Proposed Rules Title 1

TITLE 1. ADMINISTRATION

Part 12. COMMISSION ON STATE EMERGENCY COMMUNICATIONS

Chapter 254. POISON CONTROL CENTERS

1 TAC §254.1

The Commission on State Emergency Communications (CSEC) proposes amendments to §254.1 concerning the operation and funding of regional poison centers.

BACKGROUND AND PURPOSE

Pursuant to Health and Safety Code, Chapter 777, CSEC and the Department of State Health Services (Department), formerly known as the Texas Department of Health, are to jointly adopt rules concerning regional poison control centers. On April 18, 2008, the Department adopted changes to 25 TAC §5.51 and §5.52. CSEC proposes amending §254.1 to reflect the changes in the Department's rules.

SECTION-BY-SECTION SUMMARY

The amendments reflect the post-consolidation operations of the Health and Human Services Commission and the Department of State Health Services (Department), and recognize the Amarillo Hospital District as successor to Northwest Texas Hospital.

FISCAL NOTE

Paul Mallett, CSEC's executive director, has determined that for each year of the first five years the amended section is in effect there will be no cost implications to the state or local governments as a result of enforcing or administering the amended sections.

PUBLIC BENEFIT

Mr. Mallett has determined that for each year of the first five years the amended section is in effect, the public benefits will be the elimination of possible confusion caused by outdated information in the rule. Mr. Mallett estimates no additional economic costs to persons required to comply with the rules.

REGULATORY ANALYSIS

CSEC has determined that this proposal is not a "major environmental rule" as defined by Government Code §2001.0225.

LOCAL EMPLOYMENT IMPACT STATEMENT

CSEC has determined that this proposal does not directly affect a local economy.

SMALL AND MICRO-BUSINESS IMPACT ANALYSIS

Mr. Mallett has determined that there will be no effect on small businesses or micro-businesses, as those terms are defined in Government Code §2003.001, required to comply with this proposal

TAKINGS IMPACT ASSESSMENT

CSEC has determined that the 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 Government Code §2007.043.

PUBLIC COMMENT

Comments on the proposal may be submitted in writing to Patrick Tyler, Commission on State Emergency Communications, 333 Guadalupe Street, Suite 2-212, Austin, Texas 78701-3942 or by email to patrick.tyler@csec.state.tx.us. Comments will be accepted for 30 days following publication of the proposal in the Texas Register.

STATEMENT OF AUTHORITY

The amended section is proposed under Health and Safety Code §777.001(b) and §777.009(b), which require that CSEC and the Department jointly adopt rules regarding Poison Control Centers.

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

§254.1.Operations and Funding of Poison Control Centers.

(a) - (b) (No change.)

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

(1) - (4) (No change.)

(5) [~~Northwest Texas Hospital,~~] Amarillo Hospital District as successor to Northwest Texas Hospital--HHS Regions 1 and 2; and

(6) (No change.)

(d) Eligibility for funding.

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

(A) - (D) (No change.)

(E) [~~Northwest Texas Hospital,~~] Amarillo Hospital District as successor to Northwest Texas Hospital; and

(F) (No change.)

(2) (No change.)

(e) (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 May 19, 2008.

TRD-200802593

Patrick Tyler

General Counsel

Commission on State Emergency Communications

Earliest possible date of adoption: June 29, 2008

For further information, please call: (512) 305-6930

Part 15. TEXAS HEALTH AND HUMAN SERVICES COMMISSION

Chapter 354. MEDICAID HEALTH SERVICES

Subchapter F. PHARMACY SERVICES

Division 4. LIMITATIONS

1 TAC §354.1863

The Texas Health and Human Services Commission (HHSC) proposes to amend §354.1863, Prescription Requirements, under Title 1, Part 15, Chapter 354, Subchapter F, Division 4, relating to the new federal requirement that written prescriptions for covered outpatient drugs for Medicaid recipients must be executed on tamper-resistant prescription pads.

Background and Justification

Section 7002(b) of the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act of 2007 (Public Law 110-28) amends section 1903(i) of the Social Security Act (42 U.S.C. §1936b(i)) by adding new paragraph (23), which states that payment shall not be made for amounts expended for (Medicaid) for covered outpatient drugs (as defined in section 1927(k)(2)) for which the prescription was executed in written (and non-electronic) form unless the prescription was executed on a tamper-resistant pad. This federal requirement becomes effective April 1, 2008.

The federal Centers for Medicare and Medicaid Services (CMS) issued implementation guidance through a letter to State Medicaid Directors on August 17, 2007 (SMDL #07-012), at http://www.cms.hhs.gov/SMDL/downloads/SMD081707pdf). The CMS guidance outlines three criteria for a prescription pad to be considered tamper resistant. The pad must contain one or more industry-recognized features designed to prevent: (1) unauthorized copying of a completed or blank prescription form; (2) erasure or modification of information written on the prescription by the prescriber; and (3) use of counterfeit prescription forms. To be eligible for Medicaid reimbursement, prescription pads must meet one of these three characteristics by April 1, 2008, and must satisfy all three characteristics beginning October 1, 2008. Use of tamper resistant prescription pads is designed to reduce instances of unauthorized, improperly altered, and counterfeit prescriptions.

The CMS guidance sets out exemptions from the tamper-resistant requirement, including drugs provided in nursing facilities, intermediate care facilities for the mentally retarded, and other institutional settings, if the prescription is written as part of a patient's medical record and the order is given by medical staff directly to the pharmacy. Also exempted from the tamper-resistant requirement are e-prescriptions transmitted to the pharmacy, prescriptions faxed to the pharmacy, or prescriptions communicated to the pharmacy by telephone by a prescriber. The tamper-resistant requirement does not apply when a managed care entity pays for the medication.

The CMS guidance indicates that pharmacies may dispense non-compliant written prescriptions on an emergency basis, if the pharmacy obtains a compliant prescription in writing or by telephone, fax, or e-prescription within 72 hours from the time of dispensing.

The implementation guidance from CMS will be included in Medicaid pharmacy policies and the pharmacy provider manual.

Section-by-Section Summary

The proposed new §354.1863(c) provides that, to be eligible for Medicaid reimbursement, all written (non-electronic) Medicaid-covered outpatient prescriptions must be on tamper-resistant prescription pads, as provided in section 1903(i)(23) of the Social Security Act and explained in the CMS guidance referred to above.

The current subsection (c) has been redesignated as subsection (d).

Fiscal Note

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

Small and Micro-business Impact Analysis

Mr. Suehs has also determined that there will be an effect on small businesses or micro businesses that are Medicaid providers. Providers will be required to alter their business practices as a result of the rule. The cost of the proposed tamper-resistant prescription pads is similar to the cost of the pads currently required. HHSC has determined that an economic impact analysis is not required since this rule is required under federal law and is designed to prevent Medicaid fraud. There are no significant other costs to persons who are required to comply with the proposed rule. There is no anticipated negative impact on local employment.

Public Benefit

Chris Traylor, Associate Commissioner for Medicaid and CHIP, has determined that for each year of the first five years the proposed amendment is in effect, the public will benefit from the adoption of the section. The anticipated public benefit, as a result of enforcing the section, will be a reduction in instances of unauthorized, improperly altered, and counterfeit prescriptions.

Regulatory Analysis

HHSC has determined that this proposal is not a "major environmental rule" as defined by §2001.0225 of the Texas Government Code. A "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.

Takings Impact Assessment

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

Public Comment

Written comments on the proposal may be submitted to Tania Colon, Senior Policy Analyst, Medicaid/CHIP Division, Health and Human Services Commission, at P.O. Box 85200, Austin, Texas 78708-5200; by fax to (512) 491-1953; or by e-mail to Tania.Colon@hhsc.state.tx.us within 30 days of publication of this proposal in the Texas Register.

Public Hearing

A public hearing is scheduled for June 10, 2008 from 1 p.m. to 3 p.m. in the HHSC Lone Star Conference Room, at 11209 Metric Boulevard, Austin, Texas 78758. Persons requiring further information, special assistance, or accommodations should contact Rene Williams at (512) 491-1162.

Statutory Authority

The amendment is proposed under the Texas Government Code, §531.033, which provides the Commissioner of HHSC with broad rulemaking authority; and the Human Resources Code, §32.021, and the Texas Government Code, §531021(a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas.

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

§354.1863.Prescription Requirements.

(a) Payment for pharmaceuticals can be made only when these pharmaceuticals are prescribed by a practitioner licensed to prescribe legend drugs.

(b) The pharmacist must ensure that the original prescription conforms to the Texas State Board of Pharmacy rules concerning the records to be maintained by a pharmacy. A signed prescription must be maintained in the dispenser's file and available for audit at any reasonable time. Telephone orders, where legal, must be documented in writing. The name of the prescriber and the signature of the dispensing pharmacist must be documented. If a pharmacy maintains prescription records in a data processing system, a hard copy of the prescription must be retained on file unless the daily log includes all the information required in §351.1901 of this title (relating to Pharmacy Claims). The provider must conform to all regulations issued by the Drug Enforcement Administration and Texas State Board of Pharmacy concerning the recording of prescriptions in a data processing system.

(c) Effective April 1, 2008, prescriptions for covered pharmaceuticals submitted to a pharmacy in written form will be eligible for payment only if the prescription is executed on tamper-resistant prescription paper, as required by §1903(i)(23) of the Social Security Act (42 U.S.C. §1936b(i)(23)).

(d) [~~(c)~~] The dispensing pharmacist must date the prescription and initial the refills.

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 May 14, 2008.

TRD-200802524

Steve Aragón

Chief Counsel

Texas Health and Human Services Commission

Earliest possible date of adoption: June 29, 2008

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

Chapter 355. REIMBURSEMENT RATES

Subchapter J. PURCHASED HEALTH SERVICES

Division 4. MEDICAID HOSPITAL SERVICES

1 TAC §355.8052

The Texas Health and Human Services Commission (HHSC) proposes new §355.8052, concerning Inpatient Hospital Reimbursement. Section 355.8052 will supersede the Medicaid inpatient hospital reimbursement methodology within 1 TAC §355.8063 for hospitals other than children's hospitals, state-owned teaching hospitals, and freestanding psychiatric hospitals.

Background and Justification

This proposed new rule is part of a larger revision to Medicaid inpatient hospital reimbursement rules. Elsewhere in this issue of the Texas Register, HHSC contemporaneously proposes new §355.8054 and §355.8056; and amendments to §355.8061 and §355.8063.

HHSC has undertaken a rewrite of 1 TAC §355.8063, Reimbursement Methodology for Inpatient Hospital Services. As part of the rewrite, HHSC is creating separate rules for different hospital provider types based on specific reimbursement methodologies. Proposed new §355.8052 describes the prospective payment system methodology used to reimburse hospitals other than children's hospitals, state-owned teaching hospitals, and freestanding psychiatric hospitals. HHSC also is updating language in the new rule (taken largely from §355.8063) to language HHSC hopes will allow the reader to better understand the complex processes used in hospital reimbursement.

In addition, House Bill 1 directed HHSC to rebase inpatient hospital rates, for which the Legislature appropriated $150 million general revenue for fiscal year 2009 (2008-2009 General Appropriations Act, Article II, Special Provisions, Section 57(c), 80th Legislature, Regular Session, 2007). HHSC is adding language to the new rule to accomplish the rebasing.

The proposed new rule will become effective for claims approved for payment for admissions on or after September 1, 2008. The methodology in §355.8063 will continue to apply to claims approved for payment through state fiscal year 2008.

The language in the new rule differs from the language in §355.8063 in several ways. The significant changes are that §355.8052:

Includes a six-month cut off date after a base year for adjudicated claims that constitute the base year data set used in the rebasing process.

Updates the factors HHSC will used to inflate rebasing claims data.

Lists additional rebasing data elements that are not subject to appeal.

Removes the requirement that HHSC must rebase or inflate standard dollar amounts on a set schedule.

Adds definitions to improve clarity.

Groups rule subject matter by the flow of the reimbursement process for ease of understanding.

Limits the final payment division standard dollar amounts to available appropriated funds.

Section-by-Section Summary

Proposed §355.8052(a) applies the general reimbursement method described in this section to inpatient hospital payments for admissions on or after September 1, 2008. This subsection is a revision of §355.8063(a) and adds a requirement that HHSC send provider notification letters concerning standard dollar amounts.

Proposed §355.8052(b) identifies the hospital provider types that are not covered by this rule but that are covered in proposed new §355.8054 and §55.8056 or in existing §355.8063. All of these provider types were previously included in §355.8063.

Proposed §355.8052(c) adds definitions that apply to this section and §355.8054 and §355.8056.

Proposed §355.8052(d) explains processes used to calculate the payment division standard dollar amount (PDSDA) used in the reimbursement formula for each hospital. Proposed §355.8052(d) also explains the limitations on the calculation of PDSDA, including the time period for the calculation and the level of appropriations. Proposed subsection (d)(3) - (5) outlines the steps used to calculate the hospital-specific standard dollar amount (HSDA). Proposed subsection (d)(6) - (11) describe the PDSDA process and exceptions to the process.

Proposed §355.8052(e) describes the diagnosis-related groups (DRG) statistical calculations and their application to hospital reimbursement.

Proposed §355.8052(f) describes the process for providers to request a review of their PDSDA calculation, specifying the items in the PDSDA calculation eligible for a review and the items not eligible for review.

Proposed §355.8052(g) describes the calculation of claims reimbursement. This section reorganizes language from §355.8063 to clarify hospital claim reimbursement.

Proposed §355.8052(h) describes how to file cost reports.

Proposed §355.8052(i) identifies certain providers that are excepted from the prospective payment system (PPS). The reimbursement for these excepted providers is the greater of the PPS amount or the provider's cost.

Fiscal Note

Thomas M. Suehs, Deputy Executive Commissioner for Financial Services, has determined that during the first five-year period the proposed rule is in effect there will be a fiscal impact to state government of $356,124,392 for state fiscal year (SFY) 2009; $347,619,208 for SFY 2010; $347,619,208 for SFY 2011; $347,619,208 for SFY 2012; and $347,619,208 for SFY 2013 as a result of rebasing certain hospitals' inpatient payment rates. The proposed rule will not result in any fiscal implications for local health and human services agencies. Local governments will not incur additional costs.

Small and Micro-business Impact Analysis

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

Public Benefit

Carolyn Pratt, Director of Rate Analysis, has determined that for each year of the first five years the proposed rule is in effect, the public will benefit from the adoption of the amendment. The anticipated public benefit, as a result of enforcing the amendment, will be to provide for a consistent rate methodology that can be more easily understood.

Regulatory Analysis

HHSC has determined that this proposal is not a "major environmental rule" as defined by §2001.0225 of the Texas Government Code. A "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.

Takings Impact Assessment

Public Comment

Written comments on the proposal may be submitted to Chris Dockal, Rate Analyst in the Rate Analysis Department, Texas Health and Human Services Commission, P.O. Box 85200, MC-H400, Austin, Texas 78708-5200; by fax (512) 491-1983 or by e-mail at Chris.Dockal@hhsc.state.tx.us within 30 days of publication of this proposal in the Texas Register.

Statutory Authority

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

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

§355.8052.Inpatient Hospital Reimbursement.

(a) Application and general reimbursement method.

(1) The prospective payment system described in this section applies to inpatient hospital payments for admissions beginning in Fiscal Year (FY) 2009.

(2) HHSC calculates reimbursement for a covered inpatient hospital service, determined in subsection (g) of this section, by multiplying the hospital's payment division standard dollar amount, determined in subsection (d) of this section, by the relative weight for the appropriate diagnosis-related group, determined in subsection (e) of this section.

(3) HHSC will send a hospital an initial notification letter describing the hospital-specific and payment division standard dollar amounts, determined in subsection (d) of this section. HHSC will send a hospital a final notification letter reporting the payment division standard dollar amount, adjusted as described in subsection (d)(2) of this section, to be used in calculating the hospital's reimbursements to be paid for admissions beginning in FY 2009.

(4) HHSC will rebase hospital-specific and payment division standard dollar amounts in subsequent years when funds are appropriated for that purpose.

(b) Exceptions. The prospective payment system described in this section does not apply to the following types of hospitals for covered inpatient hospital services:

(1) In-state and out-of-state children's hospitals. In-state and out-of-state children's hospitals are reimbursed using the methodology described in §355.8054 of this chapter (relating to Children's Hospital Reimbursement Methodology).

(2) State-owned teaching hospitals. A state-owned teaching hospital is reimbursed in accordance with the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) principles using the methodology described in §355.8056 of this chapter (relating to State-Owned Teaching Hospital Reimbursement Methodology).

(3) Freestanding psychiatric hospitals. A freestanding psychiatric hospital is reimbursed under the methodology described in §355.8063 of this chapter (relating to Reimbursement Methodology for Inpatient Hospital Services).

(c) Definitions. When used in this section, and §355.8054 and §355.8056 of this chapter, the following words and terms will have the following meanings, unless the context clearly indicates otherwise.

(1) Adjudicated The approval or denial of an inpatient hospital claim by HHSC.

(2) Average base year cost per claim--One factor used in arriving at the hospital-specific standard dollar amount; the arithmetic mean of base year costs per claim for a hospital, obtained by dividing the sum of all base year costs per claim for that hospital by the number of base year claims in the set.

(3) Base year--A period of 12 consecutive months selected by HHSC.

(4) Base year claims--All Medicaid inpatient hospital claims for reimbursement filed by a hospital that:

(A) Have a date of admission occurring within the base year;

(B) Are adjudicated and approved for payment during the base year and the six-month grace period that immediately follows the base year or another period designated by HHSC and communicated in writing to all hospitals;

(D) Are not Medicaid spend-down claims.

(5) Base year cost per claim--One factor used in arriving at the hospital-specific standard dollar amount; the cost for a claim that would have been made to a hospital if HHSC reimbursed the hospital under methods and procedures used in the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), described in subsection (d)(3)(A) of this section.

(6) Case mix index--The average relative weight of a hospital's base year claims, obtained by summing the hospital's relative weights for all base year claims divided by the total number of that hospital's base year claims.

(7) Cost-of-Living Index--An adjustment applied to hospital-specific standard dollar amounts based on the Market Basket Index to account for changes in cost of living.

(8) Cost outlier payment adjustment--A payment adjustment for a claim with extraordinarily high costs.

(9) Cost outlier threshold--One factor used in determining the cost outlier payment adjustment.

(10) Data entry error--An error resulting from mis-keyed or mistyped data that is different from the intended entry. This type of error does not include the omission of claims approved for payment after the base year and grace period.

(11) Day outlier threshold--One factor used in determining the day outlier payment adjustment.

(12) Day outlier payment adjustment--A payment adjustment for a claim with an extended length of stay.

(13) Diagnosis-related group (DRG)--The classification of medical diagnoses as defined in the Medicare DRG system or as otherwise specified by HHSC.

(14) Final settlement--Reconciliation of cost in the Medicare/Medicaid hospital fiscal year end cost report performed by HHSC within six months after HHSC receives the cost report audited by a Medicare intermediary, or in the case of children's hospitals, audited by HHSC.

(15) HHSC--The Texas Health and Human Services Commission or its designee.

(16) Hospital--specific standard dollar amount (HSDA)--One factor used in arriving at the payment division standard dollar amount (PDSDA); the average base year cost per claim for a hospital, adjusted by the case mix index and cost-of-living index.

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

(18) Interim payment--An initial payment made to a hospital that is later settled to Medicaid-allowable costs, for hospitals reimbursed under methods and procedures in the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA).

(19) Interim rate--The ratio of Medicaid allowed inpatient costs to Medicaid allowed inpatient charges filed on a hospital's Medicare/Medicaid cost report, or inpatient cost-to-charge ratio, expressed as a percentage. The interim rate established at tentative settlement includes incentive and penalty payments associated with TEFRA target caps to the extent that they continue to be permitted by federal law and regulation.

(20) Market Basket Index--The Centers for Medicare and Medicaid Services (CMS) projection of the annual percentage increase in hospital inpatient operating costs, as defined in 42 C.F.R. §413.40.

(21) Mathematical error--An error that results from the erroneous application of variables, quotients, or functions within a methodology formula resulting in a different result than intended methodology results. This type of error does not include the omission of claims approved for payment after the base year and grace period.

(22) Mean length of stay (MLOS)--One factor used in determining the payment amount calculated for each diagnosis related group; for each diagnosis related group, the average number of days that a patient stays in the hospital.

(23) Military hospital--A hospital operated by the armed forces of the United States.

(24) New hospital--A hospital that was newly constructed and enrolled as a Medicaid provider after the end of the base year.

(25) Newly enrolled hospital--A hospital that was assigned a new Texas Provider Identification number (TPI) and was enrolled as a Medicaid provider after the end of the base year.

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

(27) Payment division--A group of hospitals whose calculated hospital-specific standard dollar amounts fall within a $100 range, where the $100 increments begin at zero.

(28) Payment division standard dollar amount (PDSDA)--The weighted average dollar amount per claim calculated for all hospitals in a payment division.

(29) Relative weight--The weighting factor HHSC assigns to a diagnosis related group representing the time and resources associated with providing services for that diagnosis related group.

(30) State-owned teaching hospital--The following hospitals: University of Texas Medical Branch (UTMB); University of Texas Health Center Tyler; and M.D. Anderson Hospital.

(31) TEFRA cost for rebasing--One factor used in arriving at the hospital-specific standard dollar amount; Medicaid allowable charges for base year claims adjusted to cost by the interim rate derived from tentative or final settlement of cost reports that cover time periods in the base year.

(32) TEFRA target cap--A limit set under the Social Security Act §1886(b) (42 U.S.C. §1395ww(b)) and applied to the cost settlement for a hospital reimbursed under methods and procedures in the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). TEFRA target cap is not applied to patients under age 21, and incentive and penalty payments associated with this limit are not applicable to patients under age 21.

(33) Tentative settlement--Reconciliation of cost in the Medicare/Medicaid hospital fiscal year-end cost report performed by HHSC within six months after HHSC receives an acceptable cost report filed by a hospital.

(34) Universal Mean--Average base year cost per claim for all hospitals.

(35) Weighted hospital-specific standard dollar amount (HSDA)--One factor used in arriving at the payment division standard dollar amount; the product obtained by multiplying a hospital's hospital-specific standard dollar amount by the number of its base year claims.

(d) Payment Division Standard Dollar Amount (PDSDA).

(1) HHSC recalculates PDSDAs for payments in FY 2009 using FY 2006 base year claims. HHSC will not include claims that are adjudicated and approved for payment after the base year and subsequent six-month grace period. The six-month grace period is intended to allow inclusion of as many base year claims as possible, given practical time constraints.

(2) Limitation based on available funds. PDSDAs are adjusted proportionately among hospitals based on the amount of available funds. HHSC may adjust the PDSDAs at any time if it determines that the estimated payments will not approximate the amount of available funds.

(3) Hospital-specific standard dollar amount (HSDA). Using base year claims, HHSC calculates an HSDA for each hospital as follows:

(A) Determines for each claim, the base year cost per claim, which is the greater of:

(i) the amount of TEFRA cost for rebasing, which is calculated under paragraph (10) of this subsection; or

(ii) payments from other insurance;

(B) Sums the dollar amount for each hospital's base year costs per claim determined in subparagraph (A) of this paragraph;

(C) Calculates the average base year cost per claim by dividing the result in subparagraph (B) of this paragraph by the total number of base year claims for the hospital;

(D) Calculates the case mix index by summing the hospital's relative weights for all base year claims divided by the total number of that hospital's base year claims;

(E) Divides the average base year cost per claim determined in subparagraph (C) of this paragraph by the hospital's case mix index determined in subparagraph (D) of this paragraph; and

(F) Multiplies the result in subparagraph (E) of this paragraph by the cost-of-living index described in paragraph (4) of this subsection to adjust costs from the base year to the rate year, which results in the HSDA.

(4) Cost-of-Living Index. HHSC updates HSDAs by applying a cost-of-living index to the HSDA established for the base year. HHSC uses the CMS Prospective Payment System Hospital Market Basket Index based on a federal fiscal year adjusted to a state fiscal year.

(5) Payment Divisions. HHSC groups hospital HSDAs into payment divisions by one-hundred-dollar ($100) increments beginning at zero. For example, all hospitals with HSDAs between $1,600.00 and $1,699.99 are grouped together.

(6) Payment Division Standard Dollar Amount (PDSDA).

(A) HHSC computes a PDSDA for all hospitals within a payment division as follows:

(i) multiplies each hospital's HSDA by the hospital's total number of base year claims, resulting in a weighted HSDA;

(ii) sums the weighted HSDAs determined in clause (i) of this subparagraph for all hospitals within a payment division; and

(iii) divides the result in clause (ii) of this subparagraph by the total number of base year claims for all hospitals within a payment division, which results in the PDSDA.

(B) The PDSDA calculation does not include data from the following types of hospitals:

(i) out-of-state hospitals;

(ii) military hospitals;

(iii) new or newly enrolled hospitals;

(iv) in-state and out-of-state children's hospitals;

(v) inpatient psychiatric hospitals; and

(vi) state-owned teaching hospitals.

(C) If a payment division has fewer than 20 total base year claims, HHSC considers that payment division to be statistically invalid. Hospitals within that payment division are assigned a PDSDA equal to the mathematically closest valid PDSDA.

(7) Minimum PDSDA. The minimum PDSDA of $1,600.00 is applied to any hospital with an HSDA equal to or less than $1,600.00.

(8) PDSDA calculation for specific types of hospitals.

(A) The following types of hospitals are assigned the Universal Mean plus the cost-of-living update as specified in paragraph (4) of this subsection, as their PDSDA:

(i) military hospitals;

(ii) out-of-state hospitals; and

(iii) newly enrolled hospitals.

(B) New Hospitals.

(i) For new hospitals, HHSC will assign a PDSDA that is three percentile points higher than the Universal Mean in an array of base year costs per claim, plus the cost-of-living update as specified in paragraph (4) of this subsection. This rate applies for five years from enrollment as a new Medicaid hospital or until HHSC recalculates PDSDAs, whichever is earlier. After five years from enrollment, if HHSC has not recalculated PDSDAs, the hospital's PDSDA will be the Universal Mean.

(ii) A replacement facility constructed for a hospital that is currently enrolled as a Medicaid provider is reimbursed by using either the PDSDA of the existing provider or the PDSDA for new hospitals, whichever is greater.

(9) Merged hospitals.

(A) When two or more Medicaid participating hospitals merge during or after the base year but before the date of HHSC's final PDSDA notification letter, HHSC combines the amounts determined in paragraph (3)(A) of this subsection for all hospitals involved in the merger and calculates the HSDA and PDSDA for the merged entity as described for all other hospitals in this subsection.

(B) When two or more Medicaid participating hospitals merge after the base year and after the date of HHSC's final PDSDA notification letter, HHSC combines the original base year costs per claim determined in paragraph (3)(A) of this subsection from the most recent rebasing period for all hospitals involved in the merger. HHSC calculates a new HSDA for the merged entity and assigns a PDSDA equal to the mathematically closest valid PDSDA.

(C) Acquisitions and buyouts do not result in a recalculation of the PDSDA of an acquired hospital unless acquisitions or buyouts result in the purchased or acquired hospital becoming part of another Medicaid participating provider. The acquired hospital will continue being reimbursed based on the PDSDA applied before the acquisition or buyout.

(10) TEFRA Cost for Rebasing. HHSC adjusts base year claims to arrive at a result based on cost reimbursement principles described in the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), and calculates TEFRA cost for rebasing as follows:

(A) HHSC adjusts each hospital's base year claims using the interim rate computed as a result of tentative or final cost reports covering the base year. The adjustments are applied to claims in months within the base year that coincide with months within the hospital's cost reporting periods.

(B) The TEFRA cost for rebasing is calculated by multiplying the Medicaid allowed charges for each base year claim by the interim rate described in subparagraph (A) of this paragraph.

(C) HHSC uses the tentative or final cost report settlement that is complete and available on the date HHSC sends the initial PDSDA notification letter to the hospital. The results of a tentative or final cost report settlement completed after the date HHSC sends the initial PDSDA notification letter to the hospital are not considered for purposes of this subsection.

(D) If there is no tentative or final cost report settlement available, the TEFRA cost for rebasing is calculated using an assigned interim rate of 50 percent.

(11) Correction of payment division error and reprocessing of claims.

(A) HHSC will place a hospital in the correct payment division if HHSC determines that the hospital was incorrectly assigned to a payment division due to a mathematical error or data entry error by HHSC.

(B) HHSC will reprocess all claims adjudicated during that state fiscal year that were paid to the hospital using the incorrect PDSDA by applying the corrected PDSDA to the claims. No corrections are made for claims adjudicated in previous state fiscal years.

(e) Diagnosis Related Groups (DRGs) Statistical Calculations. HHSC adopts the classification of diagnoses defined in the Medicare DRG prospective payment system unless a revision is required based on Texas claims data or other factors, as determined by HHSC. HHSC recalibrates the relative weights, mean length of stay, and day outlier threshold whenever the PDSDAs are recalculated.

(1) Recalibration of relative weights. HHSC calculates a relative weight for each DRG as follows:

(A) Base year claims are grouped by DRG;

(B) For each DRG, HHSC:

(i) sums the base year costs per claim as determined in subsection (d)(3)(A) of this section;

(ii) divides the result in clause (i) of this subparagraph by the number of claims in the DRG; and

(iii) divides the result in clause (ii) of this subparagraph by the Universal Mean, resulting in the relative weight for the DRG.

(2) Recalibration of mean length of stay (MLOS). HHSC calculates a mean length of stay (MLOS) for each DRG as follows:

(A) Base year claims are grouped by DRG;

(B) For each DRG, HHSC:

(i) sums the number of days billed for all base year claims;

(ii) divides the result in clause (i) of this subparagraph by the number of claims in the DRG, resulting in the MLOS for the DRG.

(3) Recalibration of day outlier thresholds. HHSC calculates a day outlier threshold for each DRG as follows:

(A) Calculates for all claims the standard deviations from the MLOS in paragraph (2) of this subsection;

(B) Removes each claim with a length of stay (number of days billed by a hospital) greater than or equal to three standard deviations above or below the MLOS. The remaining claims are those with a length of stay less than three standard deviations above or below the MLOS;

(C) Sums the number of days billed by all hospitals for a DRG for the remaining claims in subparagraph (B) of this paragraph;

(D) Divides the result in subparagraph (C) of this paragraph by the number of remaining claims in subparagraph (B) of this paragraph;

(E) Calculates one standard deviation for the result in subparagraph (D) of this paragraph; and

(F) Multiplies the result in subparagraph (E) of this paragraph by two and adds that to the result in subparagraph (D) of this paragraph; resulting in the day outlier threshold for the DRG.

(4) If a DRG has fewer than ten base year claims, HHSC will assign the corresponding Medicare relative weight and Medicare mean length of stay and will calculate the day outlier threshold based on the Medicare mean length of stay and standard deviation.

(5) If one of the DRGs specific to an organ transplant has less than five base year claims, HHSC will assign the corresponding Medicare relative weight and Medicare mean length of stay and will calculate the day outlier threshold based on the Medicare mean length of stay and standard deviation. In addition, HHSC adds a relative weight to account for the cost of procuring the organ to the Medicare relative weight for the DRG. HHSC uses the organ procurement costs published by the Acquisition of Organ Procurement Organization (AOPO). To calculate the relative weight for procurement, HHSC divides the average cost of organ procurement by the universal mean for all claims.

(f) Request for Review. Except as otherwise provided in this subsection, HHSC uses the following process for reviews and appeals.

(1) If a hospital believes that HHSC made a mathematical error or data entry error in calculating the hospital's PDSDA, the hospital may request a review of the disputed calculation.

(A) A review of the calculation of a hospital's PDSDA will not be granted if the disputed calculation is the result of the hospital's submission of incorrect data or the result of the use of an interim rate derived from a cost reporting period occurring before the base year.

(B) The hospital must submit to HHSC a written request for review and appropriate specific documentation supporting its contention that there has been a mathematical or data entry error. The written request for review must be printed on the hospital's letterhead. HHSC Rate Analysis must receive a written request for an informal review by hand delivery, United States (U.S.) mail, or special mail delivery no later than 45 calendar days from the date of the initial PDSDA notification letter. If the 45th calendar day is a weekend day, national holiday, or state holiday, then the first business day following the 45th calendar day is the final day the receipt of the written request will be accepted. HHSC will not grant extensions of the 45-day deadline.

(C) If the hospital disagrees with the outcome of the review, the hospital may formally appeal in accordance with §§357.481 - 357.490 of this title (relating to Hearings Under the Administrative Procedure Act).

(2) A hospital may not appeal the elements of the prospective payment methodology used by HHSC, including:

(A) the payment division methodologies, including the HSDA and PDSDA calculations;

(B) the DRGs assigned through claims adjudication;

(D) the relative weights assigned to the DRGs;

(E) the adequacy of payments;

(F) the exclusion of claims that were not adjudicated and paid within the base year or six-month grace period; and

(G) the interim rate, computed as a result of tentative or final cost reports covering the base year that are completed after the date HHSC sends the initial PDSDA notification letter to the hospital.

(g) Reimbursements

(1) Calculating the payment amount. HHSC reimburses a hospital a prospective payment for covered inpatient hospital services by multiplying the PDSDA for the hospital's payment division by the relative weight for the DRG assigned to the adjudicated claim. The resulting amount is the payment amount to the hospital.

(2) The prospective payment as described in paragraph (1) of this subsection is considered full payment for covered inpatient hospital services. A hospital's request for payment in an amount higher than the prospective payment will be denied. The PDSDA result in subsection (d) of this section includes but is not limited to the following:

(A) capital costs;

(B) cost of indirect medical education;

(D) return on equity.

(3) Day and cost outlier adjustments. HHSC pays a day outlier or a cost outlier for medically necessary inpatient services provided to clients under age 21 in all Medicaid participating hospitals that are reimbursed under the prospective payment system. If a patient age 20 is admitted to and remains in a hospital past his or her twenty-first (21st) birthday, inpatient days and hospital charges after the patient reaches age 21 are included in calculating the amount of any day outlier or cost outlier payment adjustment.

(A) Day outlier payment adjustment. HHSC or its designee calculates a day outlier payment adjustment for each claim as follows:

(i) determines whether the number of medically necessary days allowed for a claim exceeds:

(I) the MLOS by more than two days; and

(II) the DRG day outlier threshold as calculated in subsection (e)(3)(F) of this section;

(ii) if clause (i) of this subparagraph is true, subtracts the DRG day outlier threshold from the number of medically necessary days allowed for the claim;

(iii) multiplies the DRG relative weight by the PDSDA;

(iv) divides the result in clause (iii) of this subparagraph by the DRG MLOS described in subsection (e)(2) of this section, to arrive at the DRG per diem amount;

(v) multiplies the number of days in clause (ii) of this subparagraph by the result in clause (iv) of this subparagraph;

(vi) multiplies the result in clause (v) of this subparagraph by 70 percent.

(B) Cost outlier payment adjustment. HHSC makes a cost outlier payment adjustment for an extraordinarily high-cost claim as follows:

(i) to establish a cost outlier, the cost outlier threshold must be determined by first selecting the lesser of the Universal Mean of base year claims multiplied by 11.14 or the hospital's PDSDA multiplied by 11.14;

(ii) the full DRG prospective payment amount is multiplied by 1.5;

(iii) the cost outlier threshold is the greater of clause (i) or (ii) of this subparagraph;

(iv) the cost outlier threshold is subtracted from the amount of reimbursement for the claim established under cost reimbursement principles described in the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA); and

(v) the result in clause (iv) of this subparagraph is multiplied by 70 percent to determine the amount of the cost outlier payment.

(C) If an admission qualifies for both a day outlier and a cost outlier payment adjustment, HHSC pays the higher outlier payment.

(4) A hospital may submit a claim to HHSC before a patient is discharged, but only the first claim for that patient will be reimbursed the prospective payment described in paragraph (1) of this subsection. Subsequent claims for that stay are paid zero dollars. When the patient is discharged and the hospital submits a final claim to ensure accurate calculation for potential outlier payments for clients younger than 21 years of age, HHSC recoups the first prospective payment and issues a final payment in accordance with paragraphs (1) and (3) of this subsection.

(5) Patient transfers and split billing. If a patient is transferred, HHSC establishes payment amounts as specified in subparagraphs (A) - (D) of this paragraph. HHSC manually reviews transfers for medical necessity and payment.

(A) If the patient is transferred from a hospital to a nursing facility, HHSC pays the transferring hospital the total payment amount of the patient's DRG.

(B) If the patient is transferred from one hospital (transferring hospital) to another hospital (discharging hospital), HHSC pays the discharging hospital the total payment amount of the patient's DRG. HHSC calculates a DRG per diem and a payment amount for the transferring hospital as follows:

(i) multiplies the DRG relative weight by the PDSDA;

(ii) divides the result in clause (i) of this subparagraph by the DRG MLOS described in subsection (e)(2) of this section, to arrive at the DRG per diem amount; and

(iii) to arrive at the transferring hospital's payment amount:

(I) multiplies the result in clause (ii) of this subparagraph by the lesser of the DRG MLOS, the transferring hospital's number of medically necessary days allowed for the claim, or 30 days; or

(II) for a patient under age 21, multiplies the result in clause (ii) of this subparagraph by the lesser of the DRG MLOS or the transferring hospital's number of medically necessary days allowed for the claim.

(C) HHSC makes payments to multiple hospitals transferring the same patient by applying the per diem formula in subparagraph (B) of this paragraph to all the transferring hospitals and the total DRG payment amount to the discharging hospital.

(D) HHSC performs a post-payment review to determine if the hospital that provided the most significant amount of care received the total DRG payment. If the review reveals that the hospital that provided the most significant amount of care did not receive the total DRG payment, an adjustment is initiated to reverse the payment amounts. The transferring hospital is paid the total DRG payment amount and the discharging hospital is paid the DRG per diem.

(h) Cost reports. Each hospital must submit an initial cost report at periodic intervals as prescribed by Medicare or as otherwise prescribed by HHSC.

(1) Each hospital must send a copy of all cost reports audited and amended by a Medicare intermediary to HHSC within 30 days after the hospital's receipt of the cost report. Failure to submit copies or respond to inquiries on the status of the Medicare cost report will result in provider vendor hold.

(2) HHSC uses data from these reports in rebasing years, in making adjustments as described in subsection (d) of this section, and in completing cost settlements for children's hospitals and state-owned teaching hospitals as outlined in §355.8054 and §355.8056 of this chapter.

(3) Except as otherwise specified in subsection (i) of this section, there are no cost settlements for inpatient services under the prospective payment system in this section.

(4) The cost settlement process is limited by the TEFRA target cap.

(i) Hospitals in counties with 50,000 or fewer persons and certain other hospitals.

(1) Hospitals are reimbursed under this subsection if, as of the most recent decentennial census, the hospital is:

(A) located in a county with 50,000 or fewer persons;

(B) a Medicare-designated Rural Referral Center (RRC) or Sole Community Hospital (SCH) not located in a metropolitan statistical area (MSA), as defined by the U.S. Office of Management and Budget; or

(2) A hospital that qualifies under this subsection is reimbursed for a cost reporting period the greater of:

(A) All Medicaid payments based on the prospective payment system; or

(B) The cost-reimbursement methodology described in the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) without the imposition of the TEFRA target cap described in subsection (h)(4) of this section.

(3) The amounts in this subsection are calculated using the most recent data for Medicaid Fee-for-Service (FFS) and Primary Care Case Management (PCCM) inpatient services.

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 May 19, 2008.

TRD-200802595

Steve Aragón

Chief Counsel

Texas Health and Human Services Commission

Earliest possible date of adoption: June 29, 2008

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

1 TAC §355.8054

The Texas Health and Human Services Commission (HHSC) proposes new §355.8054, concerning Children's Hospital Reimbursement Methodology. Section 355.8054 will supersede the children's hospital reimbursement methodology within 1 TAC §355.8063(o) and (r).

Background and Justification

This proposed new rule is part of a larger revision to Medicaid inpatient hospital reimbursement rules. Elsewhere in this issue of the Texas Register, HHSC contemporaneously proposes new §355.8052 and §355.8056; and amendments to §355.8061 and §355.8063.

This proposed new rule will supersede the children's hospital reimbursement methodologies at §355.8063(o) (in-state children's hospitals) and §355.8063(r) (out-of-state children's hospitals). This rule will separate the Medicaid reimbursement methodologies for children's hospitals into a stand-alone rule to clarify definitions, processes, and timing related to children's hospital reimbursement. The proposed new rule will become effective for claims approved for payment for admissions in state fiscal year 2009. The requirements in §355.8063(o) and (r) will continue to apply to claims approved for payment through state fiscal year 2008.

The new rule will distinguish the TEFRA (Tax Equity and Fiscal Responsibility Act of 1982) cost-based reimbursement methodology for in-state children's hospitals from the prospective payment reimbursement methodology for other hospitals, which is proposed new §355.8052, Inpatient Hospital Reimbursement Methodology. Additionally, the new rule includes the language from §355.8063(r), regarding the reimbursement methodology for out-of-state children's hospitals, which is derived from the in-state children's hospital methodology.

The rule language for in-state and out-of-state children's hospital reimbursement contained in this new rule is substantially the same as the language in §355.8063(o) and (r) with the exception of changes noted below.

Section-by-Section Summary

Proposed new §355.8054(a) is a revision of the current §355.8063(o), regarding the reimbursement methodology for in-state children's hospitals. This revision clarifies and is substantially the same as the provisions of §355.8063(o) except for the following change. Section 355.8054(a)(5)(D) explains how HHSC will increase a hospital's TEFRA target cap in years in which the cap is not reset. In those years, the target cap will be adjusted for cost of living based on changes in the CMS Prospective Payment System Hospital Market Basket Index adjusted to the hospital's fiscal year. By contrast, in §355.8063(o), the cost-of-living index is the greater of the CMS Prospective Payment System Hospital Market Basket Index or the lesser of two measures related to changes in total charges per case or the Texas medical consumer price index-urban.

Proposed new §355.8054(b) is a revision of the current rule at §355.8063(r), regarding the reimbursement methodology for out-of-state children's hospitals. This revision clarifies and is substantially the same as the provisions of §355.8063(r). Proposed new §355.8054(b) continues the existing HHSC practice of not revising the payment rates for out-of-state children's hospitals by specifying that out-of-state children's hospitals will not have their rates adjusted in state fiscal year 2009 or thereafter.

Fiscal Note

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

Small and Micro-business Impact Analysis

Public Benefit

Carolyn Pratt, Director of Rate Analysis, has determined that for each year of the first five years the proposed new rule is in effect, the public benefit of the adoption of the rule is the clarification of the reimbursement methodology for children's hospitals.

Regulatory Analysis

HHSC has determined that this proposal is not a "major environmental rule" as defined by §2001.0225 of the Texas Government Code. A "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.

Takings Impact Assessment

Public Comment

Written comments on the proposal may be submitted to Chris Dockal, Senior Rate Analyst in the Rate Analysis Department, Texas Health and Human Services Commission, P.O. Box 85200, MC-H400, Austin, Texas 78708-5200; by fax (512) 491-1983 or by e-mail at Chris.Dockal@hhsc.state.tx.us within 30 days of publication of this proposal in the Texas Register.

Statutory Authority

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

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

§355.8054.Children's Hospital Reimbursement Methodology.

(a) In-state children's hospitals.

(1) HHSC or its designee reimburses in-state children's hospitals under methods and procedures described in the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA).

(2) For dates of admission on or after September 1, 2003, children's hospitals with allowable Direct Graduate Medical Education (DGME) costs will receive a pro rata share of their annual DGME cost based on available funds appropriated specifically for this purpose.

(3) Interim payments are determined by multiplying a hospital's charges allowed under Medicaid by the interim rate effective on the date of admission. The interim rate is derived from the hospital's most recent tentative or final Medicaid cost report settlement.

(4) The amount and frequency of interim payments will be subject to the availability of funds appropriated for that purpose. Interim payments are subject to settlement at both tentative and final audit of a hospital's cost report.

(5) Cost Settlement.

(A) The cost settlement process is limited by the TEFRA target cap set pursuant to the Social Security Act §1886(b) (42 U.S.C. §1395ww(b)).

(B) Notwithstanding the process in subparagraph (A) of this paragraph, HHSC or its designee uses each hospital's final audited cost report, which covers a fiscal year ending during a base year period, for calculating the TEFRA target cap for a hospital.

(D) HHSC or its designee increases a hospital's TEFRA target cap in years in which the target cap is not reset under this paragraph, by multiplying the target cap by the CMS Prospective Payment System Hospital Market Basket Index adjusted to the hospital's fiscal year.

(E) For a newly recognized children's hospital, the base year period for calculating the TEFRA target cap is the hospital's first full 12-month cost reporting period occurring after the effective date of recognition. For each cost reporting period after the hospital's base year period, an increase in the TEFRA target cap will be applied as described in subparagraph (D) of this paragraph, until the TEFRA target cap is recalculated in subparagraph (C) of this paragraph.

(6) After a Medicaid participating hospital is recognized by Medicare as a children's hospital, the hospital must submit written notification to HHSC's designee's provider enrollment contact, including documents verifying its status as a Medicare children's hospital. Upon receipt of the written notification from the hospital, HHSC or its designee will convert the hospital to the reimbursement methodology described in this subsection retroactive to the effective date recognized by Medicare.

(b) Out-of-state children's hospitals. HHSC or its designee calculates the prospective payment rate for an out-of-state children's hospital as follows:

(1) HHSC determines the overall average cost per discharge for all in-state children's hospitals by:

(A) Summing the Medicaid allowed cost from tentative or final cost report settlements for the base year; and

(B) Dividing the result in subparagraph (A) of this paragraph by the number of in-state children's hospitals' base year claims described in §355.8052(c)(4) of this title (relating to Inpatient Hospital Reimbursement).

(2) HHSC determines the average relative weight for all of in-state children's hospitals' base year claims described in §355.8052(c)(4) of this title by:

(A) Assigning a relative weight to each claim pursuant to §355.8052(e)(1)(B)(iii) of this title;

(B) Summing the relative weights for all claims; and

(3) The result in paragraph (1) of this subsection is divided by the result in paragraph (2) of this subsection to arrive at the adjusted cost per discharge.

(4) The adjusted cost per discharge in paragraph (3) of this subsection is the payment rate used for payment of claims.

(5) The payment rate is not adjusted for inflation.

(6) HHSC will not recompute the adjusted cost per discharge effective September 1, 2008 or thereafter.

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 May 19, 2008.

TRD-200802596

Steve Aragón

Chief Counsel

Texas Health and Human Services Commission

Earliest possible date of adoption: June 29, 2008

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

1 TAC §355.8056

The Texas Health and Human Services Commission (HHSC) proposes new §355.8056, concerning State-Owned Teaching Hospital Reimbursement Methodology. Section 355.8056 will supersede the Medicaid inpatient hospital reimbursement methodology for state-owned teaching hospitals at 1 TAC §355.8063.

Background and Justification

This proposed new rule is part of a larger revision to Medicaid inpatient hospital reimbursement rules. Elsewhere in this issue of the Texas Register, HHSC contemporaneously proposes new §355.8052 and §355.8054; and amendments to §355.8061 and §355.8063.

This proposed new rule will change the Medicaid reimbursement methodology for state-owned teaching hospitals from the current prospective payment reimbursement methodology in §355.8063 to a TEFRA cost-based reimbursement methodology. Creating a new rule for state-owned teaching hospitals will distinguish the TEFRA methodology from the prospective payment methodology used for most other hospitals, which is set out in proposed new rule §355.8052. The proposed new rules will become effective for claims approved for payment in state fiscal year 2009. The methodology in §355.8063 will continue to apply to claims approved for payment through state fiscal year 2008.

Because HHSC will change the reimbursement methodology for state-owned teaching hospitals beginning in state fiscal year 2009, these hospitals will be excluded from rate recalculation for state fiscal year 2009. State-owned teaching hospitals will be reimbursed their cost for inpatient hospital services based on their cost report filed at the end of the first state fiscal year after this rule becomes effective. The state-owned teaching hospitals' initial interim rate will be based on their most recent audited tentative or final cost report completed prior to fiscal year 2009.

Finally, this new rule clarifies that direct graduate medical education (DGME) expenses are not considered costs associated with inpatient hospital services and are not settled to cost. Instead, state-owned teaching hospitals will be reimbursed a pro rata share of their annual allowable DGME costs based on the availability of funds appropriated for DGME.

Section-by-Section Summary

Proposed subsection (a) states that effective September 1, 2008, state-owned teaching hospitals will be reimbursed based on TEFRA cost reimbursement methods and procedures.

Proposed subsection (b) clarifies that DGME will not be included in inpatient hospital service cost reimbursement and will be reimbursed based on available funds appropriated for DGME.

Proposed subsections (c) - (d) outline how inpatient hospital services will be cost reimbursed based on interim payments derived from the Medicaid hospital cost report. The interim payments will be subject to settlement at both tentative and final audit of a hospital's cost report.

Proposed subsection (e) explains that cost settlements associated with cost reports will be limited by TEFRA target caps, and that the caps will be reset at least every three years with a cost of living increase based on the CMS Prospective Payment System Hospital Market Basket Index applied in years in which the target caps are not reset.

Fiscal Note

Thomas M. Suehs, Deputy Executive Commissioner for Financial Services, has determined that during the first five-year period the proposed rule is in effect there will be no fiscal impact to state government as a result of changing the state-owned teaching hospital reimbursement methodology. This will be an increase in HHSC Medicaid state funds appropriation expenditures of approximately $5.8 million. The amount of additional state match required to increase payments to the state teaching hospitals as a result of this proposed rule is offset by the decreased amount of state match that would no longer be required to fund their UPL supplemental payments from the federal government. The proposed rule will not result in any fiscal implications for local health and human services agencies. Local governments will not incur additional costs.

Small and Micro-business Impact Analysis

Public Benefit

Carolyn Pratt, Director of Rate Analysis, has determined that for each year of the first five years the proposed rule is in effect, the anticipated public benefit of this new rule is that the state will reimburse state-owned teaching hospitals based on TEFRA reimbursement principles, so their allowable Medicaid inpatient costs will be fully reimbursed.

Regulatory Analysis

HHSC has determined that this proposal is not a "major environmental rule" as defined by §2001.0225 of the Texas Government Code. A "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.

Takings Impact Assessment

Public Comment

Statutory Authority

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

§355.8056.State-Owned Teaching Hospital Reimbursement Methodology.

(a) For cost reporting periods beginning on or after September 1, 2008, HHSC or its designee reimburses state-owned teaching hospitals under methods and procedures described in the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA).

(b) For dates of admission on or after September 1, 2003, state-owned teaching hospitals with allowable Direct Graduate Medical Education (DGME) costs will receive a pro rata share of their annual DGME cost based on availability of appropriated funds. DGME expenses are not considered costs associated with inpatient hospital services and are not settled to cost.

(c) Interim payments are determined by multiplying a hospital's charges allowed under Medicaid by the interim rate effective on the date of admission derived from the hospital's most recent Medicaid cost report settlement, whether tentative or final.

(d) The amount and frequency of interim payments will be subject to the availability of funds appropriated for that purpose. Interim payments are subject to settlement at both tentative and final audit of a hospital's cost report.

(e) Cost Settlement.

(1) The cost settlement process is limited by the TEFRA target cap set pursuant to the Social Security Act §1886(b) (42 U.S.C. §1395ww(b)).

(2) Notwithstanding the process in paragraph (1) of this subsection, HHSC or its designee uses each hospital's final audited cost report, which covers a fiscal year ending during a base year period, for calculating the TEFRA target cap for a hospital.

(3) HHSC or its designee selects a new base year period for calculating the TEFRA target cap at least every three years.

(4) HHSC or its designee increases a hospital's TEFRA target cap in years in which the target cap is not reset under this paragraph, by multiplying the target cap by the CMS Prospective Payment System Hospital Market Basket Index adjusted to the hospital's fiscal year.

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 May 19, 2008.

TRD-200802597

Steve Aragón

Chief Counsel

Texas Health and Human Services Commission

Earliest possible date of adoption: June 29, 2008

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

1 TAC §355.8061

The Texas Health and Human Services Commission (HHSC) proposes an amendment to §355.8061, concerning Payment for Hospital Services. The amendment references three new rules being proposed concurrently in this issue of the Texas Register.

Background and Justification

This proposed amendment is part of a larger revision to Medicaid inpatient hospital reimbursement rules. Elsewhere in this issue of the Texas Register, HHSC contemporaneously proposes new §§355.8052, 355.8054, and 355.8056 and an amendment to §355.8063.

The proposed amendment to §355.8061 adds references to §355.8052, Inpatient Hospital Reimbursement Methodology; §355.8054, Children's Hospital Reimbursement Methodology; and §355.8056, State-Owned Teaching Hospital Reimbursement Methodology. The new references in §355.8061 reflect a concurrent rewrite of §355.8063, Reimbursement Methodology for Inpatient Hospital Services.

Concurrently with this amendment, HHSC is proposing three new rules to govern Medicaid inpatient hospital reimbursement: §355.8052, Inpatient Hospital Reimbursement Methodology; §355.8054, Children's Hospital Reimbursement Methodology; and §355.8056, State-Owned Teaching Hospital Reimbursement Methodology.

The reimbursement methodology for inpatient hospital reimbursement (other than children's and state-owned teaching hospitals), previously in §355.8063 subsections (a) - (n) and (p) - (q), will be in proposed new §355.8052. The reimbursement methodology for children's hospitals, previously in §355.8063 subsections (o) and (r), will be in proposed new §355.8054. The reimbursement methodology for state-owned teaching hospitals, previously covered in §355.8063, will be in proposed new §355.8056.

The new rules will supersede §355.8063 for claims approved for payment for admissions in state fiscal year 2009. The requirements in §355.8063 will continue to apply to claims approved for payment through state fiscal year 2008.

Section-by-Section Summary

Proposed §355.8061(a)(1) is being revised to include citations to new rules proposed in §355.8052, Inpatient Hospital Reimbursement Methodology, §355.8054, Children's Hospital Reimbursement Methodology, and §355.8056, State-Owned Teaching Hospital Reimbursement Methodology.

Fiscal Note

Thomas M. Suehs, Deputy Executive Commissioner for Financial Services, has determined that during the first five-year period the proposed amendment is in effect there will not be a fiscal impact to state government as a result of the amendment proposed to §355.8061. The proposed amendment will not result in any fiscal implications for local health and human services agencies. Local governments will not incur additional costs.

Small and Micro-business Impact Analysis

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

Public Benefit

Regulatory Analysis

HHSC has determined that this proposal is not a "major environmental rule" as defined by §2001.0225 of the Texas Government Code. A "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.

Takings Impact Assessment

Public Comment

Statutory Authority

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

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

§355.8061.Payment for Hospital Services.

(a) The Health and Human Services Commission (commission) or its designated agent shall reimburse hospitals approved for participation in the Texas Medical Assistance Program for covered Title XIX hospital services provided to eligible Medicaid recipients. The Texas Title XIX State Plan for Medical Assistance provides for reimbursement of covered hospital services to be determined as specified in paragraphs (1) - (4) of this subsection.

(1) The amount payable for inpatient hospital services shall be determined as specified in §355.8052 of this title (relating to Inpatient Hospital Reimbursement Methodology); §355.8054 of this title (relating to Children's Hospital Reimbursement Methodology); §355.8056 of this title (relating to State-Owned Teaching Hospital Reimbursement Methodology) and §355.8063 of this title (relating to Reimbursement Methodology for Inpatient Hospital Services).

(2) - (5) (No change.)

(b) - (d) (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 May 19, 2008.

TRD-200802598

Steve Aragón

Chief Counsel

Texas Health and Human Services Commission

Earliest possible date of adoption: June 29, 2008

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

1 TAC §355.8063

The Texas Health and Human Services Commission (HHSC) proposes an amendment to §355.8063, concerning Reimbursement Methodology for Inpatient Hospital Services. This proposal deletes subsection (u) to discontinue high volume payments made annually to eligible hospitals participating in the Medicaid Disproportionate Share Hospital (DSH) program.

Background and Justification

This proposed amendment, along with a future amendment to §355.8065(f)(2)(D), discontinues Medicaid high volume payments and restores Disproportionate Share Hospital (DSH) funds to approximately 60 private urban hospitals.

Prior to state fiscal year 2003, qualifying private urban hospitals received a portion of available Medicaid DSH funds to offset their Medicaid shortfall and uncompensated care costs. In response to a cost containment provision in the 2002-2003 General Appropriations Act (Article II, Special Provisions, Section 33, 77th Legislature, Regular Session, 2001), the DSH payments to these hospitals were reduced. At the same time, HHSC instituted a high volume payment program for these same hospitals.

Currently, five public urban hospitals receive approximately $26,400,000 additional DSH funds as a result of the cost containment adjustments made in the DSH program in 2003. These five public urban hospitals are required to transfer the exact amount of additional DSH funds they receive as a result of the cost containment adjustment to HHSC through an intergovernmental transfer (IGT). HHSC then uses these funds as the state share for the high volume payments referenced in this rule (approximately $10 million) as well as to offset appropriation cuts made by the 77th Legislature (approximately $16 million).

This proposed amendment deleting 1 TAC §355.8063(u) removes the high volume payments currently being made annually to the DSH qualified private urban hospitals. The future amendment to §355.8065(f)(2)(D) removes the DSH conversion factor language that directs the approximately $26,400,000 to the five public urban hospitals. This removal of the conversion factor will result in $26,400,000 of DSH funds being allocated to the approximately 60 private urban hospitals that were the recipients of the high volume payments being deleted by this amendment. Therefore, these private hospitals will not be impacted in their total Medicaid reimbursement as a result of these rule changes.

The deletion of the high volume payments will result in a loss of approximately $16 million in IGT funds transferred from hospitals to the state general revenue that were used to offset appropriation cuts made by the 77th Legislature. This is the net effect on revenues to all parties of the deletion of the cost containment language in a future amendment to the DSH rule, §355.8065(f)(2)(D), and the deletion of the high volume payment language in §355.8063(u).

Concurrent with this amendment, HHSC is proposing three new rules to govern Medicaid inpatient hospital reimbursement: §355.8052, Inpatient Hospital Reimbursement Methodology; §355.8054, Children's Hospital Reimbursement Methodology; and §355.8056, State-Owned Teaching Hospital Reimbursement Methodology. These new rules will supersede portions of §355.8063 for claims approved for payment for admissions beginning in state fiscal year 2009. The requirements in §355.8063 will continue to apply to claims approved for payment through state fiscal year 2008.

Section-by-Section Summary

The proposed amendment deletes §355.8063(u) to discontinue high-volume payments made annually to eligible hospitals participating in the Medicaid DSH program.

Fiscal Note

Thomas M. Suehs, Deputy Executive Commissioner for Financial Services, has determined that during the first five-year period the proposed amendment is in effect there will be a negative fiscal impact to state government of ($15,972,000) for state fiscal year (SFY) 2009; ($15,692,160) for SFY 2010; ($15,467,760) for SFY 2011; ($15,467,760) for SFY 2012; and ($15,467,760) for SFY 2013, as a result of discontinuing the inpatient hospital high volume payments and the loss of the IGT funds used to offset Section 33. This fiscal impact is the result of a loss of IGT funds to the state general revenue. The proposed amendment will not result in any fiscal implications for local health and human services agencies. Local governments will not incur additional costs.

Small and Micro-business Impact Analysis

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

Public Benefit

Carolyn Pratt, Director of Rate Analysis, has determined that for each year of the first five years the proposed amendment is in effect, the public will benefit from the adoption of the amendment. The anticipated public benefit, as a result of enforcing the amendment in conjunction with the future amendment to 1 TAC §355.8065(f)(2)(D), will be to provide for a simpler payment methodology for all providers.

Regulatory Analysis

HHSC has determined that this proposal is not a "major environmental rule" as defined by §2001.0225 of the Texas Government Code. A "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.

Takings Impact Assessment

Public Comment

Statutory Authority

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

§355.8063.Reimbursement Methodology for Inpatient Hospital Services.

(a) - (t) (No change.)

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

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

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

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

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

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

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

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

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

(v) [~~(w)~~] Reimbursement to freestanding psychiatric facilities. Effective January 1, 2008, HHSC or its designee reimburses freestanding psychiatric facilities under the prospective payment system, a hospital-specific per diem rate. The per diem rate will be determined based upon the Medicare federal base per diem for inpatient psychiatric facilities with facility-based adjustments for wages, rural location, and length of stay as determined by Medicare, to the extent possible within available funds. HHSC or its designee will not cost settle for services provided to recipients admitted as inpatients to freestanding psychiatric facilities reimbursed under the prospective payment system. The freestanding psychiatric inpatient per diem rates are for Medicaid clients under 21 years of age. Per diem rates will be increased only if the Texas Legislature appropriates funds for this specific purpose.

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 May 19, 2008.

TRD-200802599

Steve Aragón

Chief Counsel

Texas Health and Human Services Commission

Earliest possible date of adoption: June 29, 2008

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