaid contracts controlled by the responsible entity, placement of a vendor hold on all Medicaid contracts controlled by the responsible entity and will bar the responsible entity from receiving any new contracts with HHSC or its designee until repayment is made in full. The responsible entity for these contracts will be notified as described in paragraph (2) of this subsection prior to the recoupment of owed funds, placement of vendor hold and barring of new contracts.

(5) Aggregation.

(A) Definitions. The following words and terms have the following meanings when used in this paragraph.

(i) Aggregation. For entities that control more than one ICF/MR component code, the process of determining compliance with the spending requirements detailed in paragraph (1) of this subsection for all component codes controlled by the entity in the aggregate rather than requiring each component code to meet its spending requirement individually.

(ii) Entity--a parent company, sole member, individual, limited partnership, or group of limited partnerships controlled by the same general partner.

(iii) Control--greater than 50 % ownership by the entity.

(B) Component Codes Included in Aggregation. If an entity controlling more than one ICF/MR component code requests aggregation, compliance with the spending requirements will be evaluated in the aggregate for all ICF/MR component codes that the entity controlled at the end of its fiscal year or at the effective date of the change of ownership or termination of its last ICF/MR contract.

(C) Aggregation Request. To exercise the aggregation option, the entity must submit an aggregation request, in a manner prescribed by HHSC, at the time each cost report is submitted. In limited partnerships in which the same single general partner controls all the limited partnerships, that single general partner must make this request. Other such aggregation requests will be reviewed on a case-by-case basis.

(D) Frequency of Aggregation Requests. The entity must submit a separate request for aggregation for each reporting period.

(E) Ownership Changes and Contract Terminations. ICF/MR contracts that change ownership or terminate effective after the end of the applicable reporting period, but prior to the determination of compliance with spending requirements in paragraph (1) of this subsection, are excluded from all aggregate spending calculations. These contracts' compliance with spending requirements will be determined on an individual basis and the costs and revenues will not be included in the aggregate spending calculation.

(F) Failure to Disclose All ICF/MR Component Codes. Failure to disclose all ICF/MR component codes controlled by the entity making the request as permitted in this paragraph will result in the denial of, or revocation of a prior approval of, the request to aggregate for all component codes so controlled.

[ ~~(7)~~ Providers may request an informal review and, if necessary, an administrative hearing to dispute an action taken under §355.110 of this title (relating to Informal Reviews and Formal Appeals).]

[ ~~(d)~~ If a provider is paid a transitional add-on for a consumer in accordance with §355.456(e) of this title, the provider may exclude the amount of the transitional add-on from its fiscal accountability cost report only if the consumer resides in the small non-state operated facility for at least 12 months.]

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 February 4, 2008.

TRD-200800664

Steve Aragón

Chief Counsel

Texas Health and Human Services Commission

Earliest possible date of adoption: March 16, 2008

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

Subchapter F. REIMBURSEMENT METHODOLOGY FOR PROGRAMS SERVING PERSONS WITH MENTAL ILLNESS AND MENTAL RETARDATION

1 TAC §355.722

The Texas Health and Human Services Commission (HHSC) proposes an amendment to §355.722, relating to Reporting Costs for the Home and Community-based Services (HCS) program.

Background and Justification

This rule establishes the cost reporting and fiscal accountability process for the Home and Community-based Services (HCS) waiver program and outlines the requirements of reporting direct service costs for the HCS waiver program. HHSC, under its authority and responsibility to administer and implement rates, is updating this rule by clarifying and formalizing certain requirements related to documentation and allowable costs, adding procedures for determining recoupments when a provider fails to submit a cost report, and formalizing procedures for allowing providers with control of multiple component codes in the program to request to aggregate their reports for purposes of determining compliance with spending requirements.

In addition, the proposed amendment updates administrative procedures relating to notification of recoupment amounts; removes outdated language; and adds definitions or updates references to other rules due to changes in those rules. The amendment revises allowable cost limitations and the point in the recoupment determination process at which HHSC will notify providers of their recoupment amount. HHSC also proposes to delete obsolete language regarding: 1) Mental Retardation Local Authority conversion, and 2) references to a subsection that no longer exists.

Cost reports are necessary to determine whether providers met their fiscal accountability requirements and, if they did not meet their requirements, to determine the amount of funds to be recouped by HHSC or its designee. Currently, the only enforcement tool available to HHSC when a provider fails to submit a cost report is to place the provider's vendor payments on hold until the report is submitted. While vendor hold is an effective enforcement tool in cases where a provider's contract is active, it is not effective in cases where the provider's contract has been terminated. The amended rule creates an incentive for providers whose contracts have been terminated to submit required reports by establishing a process to determine dollars to be recouped from such providers if they do not submit the required reports. The amended rule will make the fiscal accountability system more equitable by ensuring that terminated contracts are subject to fiscal accountability requirements along with ongoing contracts.

Currently, controlling entities are permitted to request evaluation of spending requirements for all of their controlled entities within the HCS program in the aggregate but there are no rules defining an entity or control for this purpose. This lack of rules leads to difficulties and confusion in the administration of the aggregation process. The proposed amendment formalizes current administrative procedures, which should result in increased understanding of the aggregation process and requirements by providers. The proposed amendment should reduce areas of disagreement between providers and HHSC as to how the aggregation process is applied.

Section-by-Section Summary

The proposed amendment revises §355.722 to:

Delete extraneous references to HCS throughout the section.

Remove from subsection (a)(1) obsolete language relating to direct service supervision information.

Clarify and formalize in subsection (a)(1) that direct service costs include costs related to wages rather then costs related to wage rates.

Revise subsection (a)(2) to replace reporting and documentation requirements for staff whose duties include work other than the provision of direct services with a reference to §355.105 relating to General Reporting and Documentation Requirements, Methods and Procedures.

Remove from subsection (h) an obsolete reference to subsection (a)(2).

Revise subsection (h) to apply to owners and related-party employees who provide multiple types of direct service and/or both direct hands-on support and first-level supervision of direct care workers in addition to owner and related party employees who provide both direct and indirect services.

Modify subsection (h) to indicate the following. First, owner and related-party hours, hourly wage rates and benefits for direct service work are limited to the lesser of actual hours worked, hourly wage rate paid and benefits or the hours, hourly wage rate and benefits for a comparable direct care staff person assumed in the fully-funded model. Second, if at least 40 percent of total labor hours in the related-party's direct service type were provided by non-related-parties, the related-party's hourly wage rate is limited to the higher of the model assumption for that direct service type or the non-related party average for that direct service type. Third, at no time will the allowable related-party hourly wage exceed the related-party's actual hourly wage.

Modify subsection (h) to indicate that during any single fiscal year, the sum of all direct care hours reported on HCS cost report(s) for any individual owner or related-party cannot exceed 2,600.

Add new subsection (h)(5) which indicates that owner and related-party hours, hourly wages and benefits above the limits described in the subsection are to be reported as administrative hours, hourly wages and benefits.

In subsection (j)(2)(A), replace the word "appropriate" with "acceptable" when describing what type of cost report must be submitted in order for vendor hold on a terminated provider agreement to be released and delete the description of which state entity amounts due must be repaid to prior to the release of the vendor hold.

Delete subsection (j)(2)(B) as an obsolete reference to the Mental Retardation Local Authority conversion.

Add new subsection (j)(2)(B) which mandates the recoupment of funds related to fiscal accountability if a provider fails to submit an acceptable cost report within 60 days of the placement of a vendor hold due to the failure to submit a cost report and that the recoupment become permanent if no cost report is received within 365 days of the report due date.

Add new subsection (j)(2)(C) which mandates the recoupment of funds related to fiscal accountability if a provider fails to submit an acceptable cost report within 60 days of a change of ownership or contract termination and that the recoupment become permanent if no cost report is received within 365 days of the date of the change of ownership or contract termination.

Revise subsection (j)(4)(B) to apply the recoupment described in that subparagraph to providers whose direct service costs are less then 90 percent but greater than or equal to 85 percent of direct service revenues. The current language applies this recoupment to providers whose direct service costs are between 85 percent and 90 percent of direct service revenues.

Revise subsection (j)(4)(C) to apply the recoupment described in that subparagraph to providers whose direct service costs are less then 85 percent but greater then or equal to 80 percent of direct service revenues. The current language applies this recoupment to providers whose direct service costs are between 80 percent and 85 percent of direct service revenues.

Add new subsection (j)(4)(E) which states that providers who fail to submit acceptable cost reports within the timeframes detailed in subsection (j)(2)(B) and (C) will be required to pay to DADS the difference between 65 percent of direct services revenues and 95 percent of direct services revenues.

Revise subsection (j)(5) to indicate that providers will be notified of any amount to be repaid to HHSC or its designee within 90 days of the determination of their recoupment amount by HHSC. Current language indicates that providers will be notified within 90 days of submitting their cost reports.

Revise subsection (j)(5) to indicate that if a subsequent review by HHSC or audit results in adjustments to the cost report that change the amount to be repaid, the provider will be notified of the adjustments and the adjusted amount to be repaid.

Add new subsection (j)(8) which formalizes requirements for compliance with spending requirements to be calculated in the aggregate for entities which control more than one HCS component code.

Fiscal Note

Gordon E. Taylor, Chief Financial Officer for the Department of Aging and Disability Services, has determined that during the first five-year period the amended rule is in effect there will be no fiscal impact to state government. The amended rule will not result in any fiscal implications for local health and human services agencies. There are no fiscal implications for local governments as a result of enforcing or administering the section.

Small Business and Micro-business Impact Analysis

HHSC has determined that there is no adverse economic effect on small businesses or micro-businesses as a result of enforcing or administering the amendment. The implementation of the proposed rule amendment does not require any changes in practice or any additional cost to the contracted provider.

HHSC does not anticipate that there will be any economic cost to persons who are required to comply with this amendment. The amendment will not affect local employment.

Public Benefit

Carolyn Pratt, Director of Rate Analysis, has determined that, for each of the first five years the amendment is in effect, the expected public benefit is that obsolete rule language will be eliminated and that the rules will provide clear guidance to agency staff and providers on documentation requirements; the recoupment determination, notification and payment collection processes; determining recoupments when a provider fails to submit a cost report; and requirements for compliance with spending requirements to be calculated in the aggregate for entities which control more then one HCS component code.

Takings Impact Assessment

Regulatory Analysis

Public Comment

Statutory Authority

The amendment is proposed under Texas Government Code §531.033, which authorizes the Executive Commissioner of HHSC to adopt rules necessary to carry out the commission's duties; Texas Human Resources Code §32.021 and Texas Government Code §531.021(a), which provides HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas; and Texas Government Code §531.021(b), which establishes HHSC as the agency responsible for adopting reasonable rules governing the determination of fees, charges, and rates for medical assistance payments under the Human Resources Code, Chapter 32.

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

§355.722.Reporting Costs by Home and Community-based Services (HCS) Providers.

(a) On an annual basis, all [ ~~HCS~~ ] providers must submit cost reports as directed by HHSC or its designee and in accordance with this subchapter. The Texas Health and Human Services Commission (HHSC) applies the general principles of cost determination as specified in §355.101 of this title (relating to Introduction).

(1) Direct service costs are defined to include costs associated with personnel who provide direct hands-on support for consumers and include personnel such as direct care workers, first-level supervisors of direct care workers, registered nurses, licensed vocational nurses, and other personnel who provide activities of daily living training and clinical program services. Direct service costs include: costs related to wages [ ~~wage rates~~ ], benefits, payroll taxes, and contracts for direct services [ ~~, and direct service supervision information~~ ]. Accrued leave (sick or vacation) can only be considered a direct service cost if the employee has a right to a cash value of that leave upon termination.

(2) For staff whose duties include work other than the provision of direct services for the provider, time spent providing [ ~~, the proportion of work that is spent on~~ ] direct services and associated expenses may be reported as [ ~~included in the~~ ] direct service costs if properly documented in accordance with §355.105 of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures) . [ The proportion of their salary and benefits that are compensation for direct services work can be included in the direct service cost report only to the extent that the salary and benefits for this direct service work must be the lesser of the actual wages and benefits or the wages and benefits for a comparable direct care workers assumed in the model. The provider must have a procedure that specifies how direct service work time is allocated. ]

(3) Providers must report the following costs:

(A) Staff wages related to the delivery of direct services including residential assistance, day habilitation services, and the direct supervision of the delivery of these services.

(B) These costs may be either the [ ~~HCS~~ ] provider's actual expense or contracted expenditures.

(b) Reviews of exclusions or adjustments. A [ ~~An HCS~~ ] provider who disagrees with HHSC's exclusion or adjustment of items in cost reports may request an informal review and, when appropriate, an administrative hearing as specified in §355.110 of this title (relating to Informal Reviews and Formal Appeals).

(c) Field audit and desk review. Desk reviews or field audits are performed on cost reports for all contracted providers. The frequency and nature of the field audits are determined by HHSC to ensure the fiscal integrity of the program. Desk reviews and field audits will be conducted in accordance with §355.106 of this title (relating to Basic Objectives and Criteria for Audit and Desk Review of Cost Reports).

(d) Notification of exclusions and adjustments. HHSC will notify a [ ~~an HCS~~ ] provider of the results of a desk review or field audit in accordance with §355.107 of this title (relating to Notification of Exclusions and Adjustments).

(e) Providers must follow the cost-reporting guidelines as specified in §355.105 of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures).

(f) Providers must follow the guidelines in determining whether a cost is allowable or unallowable as specified in §355.102 and §355.103 of this title (relating to General Principles of Allowable and Unallowable Costs, and Specifications for Allowable and Unallowable Costs).

(g) Revenues must be reported on the cost report in accordance with §355.104 of this title (relating to Revenues).

(h) Allowable compensation for owners and related parties and definitions of owners and related parties are specified in §355.102(i) and §355.103(b)(2) of this title (relating to General Principles of Allowable and Unallowable Costs and Specifications for Allowable and Unallowable Costs ). [ and subsection (a)(2) of this section. Owner and related party employees who provide both direct care and indirect services must maintain daily time sheets that record the time spent on activities in each area. The provider must maintain documentation relating to compensation, bonuses, and benefits of each owner or related party in accordance with §355.105(b)(2)(B)(xi) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures). The maximum hours per fiscal year that an owner and related party employee may report on the cost report is 2080 hours per fiscal year. ]

(1) Owners and related parties who provide multiple types of direct service, both direct care and indirect services and/or both direct hands-on support and first-level supervision of direct care workers must maintain daily time sheets that record the time spent on activities in each area. The provider must maintain documentation relating to the compensation, bonuses, and benefits of each owner or related party in accordance with §355.105(b)(2)(B)(xi) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures).

(2) Allowable hours, hourly wage rate and benefits for direct service work must be the lesser of the actual hours worked, hourly wage rate paid and benefits paid or the hours, hourly wage rate and benefits for a comparable direct care staff person assumed in the fully-funded model. The fully-funded model is the model as calculated under §355.723(d) of this title (relating to Reimbursement Methodology for Home and Community-based Services) prior to any adjustments made in accordance with §355.101 of this title (relating to Introduction) and §355.109 of this title (relating to Adjusting Reimbursement When New Legislation, Regulations or Economic Factors Affect Costs) for the rate period.

(3) If at least 40 percent of total labor hours in a specific related-party's direct service type were provided by non-related-parties, the related-party's hourly wage rate may be the higher of the model assumption for that direct service type described in paragraph (2) of this subsection or the non-related party average for that direct service type, so long as the non-related party average does not exceed the related-party's actual hourly wage.

(4) During any single fiscal year, the sum of all direct care hours reported on HCS cost report(s) for any individual owner or related party cannot exceed 2,600.

(5) Hours, hourly wages and benefits above the limits described in paragraphs (2) - (4) of this subsection are to be reported as administrative hours, hourly wages and benefits.

(i) Each provider's total reported allowable costs, excluding depreciation and mortgage interest, are projected from the historical cost-reporting period to the prospective reimbursement period as described in §355.108 of this title (relating to Determination of Inflation Indices). HHSC may adjust reimbursement if new legislation, regulations, or economic factors affect costs, according to §355.109 of this title (relating to Adjusting Reimbursement When New Legislation, Regulations, or Economic Factors Affect Costs).

(j) Fiscal Accountability.

(1) General principles. Fiscal accountability is a process used to gauge the ongoing financial performance under the reimbursement rates.

(2) Annual reporting. Fiscal accountability will consist of the annual reporting of the direct service costs including wages, and benefits, from all [ ~~HCS~~ ] providers. The data will be collected on a cost report designed by HHSC in accordance with §355.105(b) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures).

(A) The Department of Aging and Disability Services (DADS) will place a vendor hold on payments to a [ ~~an HCS~~ ] provider whose provider agreement is being assigned or terminated. The [ ~~HCS~~ ] provider will submit a cost report for the current reporting period to HHSC. Upon receipt of an acceptable [ ~~appropriate~~ ] cost report and repayment of any amounts due [ ~~to HHSC~~ ] in accordance with this section, the vendor hold will be released.

(B) Providers that do not submit a cost report completed in accordance with all applicable rules and instructions within 60 days of the placement of a vendor hold due to the failure to submit the cost report are subject to an immediate recoupment of funds related to fiscal accountability as described in paragraph (4)(E) of this subsection. The recouped funds will not be restored until the provider submits an acceptable cost report and has paid the actual amount due as specified in paragraphs (5) - (7) of this subsection. If an acceptable cost report is not received within 365 days of the due date, the recoupment will become permanent.

[ ~~(B)~~ HCS providers are exempt from submitting cost reports in accordance with this section for the portion of their programs that convert to the Mental Retardation Local Authority (MRLA Program) for the fiscal year in which the conversion occurred.]

(C) Providers with an ownership change from one legal entity to a different legal entity or a contract termination that do not submit a cost report for the fiscal year of the ownership change or contract termination within 60 days of the change of ownership or contract termination are subject to recoupment of funds related to fiscal accountability as described in paragraph (4)(E) of this subsection. The recouped funds will not be restored until the provider submits an acceptable cost report and has paid the actual amount due as specified in paragraphs (5) - (7) of this subsection. If an acceptable cost report is not received within 365 days of the change of ownership or contract termination date, the recoupment will become permanent.

(3) HHSC will require [ ~~HCS~~ ] providers to report all direct costs incurred on an annual fiscal year basis. HHSC will compare the reported direct service costs to the total direct service revenue.

(4) Direct Service Revenues are calculated by multiplying the number of units eligible for payment that have been paid for services delivered during the reporting period times the appropriate direct service portion of the rate for the service billed.

(A) Providers [ ~~HCS providers~~ ] whose direct service costs are 90% or more of the direct service revenues will not be subject to repayment under this section.

(B) Providers [ ~~HCS providers~~ ] whose direct service costs are less than 90% but greater than or equal to 85% [ ~~between 85% and 90%~~ ] of the direct service revenues will be required to pay to DADS 50% of the difference between the direct service costs and 90% of the direct service revenues.

(C) Providers [ ~~HCS providers~~ ] whose direct service costs are less than 85% but greater than or equal to 80% [ ~~between 80% and 85%~~ ] of the direct service revenues will be required to pay to DADS 100% of the difference between the direct service costs and 85% of the direct service revenues plus 50% of the difference between 85% and 90% of the direct service revenues.

(D) Providers [ ~~HCS providers~~ ] whose direct service costs are less than 80% of the direct service revenues will be required to pay to DADS the difference between the direct service costs and 95% of the direct service revenues.

(E) Providers who do not submit a cost report as described in paragraph (2)(B) or (C) of this subsection will be assumed to have direct service costs equal to 65% of the direct services revenues and will be required to pay to DADS the difference between 65% of the direct services revenues and 95% of the direct service revenues, subject to the provisions of paragraph (2)(B) or (C) of this subsection.

(5) Where applicable, [ ~~HCS~~ ] providers will be notified , by certified mail, within 90 days of the determination of their recoupment amount by HHSC of the amount to be repaid to HHSC or its designee. If a subsequent review by HHSC or audit results in adjustments to the cost report as described in subsection (a) of this section that change the amount to be repaid to HHSC or its designee, the provider will be notified in writing of the adjustments and the adjusted amount to be repaid. Providers [ of the requirement to repay revenues within 90 days of submitting their cost reports An HCS provider's repayment status may change as a result of the desk reviews or outside audits of cost reports, or adjustments to claims paid to the HCS provider for services provided in the cost reporting period. HCS providers ] will submit the repayment amount within 60 days of notification.

(6) Repayment will be made by the following:

(A) the [ ~~HCS~~ ] provider or legal entity submitting the report;

(B) any other legal entity responsible for the debts or liabilities of the submitting entity; or

(7) Providers [ ~~HCS providers~~ ] required to repay revenues to DADS will be jointly and severally liable for any repayment. DADS will apply a vendor hold on Medicaid payments to a [ ~~HCS~~ ] provider for not making the payment to DADS within 60 days of receiving notice.

(8) Aggregation.

(A) Definitions. The following words and terms have the following meanings when used in this paragraph.

(i) Aggregation. For entities that control more than one HCS component code, the process of determining compliance with the spending requirements detailed in paragraph (4) of this subsection for all component codes controlled by the entity in the aggregate rather than requiring each component code to meet its spending requirement individually.

(ii) Entity--a parent company, sole member, individual, limited partnership, or group of limited partnerships controlled by the same general partner.

(iii) Control--greater than 50 % ownership by the entity.

(B) Component Codes Included in Aggregation. If an entity controlling more than one HCS component code requests aggregation, compliance with the spending requirements will be evaluated in the aggregate for all HCS component codes that the entity controlled at the end of its fiscal year or at the effective date of the change of ownership or termination of its last HCS contract.

(D) Frequency of Aggregation Requests. The entity must submit a separate request for aggregation for each reporting period.

(E) Ownership Changes and Contract Terminations. HCS contracts that change ownership or terminate effective after the end of the applicable reporting period, but prior to the determination of compliance with spending requirements in paragraph (4) of this subsection, are excluded from all aggregate spending calculations. These contracts' compliance with spending requirements will be determined on an individual basis and the costs and revenues will not be included in the aggregate spending calculation.

(F) Failure to Disclose All HCS Component Codes. Failure to disclose all HCS component codes controlled by the entity making the request as permitted in this paragraph will result in the denial of, or revocation of a prior approval of, the request to aggregate for all component codes so controlled.

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 February 4, 2008.

TRD-200800665

Steve Aragón

Chief Counsel

Texas Health and Human Services Commission

Earliest possible date of adoption: March 16, 2008

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