ADOPTED RULES An agency may take final action on a section 30 days after a proposal has been published in the Texas Register. The section becomes effective 20 days after the agency files the correct document with the Texas Register, unless a later date is specified or unless a federal statute or regulation requires implementation of the action on shorter notice. If an agency adopts the section without any changes to the proposed text, only the preamble of the notice and statement of legal authority will be published. If an agency adopts the section with changes to the proposed text, the proposal will be republished with the changes. TITLE 4. AGRICULTURE PART I. Texas Department of Agriculture CHAPTER 5.Quarantines General Provisions 4 TAC sec.sec.5.1-5.6 The Texas Department of Agriculture (the department) adopts the repeal of sec.sec.5.1-5.6, concerning general quarantine provisions without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6307). The repeals are adopted in order to allow for the adoption of new sections to clarify existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The department is adopting new sec.sec.19.1-19.8 in a separate submission to replace these sections. No comments were received regarding the adoption of the repeals. The repeals are adopted under the Texas Agriculture Code (the Code), sec.sec.71.001, 71.002, and 71.003, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests; the Code, sec.71.005, which authorizes the collection of inspection fees for movement of plants into or out of a quarantined area; the Code, sec.71.114, which authorizes the collection of inspection fees for phytosanitary certification of vegetable plants; and the Code, sec.12.021, which authorizes the department to collect a fee for the issuance of a phytosanitary certificate. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611608 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 Pecan Weevil, Pecan Nut Casebearer, and Hickory Shuckworm Quarantine 4 TAC sec.sec.5.21-5.26 The Texas Department of Agriculture (the department) adopts the repeal of sec.sec.5.21-5.26, concerning the pecan weevil, pecan nut casebearer, and hickory shuckworm quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6307). The repeals are adopted in order to allow for the adoption of new sections to clarify existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The department is adopting new sec.sec.19.120-19.123 in a separate submission to replace these sections. No comments were received regarding the adoption of the repeals. The repeals are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611609 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 European Corn Borer Quarantine 4 TAC sec.sec.5.41-5.46 The Texas Department of Agriculture (the department) adopts the repeal of sec.sec.5.41-5.46, concerning the european corn borer quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6308). The repeals are adopted in order to allow for the adoption of new sections to clarify existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The department is adopting new sec.sec.19.110-19.113 in a separate submission to replace these sections. No comments were received regarding the adoption of the repeals. The repeals are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611610 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 Pine Shoot Beetle Quarantine 4 TAC sec.5.51 The Texas Department of Agriculture (the department) adopts the repeal of sec.5.51, concerning the pine shoot beetle quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6308). The repeal is adopted in order to allow for the adoption of new sections to clarify existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The department is adopting new sec.sec.19.90-19.91 in a separate submission to replace the section. No comments were received regarding the adoption of the repeal. The repeal is adopted under the Texas Agriculture Code (the Code), sec.sec.71.001, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611611 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 Sweet Potato Weevil Quarantine 4 TAC sec.sec.5.61-5.63, 5.65-5.70, 5.72-5.75 The Texas Department of Agriculture (the department) adopts the repeal of sec.sec.5.61-5.63, 5.65-5.70, and 5.72-5.75, concerning the sweet potato weevil quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6309). The repeals are adopted in order to allow for the adoption of new sections to clarify existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The department is adopting new sec.sec.19.130-19.133 in a separate submission to replace these sections. No comments were received regarding the adoption of the repeals. The repeals are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611612 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 Lethal Yellowing Quarantine 4 TAC sec.sec.5.81-5.87 The Texas Department of Agriculture (the department) adopts the repeal of sec.sec.5.81-5.87, concerning the lethal yellowing quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6310). The repeals are adopted in order to allow for the adoption of new sections to clarify existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The department is adopting new sec.sec.19.60-19.63 in a separate submission to replace these sections. No comments were received regarding the adoption of the repeals. The repeals are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611613 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 Carribean Fruit Fly Quarantine 4 TAC sec.sec.5.121-5.125 The Texas Department of Agriculture (the department) adopts the repeal of sec.sec.5.121-5.125, concerning the caribbean fruit fly quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6310). The repeals are adopted in order to allow for the adoption of new sections to clarify existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The department is adopting new sec.sec.19.40-19.43 in a separate submission to replace these sections. No comments were received regarding the adoption of the repeals. The repeals are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611614 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 Burrowing Nematode Quarantine 4 TAC sec.sec.5.131-5.135 The Texas Department of Agriculture (the department) adopts the repeal of sec.sec.5.131-5.135, concerning the burrowing nematode quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6311). The repeals are adopted in order to allow for the adoption of new sections to clarify existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The department is adopting new sec.sec.19.20-19.23 in a separate submission to replace these sections. No comments were received regarding the adoption of the repeals. The repeals are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611615 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 Camellia Flower Blight Quarantine 4 TAC sec.sec.5.141-5.144 The Texas Department of Agriculture (the department) adopts the repeal of sec.sec.5.141-5.144, concerning the camellia flower blight regulation without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6311). The repeals are adopted in order to allow for the adoption of new sections to clarify existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The department is adopting new sec.sec.19.30-19.33 in a separate submission to replace these sections. No comments were received regarding the adoption of the repeals. The repeals are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provide the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611616 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 Citrus Seed, Citrus Budwood, and Citrus Nursery Stock Quarantine 4 TAC sec.sec.5.151-5.156 The Texas Department of Agriculture (the department) adopts the repeal of sec.sec.5.151-5.156, concerning citrus seed, citrus budwood, and citrus nursery stock quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6312). The repeals are adopted in order to allow for the adoption of new rules which will protect the citrus industry by preventing the artificial spread of dangerous insect pests and plant diseases. The department is adopting new sec.sec.21.1-21.8 to replace these sections. No comments were received regarding the adoption of the repeals. The repeals are adopted under the Texas Agriculture Code, (the Code), sec.12.016, which provides the Texas Department of Agriculture with the authority to adopt rules as necessary for the administration of the Code; sec.71.007, which provides the department with the authority to adopt rules for the protection of agricultural and horticultural interests, the Code, Chapter 71, Subchapter A, which authorizes inspections, quarantines, and control and eradication zones for dangerous insect pests; and the Code, Chapter 73, which provides the department with the authority to regulate citrus pests and establish quarantines. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611617 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 Date Palm Lethal Decline 4 TAC sec.sec.5.191-5.197 The Texas Department of Agriculture (the department) adopts the repeal of sec.sec.5.191-5.197, concerning date palm lethal decline without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6312). The repeals are adopted in order to allow for the adoption of new sections to clarify existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The department is adopting new sec.sec.19.50-19.53 in a separate submission to replace these sections. No comments were received regarding the adoption of the repeals. The repeals are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611618 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 European Brown Garden Snail Quarantine 4 TAC sec.sec.5.300-5.303 The Texas Department of Agriculture (the department) adopts the repeal of sec.sec.5.300-5.303, concerning european brown garden snail quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6313). The repeals are adopted in order to allow for the adoption of new sections to clarify existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The department is adopting new sec.sec.19.70-19.73 in a separate submission to replace these sections. No comments were received regarding the adoption of the repeals. The repeals are adopted under the Texas Agriculture Code (the Code), sec.71.001, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611619 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 Imported Fire Ant Quarantine 4 TAC sec.sec.5.400-5.408 The Texas Department of Agriculture (the department) adopts the repeal of sec.sec.5.400-5.408, concerning the imported fire ant quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6313). The repeals are adopted in order to allow for the adoption of new sections to clarify existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The department is adopting new sec.sec.19.100-19.103 in a separate submission to replace these sections. No comments were received regarding the adoption of the repeals. The repeals are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611620 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 CHAPTER 9.Plant Quality Nursery and Floral Products 4 TAC 9.1 9.2, 9.4-9.6 The Texas Department of Agriculture (the department) adopts the repeal of sec.sec.9.1, 9.2 and 9.4-9.6, concerning nursery and floral products without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6332). The repeals are adopted to allow for the adoption of new sections to clarify existing language in the current regulations and provide additional information to the public regarding procedures to follow in complying with the regulations. The department is adopting new sec.sec.22.1-22.6 to replace these sections. No comments were received regarding the adoption of the repeals. The repeals are adopted under the Texas Agriculture Code, sec.71.042, which provides the Texas Department of Agriculture with the authority to adopt rules as necessary for the immunity and protection of plants from diseases and insect pests; and the Texas Agriculture Code, sec.71.043, which authorizes the department to collect annual nursery and floral registration fees. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611621 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 Rose Grades and Regulations 4 TAC sec.sec.9.10-9.14 The Texas Department of Agriculture (the department) adopts the repeal of sec.sec.9.10-9.14, concerning rose grades and regulations without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6332). The repeals are adopted in order to allow for the adoption of new sections to clarify existing language in the current regulations and provide additional information to the public regarding procedures to follow in complying with the regulations. The department is adopting new sec.sec.23.1-23.6 to replace these sections. No comments were received regarding the adoption of the repeals. The repeals are adopted under the Texas Agriculture Code, sec.121.001, which provides the Texas Department of Agriculture with the authority to adopt rules and prescribe procedures for the inspection, grading, and labeling of all rose plants sold or offered for sale within this state. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611622 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 Miscellaneous Provisions 4 TAC sec.9.40 The Texas Department of Agriculture (the department) adopts the repeal of sec.9.40, concerning expiration provision without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6333). The repeal is adopted in order to allow for the adoption of a new Chapter 9 as part of the department's reorganization of its regulatory program rules. The department is adopting new sec.22.6 and sec.23.6 to replace this section. No comments were received regarding the adoption of the repeal. The repeal is adopted under the Texas Agriculture Code (the Code), sec.71.042, which provides the Texas Department of Agriculture with the authority to adopt rules as necessary for the immunity and protection of plants from diseases and insect pests; and the Code, sec.121.001, which provides the department with the authority necessary to adopt rules and prescribe procedures for the inspection, grading, and labeling of all rose plants sold or offered for sale within this state. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611623 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 CHAPTER 9.Seed Quality The Texas Department of Agriculture (the department) adopts new sec.sec.9.1-9.7, 9.12 and 9.13, concerning administration of the Texas Seed Law, without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6333). The new section is adopted to furnish the seed purchaser with truthful information on the tag or label to give favorable returns on seed investment, to help decide whether the stock is the best obtainable for the money, to increase the net income for farm families by more careful seeding and seed production methods, and to eliminate the selling of inferior seed with large weed seed content. These sections have been relocated from Chapter 19 of this title as part of the department's reorganization of it's regulatory rules. The new sections provide definitions to be used in Chapter 9, licensing and reporting requirements for persons selling, offering, exposing, or otherwise distributing for sale agricultural seed within Texas for planting purposes, testing procedures and fees, labeling provisions, sampling procedures and an expiration provision for Chapter 9. The Texas Seed Trade Association commented generally in favor of the new sections. Definitions 4 TAC sec.9.1 The new sections are adopted under the Texas Agriculture Code, (the Code), sec.61.002, which provides the Department of Agriculture with the authority to adopt rules necessary for the efficient enforcement of Chapter 61; and to establish standards of genetic purity and identity; and the Texas Agriculture Code, (the Code), sec.sec.61.009, and 61.011, which provides the department with the authority to charge fees for testing of seed for purity and germination and for issuance of an agricultural seed inspection permit or Texas tested seed labels; and the Code, sec.61.013, which provides the department with the authority to charge a fee for a vegetable seed license. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611624 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 Classification of Licenses 4 TAC sec.9.2, sec.9.3 The new sections are adopted under the Texas Agriculture Code,sec.61.002, which provides the Texas Department of Agriculture with the authority to adopt rules as necessary for the efficient enforcement of Chapter 61 and to establish standards of genetic purity and identity; the Code, sec.61.011, which provides the department with the authority to charge fees for issuance of an agricultural seed inspection permit and Texas tested seed label; and, the Code, sec.61.013, which provides the department with the authority to charge a fee for a vegetable seed license. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611625 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 Seed Testing 4 TAC sec.9.4, sec.9.5 The new sections are adopted under the Texas Agriculture Code (the Code), sec.61.002, which provides the Texas Department of Agriculture with the authority to adopt rules necessary for the efficient enforcement of Chapter 61 and to establish standards of genetic purity and identity; and the Code, sec.61.009, which provides the department with the authority to charge fees for testing of seed for purity and germination. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611626 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 Labeling Provisions 4 TAC sec.9.6, sec.9.7 The new sections are adopted under the Texas Agriculture Code, sec.61.002, which provides the Texas Department of Agriculture with the authority to adopt rules necessary for the efficient enforcement of Chapter 61 and to establish standards of genetic purity. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611627 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 Sampling Procedures 4 TAC sec.9.12, sec.9.13 The new sections are adopted under the Texas Agriculture Code, sec.61.002, which provides the Texas Department of Agriculture with the authority to adopt rules necessary for the efficient enforcement of Chapter 61 and to establish standards of genetic purity and identity. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611628 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 CHAPTER 19.Seed Division 4 TAC sec.sec.19.1-19.14 The Texas Department of Agriculture (the department) adopts the repeal of sec.sec.19.1-19.14, concerning administration of the Texas Seed Law, the Texas Agriculture Code, Chapter 61, without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6378). The repeals allow the department to relocate the sections elsewhere in Title 4, as part of the department's reorganization of its regulatory rules. The repeals delete sections concerning the Texas Seed Law from Chapter 19. The sections are being relocated in Chapter 9 of this title. The Texas Seed Trade Association commented generally in favor of the repeals. The repeals are adopted under the Texas Agriculture Code, sec.61.002, which provides the Texas Department of Agriculture with the authority to establish rules necessary for the efficient enforcement of Chapter 61. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611629 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 CHAPTER 19.Quarantines SUBCHAPTER A.General Quarantine Provisions 4 TAC sec.sec.19.1-19.8 The Texas Department of Agriculture (the department) adopts new sec.sec.19.1- 19.8, concerning general quarantine provisions without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6378). The new sections are adopted to provide for the clarification of existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The new sections provide information concerning definitions, issuance of inspection certificates, inspection fees, certificate tag or stamp fees, phytosanitary growing season inspection, markings and labeling, violations and penalties, and expiration provision. No comments were received regarding adoption of the new sections. The new sections are adopted under the Texas Agriculture Code (the Code), sec.sec.71.001, 71.002, and 71.003, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests; the Code, sec.71.005, which authorizes the collection of inspection fees for movement of plants into or out of a quarantined area; the Code, sec.71.114, which authorizes the collection of inspection fees for phytosanitary certification of vegetable plants; and the Code, sec.12.021, which authorizes the department to collect an inspection fee for the issuance of a phytosanitary certificate. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611630 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 SUBCHAPTER B.Burrowing Nematode Quarantine 4 TAC sec.sec.19.20-19.23 The Texas Department of Agriculture (the department) adopts new sec.sec.19.20- 19.23, concerning burrowing nematode quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6380). The new sections are adopted to provide for the clarification of existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The new sections provide information concerning quarantined pest, quarantined areas, quarantined articles, and restrictions. A written comment was received from the Texas Association of Nurserymen concerning quarantined areas in sec.19.21. The association was concerned that the rule would limit the department's ability to act in the event areas other than those listed in sec.19.21 were found to be infested with Burrowing Nematode. The department concurs with this concern, however, the provisions of Texas Agriculture Code, Chapter 71, do not allow for such a broad designation of a quarantined area. The new sections are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611631 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 SUBCHAPTER C.Camellia Flower Blight Quarantine 4 TAC sec.sec.19.30-19.33 The Texas Department of Agriculture (the department) adopts new sec.sec.19.30- 19.33, concerning camellia flower blight quarantine with changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6380). Section 19.33 is adopted with changes. Sections 19.30-19.32 are adopted without changes and will not be republished. The new sections are adopted to provide for the clarification of existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. sec.19.33(b) has been changed to remove the word "bare-rooted." The new sections provide information concerning quarantined pest, quarantined areas, quarantined articles, and restrictions. Comments were received by the Texas Association of Nurserymen concerning the word "bare-root" in sec.19.33(b). The association was concerned that the bare- root requirement would greatly limit the ability of nurseries to import camellia plants. The department concurs with this concern and has removed the word "bare- root" from this section. The new sections are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. sec.19.33.Restrictions. (a) General. Quarantined articles originating from quarantined areas are prohibited entry into Texas, except as provided in subsection (b) of this section. (b) Exceptions. Camellia plants with buds showing no trace of color may enter the state of Texas provided a certificate issued by an authorized inspector of the state of origin accompanies each shipment stating that no color is showing in the buds of the plant. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611632 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 SUBCHAPTER D.Caribbean Fruit Fly Quarantine 4 TAC sec.sec.19.40-19.43 The Texas Department of Agriculture (the department) adopts new sec.sec.19.40- 19.43, concerning caribbean fruit fly quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6381). The new sections are adopted to provide for the clarification of existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The new sections provide information concerning quarantined pest, quarantined areas, quarantined articles, and restrictions. No comments were received regarding adoption of the new sections. The new sections are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611633 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 SUBCHAPTER E.Date Palm Lethal Decline Quarantine 4 TAC sec.sec.19.50-19.53 The Texas Department of Agriculture (the department) adopts new sec.sec.19.50- 19.53, concerning date palm lethal decline quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6382). The new sections are adopted to provide for the clarification of existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The new sections provide information concerning quarantined pest, quarantined areas, quarantined articles, and restrictions. No comments were received regarding adoption of the new sections. The new sections are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611634 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 SUBCHAPTER F.Lethal Yellowing Quarantine 4 TAC sec.sec.19.60-19.63 The Texas Department of Agriculture (the department) adopts new sec.sec.19.60- 19.63, concerning lethal yellowing quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6383). The new sections are adopted to provide for the clarification of existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The new sections provide information concerning quarantined pest, quarantined areas, quarantined articles, and restrictions. No comments were received regarding adoption of the new sections. The new sections are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611635 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 SUBCHAPTER G.European Brown Garden Snail Quarantine 4 TAC sec.sec.19.70-19.73 The Texas Department of Agriculture (the department) adopts new sec.sec.19.70- 19.73, concerning european brown garden snail quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6384). The new sections are adopted to provide for the clarification of existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The new sections provide information concerning quarantined pest, quarantined areas, quarantined articles, and restrictions. No comments were received regarding adoption of the new sections. The new sections are adopted under the Texas Agriculture Code (the Code), sec.71.001, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611636 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 SUBCHAPTER H.Gypsy Moth Quarantine 4 TAC sec.19.80, sec.19.81 The Texas Department of Agriculture (the department) adopts new sec.19.80 and sec.19.81, concerning gypsy moth quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6385). The new sections are adopted to provide for the clarification of existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The new sections provide information concerning quarantined pest, and adoption of federal quarantine. No comments were received regarding adoption of the new sections. The new sections are adopted under the Texas Agriculture Code (the Code), sec.71.001, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611637 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 SUBCHAPTER I.Pine Shoot Beetle Quarantine 4 TAC sec.19.90, sec.19.91 The Texas Department of Agriculture (the department) adopts new sec.19.90, and sec.19.91, concerning pine shoot beetle quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6385). The new sections are adopted to provide for the clarification of existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The new sections provide information concerning quarantined pest, and adoption of federal quarantine. No comments were received regarding adoption of the new sections. The new sections are adopted under the Texas Agriculture Code (the Code), sec.71.001, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611638 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 SUBCHAPTER J.Red Imported Fire Ant Quarantine 4 TAC sec.sec.19.100-19.103 The Texas Department of Agriculture (the department) adopts new sec.sec.19.100- 19.103, concerning red imported fire ant quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6386). The new sections are adopted to provide for the clarification of existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The new sections provide information concerning quarantined pest, quarantined areas, quarantined articles, and restrictions. No comments were received regarding adoption of the new sections. The new sections are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611639 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 SUBCHAPTER K.European Corn Borer Quarantine 4 TAC sec.sec.19.110-19.113 The Texas Department of Agriculture (the department) adopts new sec.sec.19.110- 19.113, concerning european corn borer quarantine. Section 19.113 is adopted with changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6387). Sections 19.110-19.112 are adopted without changes and will not be republished. In sec.19.113(c)(1)(B), in regards to the size requirements for mesh, the words "or less" have been replaced with the words "or smaller" to clarify the language of that provision. The new sections are adopted to provide for the clarification of existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The new sections provide information concerning quarantined pest, quarantined areas, quarantined articles, and restrictions. No comments were received regarding adoption of the new sections. The new sections are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. sec.19.113.Restrictions. (a) General. Quarantined articles originating from quarantined areas are prohibited entry into or through the free areas of Texas, except as provided in subsections (b) and (c) of this section. (b) Exemptions. The following quarantined articles are exempt from the restrictions of this subchapter. (1) individual shipments of lots of shelled grain or seed of 100 pounds or less; (2) quarantined articles comprised of packages less than 10 pounds and free from portion of plants or fragments capable of harboring European Corn Borer; and (3) quarantined articles with divisions without stems of the previous year's growth, rooted cuttings, seedling plants or cut flowers shipped during the period between November 30th to May 1st. (c) Exceptions. (1) A quarantined article may be shipped into a free area in Texas if it is accompanied by a certificate issued by an authorized representative of the origin state's department of agriculture certifying that the article has met one of the following conditions: (A) the quarantined article was a product of a state not listed as quarantined in this subchapter, and the quarantined article has been maintained to assure no blending or mixing with other quarantined articles produced in or shipped from quarantined areas described in this subchapter, or (B) the quarantined articles have been screened through a 1/2 inch or smaller mesh screen, or otherwise processed prior to loading and are free from stalks, cobs, stems or such portions of plants or fragments, or (C) the quarantined article has been fumigated in a manner prescribed by the department, or (D) the quarantined article originated from an approved establishment in Texas which has a current compliance agreement with the department. (2) Unfumigated and unscreened grain may be shipped through the free area of Texas if it is destined to a foreign port through a port elevator operating under the authority of the Federal Grain Inspection Service (FGIS), provided a certificate from the state of origin accompanies each shipment stating: (A) grain is for export only; and (B) shipment shall not be diverted to any other Texas point; and (C) a change in destination to other Texas points is not authorized. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611640 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 SUBCHAPTER L.Pecan Weevil Quarantine 4 TAC sec.sec.19.120-19.123 The Texas Department of Agriculture (the department) adopts new sec.sec.19.120- 19.123, concerning pecan weevil quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6388). The new sections are adopted to provide for the clarification of existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The new sections provide information concerning quarantined pest, quarantined areas, quarantined articles, and restrictions. No comments were received regarding adoption of the new sections. The new sections are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611641 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 SUBCHAPTER M.Sweet Potato Weevil Quarantine 4 TAC sec.sec.19.130-19.133 The Texas Department of Agriculture (the department) adopts new sec.sec.19.130- 19.133, concerning sweet potato weevil quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6389). The new sections are adopted to provide for the clarification of existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The new sections provide information concerning quarantined pest, quarantined areas, quarantined articles, and restrictions. No comments were received regarding adoption of the new sections. The new sections are adopted under the Texas Agriculture Code (the Code), sec.71.001 and sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611642 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 SUBCHAPTER N.Karnal Bunt Quarantine 4 TAC sec.sec.19.140-19.143 The Texas Department of Agriculture (the department) adopts new sec.sec.19.140- 19.143, concerning karnal bunt quarantine without changes to the proposed text as published in the July 12, 1996, issue of the Texas Register (21 TexReg 6391). The new sections are adopted to provide for the clarification of existing language in the current regulations, eliminate duplication of quarantine provisions, and provide additional information to the public regarding procedures to follow in complying with the regulations. The new sections provide information concerning quarantined pest, quarantined areas, quarantined articles, and restrictions. No comments were received regarding adoption of the new sections. The new sections are adopted under the Texas Agriculture Code (the Code), sec.71.002, which provides the Texas Department of Agriculture with the authority to establish quarantines against diseases and pests; and the Code, sec.71.007, which authorizes the department to adopt rules necessary for the protection of agricultural and horticultural interests. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611643 Dolores Alvarado Hibbs Deputy General Counsel Texas Department of Agriculture Effective date: September 2, 1996 Proposal publication date: July 12, 1996 For further information, please call: (512) 463-7583 TITLE 16. ECONOMIC REGULATION PART II. Public Utility Commission of Texas CHAPTER 23. Substantive Rules Certification 16 TAC sec.23.32 The Public Utility Commission of Texas adopts an amendment to Substantive Rule sec.23.32, relating to Automatic Dial Announcing Devices (ADADs) with no changes to the proposed text as published in the May 24, 1996, issue of the Texas Register (21 TexReg 4512). The amendment provides for the suspension of a person's permit to operate an ADAD upon receipt of a final order from the Office of the Attorney General or the court finding that the person's permit has been ordered suspended for failure to pay child support. The amendment brings the commission's rules into compliance with the Tex. Fam. Code Ann. Ch. 232 (Vernon Supp. 1996), which provides for the suspension of state-issued licenses for failure to pay child support. A public hearing on the amendment was held at Commission offices on June 4, 1996 at 10:00 a.m. Representatives from John Staurulakis, Inc. attended the hearing, but made no comment on the record. No written comments on the proposal were received by the Commission. This amendment is adopted under PURA sec.1.101, which provides the commission with the authority to make and enforce rules reasonably required in the exercise of its powers and jurisdiction; and specifically, Tex. Fam. Code Ann. Ch. 232 (Vernon Supp. 1996), which provides for the suspension of state-issued licenses for failure to pay child support. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be within the agency's authority to adopt. Issued in Austin, Texas, on August 12, 1996. TRD-9611605 Paula Mueller Secretary of the Commission Public Utility Commission of Texas Effective date: September 2, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 458-0100 TITLE 22. EXAMINING BOARDS PART III. Texas Board of Chiropractic Examiners CHAPTER 73. Licenses and Renewals 22 TAC sec.73.2 The Texas Board of Chiropractic Examiners adopts an amendment to sec.73.2 regarding Renewal of License without changes to the proposed text as published in the June 11, 1996, issue of the Texas Register (21 TexReg 5232) with corrections of error published in the July 5, 1996 Texas Register (21 TexReg 6263). This amendment adds a new subsection (b) which sets out more fully the requirements under the Education Code, sec.57.491 and provides procedures for complying with that statute. Subsection (b) as adopted clarifies the board's duty under the Education Code, sec.57.491 and the conditions which must be met in order to renew licenses of certain licensees who have been found in default by the corporation, establishes procedures for requesting a hearing before the board takes action under the section and for reinstating a license that was denied renewal, and explains the effect of nonrenewal under this rule on the ability to practice chiropractic. No comments were received concerning adoption of this rule. The amendment is adopted under Texas Civil Statutes, Article 4512b, sec.4a, which authorizes the board to adopt rules necessary for performance of its duties and to regulate the practice of chiropractic and the Education Code, sec.57.491 (j) which authorizes the board to adopt rules implementing the state's license nonrenewal policy in connection with the student loan program. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be within the agency's authority to adopt. Issued in Austin, Texas, on August 8, 1996 TRD-9611469 Patte B. Kent Executive Director Texas Board of Chiropractic Examiners Effective date: August 29, 1996 Proposal publication date: June 11, 1996 For further information, please call: (512) 305-6700 CHAPTER 76. Investigations 22 TAC sec.76.3 The Texas Board of Chiropractic Examiners adopts an amendment to sec.76.3 regarding Request for Information and Records from Practitioners without changes to the proposed text as published in the June 11, 1996, issue of the Texas Register (21 TexReg 5233) with corrections of error published in the July 5, 1996 Texas Register (21 TexReg 6263). This amendment to subsection (a) sets out more fully the statutory requirements and conditions that must be met in requesting records under this section. The subsection as adopted sets out the statutory provisions for chiropractors to charge a reasonable fee and to comply with requests within a reasonable time, provides for advance payment under certain circumstances and written notification to the patient stating the reasons for denial of a request. No comments were received concerning adoption of the rule. The amendment is adopted under Texas Civil Statutes, Article 4512b, sec.4a, which authorizes the board to adopt rules necessary for performance of its duties and to regulate the practice of chiropractic and Texas Civil Statutes, Article 4512b, sec.sec.1b(j), 1b(k), which authorizes release of patient records under certain requirements and conditions. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be within the agency's authority to adopt. Issued in Austin, Texas, on August 8, 1996 TRD-9611473 Patte B. Kent Executive Director Texas Board of Chiropractic Examiners Effective date: August 29, 1996 Proposal publication date: June 11, 1996 For further information, please call: (512) 305-6700 TITLE 25. HEALTH SERVICES PART I. Texas Department of Health CHAPTER 119. Health Maintenance Organizations The Texas Department of Health (department) adopts the repeal of sec.sec.119.1- 119.15 and adopts new sec.sec.119.1-119.4, 119.21-119.25, 119.51-119.56, and 119.71 concerning health maintenance organizations (HMOs). New sec.sec.119.1- 119.4, 119.21-119.25, and 119.51-119.56 are adopted with changes to the proposed text as published in the March 12, 1996, issue of the Texas Register (21 TexReg 1980-1995 and 2104-2105). Section 119.71 is adopted without changes. Proposed sec.sec.119.26, 119.27 and 119.91 are withdrawn from consideration and are not being adopted. All sections are being printed due to a publication error in the Texas Register. The entire proposed text was printed in the March 12, 1996, edition of the Texas Register; however, there was no separation in the text between the definition of "evidence of coverage" and "general hospital," between sec.119.22 and sec.119.23, between sec.119.23 and sec.119.24, and between sec.119.54 and sec.119.55. The publication error resulted in some confusion among commenters in referencing the correct rule number. Specifically, the new sections cover definitions; application, assessments and fees; examinations; reporting complaints; organization of a health maintenance organization and service area; quality improvement; quality improvement program; quality improvement committee; utilization review; ambulatory health care services; emergency care; inpatient hospital and medical service; diagnostic and therapeutic services; optional services; single health care service; and enforcement. These rules will become effective on October 1, 1996. The department and the Texas Department of Insurance work together in regulating HMOs under authority of the Texas Insurance Code, Chapter 20A (HMO Act). The Governor directed the commissioners of health and insurance to promulgate rules which (1) require disclosure of information concerning plan terms and conditions to allow enrollees and employers to make informed decisions when selecting among managed care plans; (2) allow evaluation of managed care plans to ensure consumers are receiving quality care at an affordable price; (3) where possible, expand health maintenance organization patient choice to allow for continuity of treatment should a patient's treating physician be terminated; (4) implement reasonable due process procedures to ensure providers are given reasons if they are turned down or terminated from a managed care plan; and (5) prohibit retaliatory actions by health maintenance organizations against patients for filing complaints or appealing decisions. These new rules are in response to the Governor's directive in the areas of quality, availability and accessibility of care and are compatible with rules adopted by the Texas Department of Insurance effective January 1, 1996, and April 1, 1996. The repeal of sec.sec.119.1-119.15 allows for the adoption of the new sections. The new sections clarify the department's examination procedures of HMOs both prior to and subsequent to the Texas Department of Insurance issuance of a certificate of authority; clarify the authority of the department to examine the quality of health care services offered by an HMO; explain the types of examinations that are conducted by the department, including the protocol by which the examinations are conducted; standardize an internal complaint procedure; add new language to guide consumers, physicians, dentists and other providers and HMOs in filing complaints against HMOs; clarify that throughout the sections providers include dentists, physical therapists, and others; contain a requirement for quality improvement functions to be accomplished by committees composed of physicians, dentists and other providers from throughout the service area; expand provisions requiring availability, accessibility, and continuity of health care services, including expanded emergency care provisions; expand provisions requiring each HMO to have a quality improvement plan; clarify provisions regarding the department's role in enforcement actions against HMOs; and contain an application fee increase for new HMOs. The new language addresses concerns expressed by consumers related to the quality of health care services furnished by HMOs to its enrollees and will more fully implement the regulatory authority over HMOs assigned to the department in the HMO Act. Changes to the proposed text were made as a result of comments received and for clarification purposes. These changes and the relevant issues regarding the rules are described in the following comments the department received concerning the proposed sections. Comment: Concerning the rules in general, one commenter stated the importance of the rules not be in conflict with those promulgated by the Commissioner of Insurance. Response: The department recognizes its responsibility to assure the rules are nonconflicting and compatible with the rules of the Texas Department of Insurance (TDI). The department and TDI staff communicate on a day-to-day basis to accomplish program functions and activities. Staff meet formally each month to share information and to assure consistency with rules relating to health maintenance organizations. Comment: Concerning the rules in general, one commenter recommended the rules be expanded to provide that any HMO-related information maintained by the department is an open record unless the department determines the information to be proprietary. Response: The department disagrees with the commenter that language is needed to address open records. All documents held or maintained by the department are subject to the Public Information Act, Government Code, Chapter 552. That law governs whether documents held by any agency including the department are open or confidential. It is unnecessary to address the subject in these rules. Comment: Concerning the rules in general, one commenter recommended the state insure the physician-dentist-provider selection does not discriminate against optometrists, podiatrists or any other non-physician health care provider based on prejudice and that all providers have the same basic protections including due process and an appeals process in the event of denial or removal from a managed care program. Response: The department's statutory authority under the HMO Act is limited to assessing availability, accessibility and quality of care issues. Admissions and terminations of physicians, dentists and other health care providers are addressed in rules promulgated by the Texas Department of Insurance at 28 TAC sec.11.1601. Comment: Concerning the rules in general, one commenter urged the department to recognize the value of a program of external review of the quality of care provided by a managed-care organization as such precedents have been established in public sector managed care programs. The commenter believes the consumer protections offered by external quality review which are currently offered in federal and state government sponsored managed care plans should also be offered to enrollees in private, commercial managed care plans. The commenter requested the department add a definition for "external quality review organization" and add references to external quality review organizations in sec.sec.119.2-119.4, 119.21, 119.23-119.25 and 119.27. Response: The department agrees with the concept of external quality review organizations and the HMO Act, Article 20A.28 provides the authority to contract. However, the statute does not provide the department the authority to require an HMO to contract with an external quality review organization or to approve external quality review organizations. The department has made no change to the final rules to recognize external quality review organizations. Comment: Concerning the rules in general, numerous commenters strongly recommended the rules should be applicable to and govern all integrated health delivery systems operating as an HMO or offering the same services as an HMO such as approved nonprofit health corporations (ANHC). Two commenters recommended the department clarify that the rules apply to all HMOs in Texas, both currently licensed and those to be licensed. Response: The department agrees that approved ANHCs are required to comply with the department's rules pursuant to the Texas Insurance Code, Article 21.52F, sec.6 which states an ANHC is subject to regulation and regulatory enforcement under certain laws in the same manner as an HMO. However, the department believes there is no need to duplicate the rules promulgated by the Texas Department of Insurance at 28 TAC sec.11.1702 (relating to Requirements for Issuance of Certificate of Authority to ANHC). In addition, the term "physician" as defined in the HMO Act, Article 20A.02(m) includes an ANHC. The department's authority over other types of integrated health delivery systems is subject to specific statutory language and cannot be addressed in these HMO rules. Comment: Concerning the rules in general, one commenter urged the department to be vigilant in ensuring that Medicare beneficiaries who enroll in Medicare risk plans receive the appropriate home health and other health care services to which they are entitled, and that the quality of care they receive is not compromised. Response: The department rules address the quality, availability, and accessibility of care for all enrollees regardless of the payor source. In accessing the quality, availability, and accessibility of care, the evidence of coverage and benefits are reviewed to determine whether services are limited in frequency and number. It is not within the department's statutory authority to expect more than the contractual arrangements provide unless expressly required by the department's or TDI's rules. Comment: Concerning the rules in general, many commenters testified concerning the importance of rules that address services for the disabled and those with chronic conditions. Others stated the term "health" should be expanded from the absence of disease and impairment to include the on-going management of chronic conditions. One of the commenters stated managed care must provide specific services that not only treat acute and chronic conditions, but also promote and maintain health and optimum functioning and prevent deterioration and secondary complications which include diagnostic services; long and short-term home and community-based services; prescription drugs; consumer-driven mental health counseling and substance abuse services; physical, occupational and speech therapy and personal assistance services, respite care and independent living supports; a choice of providers with a recognition that the primary care physicians for individuals with disabilities and chronic health conditions frequently are specialists. The commenter further stated people with disabilities and their families must be ensured equitable participation in a health care system and not be burdened with disproportionate cost; individuals must be served on the basis of functional need, not medical diagnosis; individuals should be allowed to select the services and supports required for them to function; primary and acute care and personal assistance services should be provided to people with disabilities of all income levels on a sliding scale co-pay basis taking into account non-traditional costly expenses; the system must not save money at the cost of unmet health care required by the consumer; and a "quality of life" cost benefit analysis must never be used as a justification for limiting coverage. Another commenter expressed concern with respect to the referral practices of HMOs in special cases such as post-polio syndrome. The commenter's concern is that there are few doctors in the community who know about the disease, and due to lack of referrals to rehabilitation clinics the disabled patients are often misdiagnosed. The commenter also expressed concern with respect to equipment vendor restrictions by HMOs and the sometimes lengthy approval process for treatment. Response: The department believes the rules in sec.sec.119.22-119.24 relating to programs and functions, and in sec.119.3 which provides for a standardized complaint system address a number of the commenters' concerns. The department does not have the authority under the HMO Act to require an HMO to provide services beyond those required by statute or the rules promulgated by TDI or the department, or to regulate charges. Benefits are negotiated between the HMO and employers and written into the employer's health care plan. Comment: Concerning the rules in general, one commenter recommended the terminology "valid complaint" used by the department be changed to include and accurately reflect complaints which were violations of HMO rules at the time they were filed. Response: The department agrees with the commenter; however, the subject is not addressed in these rules. The terms used by the department to categorize results of its complaint investigations do not adequately describe the examination results. The department is currently reviewing alternate terminology to categorize 1996 complaint investigations. Comment: Concerning the rules in general, numerous commenters urged the department to develop an HMO data committee composed of providers, consumers, employers, and data experts to determine which data measures not already reported via the Health Employer Data Information Set (HEDIS) to the Texas Health Care Information Council (THCIC) shall be collected (e.g. acute or chronic care measures relevant to care for enrollees with special health needs, complaint statistics, enrollment and disenrollment statistics, provider numbers and turnover, etc.), available to the public, and passed on to the TDI for inclusion in the annual HMO survey report to the public. Response: Legislation passed during the past legislative session and codified under Health and Safety Code, Chapter 108 established the Texas Health Care Information Council (THCIC). The THCIC duties are to develop a statewide health care data collection system to collect health care charges, utilization data, provider quality data, and outcome data to facilitate the promotion and accessibility of cost-effective, good quality health care. The THCIC is expected to promulgate rules later this year requiring HMOs to submit data. Therefore, the department has deleted from the final rules the requirement for HMOs to submit any data to the department under these rules, and other sections relating to data in sec.sec.119.2(b)(1), 119.3(a), 119.3(b)(4)(B)(i), 119.23(9) and 119.24(2)(B). However, there are sections that address data: sec.119.21(l) requires the HMO to develop and maintain a statistical reporting system which allows for compiling, developing, evaluating, and reporting statistics relating to the cost of operation, the pattern of utilization of services, and the availability and accessibility of services; sec.119.23 addresses the dedication of resources such as personnel analytic capabilities, and data resources to the quality improvement (QI) program; sec.119.23(7) requires the HMO to track QI by using measurements, QI data collection and analysis; sec.119.23(8) requires the HMO to establish methods and frequency of data collection; sec.119.24(2)(B) requires the QI committee to analyze enrollees' responses to the enrollee satisfaction surveys; and sec.119.24(2)(H)(i) requires a written report on quality. The department plans to forward all comments we received concerning data collection to the THCIC for their information. Comment: Concerning the rules in general, one commenter stated many individuals require auxiliary aids or services to access services provided by HMOs and that such accommodations are mandated by the Americans with Disabilities (ADA) Act. Another commenter stated the ADA requires that health care providers provide communication access to their services but many health care providers refuse when they learn they will be required to pay for the service. The commenter urged the department to develop regulations that require doctors to provide effective communication, including interpreters, for patients who are deaf or hard of hearing. The commenter suggested a way of addressing the issue would be to allow doctors to bill insurance carriers for the cost of providing interpreters. Response: The department has addressed, to the extent possible, special needs and communication issues in sec.119.23 (4) and sec.119.24(2)(C)(ii). These rules require HMOs to identify the needs to assure care and services are available and accessible and to identify and remove communication barriers which may impede enrollees from effectively making complaints against the HMO. The department does not have the authority under the HMO Act to require an HMO to provide services beyond those required by the statute or the rules promulgated by the TDI or the department. An HMO and providers are required to comply with applicable provisions of the ADA. Comment: Concerning the rules in general, one commenter recommended the department add a new sec.119.55 relating to complaint systems (and renumber remaining sections) to acknowledge the primary nature of a complaint system to the HMO function. Response: The department agrees with the commenter that the complaint system is of prime importance; however, the department has chosen instead to address the standardized complaint and appeals process in the existing sec.119.3 at new subsection (d). Comment: Concerning sec.119.1 in general, a commenter suggested consistency between the proposed definitions and the definitions set forth in the Texas Insurance Code. Another commenter requested definitions be consistent with those used in TDI rules. Response: The department believes all the definitions in these final rules are consistent with the definitions in the HMO Act, the law relating to health care utilization review (UR) agents, and the rules promulgated by the TDI. Comment: Concerning sec.119.1, one commenter recommended the department add a definition for "adverse determination." Response: The department agrees with the commenter and has added the suggested definition as the term is used in the rules in the definition of "complaint" and in sec.119.3(d). Comment: Concerning sec.119.1, two commenters recommended the addition of a definition for "approved nonprofit health corporation" (ANHC). Response: The department agrees that ANHCs are required to comply with the department's rules pursuant to the Texas Insurance Code, Article 21.52F. The department believes there is no need to duplicate the rules promulgated by the Texas Department of Insurance at 28 TAC sec.11.1702 (relating to Requirements for Issuance of Certificate of Authority to ANHC). In addition, the term "physician" as defined in the HMO Act, Article 20A.02(m) includes an ANHC. Comment: Concerning sec.119.1, a commenter suggested "basic health care services" be defined to include specialty services. The commenter also urged the department to specify elements of basic health care services to include the opportunity for one genetic referral per lifetime and per pregnancy, evaluation of family members, genetic laboratory testing and long-term management of patient with rare diagnosed genetic conditions by appropriate specialists. Another commenter suggested substituting "health care services" for "medical services" in the definition of "basic health care services." Response: The department uses the definition of "basic health care services" provided in the HMO Act to ensure consistency with the Act. Comment: Concerning sec.119.1, several commenters recommended the addition of a definition for "complainant." One commenter suggested the definition be expanded to include "employer" to allow complaints to be filed when there is concern over access and quality of care provided to a population rather than just a specific incident. Response: The department agrees with the first commenter and has added a definition for "complainant." The department believes the broad definition is sufficient and allows any individual, which would include an employer, designated by the enrollee to act on his or her behalf, to file a complaint with the HMO. The definition does not address complaints by an employer relating to the employer's dissatisfaction with the HMO. Such concerns can be addressed as a contractual matter by the HMO and employer. Comment: Concerning sec.119.1, numerous commenters recommended the addition of a definition for "complaint." Response: The department agrees and has added a definition of "complaint." The definition not only defines the word but clarifies what does not constitute a complaint. Comment: Concerning sec.119.1, one commenter requested the addition of a definition for "dentist." Response: The department included the definition in the proposed rules and has carried the same definition forward into the final rules with a correction of the spelling of "dentistry." Comment: Concerning sec.119.1, one commenter requested the addition of and provided a definition of "dental care." Response: The department does not use the terminology "dental care" in the rules. "Dental care" is included in the definition of "health care services," a term which is used throughout the rules. Comment: Concerning 119.1, several commenters expressed concern the words "sudden onset" within the definition of "emergency care" would result in HMOs not considering the worsening of a chronic condition an emergency. One commenter recommended the definition be amended to track the federal definition to include pregnant women having contractions where there is inadequate time to effect a safe transfer to another hospital or the transfer may pose a threat to the health or safety of the woman or the unborn child. One commenter requested the word "dental" be inserted before the words "condition" and "attention" in the definition. Another commenter urged the revision of the definition to reflect that emergency situations are those determined by a prudent lay person. One commenter stated the rules should clarify the definition of an "emergency medical condition." The commenter supports the concept of a bona fide emergency which the commenter said is any acute injury or symptom which could reasonably be expected to result in impairment in bodily function or death and is a patient-defined expectation based on the acuity or severity of the problem at the time of the event. Response: The department uses the definition of "emergency care" as provided in the HMO Act, and the definition used in rules promulgated by the TDI at 28 TAC sec.11.2 (b)(11), to ensure consistency with the Act and rules. The department agrees with the first comment and has added the phrase "including the worsening of a chronic condition" within the definition for clarification purposes. Comment: Concerning sec.119.1, one commenter suggested the addition of a definition for "external quality review organization." Response: The department does not use the terminology "external quality review organization" in the rules, therefore, there is no reason to define the term. Comment: Concerning sec.119.1, several commenters suggested the department add a definition for "grievance." The commenters stated the terms "complaint" and "grievance" are used interchangeably throughout the rules, therefore, to ensure the department's investigations focus appropriately on systemic "quality, availability, and accessibility" issues, the commenters recommended the department use the National Association of Insurance Commissioners' proposed definition of grievance. Response: The department has not used the term "grievance" in these final rules; therefore, there is no need to define the term. The department believes the internal complaint procedure at sec.119.3(d) sufficiently addresses the commenters' concerns. Comment: Concerning sec.119.1, one commenter requested the definition of "health care" be amended to include dental care. Another commenter questioned the clarity of the definition. Response: The department uses the definition of "health care" as provided in the HMO Act to ensure consistency with the Act. Comment: Concerning sec.119.1, one commenter recommended the definition of "health care services" be modified by adding "including procedures for resolving complaints" to the end of the definition because complaint resolution is a primary matter and not a secondary matter. Response: The department uses the definition of "health care services" as provided in the HMO Act to ensure consistency with the Act. Comment: Concerning sec.119.1, one commenter recommended the definition of "health maintenance organization" be amended to include approved nonprofit health corporations certified under Section 5.01(a), Medical Practice Act (Article 44956b, Vernon's Texas Civil Statutes). Response: The department uses the definition of "health maintenance organization" as provided in the HMO Act to ensure consistency with the Act. Comment: Concerning sec.119.1, one commenter recommended the broader terms "inpatient services" or "inpatient health care" be used rather than "inpatient medical care" because many health care services in hospitals and skilled nursing homes are provided by health care professionals other than physicians. Response: The department does not use the terminology "inpatient medical care" in the rules; therefore, the definition has been deleted from sec.119.1. Comment: Concerning sec.119.1, several commenters requested the department add a definition for "Medicaid fair hearing process." Response: The department has not used the terminology "Medicaid fair hearing process" in the rules; therefore, there is no need for a definition. Comment: Concerning sec.119.1, one commenter requested the department add a definition for "medical care" because the definition of "health care" excludes medical care. Response: The department agrees and has added the definition of "medical care" as provided in the HMO Act since the term is used in the definition of "health care." Comment: Concerning sec.119.1, one commenter requested the department add a definition for "medically necessary services." The commenter stated the definition is clearly needed in view of testimony concerning wrongful denials of coverage by HMOs. Response: The department does not use the particular terminology "medically necessary services" in the rules; therefore, there is no need for a definition. Comment: Concerning sec.119.1, one commenter questioned within the definition of "outpatient services" if there should not be a distinction made between inpatient care in an acute care hospital and a skilled nursing facility. Response: The department does not use the terminology "outpatient services" in the rules; therefore, the definition has been deleted from sec.119.1. Comment: Concerning sec.119.1, one commenter recommended a change in the definition of "physician" to make it consistent with other sections of law and regulation. Response: The department uses the definition of "physician" as provided in the HMO Act to ensure consistency with the Act, and has made no change to the definition as it appeared in the proposed rules. Comment: Concerning sec.119.1, two commenters suggested the department add a definition for "prospective enrollee" since the term is the subject of varying interpretation and for consistency purposes. Response: The department agrees the term "prospective enrollee" as used in the rules at sec.119.3(c)(3)(K) should be defined. The new definition is the same as the TDI definition at 28 TAC sec.11.2(21). Comment: Concerning sec.119.1, one commenter requested the definition of "provider" be modified to include physician assistants. Another commenter requested the definition be amended to include dentists. Response: The department uses the definition of "provider" as provided in the HMO Act to ensure consistency with the Act, and has made no change to the definition as it appeared in the proposed rules. Comment: Concerning sec.119.1, one commenter recommended the definition of "quality improvement" be modified by adding "including procedures for resolving complaints" to the end of the definition because complaint resolution is a primary matter and not a secondary matter. Response: The department disagrees. The definition adequately allows an HMO to examine the systems and processes the HMO has in place. If there is something not working within the system, it will be reflected in the ongoing QI and in the complaints received. Comment: Concerning sec.119.1, one commenter suggested the department add a definition for "reasonable medical evidence." Response: The department has deleted from the rules the entire proposed sec.119.26 relating to utilization review protocol, where the terminology was used, in order to avoid conflict with Texas Insurance Code, Article 21.58A (relating to Health Care Utilization Review Agents) and with the TDI rules at 28 TAC sec.19.1719 (a). Comment: Concerning sec.119.1, one commenter recommended the inclusion of "dentist" in the definition of "referral specialists." Response: The department disagrees the amendment is necessary. The specialists and subspecialists that could be mentioned are too numerous to include in the definition. Comment: Concerning sec.119.1, one commenter recommended the definition of "service area" be clarified to ensure it is the area designated by the HMO. Response: The department uses the definition of "service area" as provided in rules promulgated by the Texas Department of Insurance at 28 TAC sec.11.2(27) to ensure consistency; no change has been made to the definition as it appeared in the proposed rules. Comment: Concerning sec.119.1, one commenter questioned whether the definition of "single health care service" is sufficient to indicate that mental health and chemical dependency treatment are considered a single health care service. Response: The department uses the definition of "single health care service" as provided in the HMO Act to ensure consistency with the Act and has made no change to the definition as it appeared in the proposed rules. Also, in its preamble to the amended rules at 28 TAC Chapter 11 which became effective January 1, 1996, TDI agreed with commenters the definition requires clarification and indicated TDI intends to study the definition and propose additional rules in the future. Comment: Concerning sec.119.1, several commenters proposed definitions for "urgent care." Response: The department has deleted all references to "urgent care" that appeared in the proposed rules in sec.sec.119.24(2)(A)(i), 119.51(a)(1)(A) and 119.54(a)(1) because the term is subjective, is not used within TDI rules, and is not commonly used in the context of these rules. Comment: Concerning sec.119.1, several commenters recommended clarification of and changes to the definition of "utilization review." One of the commenters stated the definition in the proposed rules is internally contradictory and urged the department to use the term as defined by the National Committee for Quality Assurance. Other commenters pointed out the definition is not consistent with the definition under Texas Insurance Code, Art. 21.58A which exempts elective requests for clarification of coverage from the definition of utilization review. The commenter stated the exemption is important because it significantly lessens the administrative burden when doctors call to determine if elective requests are covered. Response: The department agrees with the majority of the comments and has revised the definition to follow the definition from Texas Insurance Code, Art. 21.58A (relating to Health Care Utilization Review Agents). The department cannot use the definition of the National Committee for Quality Assurance because there is already a statutory definition. Comment: Concerning sec.119.2, one commenter requested language be added to allow the department to contract with the TDI to perform functions relating to review of applications for certificate of authority and related documents. Response: The department agrees and has added the requested language as new subsection (a); the remaining subsections have been renumbered accordingly. Comment: Concerning sec.119.3 in general, one commenter noted there was reference to surveyors but no mention of who they are, their qualifications, their experience, or their expertise. Another commenter stated the rules do not consistently include dentists in the various subsections and recommended the insertion of dentists in several specific subparagraphs and clauses within the text. One commenter urged the department to conduct random sampling on an annual basis of at least 50 medical records and look each year at a particular protocol that relates to chronic conditions to see how the HMO is handling it, to check whether the HMO has developed and is following its own protocols and practice guidelines. The commenter further recommended the department develop and implement a process for meeting with consumers and community groups as part of a monitoring visit. One commenter requested language be added to allow the department to contract with the TDI to perform functions relating to examinations. Response: The department disagrees there is reason to add surveyor qualifications to these rules. There are systems in place within the department's human resources policies relating to applicants' education, job experience and work history to ensure surveyors meet the surveyor job specifications. References to dentists were added to sec.119.3(c)(2)(F) and (G) and sec.119.3(c)(3)(C), (F) and (G). Part of the survey protocol can include a random review of records in order to detect trends, patterns, and outcomes. Meetings with consumers and community groups could well occur through the interview process with the enrollees, family members, employers, providers and employees of the HMO. The department agrees with the last comment and has added language to the rule to allow the department to contract with TDI for examinations. Comment: Concerning sec.119.3(a), one commenter recommended substituting the Texas Health Care Information Council for the entity that receives the statistical data. Another commenter recommended the word "shall" be changed to "may" in the first sentence of the rule. Response: The department agrees with the first commenter. Data collection has been deleted from sec.119.23; therefore, the reference in sec.119.3(a) has also been deleted. The THCIC has been charged with the responsibility of data collection and intends to have rules drafted later this year. The department disagrees with the second commenter. Quality of care examinations by the department are authorized by the HMO Act, Article 20A.17, and the department believes it is reasonable and necessary to conduct the examinations for the purpose of ensuring quality, availability and accessibility of care for consumers. Comment: Concerning sec.119.3(a)(1) and (2), two commenters suggested deleting "providers such as dentists and physical therapists" in these paragraphs and all other places throughout the rules and inserting "other providers" or "other licensed health care providers" because dentists and physical therapists clearly fall within the definition of "provider." Another commenter recommended the rules specify those to whom the rule is inapplicable or what the criteria is for determining which providers are subject to the requirement. Response: The department responds the phrase "providers such as dentists and physical therapists" is provided only as an example of the types of providers and is not intended to replace the defined term "provider. Dentists and physical therapists clearly fall within the definition of "provider". Wherever the language is used, the rule applies to all physicians and providers as defined in the rules. Comment: Concerning sec.119.3(a)(1), two commenters recommended the exclusion of the language "may administer oaths" which makes the examination appear to be more of a legal proceeding which impedes the transfer of information. If this is not done, one of the commenters suggested the rule allow an HMO to have an attorney present. Response: The department agrees with the commenter and has removed the language. The authority to administer oaths is in the HMO Act, Article 20A.17(c)(3). There is nothing in the rules that prevents an attorney being present during an HMO examination. Comment: Concerning sec.119.3(a)(2), a commenter stated that the HMO, not the physicians, should be required to provide documentation required in an investigation. The commenter further recommended language addressing the confidentiality of physician, provider and patient records. Response: The department believes it is reasonable to include in these rules the types of information the department will review during an examination and statutory authority for the rule exists in the HMO Act, Article 20A.17(c)(1) and (2). The rule at sec.119.3(c)(3)(F) and the HMO Act, Article 20A.25 address confidentiality of medical and health information. Comment: Concerning sec.119.3(a)(3), two commenters suggested the exclusion of the language "to appear or testify or" which makes the examination appear to be more of a legal proceeding. If this is not done, one of the commenters suggested the rule allow an HMO to have an attorney present. Response: The department agrees and has deleted the paragraph. The requirement is already found in the Texas Insurance Code, Article 1.12. There is nothing in the rules that prevents an attorney being present during a HMO examination. Comment: Concerning sec.119.3(a)(4), one commenter recommended the department make annual examinations of HMOs, and for those HMOs that do well, provide an incentive for the examination schedule to be performed once every three years. Response: The department believes the recommendation is a good suggestion but due to the growth of the industry and focus on consumer complaints, it may not be logistically possible to perform annual examinations, be responsive to complaints, conduct initial exams and perform reviews of service area expansions. Therefore, the department has made no change. Comment: Concerning sec.119.3(b)(1), one commenter recommended the words "shall" be changed to "may" in the rule. Response: The department disagrees with the commenter. The department's examination of an HMO prior to the issuance of a certificate of authority is reasonable and necessary to ensure the systems and processes to provide quality, availability and accessibility of care to the HMO's enrollees are in place. Comment: Concerning sec.119.3(b)(3), one commenter recommended the words "shall" be changed to "may" in the rule. Response: The department disagrees with the commenter. The department believes conducting complaint examinations is reasonable and necessary to ensure an HMO is following its internal complaint procedure and is providing quality, available and accessible care to the HMO's enrollees. Comment: Concerning sec.119.3(b)(3)(A), one commenter recommended changing the word "may" to "should." Response: The department disagrees with the commenter. The department believes "may" is the appropriate consumer friendly language for the rule. An enrollee may or may not choose to file a complaint. If the enrollee chooses to file a complaint, the rule directs the enrollee to the rule which provides the address and toll free telephone number for the TDI. Comment: Concerning sec.119.3(b)(3)(C), a commenter suggests there be no HMO examinations without prior notice. Several commenters recommended changing the word "shall" to "may" to allow the department to notify the entity in certain instances which will facilitate a thorough and efficient evaluation process. Response: The department disagrees there should be no examinations without notice. The department has changed the word "shall" to "may" to allow for instances where the department may want to notify the HMO in advance of the examination. Comment: Concerning sec.119.3(c)(1), one commenter recommended the department provide HMOs with copies of surveys, schedules and timetables, scope of the examination and all documentation to be used prior to the entrance conference so the HMO would be better prepared and the examination process more cost effective for the State. Response: The department routinely notifies an HMO of examinations other than complaint examinations. The purpose of the subsection is to let HMOs know the extent of an examination and the protocol. Schedules and timetables may change depending upon what is observed. Comment: Concerning sec.119.3(c)(2) in general, one commenter requested the department delete language that would limit the persons whom a surveyor could interview during an examination. Another commenter requested dentists be added to the rule. Response: The department agrees with the first commenter and has added and deleted language to be consistent with the new definitions of "complaint" and "complainant." The department agrees with the second commenter and has added dentists to the rule. Comment: Concerning sec.119.3(c)(3) in general, one commenter recommended the word "shall" be substituted for "may" concerning the department's review of documents relating to the operation of the HMO. One commenter stated the collection of data during examinations may duplicate efforts HMOs have already undertaken to comply with House Bill 1048 and recommended the department review and analyze this information before imposing additional data collection requirements. One commenter recommended that proprietary business information be deleted, that surveyors and the department must keep the information confidential, or that the language at 28 TAC sec.11.205 should be used which provides that documents evidencing "a decision by any professional association or other medical group to contract with the applicant" must be available. Another commenter requested language be added to say that TDH surveyors may review any report submitted by the HMO to the THCIC. Response: The department disagrees with the first commenter. A surveyor may not need to review all the documents listed. The department also agrees with the comment concerning data and has deleted sec.119.3(c)(3)(E)(i)-(iv). The requirement at sec.119.3(c)(3)(L) is tracking statutory language in the HMO Act, Article 20A.05(a)(2)(C) (relating to Issuance of Certificate of Authority) to capture what the HMO is already having to do for QI. In regard to the third comment, the department responds that TDH is responsible for verifying that contractual arrangements meet the rules on quality, availability and accessibility of care. Information will be kept confidential if required by law; however, under the HMO Act, Article 20A.17(c)(1) the department is entitled to review all books and records of the HMO and certain records of physicians and providers. The department agrees with the last comment. There is nothing to prevent the department from receiving all reports HMOs file with the THCIC and using the reports to analyze the quality of care being provided by HMOs throughout the state. The department has added the requested language in new sec.119.3(c)(3)(N). Comment: Concerning sec.119.3(c)(3)(C) in general, numerous commenters recommended a standardized internal HMO complaint procedure which should be the same for Medicaid-covered individuals so Medicaid-covered individuals will retain their right to access a fair hearings process; the word complaint be used for all grievances, complaints, and oral or written expressions of dissatisfaction and appeal of an adverse determination with an HMO; investigation and resolution by an HMO of all oral and written complaints within 30 days; a requirement that all providers and HMO offices post a notice as to how enrollees can file a complaint and that the notice be given to employers who have coverage with the HMO; a requirement that the HMO complaint number appear on the health coverage card; expedited review of complaints for urgent care and denials of continued stays for hospitalization within 72 hours; written notification, at sixth grade reading level and in accessible formats, from the HMO when a denial, limitation or termination of a service takes place explaining the procedures for filing a complaint both with the HMO and with TDI; and an appeals process that provides for an appeal panel which includes a physician or health care provider with expertise in the service area being appealed and fifty percent enrollees. Several of the commenters recommended the rule reference only the forms which the examiner will review; the elaboration of the consumer's rights in the HMO's internal grievance process should be moved to proposed sec.119.4. Several commenters proposed that physicians, providers, and any other individual designated by the enrollee be able to file a complaint or appeal on the enrollee's behalf and be protected from retaliation. The commenters recommended HMOs be required to compile and report annually complaint and appeal statistics to the department, shared with TDI and available to the public. One commenter stated the critical importance that the rules be well coordinated with the Medicaid program so that monitoring, investigation of complaints and enforcement are consistent whether the patient's coverage is paid with public or private dollars. One commenter recommended an HMO's grievance policy and procedures be approved by the Texas Medicaid Office and the TDI prior to implementation; that the internal plan grievance process and the Medicaid state appeals process set forth at 40 TAC Chapter 79 be posted and communicated to enrollees orally and in writing at the time of initial enrollment, each time a service is denied or at recertification; that the policy name specific individuals in the HMO with authority to administer the policy; that the policy require an adequately staffed consumer relations office; that the policy require that the complaint log distinguish Medicaid recipients; that the policy require emergency complaints be resolved within 24 hours; that the policy state a member has a right to a second opinion, if medically necessary; the policy require the right to be advised by a lay advocate or attorney; the policy require the right to enroll in another HMO if the member is not satisfied at the end of the internal grievance or state fair hearing process; and the policy require the circumstances under which health services must be continued pending resolution of the internal grievance or appeal. Several commenters expressed concern over the inclusion of verbal complaint; others recommended defining grievance and requiring HMOs to report grievances but not complaints to the department. One of the commenters stated the rule might be interpreted as a requirement that an HMO has to send a written letter of acknowledgment for each and every verbal inquiry. Several commenters recommended that complaint and grievance be defined as to what constitutes a grievance or complaint or the deletion of verbal complaints since the HMO Act, Article 20A.12 requires an HMO to establish a complaint system for the resolution of written complaints. One of the commenters pointed out the commissioner of insurance also has the authority to examine the plan's complaint system and recommended the department consider this language as well. One commenter stated there is no need to include provider or physician complaints but rather it should be the enrollee that regulatory policy protects. The commenter recommended clauses (i)-(viii) be deleted because many of the provisions are also approved and examined by the TDI making the provisions duplicitous. Response: TDH based the final rules in sec.119.3(d) relating to complaints and appeals upon the majority of consumer group recommendations and upon current HMO practices. The HMO Act, Article 20A.12 (relating to Complaint System) requires an HMO to establish a complaint system to provide reasonable procedures for the resolution of written complaints initiated by enrollees concerning health care services. This language does not limit the statutory authority of TDH. TDH has provided the complaint system standards based upon a template provided by the Office of Public Insurance Counsel (OPIC) which has been modified by TDH. The document provided by OPIC, and supported by numerous organizations, addressed a majority of the comments TDH received during the public hearing and comment period. The template included a provision that the complaint appeal panel consist of 50% enrollees. The rule as finally passed states the complaint appeal panel which advises the HMO on the resolution of the complaint shall be composed of equal numbers of HMO staff; physicians, dentists or other providers; and enrollees. The provisions recommended by OPIC, but not included, relate to the Medicaid fair hearing process; urgent care; arbitration; and a requirement to report complaints to the department identifying the medical condition by primary ICD-9 and DSM-IV codes. The department considered the requirements too prescriptive or not within the department's purview. The specific rationales for not utilizing all the OPIC language is discussed throughout this preamble. Pursuant to its statutory authority to ensure quality, availability and accessibility of care, the department has included in the standards for the internal complaint procedure, verbal complaints and complaints from physicians, dentists, other providers, or another individual acting on behalf of the enrollee. While the internal complaint procedure requires the HMO to accept verbal complaints, the time frame for the HMO's investigation and resolution of a complaint does not begin until the complaint form, which the HMO is required to send to the complainant within 5 business days of the verbal complaint, is received back from the complainant. The department has defined "complaint" and "complainant" in sec.119.1. Since the department's rules are patterned after current HMO practice they will not have a substantial fiscal impact. In fact, they may be less costly than current practice. Any additional costs that the process could cause would be for travel, an insignificant cost compared to industry revenues. Currently, HMO policies on complaints and appeals do not address the issue of where review/appeal committees meet. These rules change that and require that the complaint appeal panel meet in the member's resident county, the county where the enrollee normally receives health care services, or at an agreed upon location. The department considers the language necessary because the requirement for the service area to be based on metropolitan statistical areas was deleted; the HMO may now have only one administrative office within the service area which may or may not be convenient to the enrollee. The department believes the language is flexible and accommodating to both the enrollee and the HMO. The positive fiscal impact of the department's rules can be attributed to a two-step process, as contrasted with a three or four-step process currently employed at HMOs. This conclusion was reached as a result of analyzing several HMO complaint process procedures. Since the department's rules eliminate one level of appeal, HMO costs should be reduced. The savings achieved through a more simple process should more than offset travel costs. Currently, no cost estimates can be made concerning complaint processes. HMOs use different definitions for "complaint" and, hence, end up with data that is not comparable. A "complaint" at one HMO will be an "inquiry" at another. The department's rules provide a uniform definition for "complaint" and will result, in a year or two, in a comparable data base among HMOs. From this, cost and quality data can eventually be retrieved. For the present, no cost impacts can be made. But it appears that the rules will, at worst, have no impact on the HMO industry and, at best, can improve the bottom line. The OPIC comments asked that the complaint appeal panel have the authority to resolve complaints. The department decided the panel should advise the HMO rather than have the authority to resolve the complaint because concern was expressed by the HMO industry that the delegation of authority to the panel was an interference with the ability of the HMO to manage its affairs. The department believes the standardized complaint process will assist enrollees in the State of Texas, regardless of which HMO an enrollee selects, to be afforded the same due process throughout the state. The standardized process will ensure enrollees a specific process, specific time frames and a specific appeal process. The department chose not to address urgent care in the final rules as there is no recognized definition or precedent for the term. The department believes the requirement for HMOs to ensure enrollees have access to their primary care physicians 24 hours a day, seven days a week is the mechanism by which enrollees' urgent care needs can and should be addressed. The department has not included separate complaint standards for Medicaid clients of an HMO or a requirement for the complaint log to distinguish Medicaid recipients; the standardized internal complaint procedure is applicable to all enrollees whatever the payor source. The Medicaid fair hearings process is a separate process available only to Medicaid enrollees, therefore, there is no need to acknowledge that process in these rules. In addition, the Insurance Code, Article 1.61 states that TDI, in conjunction with TDI, shall establish complaint system guidelines for managed care organizations that serve Medicaid clients. This was required by Senate Bill 600 in the 1995 legislative session. At this time, no TDI guidelines exist. TDH is working with TDI to develop such guidelines to address complaints by Medicaid enrollees. TDI rules at 28 TAC sec.11.506(2) (relating to Mandatory Provisions: Group and Non-Group Agreement and Group Certificate) already require that if complaints are resolved through a specified arbitration agreement, the arbitration must be conducted pursuant to the Texas Arbitration Act. Whether arbitration is allowed or required is an issue to be addressed by TDI so the department has not included specific language concerning arbitration. The department did not include a requirement for a posted notice as many physicians, dentists and other providers contract with more than one HMO which would necessitate multiple postings and numbers which may be confusing to some consumers. The information should be included in the enrollee's handbook and the HMO's toll-free telephone number should appear on the enrollee's health card. The department believes any rules pertaining to the enrollee's health card should be promulgated by the TDI. The department disagrees with the recommendation that the complainant should have the right to be advised by an attorney before the complaint appeal panel because the appeal process should not be a legal proceeding. The department believes the complainant should have the right to bring any person he or she wishes to the meeting and has addressed the issue in sec.113.3(d)(6)(A)(iii); however, the rule also recognizes there may be limitations in persons directly questioning the participants in the meeting due to an HMO's policy. The department did not include in the rules a requirement for an adequately staffed consumer relations office. The department believes the standardized internal complaint procedure, the QI process, and the department's outcome oriented examination will be adequate to determine if enrollees' needs are being served. The department did not include a provision relating to the right of a patient to enroll in another plan if the enrollee is not satisfied at the end of the internal complaint process, or circumstances under which health services must be continued pending resolution of the internal complaint or appeal. TDH believes these are contractual issues that must be addressed by the enrollee/employer/HMO and approved by the TDI. In regard to the collection of statistical data, the department is deferring to the THCIC. If TDI determines complaint statistical data should be included in its annual report, TDI would be the entity to collect the data from whatever source they deem appropriate. Comment: Concerning sec.119.3(c)(3)(C)(i), one commenter requested the rule be expanded to include "reductions, claims that services provided were inappropriate to needs, claims that services were not provided promptly, any instance in which a request for medical service was not granted." Several commenters stated the language is not clear and recommended "complaint" be defined and this rule be deleted due to recommendations to remove the internal complaint process to a separate section. Response: The department has deleted the proposed rule and has defined "complaint" in sec.119.1. As previously stated an internal complaint procedure has been established in sec.119.3(d). Comment: Concerning sec.119.3(c)(3)(C)(iii), several commenters questioned the time frames set forth for complaint resolution. One of the commenters stated the time frame appears reasonable for the initial response by the HMO to a complaint; it is not an adequate time frame to allow for an appeal by the complainant and resolution of such appeal. The commenter recommended the word "initial" be inserted before "resolution" in the rule. One of the commenters stated the time frames should be judged on a case by case basis and recommended the word "reasonable" be used rather than an arbitrary standard. Response: The department has deleted the rule and set out in sec.119.3(d) time frames for complaint resolution which the department believes are reasonable. Comment: Concerning sec.119.3(c)(3)(C)(iv), one commenter questioned if it is feasible or appropriate to add an option to appeal to the department. Response: The department has deleted the rule and has included the appeals process in the internal complaint process rules in sec.119.3(d). The department does not have the staff or resources to participate in the appeals process for the entire population of HMO enrollees. However, complaints can be made to the TDI pursuant to sec.119.4. Comment: Concerning sec.119.3(c)(3)(C)(v), two commenters pointed out that reconsideration reviews of utilization issues in the health care industry are typically done by an external agency. Also, questions related to the medical necessity and quality of care are most objectively answered by medical professionals external to the HMO. The commenters further stated there is already a precedent in the Medicare program in which a patient who disagrees with a discharge decision can appeal to the Medicare peer review organization, and in the Medicare managed-care program an enrollee may request reconsideration review by an external agent. Another commenter recommended a specific appeals process be outlined with specified time tables to ensure that any denial of services is dealt with expediently. One commenter recommended expansion of the rule to include the rights of the enrollee to appear before a decision maker or committee in person, by representative, by correspondence, or by telephone (including Telecommunications Device for the Deaf (TDD)); the right to present and confront evidence and witnesses; and that the appeal process is not a substitute for the fair hearing process under 40 TAC Chapter 79. Response: As stated previously, the department agrees with the concept of external quality review organizations, however, the department has chosen not to address review by external agencies in these rules. Section 119.25 addresses the fact that UR activities may be done by the HMO or by a contractor and enrollees are to be informed in writing of denials, terminations, and limitations. The internal complaint procedure set out in sec.119.3(d) addresses the second comment concerning time tables and the right of the complainant to appear in person before the appeals panel, unless otherwise agreed to by the complainant. Comment: Concerning sec.119.3(c)(3)(D), one commenter requested the rule be deleted because it is duplicitous of TDI rules. Response: The department disagrees with the commenter. The department believes it is reasonable and necessary to have access to the documents listed in this paragraph in order to conduct a thorough examination. Comment: Concerning sec.119.3(c)(3)(E), numerous commenters urged the department to coordinate the survey requirements with the provisions of House Bill 1048 and requested the requirement be deleted from the rules; another commenter objected to the proposed questions and stated the information should be resolved between private contractors and their service providers. Several commenters recommended the department standardize enrollee satisfaction surveys, and make the results available to consumers for purposes of comparing HMOs. The commenters urged the department to coordinate with the TDI to include the results of the surveys in the report card TDI plans to publish. One of the commenters recommended the department develop the survey instrument, preferably one that requires HMO surveyors to oversample enrollees with disabilities or complex conditions. Two of the commenters further recommended the structure and content of the survey is primarily a data collection issue and should be addressed at sec.119.23(9) and deleted in this rule except for a reference that department surveyors have access to the surveys. Two commenters wanted the survey to be developed by an HMO data committee and include oversampling of people with disabilities and other chronic conditions. The commenter urged the department to clarify that HMOs shall conduct annual enrollee satisfaction surveys. One commenter requested the rule be deleted because it is duplicitous of TDI rules. Several commenters pointed out there is a patient survey component within the Health Plan Employer Data Set (HEDIS). One commenter recommended the rules provide sufficient flexibility to allow appropriate alternative approaches to quality assessment when the HMO enrollees are children and allow parents or other responsible adults to be the respondents in any satisfaction surveys. One commenter who supports enrollee satisfaction surveys objected to the proposed questions which the commenter stated indirectly relate to access and have little relationship to quality. Response: The department agrees with the commenters who recommended that the Texas Health Care Information Council (THCIC) collect enrollee satisfaction data in accordance with its charge under House Bill 1048. The department has retained the language that allows review of the information during an examination but has deleted the prescriptive language in clauses (i) through (iv) relating to the questions that must be addressed in the surveys. All comments concerning the collection of data received by the department will be shared with the THCIC for its information. Comment: Concerning sec.119.3(c)(3)(E)(i)(II) and (III), one commenter objected to making the HMO responsible for physician wait time. The commenter stated it is unfair to require only an HMO to track the data unless all physicians are required to keep the information and provide it to the HMO; the department should not discriminate against one type of provider. Response: The department disagrees with the commenter. The department believes the HMO must assure there are an appropriate number of physicians and providers to serve the needs of its enrollees. However, the department has deleted the rules as discussed in the previous response. Comment: Concerning sec.119.3(c)(3)(E)(iv), one commenter requested clarification of the intent of the rule as to whether the department wants to know whether the enrollee was satisfied with the denial or the manner in which the plan resolved the denial. Response: The department responds the intent of the rule was to find out the enrollee's satisfaction in the HMO's entire complaint process. The department does not believe that any enrollee would be satisfied with a denial of a claim; however, satisfaction may be derived from the manner with which the claim was handled. The department has deleted the rule. Comment: Concerning sec.119.3(c)(3)(F), a commenter suggests substituting "health care information" for "medical information" to insure confidentiality of all health care records. Another commenter suggested the confidentiality of dental information should be guaranteed by the QI plan. Response: The department agrees with both commenters but has added "health care information" and retained "medical information" in the rule. The HMO Act, Article 20A.25 also addresses confidentiality as follows: "Any data or information pertaining to the diagnosis, treatment or health of any enrollee or applicant obtained from such person or from any physician, dentist or other provider by an HMO shall be held in confidence and shall not be disclosed to any person except to the extent that it may be necessary to carry out the purposes of this Act...." Comment: Concerning sec.119.3(c)(3)(G), numerous commenters stated the HMO should contract with an adequate number of providers to ensure appointments for primary, diagnostic, and specialty care are available; immediate access to emergency care; appointments within 24 hours for urgent care; appointments within 2 weeks for non-urgent medical treatment; appointments within 10 weeks for routine physicals and wellness exams; and initial HMO decision regarding requests for referrals to specialty care must be made within two working days. One of the commenters stated the importance of careful examination of the adequacy of the network and evaluation of the capacity of subcontracting medical groups and other subcontractors to fully serve the enrollee, including certified specialists. Another of the commenters recommended language to address HMOs which fail to provide an alternative to the hospital emergency room. Another commenter requested "dentist" be added to the rule as well as a requirement that the HMO have available for review by the surveyor the enrollee-to-provider ratio by specialty and provider type. Response: The department agrees with the first commenters that availability and accessibility are of major importance. The purpose of the QI process is to examine the systems and processes by which care and services are provided. Through the quality improvement process a plan should be able to identify problems such as inadequate provider-to-enrollee ratios, excessive and unreasonable appointment times and delays in provider responses to enrollee needs. Therefore, the department believes there should be no need to set specific times if the HMO's QI plan works effectively. The adequacy is reviewed by the HMO, the TDI and the department. The department believes sec.119.52 of this chapter (relating to Emergency Care) adequately addresses the issue relating to emergency care. The department agrees with the comment concerning dentist and has added a reference to the rule. Comment: Concerning sec.119.3(c)(3)(H) in general, one commenter stated the department will be unable to ascertain through the rule as proposed the adequacy of dental services. The commenter recommended a new clause be added to specify the requirements for the dental listing. Response: The department disagrees with the commenter that information beyond what is already required is necessary. Comment: Concerning sec.119.3(c)(3)(H)(i), one commenter recommended adding a requirement that the information be current. Response: The department agrees and has added the requested addition. Comment: Concerning sec.119.3(c)(3)(H)(i)(II), one commenter suggested language which ensures enrollees that board-certified physicians are tested by national accrediting bodies approved by the U.S. Department of Education. Response: The department disagrees with the commenter. Each HMO should have the opportunity to identify the board certifications they will accept. The rule is consistent with the rule promulgated by the TDI at 28 TAC sec.11.205(4)(A)(ii). Comment: Concerning sec.119.3(c)(3)(H)(i)(IV), a commenter stated there should be no requirement to provide the federal and state permits relating to controlled substances to surveyors as there is nothing in the rules that states the information is confidential. The commenter recommended deletion of the rule to eliminate the potential for someone to obtain and use the permit numbers on fraudulent prescriptions. Response: The department disagrees. The permits are not confidential but the department has added language to clarify that only the permit numbers must appear on the listing. Comment: Concerning sec.119.3(c)(3)(H)(i)(VII), one commenter stated case loads change from day to day and it is unreasonable to ask HMOs to keep an updated list on whether the physician is currently accepting new patients from the HMO. The commenter recommended an alternative be to require the data annually. Response: TDH disagrees with the commenter and responds that the listings are generally reviewed during an examination of an HMO before a certificate of authority is issued by TDI and for expansions of a service area; not on a daily basis. However, the department believes an HMO's ongoing QI process should make the information available at all times. Comment: Concerning sec.119.3(c)(3)(H)(ii), one commenter requested the rule include indication of trauma facility designation level and expiration date. Response: The department agrees with the commenter and has added the requested language in new sec.119.3(c)(3)(H)(ii)(VII) Comment: Concerning sec.119.3(c)(3)(I), one commenter requested the department delete the language relating to the letter of intent. The commenter stated it would be difficult to determine if an HMO had a sufficient number of physicians and providers unless the physicians and providers had committed to a contract with an HMO. Response: The department agrees and has deleted the words "or letter of intent." Comment: Concerning sec.119.3(c)(3)(J), one commenter requested "as required by these rules" be added to the end of the rule. Response: The department agrees with the commenter and has added the language to the rule. Comment: Concerning sec.119.3(c)(3)(K), one commenter recommended that the words "standard" enrollment materials and "standard" solicitation communications be substituted for "all printed materials" because purchasers often create their own materials with corporate logos, etc. Response: The department disagrees with the commenter. During complaint examinations especially, the department may need to review the printed materials given to enrollees employed by a particular employer. The department's intent is not to require different printed materials than what the HMO should already have available or the contents of the materials. The TDI is responsible for regulation of advertising and sales material pursuant to rules promulgated at 28 TAC sec.sec.11.601-11.604 (relating to Advertising and Sales Material). Comment: Concerning sec.119.3(c)(3)(L), one commenter requested the rule be deleted because it is difficult to collect statistics on continuity of care. Response: The department agrees with the commenter and has deleted the reference to continuity in the rule. Comment: Concerning sec.119.3(c)(5), one commenter stated the rule is not clear that the written statement will be available at the time of the exit conference and recommended the rule specify a time it will be available, perhaps a specified number of days. Another commenter requested the words "during the examination" be struck from the rule because the words could be read to preclude the writing of deficiencies after the surveyor returns to the office after the examination. Response: The department agrees with the commenters and has responded to the first comment by adding clarifying language at sec.119.3(c)(6)(A)-(C). The department has deleted the words "during the examination." Comment: Concerning sec.119.3(c)(6)(A)-(C) in general, one commenter cited the requirement as unreasonable and recommended the HMO have at least 72 hours or a finite amount of time from the official notice of the deficiencies for implementation of appropriate action plans. Several commenters stated there is no objective criteria for what constitutes "serious" and recommended deleting "serious or" in (A), "potentially serious or" in (B), and "serious" in (C). One of the commenters recommended deleting the words "serious or" and applying the requirement to "life-threatening deficiencies" only. One commenter recommended for clarity and consistency in interpretation, the department should consider adding a definition for "serious or life-threatening deficiencies" in sec.119.1 or state the criteria for determining when a deficiency is serious or life- threatening in this rule. Language has been added to sec.119.3(c)(6)(C) that an HMO shall retain a copy of its plan of correction. Response: The department disagrees with the first commenter. The department believes immediate correction of deficiencies is justified in serious or life- threatening situations such as denial of emergency care. The department has added language to subparagraph sec.119.3(c)(6)(A) to clarify that a serious deficiency is one that adversely affects patient care; a life-threatening deficiency may include denial of emergency care. Comment: Concerning sec.119.3(c)(6)(A), one commenter recommended new language be added to the rule to provide that the notification to the HMO of the deficiency may precede the exit conference which will allow the HMO to begin immediate corrective action on the deficiency. Response: The department agrees with the commenter and has added the requested new language. Comment: Concerning sec.119.3(c)(6)(B), one commenter requested the rule be amended to read the HMO's plan of correction shall provide for correction of the deficiencies no later than 30 days from the exit conference instead of 30 days from the last day of the examination. The commenter stated the amendment is reasonable in the event the deficiencies are not prepared by the surveyor on the last day of the examination Response: The department agrees with the commenter and has made the requested amendment. Comment: Concerning sec.119.3(c)(6)(C), one commenter requested the rule be amended to read the HMO's shall provide a signed plan of correction to the department no later than 30 days from the exit conference instead of 30 days from the last day of the examination, and provide for correction of the deficiencies no later than 90 days from the exit conference. The commenter stated the amendment is reasonable in the event the deficiencies are not prepared by the surveyor on the last day of the examination. Response: The department agrees with the commenter and has made the requested amendment. Comment: Concerning sec.119.3(c)(8), one commenter requested the rule be amended to clarify the department will go on-site for verification of correction of life threatening deficiencies. Response: The department disagrees that additional language is needed in this rule because the language allows the department to decide if an on-site examination is needed. Comment: Concerning sec.119.4 in general, several commenters suggest expansion of this section to provide standards for the HMO's internal complaint process and one of the commenters provided specific language for the HMO's internal complaint process. Several of the commenters stated enrollees should not be pressured into binding arbitration and recommended enrollees be given alternate dispute resolution; two commenters offered specific rule language relating to binding arbitration. One commenter stated there is no clear method of who will manage reported complaints, or the formation of a complaints log. One commenter suggested the addition of a requirement for physicians and providers to display a sign written in English and Spanish, in their place of business that provides the Texas Department of Insurance toll free number and address. Two commenters stated the section sets forth requirements for reporting complaints without defining the term. One of the commenters recommended reports of problems that require substantive action to address quality, delivery, or access may be defined as "grievances" as defined by the National Association of Insurance Commissioners, whereas comments or inquiries may be defined as "complaints." One commenter requested the department add a provision that TDH may contract with TDI to perform functions relating to complaints. Response: The department disagrees with the first commenters on the placement of the internal complaint procedure and has, as stated previously, located an internal complaint procedure in sec.119.3(d). The department also addressed its reasons for not including arbitration in the internal complaint procedure in this preamble concerning sec.119.3(c)(3)(C) in general. The department has not added the recommendation for a posted notice in the physicians and providers offices as discussed in this preamble at sec.119.3(c)(3)(C). The department has defined "complaints" in sec.119.1 (relating to Definitions) and believes no other term needs to be defined for the purpose of these rules. The department agrees with the last comment and has added the language in new subsection sec.119.4(d). Comment: Concerning sec.119.4(a)(1), one commenter requested clarification of the rule, stating the rule is unclear whether individuals have to go through their HMO's entire complaint system process before they may register a complaint with the TDI. The commenter is concerned that if an individual must first go through the entire HMO complaint process before registering a complaint with TDI, access to care may be unnecessarily delayed or even never received. The commenter requested the rule explicitly state that individuals are allowed to register a complaint with TDI at any time. Another commenter requested language be added which would require members to exhaust their HMO complaint process prior to filing a complaint with TDH. Response: The department disagrees with the commenters. The department believes the rule is clear that an individual may register a complaint at anytime whether they have attempted to resolve the complaint through the HMO complaint process or not and that there should be no restriction at what stage the complainant may file a complaint. The department has substituted the word "complaints" for the word "grievances" in the rule to be consistent with the new definition of "complaint." Comment: Concerning sec.119.4(a)(3), numerous commenters stated 90 days is too long a time and recommended the department investigate a complaint and report findings to the TDI within 45 days of the department's receipt of the complaint; one of the commenters suggested 30 days would be more appropriate. Several commenters further recommended the following language be added to the section: "Investigation and resolution of complaints relating to urgent or emergency care shall be concluded as soon as possible in accordance with the medical exigencies of the case but in no event to exceed three business days from the request of the complainant." Several commenters recommended the rule allow the department additional time to investigate the complaint if it provides to the consumer a detailed written statement about the status of the complaint. A number of the commenters recommended the department and TDI log in complaints by type, by response, and publish yearly the number of complaints by type, by HMO, and indicate the resolution. One commenter recommended clarification of the rule to require written documentation on the findings of the investigation be sent to the complainant within 30 days of the filing of the complaint. Response: The department disagrees with the commenter. Due to a growing industry and enrollee population, complaints received by the department are triaged and investigated in accordance with the degree of medical emergency and associated allegations. Complaints regarding emergency situations are investigated immediately if not within three days. Other complaints may be investigated by phone or correspondence or by an on-site visit. With the resources available to the department, complaint allegations should be investigated and findings reported to TDI within 90 days. The complainant is informed in writing by the department of the receipt of the complaint and the findings after the investigation. The rules in sec.119.3(d)(7) require the HMO to maintain a log of complaints and appeals by category. HMO complaint data may be collected by the THCIC or TDI in the annual report. The department is developing a tracking system for HMO complaint allegations and resolutions. Comment: Concerning sec.119.(4)(b) in general, several commenters recommended the subsection be deleted in its entirety as the rights of an HMO to contest determinations of either the department or TDI are clearly set out in the HMO Act. Another commenter stated an appeal process should be included involving investigation and determination by personnel outside the department. The commenter also stated the rule should be expanded to include a requirement that the surveyor not be used in a survey of a complaint for a particular period of time, absent a finding that clears the surveyor. One commenter stated the rule should also state the supervisor shall investigate the complaint. A commenter recommended the department investigate the complaint and report the findings to TDI and to the enrollee within 45 days of the department's receipt of the complaint. The commenter also recommended language to indicate the department may take additional time if it provides the consumer in writing a detailed statement of the current status of the investigation and an estimate of the additional time needed. One commenter recommended the complainant have the option to request a meeting with the supervisor without the surveyor being present and that certain situations would merit the complainant and the surveyor not participating directly in the discussions, as opposed to the supervisor acting as the investigator, intermediator, etc. Another commenter recommended that final resolution of a complaint against a surveyor be communicated "in writing" to the complainant. Response: The department agrees with the commenters who recommended deletion of the subsection. The department has deleted the subsection and intends to establish the language as an internal policy. The department will consider the recommendations of the commenters, as well as the legislative budgetary constraints imposed on fees collected by the department, in developing the policy. Comment: Concerning sec.119.21 in general, the department received numerous comments. Numerous commenters strongly recommended the deletion of all or portions of the proposed subsections (c) and (e). The commenters stated: the high costs and administrative burdens associated with the rule will increase premiums dramatically for employers and consumers; the department should maintain the service area concept whereby plans have additional offices only when they are located in non-contiguous service areas; the duplication of each office will be extremely costly and does not necessarily assure that quality of care is being enhanced; the current rules provide adequate protection for the members; the start-up cost of a service area under the proposed rule from one commenter was estimated at $640,000 and $600,000. One commenter stated administrative costs would increase (the estimates were 16%, and 50% in smaller health plans, and $1.5 million annually); the provisions may severely impact HMO cost structures particularly single service HMOs; the provisions will create administrative inefficiencies with no commensurate benefit to consumers from a quality of care perspective; the rule will discourage or prevent plans from expanding into rural or outlying areas; the rule will provide a major disincentive for the establishment of new HMOs; and the rule will narrow the range of options available to Texas residents and most likely prevent the state from implementing its plans to expand Medicaid managed care statewide; and market conditions will determine the need for administrative offices and support staff more effectively than MSA definitions. One commenter stated large, multi- specialty, closed panel group practice model HMOs were not taken in consideration in the proposed rules. Another commenter stated the rule as proposed would significantly increase operational costs for HMOs and suggested a compromise would be to allow the HMOs to demonstrate that local oversight can be accomplished successfully through their regional or centralized operations, and the requirements of this rule would only apply if the department was not reasonably satisfied that appropriate local oversight could be provided. Several commenters suggested that existing HMOs, or other integrated delivery systems operating as an HMO, should not be exempt from the standards set forth in the section. One of the commenters stated the proposal in subsection (m) appears to exempt existing HMOs from subsection (c)only; however, the provisions in other subsections relating to mileage should apply to existing HMOs, even if they have several MSAs in their service area. The commenter supports the application of the administrative requirements over a phase-in period of one year from the final adoption of the rule but wants language added that requires compliance with all other subsections of the section. One commenter requested that the section be evaluated relative to their potential impact on the use of alternative HMO delivery models, i.e. rural HMO models, and the proliferation of telemedicine. The commenter believes the rule as written implies that such alternative service delivery arrangements would be prohibited or restricted. One commenter recommended adding the first sentence of sec.119.21(c) to subsection (b) and striking the rest of subsection (c). Response: The department agrees with the concerns of the majority of the commenters and has deleted the proposed subsections (c) except for the first sentence, (d), (l) and (m); the remaining subsections have been relettered. The department's intent of the rule was to solicit comments to learn if the service area concept was a reasonable and acceptable approach to respond to consumers concerns, including (1) allowing plans to have a local presence; (2) allowing practicing physicians and providers to be actively involved at a local level with the plans in their community; and (3) affording enrollees and their designated advocates access to the plan's staff for questions, complaints and appeals at a local level. The answer was that it was not the correct approach or solution, that the focus should be outcome oriented, based on a strong QI program. The department concludes the subsections as proposed might have impeded expansion and competition among the HMOs which could have resulted in increased costs to consumers. The department intends to focus on a strong QI program for HMOs and a more outcome oriented examination by the department. Local input will be obtained by requiring that QI committees be composed of physicians, dentists and providers from throughout the service area in sec.119.24. Comment: Concerning sec.119.21(a), one commenter requested the subsection include dentists. Response: The department agrees with the commenter and has added a reference to dentists in the rule. Comment: Concerning sec.119.21(c), numerous commenters recommended deletion of the subsection for reasons discussed previously in the general comments relating to sec.119.21. Two commenters recommended the HMO be required to define its service area but that exceptions should be allowed where there is a legitimate need for greater flexibility such as remote rural areas, multistate MSAs, etc. One commenter stated there is very little economic or medical justification for prohibiting an HMO from forming a service area which includes more than one MSA. The commenter further stated an HMO should not be required to have more than one service area within each Texas Department of Health Public Health Region. The commenter recommended the section be rewritten through the combined efforts of the department, HMO representatives, providers and consumers. One commenter pointed out the administrative complexity of operating an HMO would be greatly increased; further, the rule would lead to a curious service area distribution because of the CMSA inclusion; and could well be a barrier to expansion of single service HMOs into less populated regions of the state. One commenter urged the department to establish exact figures as to what constitutes a "concentration" of primary care providers, enrollees, etc. for HMOs to follow. Response: The department agrees with the commenters and, as stated previously in this preamble in the comments concerning sec.119.21 in general, has deleted subsection (c) except for the first sentence. Comment: Concerning sec.119.21(e) in general, numerous commenters recommended deletion of the subsection which was discussed earlier in general comments relating to sec.119.21 due to the cost of establishing administrative offices with staff in each metropolitan statistical area. Response: The department agrees with the commenters' concerns. The department believes that by deleting subsection (c), the burdensome requirements of subsection (e) (which has been relettered (d)), have been eliminated. The language in the relettered subsection (d) has been modified to pertain to the entire service area set up by the HMO, sets out services that must be provided within the service area, and requires at least one physically identified administrative office in Texas with staff. Comment: Concerning sec.119.21(e)(2) and (3), one commenter suggested the rules are overly burdensome and suggested modification to allow the chief executive officer or operations officer to be a person living in the service area who is available for administrative functions, accountability and availability but not require an exclusive full time position. The commenter also stated the rules should be reviewed for applicability to single service HMOs. Response: The department disagrees the requirement is overly burdensome now that the MSA requirements have been deleted and has retained the requirement for a full-time chief executive officer or operations officer. The department deleted the word "local" in the rule. The rule is now sec.119.21(d). Comment: Concerning sec.119.21(e)(4) in general, one commenter recommended the medical director have adequate expertise to make appropriate decisions about the proper handling of chronic and long term health conditions. Response: The department disagrees that specific criteria for the medical director should be added to the rule. The HMO should select a medical director with the expertise to serve its entire enrollee population. The rule is now sec.119.21(d)(4). Comment: Concerning sec.119.21(e)(4)(A), one commenter stated the medical director of an HMO does not maintain an active medical practice, therefore, language mandating the individual possess a state license is not necessary and should be removed. Another commenter recommended the medical director be a "physician currently licensed to practice in Texas." Response: The department disagrees with the first commenter. The department believes it important that a medical director be licensed and has added clarifying language that the medical director shall be licensed in Texas. The rule is now sec.119.21(d)(4)(A). Comment: Concerning sec.119.21(e)(4)(C), one commenter stated the medical director must be full-time not part-time in order to be available for emergencies in urgent care situations. Response: The department believes a part-time medical director could adequately serve an HMO's needs in some cases. It would certainly depend on the individual HMO. However, the department agrees that the medical director or physician designee must be available at all times to address emergency situations and has added language to reflect this. The rule is now sec.119.21(e)(4)(C). Comment: Concerning sec.119.21(f)(3), one commenter stated the requirement conflicts with House Bill 3111 rules which allow providers who "globally capitate" and subcontract their services to HMOs to have their contracts at the subcontractor's offices. Response: The department did not intend to limit with whom the approved nonprofit health corporations under House Bill 3111 could contract. The intent of the rule was intended only to address keeping copies of the contracts. The department has revised the rule to clarify this point. The rule is now sec.119.21(e)(3). Comment: Concerning sec.119 .21(f)(5), one commenter requested the inclusion of "dentist manual" and that each "dentist" and "other" provider be provided a copy of the appropriate manual. Response: The department agrees and has added the requested language. The rule is now sec.119.21(e)(5). Comment: Concerning sec.119.21(g), numerous commenters requested the department clarify that the 20 mile standard applies only to primary care physicians. The commenters further stated 50 miles would be a more realistic standard; one of the commenters recommended 40 miles. One commenter recommended the deletion of the rule that requires the full range of health care services every 20 miles and urged the department to retain the 50 mile rule for a primary care physician and 100 mile for special care provider/tertiary hospital care. The commenter also stated if the department is concerned that some HMOs are not making services available, then the department should take regulatory action against the violators. The commenter urged the department to consider defining more precisely and enumerating the types of health care services which must be made available within the 50 mile and 100 mile radii. One commenter requested the rule be deleted as the competitive market will determine what is appropriate. One commenter stated the rule is reasonable for primary care services, institutional services, and other basic health services, therefore, the rule should be revised to indicate that the access standards apply to basic health care services only. One commenter stated the provisions do not account for the fact that many regions of Texas have been designated as health professional shortage areas. In these medically underserved regions, it is impossible for health plans to ensure access to all medical specialties within a 50-mile radius. The commenter recommended a flexible approach that is consistent with the site review standard used in the Medicare program which recommends a 30- minute standard for evaluating access to primary care physicians and hospitals and for rural areas usual travel patterns for the specific area. One commenter stated the Medicaid managed care distance standard is 30 miles or 45 minutes travel time to a primary care provider, with exceptions allowed. Response: The department has reconsidered the mileage requirements set out in the proposed rules. The department believes the old standard of 50 miles to reach a source of primary physician health care and acute hospital care was not in keeping with the department's charge to ensure availability and accessibility of care for enrollees. At the same time, the department does not intend to promulgate rules that are too burdensome for the industry. As stated previously, the metropolitan statistical standard has been deleted as proposed. The rule has been modified to require primary care physician and general hospital care, which is now sec.119.21(f), be available within 30 miles for enrollees. Comment: Concerning sec.119.21(h), two commenters wanted to lower the mileage to 20 miles. One of the commenters sought to protect the small towns in rural Texas where physicians have moved to practice. The other commenter stated the longer distance would allow HMOs to bypass local providers and contract with any provider group who will give them the largest discount even if the enrollee must travel 50 miles to access health care and that most rural areas of Texas have little or no public transportation. Numerous commenters requested the department clarify the 50 mile standard applies only to primary care physicians. The commenters further stated 75 or 100 miles would be a more realistic standard for rural areas for specialists and ancillary care providers, including dentists and physical therapists. One commenter stated the rule is reasonable for primary care services, institutional services, and other basic health services; therefore, the rule should be revised to indicate that the access standards apply to basic health care services only. One commenter requested the rule be deleted as the competitive market will determine what is appropriate. One commenter stated the provisions do not account for the fact that many regions of Texas have been designated as health professional shortage areas. In these medically underserved regions, it is impossible for health plans to ensure access to all medical specialties within a 50-mile radius. The commenter recommended a flexible approach that is consistent with the site review standard used in the Medicare program which recommends a 30-minute standard for evaluating access to primary care physicians and hospitals and for rural areas usual travel patterns for the specific area. Response: The department, as previously stated, has reconsidered the mileage requirements and agrees with a number of the comments. The department has amended the rule to clarify the mileage requirements pertain to initial contact with referral specialists; special hospitals; psychiatric hospitals; diagnostic and therapeutic services; and single service health care physicians, dentists or providers. The department has lowered the mileage to 75 miles (from the 100 miles in current rules) as recommended. In addition, sec.119.21(i) recognizes that normal patterns for securing health care services within a service area can be supported by the HMO submitting health care utilization data to the department for approval. The rule now is sec.119.21(g). Comment: Concerning sec.119.21(i), one commenter recommended the process and data for documenting a normal pattern for securing health care services be defined and approval assured if such data is produced. Response: The department disagrees with the commenter that specific criteria should be included in the rule as each situation would have to be reviewed on an individual basis. The department has modified the rule only to reflect the relettering of the section. The rule is now sec.119.21(h). Comment: Concerning sec.119.21(j), a commenter recommended the addition of genetic conditions to the subsection. One commenter requested the rule be reworded "...higher level of skill or specialty than that which is available within the HMO service areas such as, but not limited to, treatment of cancer, burns, and cardiac diseases." The commenter stated the proposed language is vague and could be interpreted to only permit such outside use if this care were not available in the service area. Response: The department disagrees with the first commenter that specific language should be added for genetic conditions, even though the department agrees that genetic conditions may indeed require a higher level of skill or specialty. The department simply cannot list in these rules all of the examples of cases in which an enrollee may need a higher level of skill or specialty. In regard to the second comment, the department agrees and has added the clarifying language in the rule which is now sec.119.21(i). Comment: Concerning sec.119.21(k), one commenter stated collaborative medical practices are set forth in statute; therefore, the rule should be amended to require conformity with current statutory authority for licensure, delegation, collaboration, and supervision as appropriate. One commenter urged the department to substitute "advanced practice nurse" for "nurse practitioner" in order to remain consistent with terminology used by the Board of Nurse Examiners. The commenter also suggested changing "the exact duties of all such providers and practitioners" to "the medical acts delegated to all such providers and practitioners," as many of the responsibilities of advanced practice nurses fall within the scope of nursing and do not need to be delineated and which would be more consistent with changes to the Medical Practice Act. The commenter further stated since no listing of duties can be all-inclusive and anticipate every possible situation, the proposed language could increase an HMO's liability. One commenter stated the provision is unnecessary and should be deleted because there are medical and professional protocols that govern the relationship between providers and employees. The commenter further stated HMOs should not be dictating the written policies and procedures as that should be the responsibility of the boards governing these practices. Response: The department agrees with the majority of the comments on the rule. Clarifying language has been added that the written policies describe the duties of providers in accordance with statutory requirements for licensure, delegation, collaboration, and supervision as appropriate. The correct terminology "advanced practice nurse" has been substituted, and the word "exact" has been removed. The department believes it is important for the HMO to assure that the role of the provider is clear. The rule only requires a policy; it does not specify the terms of the policy. The policies should recognize existing medical and professional protocols. The rule is now sec.119.21(j). Comment: Concerning sec.119.21(m) in general, several commenters stated a permanent exemption from the rule is not acceptable and that a time frame for achieving compliance should be added. Another commenter proposed HMOs be allowed "reasonable" time to correct any "material" deficiencies prior to being subject to sec.119.21(c); and, further, the requirement for complying with sec.119.21(c) must relate to the uncorrected deficiency. Response: The department has deleted the proposed subsection (m) for the reasons stated previously in this preamble. Comment: Concerning sec.119.21 (n), two commenters stated the language could be construed to mean that the HMO must offer supplies to its contracted providers. The commenters recommended the subsection be stricken because the arrangement is contractual between the provider and the HMO. Another commenter stated an HMO's time frames and internal guidelines for meeting this standard should be available to enrollees on request. Response: The department has rewritten the rule to state that the HMO is responsible for assuring that health care services furnished by physicians and other providers are available and accessible to enrollees without unreasonable periods of delay. The rule is now sec.119.21(k). Comment: Concerning sec.119.21(o), one commenter suggests striking this section unless "statistical reporting system" can be clarified; the commenter is concerned about having to create new systems. Response: The department disagrees. This rule is consistent with the HMO Act, Article 20A.05(a)(2)(C) and is not a new system. For the QI process required by these rules to work, an HMO must compile, develop and evaluate and report statistics relating to the cost of operation, the pattern of utilization of its services, availability and accessibility of its services. The department has deleted the word "continuity" from the rule, added the word "its" and rearranged the sentence to track the statutory language. The rule is now sec.119.21(l). Comment: Concerning sec.119.21(p), one commenter stated the rule should specify when the materials should be filed with the department. Response: The department agrees with the commenter and has added "on or before the first day of March" in accordance with the HMO Act, Article 20A.10. The rule is now sec.119.21(m). Comment: Concerning sec.119.22 in general, one commenter recommended HMOs that meet the standards established by National Committee for Quality Assurance (NCQA), Joint Commission on Accreditation of Healthcare Organizations, or another recognized accreditation entity be given credit for compliance with the rules to the extent the accrediting standards meet or surpass these rules. Another commenter expressed concern the requirements for measurement of quality of care will raise the costs of health care coverage and urged consistency with House Bill 1048. The commenter also recommended the department focus its efforts on collecting and analyzing results of the continuous quality improvement (CQI) efforts of the HMO, not the CQI process. The commenter stated by collecting results oriented information, the department will be evaluating performance, not documentation. One commenter recommended provisions be added for a dental QI committee, including composition and duties, to address the issues specific to dentists. One commenter suggested that the section include access to specialist and specialty care institutions as one of the quality indicators. The commenter stated the provision would provide a basis for benchmarking HMO cancer care. One commenter suggests the standards set forth in this section are too stringent, and in some cases exceed NCQA Quality Assurance/Quality Improvement standards. The commenter also suggests the QI committee be replaced by "the chief medical officer or clinical director". Other commenters recommended the HMO develop an enrollee advisory committee to provide feedback and recommendations on quality of care access to care and enrollee satisfaction and which would report at least annually to the HMO medical director, the QI committee, and the department. Response: The department disagrees with the first commenter. The HMO Act, Chapter 20A does not provide for the recognition of any accrediting organization's standards as an alternative to rules promulgated by the TDI or the department. The next commenter's concern with measurement of quality of care is addressed later in relation to sec.119.23. The commenter's recommendation for a dental QI committee requirement was not added. The department believes the language is appropriate and does not preclude an HMO from appointing a dental QI committee. The department responds to the third commenter that these rules are general and that any specifics for quality indicators will be dictated by the THCIC; the commenter's recommendations will be shared with the THCIC. In regard to the comment that the rule is too stringent, the department disagrees and considers the rules to be reasonable. Nothing in the HMO Act prohibits the department from promulgating rules that are more stringent than those of accrediting bodies. Finally, the department responds the rules do not preclude an HMO from appointing an enrollee advisory committee. Comment: Concerning sec.119.22(a), one commenter requested the last sentence of the rule be stricken. Response: The department agrees with the commenter and has deleted the last sentence of the rule. Comment: Concerning sec.119.22(b) in general, numerous commenters requested the inclusion of consumers in committees which make decisions on quality of service and benefits. One commenter stated it should be left to the discretion of the HMO to determine who is best suited to serve on the QI committee. One commenter recommended the entire subsection be replaced with a provision that the chief medical officer or clinical director of the HMO have responsibility for QI activities. The commenter stated the number and the detail of responsibilities assigned to QI committees is more than any single group could handle; therefore, the rule should address the areas of concern the department is trying to protect and then allow the HMOs to design management structures to meet those needs. Response: The department agrees with the first comment. The department has added in paragraph sec.119.22(b)(1) that at least one enrollee be appointed to the QI committee. The department disagrees with the last commenter that the rule should be deleted. For an HMO to have a QI program and a QI committee is accepted practice. The medical director certainly has substantial involvement. Comment: Concerning sec.119.23 in general, several commenters suggested additions to the section including requiring the HMO to demonstrate that the QI plan has sufficient resources to carry out its mission, requirements for the appropriate medical management of members with disabilities or chronic or high risk illnesses, and gives providers access to the data and methodology used to analyze quality of care and service. Two commenters stated neither the performance measures of HEDIS nor accreditation by the National Committee for Quality Assurance assure that quality care is provided or that QI has been effective. The commenters stated the QI program must not only measure its performance but must take decisive and proactive steps to improve the care provided. One commenter recommended the HMO develop an enrollee advisory committee to provide feedback and recommendations on quality of care, access to care, and enrollee satisfaction and which would report at least annually to the HMO medical director, the QI committee, and the department, with the report provided upon request to any enrollee. Response: The department agrees with the first commenters and has added language to the rule to require HMOs to dedicate resources such as personnel, analytic capabilities and data resources that are adequate to meet the needs of the program. The department believes it has adequately addressed the commenters' other concerns by requiring the participation of physicians, dentists and other providers from throughout the service area. In the course of communicating in the QI process, providers should receive access to the data and methodology used to analyze quality of care and service. In regard to the next comment, the department believes there is adequate language throughout the sections relating to QI that will lead to quality care. There is nothing in these rules that precludes an HMO from assembling an enrollee advisory committee. Comment: Concerning sec.119.23(3) generally, one commenter stated the definition of age group should be more specific to ensure that important differences in how children should be treated are not lost in large aggregate categories. The commenter believes age categories should, at a minimum, identify discrete categories reflecting stages of development such as infants, pre-school children, young children, pre-adolescents and adolescents. The commenter further recommended pediatric specialty services be added to the list of services to ensure that there is some assessment of the appropriateness of referrals for children. One commenter recommended the department add genetic centers to the rule. One commenter stated that monitoring and evaluation do not take place in all of the noninstitutional settings as outlined in the rule. One commenter stated evaluation of burn, cancer and cardiac centers is not routinely done in all plans unless the utilization management constitutes monitoring and evaluation. Response: The department disagrees with the first three commenters because these rules do not individually list all the services where monitoring and evaluation of clinical issues will occur. In regard to the fourth comment, the department has modified the list to include only practitioner offices and home and community support services agencies. The department's response to the last comment is that it did not intend the language to be an exclusive list. The department has deleted the reference to the respective service area due to the rule deletions relating to the service area. Comment: Concerning sec.119.23(4), several commenters stated that people with disabilities must have access to non-discriminatory health care, and be insured equitable participation in a health care system. One commenter stated the rule should explicitly include low and non-existent literacy as a special need due to the large percentage of the Texas population in the lowest literacy level; recommended the word "services" in the rule be clarified to mean it includes grievance and appeal procedures; and recommended the rule require that until the HMO receives from the enrollee verification that the enrollee can understand and respond to written information from the HMO, the HMO shall communicate orally in addition to communicating in writing. One commenter recommended the rule be stricken because of the significant increase in the administrative costs of a policy, which will be passed on to the consumer, if a plan is required to interview each enrollee to determine if they or their dependent is disabled, has special needs or has chronic conditions. Response: The department agrees with the first comment concerning people with disabilities, but these rules can only address quality, availability and accessibility of services that are included in a contract. It is not the department's intent to require HMOs to offer services beyond the coverage offered in the enrollee's policy and what is required by TDI. In response to the second comment, the department responds the term "special needs" is intended for physiological conditions, not social and educational disadvantages. The intent of identifying enrollees with special needs is to assist the HMO in identifying enrollees at risk for high cost, long term care due to their special needs and facilitate the development and implementation of appropriate courses of care, and this language has been added to the rule. The department has added clarifying language that the term "services" means health care services as defined in sec.119.1 of this chapter (relating to Definitions), which is different than complaints. In regard to the last comment, the department responds the rule does not require that each enrollee be interviewed. The annual QI work plan could address how the enrollees are identified or identification could come from the employer group or providers. Comment: Concerning sec.119.23(5), several commenters suggested a standard credentialing form and process be developed for all health care providers. One commenter suggested dentists be added to the rule. One commenter stated the rule should be rewritten in order to be consistent with the TDI rules regarding QI. Response: The department disagrees there is a need for a standard credentialing form. The department considers the rules regarding QI to be within the department's statutory authority and consistent with TDI rules. The department has added a reference to dentists as requested. Comment: Concerning sec.119.23(6), one commenter requested clarification of the peer review requirement and asked the following questions: Are the procedures to apply if a provider contract is terminated or the right to provide services limited in some way? Do they apply only to providers who are already under contract with the HMO? Are the procedures applicable to all providers or just dentists and physicians as set forth in the Health Care Quality Improvement Act? Another commenter recommended the peer review procedure rule be amended to include locally practicing physicians, dentists and, as appropriate, other providers. One commenter stated the rule should be rewritten in order to be consistent with the TDI rules regarding QI. The commenter further stated the rule requiring peer review procedures meet the Health Care Quality Improvement Act (federal law) is inappropriate since the federal law is optional. Response: The department agrees that the Health Care Quality Improvement Act does not apply to all providers and has deleted the reference to the Act. The department has added language to clearly require procedures for all physicians, dentists and other providers. The new rule does not appear to conflict with any TDI rule. Peer review would be used where the performance of the physician, dentist or other provider is reviewed. Comment: Concerning sec.119.23(7), one commenter recommended expansion of the paragraph to allow monitoring and evaluation of the health promotion efforts using standards for preventive care already adopted by the department as benchmarks for Medicaid enrollees including requirements for studies of prenatal care, immunizations, asthma and behavioral health. One commenter suggested the department may consider adding cancer screenings and benchmarks for the management of diabetes. One commenter recommended the first sentence be changed to "Measurements, data collection and analysis. As appropriate to the circumstances, the HMO may track..." Response: The department disagrees with the commenters that more specificity is necessary in the rule; it would be impossible to list all the possible indicators. Health promotion is addressed in relettered sec.119.23(9). In regard to the last comment, the department believes the rule is reasonable and has made no changes. Comment: Concerning sec.119.23(8), one commenter requested the paragraph be expanded to require availability of the methodology, including the elaboration of underlying assumptions used to analyze care and services to plan providers, TDH and TDI upon request. One commenter recommended the word "shall" be changed to "may." Response: The department disagrees the rule needs to be expanded. The HMO Act provides the TDI and TDH authority to conduct examinations, and, in the HMO's assessment of quality of care or services, there should be adequate communication among physicians and providers concerning the entire QI process. In addition, the QI committee will include physicians, dentists and other providers throughout the service area. The department also disagrees with the second commenter. The department believes data collection and analysis are necessary components for the QI process to work. The rule is also broad enough to complement and not conflict with any rules promulgated by the Texas Health Care Information Council. Comment: Concerning sec.119.23(9) in general, numerous commenters requested subparagraphs (A) through (D) be deleted to avoid duplicity in the collection of data between the department and the THCIC; the commenters believe the THCIC should have the opportunity to collect and report the data. Two commenters requested the addition of language to clarify when the THCIC begins to collect HEDIS data from HMOs, the department shall access the data from the THCIC at which time the department shall have the right to consider all HEDIS data. One commenter requested a new subparagraph be added to address the provision of dental care and services by the HMO. Another commenter suggested substituting "health care" for "medicine" in paragraph (9) and subparagraph (9)(A) as many providers are involved in the preventive aspects of patient care. One commenter proposed the criteria for data submission not be limited to those established by the National Committee for Quality Assurance (NCQA) in the Health Plan Employer Data and Information Set (HEDIS), and that this data be submitted to the THCIC; urged the department to consider reporting measures which relate to the general population, particularly older persons; and proposed the methods for this data collection be identified to the external quality review organization. Several commenters questioned the use of only three HEDIS measures. One of the commenters stated Medicaid managed care requires reporting of most, if not all, of the data elements as they are presented in the Medicaid version of HEDIS. A commenter suggested another data related to the incidence of neural tube defects should be collected in excess of HEDIS data. Another commenter pointed out the department should obtain the data from the THCIC on an ongoing basis. Other commenters stated "the most recent HEDIS data" should be referenced rather than HEDIS 2.5, which will change. One commenter recommended the reference to the NCQA and HEDIS be deleted and the rule begin, "HMOs shall...." One commenter requested additional language to clarify that any HMO that has reported HEDIS data to any contracting or prospective employer or client shall be considered to be collecting the data and shall be required to submit the data to the department. One commenter proposed the raw data be retained for a period of no less than three years and until it is available for review by an external quality review organization during its examination. Response: The department agrees with the majority of the commenters and has deleted paragraph (9)in its entirety. The THCIC had not been appointed at the time the rules for data collection and submission were proposed. The council has now been appointed and expects to have rules for the collection of HEDIS data, which includes an enrollee satisfaction indicator, drafted by late summer. Therefore, the department does not intend to pursue finalization of the rules relating to data submission. However, the rules that require HMOs to track QI by using measurements and QI data collection and analysis remain. The department believes the rule language is broad enough that it will in no way conflict with the rules promulgated by the THCIC. All comments concerning data collection, including the proposal that TDH establish a data committee, will be shared with the THCIC for that council's information and whatever action they deem appropriate. Comment: Concerning sec.119.23(10) in general, one commenter questioned how TDH intends to evaluate health promotion, management and education and recommended it be done on a comparative basis with other HMOs. The commenter also recommended contributions of capital and other resources to community based agencies; health related initiatives of other programs should count toward meeting the objectives. One commenter recommended expansion of paragraph (7) of the section and deletion of paragraph (10). Concerning sec.119.23(10)(A) specifically, one commenter stated the rule is unclear as to whether the HMO must use all of the forms of outreach listed and recommended revision of the rule to allow the HMO to use its discretion to determine the form of outreach that will be used to encourage appropriate use of services. Response: The department agrees with the first commenter and has added language to recognize monetary contributions to community based organizations and health related initiatives of other programs. In regard to the first commenter's question, the department responds that during examinations surveyors evaluate what each HMO has done in the way of health promotion programs; no comparison of HMOs are done at this time. The department clarifies to the second commenter that the list of health promotion activities is not all inclusive and that all activities are not required by these rules. The rule is now sec.119.23(9). Comment: Concerning sec.119.23(10)(B), two commenters stated the rule is inappropriate because HMOs are not licensed to practice medicine and do not track test results and follow-up with physicians and providers. Another commenter requested the words "and possible genetic conditions" be added in two places in the rule following the words "chronic illnesses" and "chronic illness." One commenter recommended deletion of the rule because HEDIS indicators already provide the information. Response: The department agrees with the commenters who stated the rule is inappropriate. The department has deleted subparagraph (10)(B) and relettered the remaining subparagraph which is now sec.119.23(9)(B). Comment: Concerning sec.119.24 in general, one commenter recommended the functions should be under the purview of the medical director and that the appropriate resources will be devoted to the activities; therefore, the rule should be deleted. Response: The department disagrees with the commenter. An HMO's medical director would have substantial involvement in QI activities but the QI committee is generally accepted as the means to accomplish QI activities. Comment: Concerning sec.119.24(1), several commenters recommended enrollees be included in the rule. One commenter stated it is not customary for physicians, dentists, and other providers to sit on all QI subcommittees; they usually sit on physician advisory committees and peer review or credentialing committees. Response: The department agrees with the commenters. The department has changed the mandatory term "shall" to "may." The department has also modified the paragraph to be consistent with the language relating to the QI committee appointed by the governing body (sec.119.22(b)(1)). Comment: Concerning sec.119.24(1)(B), a commenter proposed the QI committee be required to meet no less than quarterly. Response: The department disagrees a time frame is necessary. QI activities are ongoing and based on each HMO's work plan schedule. Comment: Concerning sec.119.24(2)(A)(i), one commenter recommended the QI committee set time frames for decisions on referrals which should be no more than a maximum of two days; set time frames for the referrals themselves which should be no longer than 14 days, or in the event of an emergency immediately, and urgent care 24 hours; and analyze enrollee responses to surveys and recommend improvements. One commenter stated plans currently assess availability and accessibility but do not have information on a particular provider's capability of accepting new enrollees and referrals. The commenter also requested clarification of the term "post stabilization treatment." Response: The department disagrees that setting out time limits for appointments is appropriate. The department believes the QI program is the process to monitor and address response time to enrollees' needs. The HMO's identification of providers accepting new patients will occur at the time of the initial certificate of authority and from approval of service area expansion. Concerning the term "post stabilization," the department is tracking language from the TDI rules (28 TAC sec.11.204(20)(C)) in the clause. Post stabilization treatment is the treatment provided following treatment or stabilization of an emergency medical condition. The department has also deleted the reference to routine and urgent in the rule. The reasons for not using the term urgent were discussed in this preamble under comments on sec.119.1. Comment: Concerning sec.119.24(2)(A)(ii), several commenters suggested the rule address written notification to an enrollee from an HMO concerning denials, limitations, or termination of services. The letter should explain the decision, outline the complaint and appeal process with both the HMO and the department, and be written on a sixth grade level. Another commenter expressed concern with the continuity of care and the HMO's care for patients with special health care needs. Another commenter recommended the HMO give the enrollee reasonable advance notice when possible of a physician's deselection if the enrollee is under a specialist's care or is enrolled with the primary care physician as their gatekeeper. The commenter also recommended the rule address deselection of a plan by a physician and require the physician, in a form approved by the contracting HMO, to inform the HMO patients in writing, and at their own expense, in advance of their leaving. Another commenter requested the rule be amended and provided language to define the circumstances that will permit a dental patient to continue to be treated by his or her dentist of choice even though the dentist is terminated by the HMO. Response: The department disagrees with the commenters that recommended expansion of the rule. The department has incorporated the language of the TDI rule at 28 TAC sec.11.1103, except for the reimbursement provisions, because of its importance in the quality, availability and accessibility of care. However, the department believes it appropriate for TDI to make any changes if they deem it appropriate. The written notification to enrollees is addressed in this preamble concerning sec.119.26. The rule requiring the written notification is now sec.119.25(d). Comment: Concerning sec.119.24(2)(B), several commenters suggested enrollee satisfaction surveys be conducted annually according to the HMO data committee's suggested standard format; and one of the commenters recommended moving the provision into sec.119.23. One commenter recommended the department standardize the enrollee satisfaction surveys and make the results available to consumers. One commenter recommended the rules provide sufficient flexibility to allow appropriate alternative approaches to quality assessment when the HMO enrollees are children and allow parents or other responsible adults to be the respondents in any satisfaction surveys. One commenter stated much of the data will be submitted to the THCIC and recommended the subparagraph be deleted in its entirety. Response: The department agrees with the majority of the commenters but has chosen to delete the questions contained in clauses (i) through (iv). The enrollee satisfaction survey is one of the quality indicators in the HEDIS that should be collected by the THCIC. The first sentence of the subparagraph is reasonable and is retained as a responsibility of the QI committee. Comment: Concerning sec.119.24(2)(C), one commenter suggested dentists be included in the rule and that the rule should extend to the denial of all health care and dental services, whether covered, because the most often disputed denials evolve around the issue of whether the service is or is not covered. One commenter pointed out in the case of a child, it may be the parent or another responsible adult who initiates the complaint. Furthermore, the parent may not be the enrollee in the HMO in the case of a family in which only the children are covered by Medicaid managed care. One commenter who had recommended the inclusion of an enrollee advisory committee under sec.119.23, recommended adding to this rule that the recommendations of the committee shall be analyzed by the QI committee. Response: The department agrees with the commenters in part. The department has deleted some of the language in the first sentence. Since the department has defined "complaint," there is no need for the language "....including denials, terminations or other limitations of covered health care services, both verbal and written, initiated by enrollees, physicians or providers concerning care or services ..." The definition of "complaint" includes one that is expressed by a "complainant." The definition of "complainant" includes treating physicians, treating dentists, treating providers, or other individual designated to act on behalf of the enrollee. The rule does not prohibit the QI committee considering recommendations of an enrollee advisory committee if one is established by a plan. Comment: Concerning sec.119.24(2)(F)(i)-(v), one commenter recommended the practice guidelines, clinical care standards or parameters of care for physicians and dentists be approved by participating physicians or providers, if applicable, in accordance with accepted current medical criteria that are established, taking into account special circumstances of each case that may require a deviation from the norm stated in the medical criteria. The commenter further recommended the criteria be objective, clinically valid, compatible with established principles of health care, and flexible enough to allow deviations from the norms when justified on a case-by-case basis. One commenter recommended the addition of communication to enrollees and consideration of outside input to the rule. One commenter suggested the rule require practice guidelines to be clinically sound, scientifically based, accepted by a national medical or academic body and approved by participating physicians and dentists to ensure that any standards used by the HMO are consistent with good medical practice which will prevent HMOs from developing their own guidelines which may be inconsistent with national standards of care. One commenter recommended the QI committee be required to evaluate the performance of physicians and dentists against accepted parameters of care rather than empower the committee to develop such standards. The commenter also suggests a rule to direct HMOs to document corrective action. Response: The department agrees with the first commenter and has modified the rule as recommended. The department believes the rule as amended may alleviate the concerns the other commenters have about the QI committee developing the practice guidelines. Comment: Concerning sec.119.24(2)(F)(iv), one commenter suggested dentists be included in the rule. Response: The department agrees and has added "dentist" to the rule. Comment: Concerning sec.119.24(2)(H)(i), one commenter recommended the written report also require the HMO to document how it is improving the follow-up it performs for enrollees requiring dental care. Response: The department disagrees with the commenter. The report should be inclusive regardless of service. Comment: The department received many comments concerning sec.sec.119.25-119.27. Regarding sec.119.25, the commenters urged the department to develop a method whereby UR, case review and pre-authorization would be performed only by qualified, credentialed and adequately educated personnel; recommended clear direction be given that the underutilization of services should be investigated and action taken if it is determined that services which should be provided are not being provided and that corrective action be taken and documented when problems are identified; stated UR should be the responsibility of the medical director to oversee these activities whether they are accomplished by in-house personnel or a separate vendor and recommended any reference to the UR committee be changed to "the chief medical officer or clinical director;" stated there is mention of a denial shall include complaint and appeal process information but it is unclear exactly how it is to be carried out; recommended the rules go further in requiring criteria be clinically sound, scientifically based, and academically or scientifically approved by participating physicians; recommended "health care services" be substituted for "medical services" in subsection (a) because many services other than those provided by a physician will be provided by HMOs; suggested the phrase "To the extent that an HMO does perform utilization review" as used in subsections (a) and (b) be deleted; supported reporting and external quality examinations but pointed out there is no description of the criteria for plan evaluation and recommended the development of these criteria; requested standards to encourage superior UR protocols which are consistent with accepted medical practice; proposed the UR criteria should be objective, clinically valid, and compatible with established principles of health care; and suggested the criteria be flexible enough to allow for care on a case by case basis in order to compensate for special cases. In regard to sec.119.26, the commenters stated HMOs and approved nonprofit health corporations should not be required to meet two separate and possible conflicting regulatory standards in cases where the entity is also a licensed UR agent and suggested the rule be rewritten in order to be consistent with Article 21.58A of the Insurance Code and rules promulgated thereunder; stated the proposed rule appears to track the Texas Insurance Code, Article 21.58A and recommended the law and regulations be cross-referenced to ensure there is no conflict between the TDI and department rules; recommended a new subsection (e) (and renumbering of the remaining subsections) that sets out timelines for notification of denial, termination or other limitation of services; stated the protocols should be clinically sound, scientifically based, accepted by a national medical or academic body and approved by participating physicians, dentists and, as appropriate, providers to ensure that any standards used by the HMO are consistent with good medical practice and which will prevent HMOs from developing their own guidelines which may be inconsistent with national standards of care; urged the department to amend the paragraph to include "other providers" to ensure all providers have access to the criteria by which they will be judged; recommended the criteria be provided enrollees rather than just be available and that the criteria be objective, clinically valid, compatible with established principles of health care and flexible enough to allow deviations from the norms when justified on a case-by-case basis; requested the rule clarify how criteria is to be used, i.e. will non-physician reviewers use it for UR purposes; recommended adding "or other provider" after the word "physician" in subsection (b) as consultations with other health care professionals may be the most efficient way to obtain needed information; suggested language be added to require UR decisions to be made in accordance with accepted current medical criteria taking into account special circumstances of each case that may require a deviation from the norm stated in the medical criteria; expressed concern with the broad time frame established in this section and requested a firmer time frame; suggested the word "covered" be deleted in subsection (d) since all such determinations are coverage decisions and recommended the notification to the enrollee be in plain language (others recommended the language be written at the sixth grade reading level), delivered in writing, and include a description or the source of the screening criteria that were utilized as guidelines in making the determination, information on the available state agency complaint process and the TDI address and toll free number; recommended additional language that screening criteria must be used only to determine whether to certify the requested treatment or to refer the request to the appropriate physician, dentist, or another health care provider to determine medical necessity; recommended the subsection (e) be amended to include language relating to new applications of established technologies, that physician specialists participate in the development of technology evaluation criteria, and that the criteria be used effectively to assess new technologies and new applications of existing technologies; and requested a new paragraph be added to address unlabeled uses of FDA-approved drugs such as the standard promulgated by the TDI for approval of off-label uses of FDA approved drugs. Concerning sec.119.27, the commenters stated HMOs and ANHCs should not be required to meet two separate and possible conflicting regulatory standards in cases where the entity is also a licensed UR agent and suggested the rule be rewritten in order to be consistent with Article 21.58A of the Insurance Code and rules promulgated thereunder; voiced concern about non-medically trained personnel making decisions about which services a client should receive; stated the requirement that the QI committee conduct UR is inappropriate because many HMOs have nurses, not a committee, who conduct UR and recommended UR be overseen and monitored by the QI committee rather than accomplished by the QI committee; recommended evaluation of retrospective review and evaluation of case management be added to subsection (d); requested an additional paragraph be added to provide that analysis of the UR decision protocols, including the consistency of applications across reviewers and the flexibility built into the process for approval of deviations where justified on a case-by-case basis; recommended an option be added to appeal to the department; requested "qualified health care professionals" be substituted for "qualified medical professionals" in subsection (e) as nurses are often responsible for preauthorization and concurrent review; recommended "respective review, discharge planning, and case management" be added to subsection (e); recommended adding language to the rule which stipulates the provider reviewing the denial shall be licensed by the same licensing board as the provider who was denied which will ensure the reviewer has equal and similar training as the provider who was denied; and recommended the inclusion of "dentist" and "dentistry" to paragraph (e)(2). Response: After review of TDI rules at 28 TAC sec.19.1719(a) and the Insurance Code, Article 21.58A, sec.14 (g), the department has deleted provisions in the proposed sections that could conflict with the TDI rules and the statute. The only language remaining in sec.119.25 is a reference to the statute and TDI rules; a provision relating to delegation of UR activities; the requirement for the QI committee to receive, review and take action on reports of UR decisions; and a requirement for reasons for denial, reduction or termination of a service to be provided in writing to the enrollee in a simple and understandable format which was moved from proposed sec.119.26(d). In response to requests from consumers, the new sec.119.25(d) has been expanded to require the HMO to provide the rationale for its decision including the clinical basis in the written notice. Sections 119.26 and 119.27 have been deleted. Comment: Concerning sec.119.51(a) in general, numerous commenters suggested the department reevaluate which providers should be required to be available 24 hours per day, 7 days per week and recommended striking the reference to dental services and physical therapy services so the rule applies only to primary care physicians. One of the commenters stated the rule should make allowance for call-covering providers. Response: The department agrees with the commenters and has clarified the rule to apply to primary care physicians or their designated physician coverage only. Comment: Concerning sec.119.51 (a)(1)(A), one commenter recommended the department define more clearly what is required to comply with the availability of emergency and urgent care after normal business hours since many HMOs fail to provide a bona fide alternative to the hospital emergency room which results in enrollees being forced to go to emergency room for urgent care and paying higher emergency room copayments. The commenter recommended the language used in the department's Medicaid Managed Care Request for Applications. Response: The department agrees with the commenter but believes the rule is redundant of the previous sec.119.51(a)(1) which requires 24 hours per day 7 days a week availability and accessibility; therefore, the department has deleted subparagraph (A) and has relettered the remaining subparagraphs. Comment: Concerning sec.119.51 (a)(1)(B), one commenter recommended language be added that an enrollee may speak to a member of the primary care physician's staff, not only to the physician. The commenter stated the way the rule is worded leads one to believe the physician must answer and talk to every patient who calls when most of the time the staff can handle the patient's needs. Response: The department disagrees; it is generally understood the first in the line of communication with a physician is through the physician's staff. The department has clarified the rule applies only to primary care physicians or their designated physician coverage only. The rule is now sec.119.51(a)(1)(A). Comment: Concerning sec.119.51(a)(1)(C), one commenter recommended the rule provide that HMOs which fail to provide an alternative to the hospital emergency department for after-hours care may not require enrollees to provide co-payments above the office visit rate for emergency room visits made to obtain urgent care. Response: The department disagrees with the commenter that financial matters should be addressed in these rules. The HMO Act, Article 20A.09 (relating to Evidence of Coverage and Charges) clearly provides the commissioner of insurance the authority to approve an HMO's evidence of coverage which includes any limitation on the services, kinds of services, benefits, or kinds of benefits to be provided, including any deductible or copayment feature. The department has deleted "respective geographic" in accordance with the deletions of rules relating to service area as addressed previously in this preamble. The rule is now sec.119.51(a)(1)(B). Comment: Concerning sec.119.51(a)(2), one commenter recommended the inclusion of "dentists" in the rule. Response: The department disagrees because the subsection applies only to primary care physicians. The department has deleted the word "geographic" in accordance with the deletions of rules relating to service area as addressed previously in this preamble. Comment: Concerning sec.119.51 (a)(3), numerous commenters stated the sufficiency of primary care physicians should be measured by an enrollee's immediate access to emergency care; appointments within 24 hours for urgent care; appointments within two weeks for non-urgent medical treatment; and appointments within 10 weeks for routine physicals and wellness exams. Several of the commenters recommended decisions regarding requests for referrals be made within two working days. Two commenters questioned the "adequate or sufficient number" of physicians and how this number will be determined. Another commenter strongly recommended that the regulation include a specific, measurable and enforceable standard for the adequacy of the network and suggested the department adopt the standards for access to appointments set out in the draft Medicaid HMO contract at Standard XI. Response: The department agrees with the commenters that sufficiency of primary care physicians can be measured but disagrees that setting out time limits for appointments is appropriate. The department believes the QI program should be the mechanism to determine sufficiency. The rules require access to emergency care and primary care physicians 24 hours a day, 7 days a week which the department believes is the critical measure of outcome. This should not conflict with the standards set out in the draft Medicaid HMO contract. The department has also deleted references to other providers as the subsection applies only to primary care physician services. Comment: Concerning sec.119.51(b) in general, one commenter stated there should be an avenue for obtaining a genetic evaluation including access to the genetic provider of choice and appropriate genetic laboratory testing and that primary care providers in the system need to be knowledgeable about indicators for possible genetic conditions and referral to appropriate specialists. Response: The department disagrees with the commenter that the rule should be expanded to address each type of condition that may lead to referral to a specialist. Comment: Concerning sec.119.51(b)(1), one commenter stated round-the-clock access to specialists for non-emergent conditions would not enhance quality of care and would impose substantial expenses, including overtime pay for staff and round-the-clock operation of facilities and equipment. The commenter recommended deletion of the rule. Response: The department responds the rule language tracks the current HMO rules which have not created undue burden in their application and in the interpretation. The intent is to provide availability and accessibility for routine (normal business hours), emergency conditions and more urgent medical needs of enrollees which can occur at anytime. The department has deleted the word "geographic" in accordance with the deletions of rules relating to service area as addressed previously in this preamble. Comment: Concerning sec.119.51(b)(2), numerous commenters stated the sufficiency of referral specialists should be measured by an enrollee's immediate access to emergency care; appointments within 24 hours for urgent care; appointments within two weeks for non-urgent medical treatment; and appointments within 10 weeks for routine physicals and wellness exams. Several of the commenters proposed two working days for decisions regarding referral requests to specialty care. Two commenters questioned the "adequate or sufficient number" of physicians and how this number will be determined. Response: The department agrees with the commenters that sufficiency of referral specialists can be measured but disagrees that setting out time limits for appointments is appropriate. The department believes the QI program should be the mechanism to determine sufficiency. The rules require access to emergency care, primary care physicians and referral specialists 24 hours a day, seven days a week which the department believes is the critical measure of outcome. Comment: Concerning sec.119.52(a), one commenter recommended language from the existing rule which states "...except that the services should be provided by participating providers and physicians" which was not carried forth into the proposed rules be added. The commenter stated the HMO is responsible for the provision of emergency medical care and would not be able to rely on the fact that a non-contracting provider may be available to provide emergency medical care 24 hours a day. Response: The department disagrees. To add language would contradict with the language in sec.119.52(b) which addresses payment for emergency services to non- network physicians or providers. Comment: Concerning sec.119.52(b) in general, two commenters expressed concern that HMOs deny emergency claims by providers based on retrospective evaluation of the visit. The commenters stated most individuals enter emergency care in good faith and should not be denied payment. One commenter requested the words "or dental" and "and dental" be inserted respectively in subsections (a) and (b) before the word "condition" in the rules. One commenter pointed out there is no enforcement mechanism in cases where an HMO plan fails to meet the prescribed response time for an emergency care inquiry. The commenter requested the department add language that the service shall be deemed approved if the response time lapses before the HMO responds. One commenter recommended the rule require HMOs to provide one number to providers for approval or disapproval of post stabilization care within one hour. One commenter stated the requirement does not recognize the regional nature of many specialized services which is necessary to ensure quality for the treatment of many rare or low volume problems and conditions. The commenter recommended consistency between this provision and sec.119.21 (j) which recognizes that some higher levels of skill or specialty treatment may not be available within the service area and allows HMOs to make arrangements outside the service area. Response: The department agrees with the commenters but has not modified the rule which is one promulgated by the TDI. The rule is repeated in these rules only because of its importance. Any change to the rule would be made by TDI and such change would necessitate an amendment to these rules. The department agrees with the commenter who requested references to dentists be added and has added the references in order to be consistent within these rules. Comment: Concerning sec.119.53, one commenter requested the HMO be required to have in their network a designated tertiary trauma facility, at least a Level III. Response: The department disagrees with the commenter. The department believes the requirement is too restrictive. The department has deleted the words "defined geographic" and "geographic" in accordance with the deletions of rules relating to service area as addressed previously in this preamble. Comment: Concerning sec.119.54 in general, numerous commenters requested additional language that mandates availability of diagnostic and therapeutic services shall be adequate to ensure compliance with immediate access for emergency care; appointments within 24 hours for urgent care; appointment within two weeks for non-urgent medical treatment; and appointment within 10 weeks for routine physicals and wellness exams. Response: The department agrees with the commenters that sufficiency of diagnostic and therapeutic services can be measured but disagrees that setting out time limits for appointments is appropriate. The department believes the QI program should be the mechanism to determine sufficiency. The rules require access to emergency care, primary care physicians and referral specialists 24 hours a day, seven days a week which the department believes is the most critical measure of outcome. The department has deleted the word "urgent" for reasons provided previously in this preamble in sec.119.1. Comment: Concerning sec.119.55 in general, one commenter recommended the department find out if an HMO is federally certified; which HMOs are not federally certified; and what optional services the HMO provides. The commenter further recommended the department obtain evidence of coverage for each HMO and compare it with utilization data. The commenter further stated pharmacy must be included, otherwise, you cannot provide appropriate care. Two commenters suggested long term services must include personal assistance services (PAS), independent living supports, respite, and maintenance or improvement of function services such as physical therapy, occupational therapy, speech therapy, assistive technology and prescription drugs. Long term and intermittent PAS must be available where persons with disabilities need them. Response: The department disagrees with the commenters. The HMO Act, Article 20A.02 provides a definition for basic health care services which includes at a minimum emergency care, inpatient hospital and medical services, and outpatient medical services. The department cannot require services above and beyond what is required by statute and administered by TDI. The department has deleted the words "respective geographic" and "geographic" where they appear in the section in accordance with the deletions of rules relating to service area as addressed previously in this preamble. Comment: Concerning sec.119.55(3)(B)(ii), one commenter stated the provision would be economically prohibitive for a vast majority of small retail pharmacies, due to the costs involved in maintaining drug profiles and recommended the committee only request pharmacies to implement programs to detect inappropriate drug use. Response: The department disagrees with the commenter. The rules of the Texas State Board of Pharmacy at 22 TAC, sec.291.33(c)(2)(A) mandate a pharmacist to review the patient's medication record and, upon identifying any clinically significant conditions, situations or items as set out in the rule, to take appropriate steps to avoid or resolve the problem including consultation with the prescribing practitioner. The department has substituted "medication records" for "drug profiles" in the rule. Comment: Concerning sec.119.55 (4), one commenter requested additional language be added as follows: "At no time will the HMO, directly or through contracts, offer as an optional health service, through the use of a rider, to provide "injured worker coverage" for enrollees whose employers are non-subscribers to the Texas Workers' Compensation system or to offer a rider to cover "automobile accidental injury" for enrollees or employers who do not carry automobile liability/medical coverage on their vehicles." Response: The department disagrees. The terms of an HMO's evidence of coverage are determined by the HMO and TDI in its review of the evidence of coverage. Comment: Concerning sec.119.55(4)(A), one commenter stated "hearing," "speech," and "drug dependency" should be struck from the rule because the services are mandatory or mandatory offerings under the Texas Insurance Code, Art.3.51-9 and Art. 3.70-2(G) respectively. Response: The department agrees with the commenter and has struck the language from the rule. Comment: Concerning sec.119.56 in general, one commenter suggested adding "or other providers" after "single health care physicians and dentists" in (c)(3) to maintain consistency with sec.119.56 (d)(1). Another commenter requested a reference to "dentist" be added in the rule at sec.119.56(e)(3). Response: The department agrees with the commenter and has added the requested language. The department recognizes there are some hospital medical staff bylaws that allow coadmission of patients by providers as long as the patient is under the care of a physician. The department agrees with the second commenter and has added the reference to dentist. The department has also deleted the references at sec.119.56(f)(10), (11) and (14) because the sections were deleted from these rules. The department has deleted the words "geographic" where they appear in the section in accordance with the deletions of rules relating to service area as addressed previously in this preamble. Comment: Concerning sec.119.71, one commenter suggested that administrative penalties should be sought for violation of the rules. Response: The department disagrees with the commenter that these rules should address administrative penalties. The right to assess administrative penalties would have to be statutorily authorized. The HMO Act, Article 20A.20 (relating to Suspension or Revocation of Certificate of Authority) provides for enforcement activities by TDI. The department received comments from many individuals including State Representative Glen Maxey, and organizations and associations including Advocacy, Inc., Aetna Health Plans of Texas, Inc., Aetna Health Plans of North Texas, Inc., American Association of Health Plans, American Association of Retired Persons, Blue Cross Blue Shield of Texas, Center for Public Policy Priorities, Children's Hospital Association of Texas, Coalition for Nurses in Advanced Practice, Coalition of Texans with Disabilities, Consumers Union, Directors Association of Texas Centers for Independent Living, Disability Policy Consortium, Epilepsy Coalition of Texas, Family to Family Network, FHP of Texas, Inc., FHP of New Mexico, Inc., FIRSTCARE, Gray Panthers, Harris Methodist Health System, Harris Methodist Texas Health Plan, Haynes and Boone, LLP, Health Insurance Association of America, Healthsource Texas, Inc., Texas Legal Services Center on behalf of the Houston Welfare Rights Organization, Humana Health Care Plans, Interagency Council for Genetic Services, Jenkens & Gilchrist on behalf of the Texas Dental Association, Kaiser Permanente, MD Anderson Cancer Center, Mental Health Association of Texas, MetraHealth, Central Texas, National Association of Social Workers/Texas, National Heritage Insurance Company, Network for Chronically Ill and Medically Fragile Children, NYLCARE Health Plans, Office of Public Insurance Counsel, PacifiCare of Texas, PCA Health Plans of Texas, Inc., The Prudential, Scott & White, Spina Bifida Association of Texas, Texas Academy of Physician Assistants, Texas Advocates, Texas Advocates for Special Needs Kids, Texas Alliance for the Mentally Ill, Texas Association for Home Care, Texas Association of Obstetricians and Gynecologists, Texas Association of Orthotists and Prosthetists, Texas Business Group on Health, Texas College of Emergency Physicians, Texas Head Injury Association, Akin, Gump, Strauss, Hauer & Feld, L.L.P. on behalf of the Texas Health Maintenance Organization Association, Texas Hospital Association, Texas Medical Association, Texas Medical Foundation, Texas Neurological Society, Texas Nurses Association, Texas Occupational Therapy Association, Inc., Texas Optometric Association, Texas Orthopedics Association, Texas Osteopathic Medical Association, Texas Pain Society, Texas Physical Therapy Association, Texas Planning Council of Developmental Disabilities, Texas Psychological Association, Texas Respite Resource Network, Texas Senior Advocacy Coalition, Texas Society of Internal Medicine, Texas Society of Plastic Surgeons, Texas Speech-Language-Hearing Association, The Arc of Texas, United Cerebral Palsy of Texas, Inc., Texas Department of Insurance, and the Texas Department of Health. The commenters were not in agreement with specific provisions in the rules, but no commenters opposed the rules in their entirety. They had questions, recommendations, and concerns regarding specific provisions in the rules. sec.sec.119.1-119.15 The repeals are adopted under the Texas Insurance Code, Chapter 20A, which provides the Texas Board of Health with authority to adopt rules to establish minimum standards regarding the quality of health care services, including availability, accessibility and continuity of services, to be furnished by an HMO to its enrollees; and under Health and Safety Code, sec.12.001 which provides the board with the authority to adopt rules for the performance of every duty imposed by law upon the board, the department and the commissioner of health. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be within the agency's authority to adopt. Issued in Austin, Texas, on August 7, 1996 TRD-9611355 Susan K. Steeg General Counsel Texas Department of Health Effective date: October 1, 1996 Proposal publication date: March 12, 1996 For further information, please call: (512) 458-7236 SUBCHAPTER A. General Provisions sec.sec.119.1-119.4 The new sections are adopted under the Texas Insurance Code, Chapter 20A, which provides the Texas Board of Health with authority to adopt rules to establish minimum standards regarding the quality of health care services, including availability, accessibility and continuity of services, to be furnished by an HMO to its enrollees; and under Health and Safety Code, sec.12.001 which provides the board with the authority to adopt rules for the performance of every duty imposed by law upon the board, the department and the commissioner of health. sec.119.1. Definitions. The following words and terms, when used in these sections, shall have the following meanings, unless the context clearly indicates otherwise. Adverse determination-A determination by a health maintenance organization (HMO) that the health care services furnished or proposed to be furnished to an enrollee are not medically necessary or not appropriate in the allocation of health care resources. Basic health care services-Health care services which an enrolled population might reasonably require in order to be maintained in good health, including, as a minimum, emergency care, inpatient hospital and medical services, and outpatient medical services. Commissioner-The commissioner of insurance. Complainant-An enrollee or a treating physician, treating dentist, treating provider or other person designated to act on behalf of the enrollee, who files a complaint. Complaint-Any dissatisfaction, expressed by a complainant orally or in writing to the HMO, with any aspect of the HMO's operation, including but not limited to dissatisfaction with plan administration; appeal of an adverse determination; the denial, reduction or termination of a service; the way a service is provided; or disenrollment decisions expressed by a complainant. A complaint is not a misunderstanding or misinformation that is resolved promptly by supplying the appropriate information or clearing up the misunderstanding to the satisfaction of the enrollee. Credentials-Certificates, diplomas, licenses or other written documentation which establishes proof of training, education, and experience in a field of expertise. Deficiency-A statement or notice of noncompliance cited by the Texas Department of Health during an examination of a health maintenance organization. Dentist-A person licensed to practice dentistry by the Texas State Board of Dental Examiners. Department-Texas Department of Health, 1100 West 49th Street, Austin, Texas 78756. Emergency care-Bona fide emergency services provided after the sudden onset (including the worsening of a chronic condition) of a medical condition manifesting itself by acute symptoms of sufficient severity, including severe pain, such that the absence of immediate medical attention could reasonably be expected to result in: (A) placing the patient's health in serious jeopardy; (B) serious impairment to bodily functions; or (C) serious dysfunction of any bodily organ or part. Enrollee-An individual who is enrolled in a health care plan, including covered dependents. Evidence of coverage-Any certificate, agreement, or contract issued to an enrollee setting out the coverage to which the enrollee is entitled. General hospital-An establishment that: (A) offers services, facilities, and beds for use for more than 24 hours for two or more unrelated individuals requiring diagnosis, treatment, or care for illness, injury, deformity, abnormality, or pregnancy; and (B) regularly maintains, at a minimum, clinical laboratory services, diagnostic X-ray services, treatment facilities including surgery or obstetrical care or both, and other definitive medical or surgical treatment of similar extent. Health care-Prevention, maintenance, rehabilitation, pharmaceutical, and chiropractic services provided by qualified persons other than medical care. Health care plan-Any plan whereby any person undertakes to provide, arrange for, pay for, or reimburse any part of the cost of any health care services; provided, however, a part of such plan consists of arranging for or the provision of health care services, as distinguished from indemnification against the cost of such service, on a pre-paid basis through insurance or otherwise. Health care services-Any services, including the furnishing to any individual of pharmaceutical services, medical, chiropractic, or dental care, or hospitalization or incident to the furnishing of such services, care, or hospitalization, as well as the furnishing to any person of any and all other services for the purpose of preventing, alleviating, curing or healing human illness or injury or a single health care service plan. Health maintenance organization (HMO)-Any person, as defined in this section, who arranges for or provides a health care plan or a single health care service plan to enrollees on a prepaid basis. Health maintenance organization delivery network-A health care delivery system in which a health maintenance organization arranges for health care services directly or indirectly through contracts and subcontracts with providers and physicians. Medical care-The furnishing of those services defined as practicing medicine under the Medical Practice Act, Texas Civil Statutes, Article 4495b, sec.1.03. Pathology services-A laboratory which has the capability of evaluating tissue specimens for diagnoses in histopathology, oral pathology, or cytology. Person-Any natural or artificial person, including, but not limited to, individuals, partnerships, associations, organizations, trusts, hospital districts, limited liability companies, limited liability partnerships, or corporations. Physician-A physician is: (A) an individual licensed to practice medicine in this state; (B) a professional association organized under the Texas Professional Association Act (Texas Civil Statutes, Article 1528f) or a nonprofit health corporation certified under sec.5.01, Medical Practice Act (Texas Civil Statutes, Article 4495b); or (C) another person wholly owned by physicians. Primary care physician or primary care provider-A physician or provider who is responsible for providing initial and primary care to patients, maintaining the continuity of patient care, and initiating referral for care. Prospective enrollee-A prospective enrollee is: (A) in the case of an individual who is a member of a group, an individual eligible for enrollment in an HMO purchased through that individual's group; or (B) in the case of an individual who is not a member of a group or whose group has not purchased or does not intend to purchase an HMO plan, an individual who has expressed an interest in purchasing individual HMO coverage and who is eligible for coverage by the HMO. Provider-A provider is: (A) any person other than a physician, including a licensed doctor of chiropractic, registered nurse, pharmacist, optometrist, pharmacy, hospital, or other institution or organization or person that is licensed or otherwise authorized to provide a health care service in this state; (B) a person who is wholly owned or controlled by a provider or by a group of providers who are licensed to provide the same health care service; or (C) a person who is wholly owned or controlled by one or more hospitals and physicians, including a physician-hospital organization. Psychiatric hospital-A hospital which offers inpatient services, including treatment, facilities, and beds for use beyond 24 hours, for the primary purpose of providing psychiatric assessment and diagnostic services and psychiatric inpatient care and treatment for mental illness. Such services must be more intensive than room, board, personal services, and general medical and nursing care. Although substance abuse services may be offered, a majority of beds must be dedicated to the treatment of mental illness in adults and children. Quality improvement-An approach to the continuous study and improvement within an organization where opportunities to improve care and service are found primarily by examining the systems and processes by which care and services are provided. Reference laboratory-A laboratory that accepts specimens for testing from outside sources. A reference laboratory does not have an inhouse patient population to provide services to; their business depends on referrals from other laboratories or entities. Health maintenance organizations may contract with a reference laboratory to provide clinical diagnostic services to their enrollees. Reference laboratory specimen procurement services-The operation utilized by the reference lab to pick up the lab specimens from the client offices or referring labs, etc. for delivery to the reference laboratory for testing and reporting. Referral specialists (other than primary care)-Specialists who set themselves apart from the primary care physician or primary single service provider through specialized training and education in a health care discipline. Service area-The geographical area within which direct service benefits are available and accessible to HMO enrollees. Single health care service-A health care service that an enrolled population may reasonably require in order to be maintained in good health with respect to a particular health care need for the purpose of preventing, alleviating, curing, or healing human illness or injury of a single specified nature and that is to be provided by one or more persons each of whom is licensed by the state to provide that specific health care service. Single health care service plan-A plan under which any person undertakes to provide, arrange for, pay for, or reimburse any part of the cost of a single health care service, provided, that a part of the plan consists of arranging for or the provision of the single health care service, as distinguished from an indemnification against the cost of the service, on a prepaid basis through insurance or otherwise and that no part of that plan consists of arranging for the provision of more than one health care need of a single specified nature. Special hospital-An establishment that: (A) offers services, facilities, and beds for use for more than 24 hours for two or more unrelated individuals who are regularly admitted, treated, and discharged and who require services more intensive than room, board, personal services, and general nursing care; (B) has clinical laboratory facilities, diagnostic X-ray facilities, treatment facilities, or other definitive medical treatment; (C) has a medical staff in regular attendance; and (D) maintains records of the clinical work performed for each patient. Utilization review-A system for prospective or concurrent review of the medical necessity and appropriateness of health care services being provided or proposed to be provided to an individual within this state. Utilization review shall not include elective requests for clarification of coverage. sec.119.2. Application, Assessments and Fees. (a) Texas Department of Insurance (TDI). The Texas Department of Health (department) may contract with the TDI to perform functions relating to review of applications for certificates of authority and related documents. (b) Original application. (1) TDI will forward all applications for a certificate of authority to the department for review. (2) Upon receipt of the application from TDI, the department shall acknowledge receipt of the application and bill the applicant for the original application fee of $3,000 which shall be due to the department within ten days of the applicant's receipt of the billing. (3) The department shall review the application and related documents upon receipt of the application fee. (4) When the department has reviewed the application and related documents, a representative of the department may contact the HMO if additional information is needed. (5) When the application is complete, the representative shall schedule an on- site examination at the HMO administrative office. (6) Following the examination, the department shall give written notification to the TDI of whether the proposed HMO meets the requirements of this chapter. The written notice shall be provided within 45 days of the department's receipt of the completed application. (c) Examination expenses and assessments. (1) The HMO shall pay examination expenses for standard, complaint and other examinations for service area expansions, and to verify correction of deficiencies on-site or by mail. Examination expenses include all the expenses attributable directly to a specific examination, including the actual salaries and expenses of the examiners plus the cost of administrative departmental expenses, directly attributable to that examination. (2) The department shall bill the HMO for the examination expenses following the examination. The HMO shall pay the amount within 30 days of the HMO's receipt of the billing. (3) The examination expenses and assessments for a foreign HMO and a domestic HMO shall be calculated in the same manner. (d) Payment of fees. (1) Any remittance submitted to the department in payment for a required fee or assessment must be in the form of a certified check, money order, or personal or business check made out to the Texas Department of Health. (2) All fees and assessments received by the department are non-refundable. sec.119.3. Examinations. (a) General. The Texas Department of Health (department) shall conduct quality of care examinations of a health maintenance organization (HMO) to review the quality, availability and accessibility of health care services. The department may contract with the Texas Department of Insurance (TDI) to perform functions relating to examinations. (1) Official representatives of the Texas Department of Insurance (TDI) and the department may examine the officers and agents of the HMO and the principals of such physicians and, if applicable, providers such as dentists and physical therapists concerning their business. (2) Every HMO shall make its books and records relating to its operation available for such examinations and in every way facilitate the examinations. Every physician and, if applicable, providers such as dentists and physical therapists with whom an HMO has a contract, agreement, or other arrangement need only make available for examination that portion of its books and records relevant to its relationship with the HMO. (3) The department may conduct an examination as often as it deems necessary, but not less than once every three years. (b) Types of examinations. (1) Examination prior to issuance of certificate of authority. The department shall conduct a qualifying examination of an applicant prior to the issuance of a certificate of authority by the TDI in accordance with 28 Texas Administrative Code, Subchapter C, sec.sec.11.201-11.208 (relating to Application for Certificate of Authority). Department surveyors shall conduct the qualifying examination in accordance with the protocol set out in subsection (c) of this section. The documents listed in subsection (c)(3) of this section shall be available to the department at the HMO administrative office. (2) Standard examinations. (A) Subsequent to the issuance of the certificate of authority, the department shall conduct on-site quality of care examinations of an HMO to review the quality, availability, and accessibility of health care services. (B) Department surveyors shall conduct the examination in accordance with the protocol set out in subsection (c) of this section. (3) Complaint examinations. The department shall conduct complaint examinations concerning the quality, availability, or accessibility of care. (A) Complaints may be reported to the TDI as provided by sec.119.4 of this title (relating to Reporting Complaints). (B) Department surveyors shall conduct the complaint examination in accordance with the protocol set out in subsection (c) of this section. (C) The department may conduct the examination without prior notice to the HMO. (4) Other examinations. The department may conduct other examinations as it determines necessary. (A) Department surveyors shall conduct the examinations in accordance with the protocol set out in subsection (c) of this section. (B) Examinations may be conducted for reasons including but not limited to the following: (i) amendments to a certificate of authority, including service area expansions, that affect the quality, availability or accessibility of care; or (ii) to verify correction of deficiencies. (c) Examination protocol. Department surveyors shall adhere to the following protocol when conducting on-site examinations. (1) Entrance conference. Department surveyors shall hold an entrance conference with administrative personnel or their designee before beginning the on-site examination to explain the nature, scope, and estimated time schedule of the examination. (2) Interviews. Department surveyors may conduct interviews with any person with knowledge of the facts, including but not limited to: (A) administrative personnel, including the HMO president or chief executive officer; (B) operations manager, medical (dental, vision, or mental health) directors and quality improvement committee personnel; (C) utilization review personnel; (D) membership services personnel; (E) complaint personnel; (F) physician, dentist and other provider relations personnel; (G) physicians, dentists and other providers with whom the HMO has contracts, agreements or other arrangements; (H) an enrollee, family member, or designated representative; and (I) an enrollee's employer regarding plan documentation. (3) Review of documents. Department surveyors may review any documents relating to the operation of the HMO deemed necessary to the examination including but not limited to the following: (A) the minutes of the HMO organizational meetings which indicate the type and date of each meeting, and the officer or officers who are responsible for the handling of the funds of the applicant; the minutes of meetings of the HMO board of directors; management committee minutes; administrative policy manuals; physician and provider manuals; enrollee information; enrollee newsletters; personnel manuals; organizational charts; contracts with physicians and, if applicable, providers such as dentists and physical therapists; and other items as required; (B) the quality improvement review standards, quality improvement committee meeting minutes, quality review audits, and utilization review system program description, including policies and procedures to evaluate medical necessity, criteria used, information sources, the process used to review and approve the provision of medical services and utilization review system data; (C) the complaint policy and procedure and samples of the forms to be used in the complaint resolution procedure for complaints. All complaints shall be processed in accordance with the HMO's complaint policy and procedure which shall be developed in accordance with subsection (d) of this section; (D) the accessibility monitoring data; (E) the enrollee satisfaction surveys and disenrollment logs; (F) medical, hospital and health records of all enrollees and records of all physicians, dentists and other providers providing service under independent contract with an HMO shall be subject to such examination as is necessary for an ongoing examination of the approved quality improvement plan, as required in sec.119.23 of this title (relating to Quality Improvement Program). The plan shall provide for adequate protection of confidentiality of medical and health care information and shall only be disclosed in accordance with applicable law; (G) network configuration information, including an explanation of the adequacy of the physician, dentist and other provider network configuration. The information provided must include the names of physicians, specialty physicians and other providers by zip code or zip code map and indicate whether each physician or other provider is accepting new patients from the HMO; (H) lists of primary care and specialty physicians, hospitals, laboratories, diagnostic imaging providers, radiologic oncology providers, and, if applicable, other providers such as dentists and physical therapists to be used by the applicant inside the service area: (i) the list of physicians must include current information for the following: (I) each physician's medical specialty; (II) board certification, if any; (III) Texas license number; (IV) federal and state permit numbers relating to registration of controlled substances, if applicable; (V) business address; (VI) hospitals at which the physician has staff privileges; and (VII) whether or not the physician accepts new patients from the HMO; (ii) the list of hospitals must include: (I) each hospital's address; (II) license number, unless exempt from licensure requirements; (III) the number of licensed beds in the hospital; (IV) the hospital's current occupancy rate; (V) indication of accreditation issued by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) or the American Osteopathic Association (AOA), if applicable; (VI) indication of Medicare certification (Title XVIII, Social Security Act), if applicable; and (VII) the trauma facility designation level and expiration date; and (iii) the list of laboratories, diagnostic imaging providers, radiologic oncology providers, and, if applicable, other providers such as dentists and physical therapists must include each provider's address and license, accreditation, registration or certification, if applicable, and whether or not the provider accepts new patients from the HMO; (I) a copy of the contract with each physician and each provider such as dentists and physical therapists; (J) evidence that the HMO has a mechanism for maintaining, monitoring and implementing the quality improvement program, as required by sec.119.23 of this title (relating to Quality Improvement Program). including procedures for data collection, analysis and reporting for all physicians and providers, including pharmacy or drug utilization review format, if applicable; utilization review; denials of coverage and a complaint system as required by these rules; (K) an example of all printed materials to be presented to prospective enrollees, an enrollee handbook and evidence of coverage and physician and provider manuals; (L) the statistical reporting system developed and maintained by the HMO which allows for compiling, developing, evaluating, and reporting statistics relating to the cost of operation; the pattern of utilization of services; and the accessibility and availability of services; (M) the HMO's annual report and statement; and (N) any report submitted by the HMO to the Texas Health Care Information Council. (4) Exit conference. Following the examination, the department surveyor shall hold an exit conference with administrative personnel or their designee and provide the following: (A) the specific nature of the examination; (B) any alleged violations of a specific statute or rule; (C) the specific nature of any finding regarding an alleged violation or deficiency; (D) if a deficiency is alleged, the severity of the deficiency; (E) if there are no deficiencies found, a statement indicating this fact; and (F) identity of any records that were duplicated. (5) Written statement of examination outcome. The department surveyor shall prepare a written statement of the examination outcome. If deficiencies are noted, the surveyor shall prepare a written statement of deficiencies. (6) Plan of correction. The HMO shall provide a plan of correction for each deficiency cited. (A) If the department surveyor cites serious or life-threatening deficiencies, the HMO shall provide the surveyor with a signed plan of correction at the time of notification to the HMO of the deficiency, which may precede the exit conference, and immediately correct the deficiencies. A serious deficiency is one that adversely affects patient care. A life threatening deficiency may include a denial of emergency care. A copy of the statement of deficiencies and plan of correction form shall be left with the HMO at the time of the exit conference. (B) If the department surveyor cites potentially serious or life-threatening deficiencies, the HMO shall provide the department surveyor with a signed plan of correction at the time of the exit conference. The HMO's plan of correction shall provide for correction of the deficiencies no later than 30 days from the exit conference. A copy of the statement of deficiencies and plan of correction form shall be left with the HMO at the time of the exit conference. (C) If the department surveyor cites deficiencies that are not serious or life- threatening, the HMO shall provide a signed plan of correction to the department no later than 30 days from the exit conference; a copy shall be retained for the HMO's file. The HMO's plan of correction must provide for correction of the deficiencies no later than 90 days from the exit conference. If the plan of correction is not acceptable, the department shall notify the HMO in writing and request that the plan of correction be resubmitted within ten days of the HMO's receipt of the department's written notice. Upon resubmission of an acceptable plan of correction, written notice will be sent by the department to the HMO acknowledging same. (7) The HMO shall come into compliance by the completion date provided on the statement of deficiencies and plan of correction form. (8) The department shall verify the correction of deficiencies by mail or by an on-site examination. (9) The department may certify to the TDI in accordance with sec.119.71 of this title (relating to Enforcement) even if a plan of correction is accepted and completed. (d) Internal complaint procedure. An HMO shall maintain an internal system for the resolution of complaints including a process for the notice and appeal of any dissatisfaction, expressed by a complainant orally or in writing to the HMO, with any aspect of the HMO's operation, including, but not limited to dissatisfaction with plan administration; appeal of an adverse determination; the denial, reduction or termination of a service; the way a service is provided; or disenrollment decisions expressed by a complainant. (1) If a complainant notifies the HMO orally or in writing of a complaint, the HMO shall, within 5 business days of receipt of the complaint, send an acknowledgment letter which is used to acknowledge the date of the HMO's receipt of the complaint and a one-page complaint form. The acknowledgment letter shall include a unique file or identification number to be assigned to the complaint and a description of the complaint procedures and time frames. The acknowledgement letter shall include the need for the complainant to return the complaint form and may also include a request for additional information necessary to investigate the complaint. (2) The HMO shall investigate each complaint received in accordance with its own policies. (3) The HMO's total time for acknowledgment, investigation, and resolution of the complaint by the HMO shall not exceed 30 calendar days from the date the HMO receives the complaint form back from the complainant unless delays are outside the control of the HMO, e.g. the result of a non-contracting physician's, dentist's, or other provider's failure to provide medical records in a timely fashion, or awaiting response for complainant for additional information. The HMO may extend the time for up to an additional 14 calendar days if within the original 30 days, the HMO demonstrates in writing to the complainant reasonable cause for the delay beyond its control and provides a written progress report. Further extension may be made if the HMO and the complainant agree. In order to facilitate the investigation, a complainant may deliver medical records, in compliance with the medical records access provisions set out in the Medical Practice Act, Texas Civil Statutes, Article 4495b, sec.5.08. (4) Paragraphs (1) and (3) of this subsection do not apply to complaints concerning presently occurring emergencies or denials of continued stays for hospitalization. Investigation and resolution of complaints concerning presently occurring emergencies or denials of continued stays for hospitalization shall be concluded in accordance with the medical or dental immediacy of the case and shall not exceed 72 hours from receipt of the complaint. (5) After the HMO has investigated the complaint, the HMO shall issue a response letter to the complainant explaining the HMO's resolution of the complaint. The letter shall include a statement of the specific medical and contractual reasons for the resolution and the specialization of any physician, dentist or other provider consulted. If the resolution is to deny services based on a determination of medical necessity, the clinical basis used to reach that decision shall be enclosed. The response letter shall also contain the TDI complaint address, Texas Department of Insurance, P.O. Box 149091, Austin, Texas 78714-9091 and the toll free telephone number of the TDI and a description of the full internal HMO process for appeal of the determination, the time frames for the appeals process, and the time frames for the final decision on the appeal. (6) In the event the complaint is not resolved to the satisfaction of the enrollee, the HMO shall provide an appeal process which shall include the right of the complainant either to appear in person before a complaint appeal panel within the enrollee's county of residence or the county where the enrollee normally receives health care services, unless another site is agreed to by the complainant, or to address a written appeal to the complaint appeal panel. The HMO shall make a good-faith effort to meet the enrollee's needs in scheduling the site. The HMO shall complete the following appeals process within 30 calendar days of the request for review. (A) The HMO shall send to the complainant an acknowledgment letter within 5 business days of the receipt of the request which includes: (i) the date of the HMO's receipt of an oral or written request for appeal; (ii) the date and location of the hearing before the complaint appeal panel; (iii) the right of the complainant to appear in person, or through a representative if the enrollee is a minor or disabled, before the complaint appeal panel. The complainant must be allowed to bring any person he or she wishes to the complaint appeal panel meeting; however, the ability of those persons to directly question the participants in the meeting may be limited by the HMO's policy. The term "in person" means a face-to-face meeting with all the members of the complaint appeal panel unless otherwise agreed to by the complainant; (iv) the right of the complainant to present written or oral information; (v) the right of the complainant to present alternative expert testimony; and (vi) the right of the complainant to question those people responsible for making the prior determination which resulted in the appeal. (B) The HMO shall appoint members to the complaint appeal panel which shall advise the HMO on the resolution of the dispute. The complaint appeal panel shall be composed of equal numbers of HMO staff; physicians, dentists or other providers; and enrollees. The HMO staff shall not have been previously directly involved in the disputed decision. The physicians, dentists or other providers shall have experience in the area of dispute and be independent of the physician(s) or provider(s) who made the prior determination(s). The enrollees shall not be employees of the HMO. If specialty care is in dispute, the appeal panel must include an additional person who is a specialist in the same field of care for making the prior determination which resulted in the appeal. (C) Not less than five days prior to the meeting of the panel, unless the complainant agrees otherwise, the HMO shall provide to the enrollee or the enrollee's designated representative any documentation to be presented to the panel by HMO staff, the specialization of any physicians or providers consulted during the investigation, and the name and affiliation of all HMO representatives on the panel. The enrollee or designated representative may respond to the documentation provided either in person or in writing and the appeals panel must consider the response in its deliberations if received prior to or during the hearing. (D) The HMO shall maintain a record of the proceedings for three years. The enrollee has a right to a copy of the record within 30 calendar days of requesting it. (E) Investigation and resolution of appeals relating to presently occurring emergencies or denials of continued stays for hospitalization shall be concluded in accordance with the medical or dental immediacy of the case but in no event to exceed 72 hours from the complainant's request for appeal. In lieu of a complaint appeal panel, a physician or provider who has not previously reviewed the case shall review the case, may interview the patient or patient's representative, and shall render a final decision on the appeal. Initial notice of the decision may be delivered orally if followed by written notice of the determination within three days. Investigation and resolution of appeals after emergency care has been provided shall be conducted in accordance with the normal process as set out in this subsection. (F) Notice of the final decision on the appeal shall include a statement of the specific medical/dental judgement and/or contractual criteria used to reach the final decision. The notice shall also include the toll free telephone number of the TDI. (7) The HMO shall maintain a complaint and appeal log categorized by cause and disposition and including length of time for resolution of each complaint. The HMO shall compile information from the complaint and appeal log for use by the HMO's quality improvement committee. (A) The HMO shall categorize complaints by cause including but not limited to the following: (i) plan administration (e.g. marketing, policyholder service, billing, underwriting or similar administrative functions); (ii) benefit denial or limitation (e.g. denial of a benefit, refusal to refer or provide requested services) The department and TDI will establish broad categories of medical conditions which an HMO must include on the complaint log; (iii) quality of the treating physician, dentist or provider care (e.g. misdiagnosis or lack of courteous treatment); and (iv) access to appointments (e.g. appointment time or waiting room time). (B) The HMO shall maintain documentation for all complaints and action taken for a period of three years from the date of the receipt of the complaint and the department shall be able to review such documentation during any examination. sec.119.4. Reporting Complaints. (a) All individuals, including those who have attempted to resolve complaints through the HMO complaint system process who are dissatisfied with the resolution, may report an alleged violation of the Insurance Code, Chapter 20A, Health Maintenance Organization Act (Act), or the rules under 28 Texas Administrative Code (TAC) Chapter 11 (relating to Health Maintenance Organizations) and this chapter, by writing or calling the Texas Department of Insurance, P. O. Box 149104, Austin, Texas 78714-9104, telephone 1-(800)-252- 3439. (b) The Texas Department of Insurance (TDI) will forward all complaints concerning quality, availability, and accessibility of care to the Texas Department of Health (department) for investigation. (c) The department shall investigate a complaint against an HMO and report the findings to TDI within 90 days of the department's receipt of the complaint. The investigation will be conducted in accordance with sec.119.3(b)(3) and (c) of this title (relating to Examinations). (d) The department may contract with TDI to perform functions relating to complaints. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be within the agency's authority to adopt. Issued in Austin, Texas, on August 7, 1996 TRD-9611354 Susan K. Steeg General Counsel Texas Department of Health Effective date: October 1, 1996 Proposal publication date: March 12, 1996 For further information, please call: (512) 458-7236 SUBCHAPTER B. Organization and Functions of a Health Maintenance Organization sec.sec.119.21-119.25 The new sections are adopted under the Texas Insurance Code, Chapter 20A, which provides the Texas Board of Health with authority to adopt rules to establish minimum standards regarding the quality of health care services, including availability, accessibility and continuity of services, to be furnished by an HMO to its enrollees; and under Health and Safety Code, sec.12.001 which provides the board with the authority to adopt rules for the performance of every duty imposed by law upon the board, the department and the commissioner of health. sec.119.21. Organization of a Health Maintenance Organization and Service Area. (a) Organizationally, the health maintenance organization (HMO) shall be governed by a governing body that is legally responsible for the operation of the HMO. The governing body may include physicians, dentists or other providers, or other individuals. (b) The governing body shall be responsible for the development, approval, implementation and enforcement of administrative, operational, personnel and patient care policies, procedures and related documents for the operation of the HMO. (c) An HMO may establish one or more service areas within Texas. (d) The HMO shall provide within each service area: (1) all services identified at sec.119.51 of this title (relating to Ambulatory Health Care Services), sec.119.52 of this title (relating to Emergency Care), sec.119.53 of this title (relating to Inpatient Hospital and Medical Services), sec.119.54 of this title (relating to Diagnostic and Therapeutic Services) and perform the quality improvement and utilization review functions required by sec.119.22 of this title (relating to Quality Improvement), sec.119.23 of this title (relating to Quality Improvement Program), sec.119.24 of this title (relating to Quality Improvement Committee), and sec.119.25 of this title (relating to Utilization Review). The HMO may also provide one, all or a combination of the services in sec.119.55 of this title (relating to Optional Services); (2) at least one physically identifiable administrative office in Texas. If an HMO has multiple service areas under one certificate of authority, the HMO shall locate the office within one of those multiple service areas; (3) a full-time chief executive officer or operations officer who is available on-site at an administrative office; and (4) a medical director or single service director who: (A) shall be currently licensed in Texas or otherwise authorized to practice in this state; (B) shall reside in the service area; and (C) may serve in a part-time capacity. However, the medical director or a physician designee or single service director or designee shall be available at all times to address complaints under sec.119.3(d)(4) of this title (relating to Examinations). (e) The HMO shall ensure the administrative office maintains: (1) quality improvement and utilization review plans; (2) a current list of all participating physicians and, if applicable, providers of care such as dentists and physical therapists; (3) current files containing copies of contracts for all participating physicians and, if applicable, other providers of care such as dentists and physical therapists that are updated on an ongoing basis; (4) files on subcontracting physicians and, if applicable, providers such as dentists and physical therapists which contain sufficient information to assure current licensure or other authorizations to practice in the State of Texas; and (5) current physician manual, dentist manual and current provider manual which shall be provided to each contracting physician, dentist and other provider. The manuals shall contain details of the requirements by which the physicians and providers will be governed. (f) An enrollee shall not be required to travel in excess of 30 miles to reach a primary care physician and general hospital care except as provided in subsections (h) and (i) of this section. (g) An enrollee shall not have to travel in excess of 75 miles to secure initial contact with referral specialists; special hospitals; psychiatric hospitals; diagnostic and therapeutic services; and single service health care physicians, dentists or providers except as provided in subsections (h) and (i) of this section. (h) If any service or provider is not available to an enrollee within the mileage radii specified in subsections (f) and (g) of this section, the HMO shall submit to the department for approval health care utilization data which indicates a normal pattern for securing health care services within the service area. (i) The provisions in subsections (f) and (g) of this section do not preclude an HMO from making arrangements with another source outside the service area for enrollees to receive a higher level of skill or specialty than the level which is available within the HMO service area such as, but not limited to, treatment of cancer, burns, and cardiac diseases. (j) An HMO shall require the HMO physicians, dentists and other providers of care who employ physician assistants, advanced practice nurses, dental hygienists and individuals other than physicians to assess the health care needs of HMO enrollees to have written policies which are implemented and enforced and describe the duties of all such providers in accordance with statutory requirements for licensure, delegation, collaboration, and supervision as appropriate. (k) The HMO shall systematically and regularly verify that health care services furnished by physicians and providers of care such as dentists, physical therapists are available and accessible to enrollees without unreasonable periods of delay. (l) The HMO shall develop and maintain a statistical reporting system which allows for compiling, developing, evaluating, and reporting statistics relating to the cost of operation, the pattern of utilization of its services and the availability and accessibility of its services. (m) The HMO shall submit directly to the department in care of the Health Facility Licensing Division one copy of its annual report on or before the first day of March in accordance with the Insurance Code, Article 20A.10. (n) An HMO shall notify the TDI and shall comply with 28 Texas Administrative Code sec.11.302, before the HMO may add new service areas outside the service area(s) originally identified in the application for a certificate of authority. sec.119.22. Quality Improvement. (a) The health maintenance organization (HMO) shall develop and maintain an ongoing quality improvement (QI) program designed to objectively and systematically monitor and evaluate the quality and appropriateness of care and service provided to enrollees, and to pursue opportunities for improvement. (b) The HMO governing body is ultimately responsible for the overall QI program. The HMO governing body shall: (1) appoint the formal QI committee which shall include practicing physicians, dentists, other providers and at least one enrollee from throughout the HMO's service area; (2) approve the QI program; (3) approve an annual QI plan; and (4) receive and review reports of the QI committee or group of committees and take action when appropriate. sec.119.23. Quality Improvement Program. The quality improvement (QI) program shall be continuous and comprehensive including both the quality of clinical care and the quality of service requiring updates as needed. The HMO shall dedicate resources such as personnel, analytic capabilities, and data resources to the program that are adequate to meet the needs of the program. (1) Written description. There shall be a written description of the QI program that outlines program organizational structure, functional responsibility and design. (2) Work plan. There shall be an annual QI work plan, or schedule of activities, that includes but is not limited to the following: (A) objectives, scope, and planned projects or activities for the year; (B) planned monitoring of previously identified issues, including tracking of issues over time; and (C) planned evaluation and modification, if necessary, of the QI program. (3) Monitoring and evaluation. The program monitoring and evaluation of clinical issues shall reflect the population served by the health maintenance organization (HMO) in terms of age groups, disease categories, and special risk status. Monitoring and evaluation of clinical issues shall include: (A) care and services provided in institutional settings; (B) care and services provided in noninstitutional settings, including, but not limited to, practitioner offices and home and community support services agencies; and (C) primary care and major specialty services, including but not limited to mental health, cancer, burn or cardiac centers. (4) Identifying special needs. The QI program shall identify enrollees with special needs such as disabilities and chronic conditions in order to assist the HMO in facilitating the development and implementation of appropriate courses of care to assure that health care services are available and accessible. (5) Credentialing. The QI program shall provide for the credentialing and recredentialing of all contracting physicians, dentists and other providers, including an application which contains information on education and professional background, admitting privileges, current relevant permit to practice, Drug Enforcement Agency certificate and Texas Controlled Substance Certificate, if applicable. (6) Peer review. The QI program shall provide for an effective peer review procedure for physicians, dentists and other providers. (7) Measurements, data collection, and analysis. The HMO shall track QI by using measurements, QI data collection and analysis. (A) To monitor and evaluate aspects of care and services identified, the HMO shall use quality indicators that are objective, measurable, and based on current knowledge and clinical experience. (B) The HMO shall have performance goals for each indicator. (8) Methods and frequency of data collection. The HMO shall establish methods and frequency of data collection for each indicator. (A) QI activities include the collection of data. (B) Data collected through monitoring and evaluation activities shall be analyzed. (i) Appropriate clinicians shall evaluate data on clinical performance of practitioners. (ii) Multidisciplinary teams shall be used, where indicated, to analyze and address quality improvement issues. (9) Health promotion. (A) The HMO shall facilitate preventive health care through health promotion activities. Health promotion activities include outreach to enrollees to encourage appropriate use of services and educating enrollees in preventive health care measures. Outreach may be accomplished through but not limited to written educational materials, community based programs, health promotion fairs, verbal communication, and monetary contributions made to community based organizations and health related initiatives of other programs. (B) The HMO shall inform and educate physicians and, if applicable, providers such as dentists and physical therapists about using the health management and outreach programs for the enrollees assigned to them. sec.119.24. Quality Improvement Committee. Quality improvement (QI) shall be accomplished by the formal QI committee appointed by the governing body or by a group of committees working under the direction of the QI committee. (1) Delegation. The QI committee may delegate QI activities to other committees which may, if applicable, include practicing physicians, dentists, other providers and enrollees from throughout the service area. (A) All committees shall collaborate and coordinate efforts to improve the quality, availability, and accessibility of health care services to be furnished by the health maintenance organization (HMO) to its enrollees. (B) All committees shall meet and regularly report findings, recommendations and resolutions in writing through the QI committee to the HMO governing body. (C) If the QI committee delegates any QI or utilization review activity, then the QI committee must establish, implement, and enforce a policy to address effective methods of accomplishing oversight of each delegated activity. (2) QI committee responsibilities. (A) The QI committee shall assess both quality of clinical care and quality of service, specifically analyzing: (i) availability, accessibility, and quality of care to include but not limited to time frames for appointments; ratio of physicians, dentists and other providers to enrollees; physicians, dentists and other providers capability of accepting new enrollees and referrals; and response time for post-stabilization treatment; (ii) continuity of health care and related services. Each contract between an HMO and a physician or, if applicable, other provider of health care services such as a dentist or physical therapist must provide that reasonable advance notice be given to an enrollee of the impending termination from the plan of a physician or, if applicable, provider such as a dentist or physical therapist who is currently treating the enrollee. Each contract must also provide that the termination of the physician or provider contract, except for reason of medical competence or professional behavior, does not release the obligation of the HMO to provide to an enrollee of special circumstance, such as a person who has a disability, acute condition, life-threatening illness, or is past the twenty- fourth week of pregnancy the continuity of ongoing treatment to that enrollee receiving medically necessary treatment in accordance with the dictates of medical prudence. Special circumstance means a condition shall be identified by the treating physician or, if applicable, provider such as a dentist or physical therapist who must request that the enrollee be permitted to continue treatment under the physician's or, if applicable, provider such as a dentist or physical therapist. Contracts between an HMO and physicians and, if applicable, providers such as dentists and physical therapists shall provide procedures for resolving disputes regarding the necessity for continued treatment by the physician or provider: (iii) patterns of clinical care rendered; and (iv) patterns of high volume, high risk services rendered. (B) The QI committee shall analyze enrollees' responses to the questions on the written or telephonic enrollee satisfaction surveys. (C) The QI committee shall analyze the investigation, resolution, and appeal of complaints by: (i) reviewing the complaint log, documentation and analysis of the resolution of each complaint, documentation of an appeal and documentation of trending; and (ii) identifying and removing communication barriers which may impede enrollees from effectively making complaints against the HMO. (D) The QI committee shall identify on an annual basis QI goals and objectives, defined in the written plan, including time frames for implementation and accomplishment established in the written plan. (E) The QI committee shall conduct quality of care studies over a period of time, prescribed in the QI plan, which shall specify methodologies, organizational arrangements to be used to accomplish them, and individuals responsible for the studies. (F) The QI committee shall adopt and use practice guidelines, clinical care standards or parameters of care for physicians and dentists. The committee may develop guidelines for other providers. The QI committee shall assure the practice guidelines, clinical care standards or parameters of care: (i) are approved by participating physicians or providers, if applicable, in accordance with accepted current medical criteria that are established, taking into account special circumstances of each case that may require a deviation from the norm stated in the medical criteria. Criteria must be objective, clinically valid, compatible with established principles of health care, and flexible enough to allow deviations from the norms when justified on a case-by- case basis; (ii) focus on the processes and outcomes of health care delivery, as well as access to care; (iii) are updated continuously and communicated to all affected physicians, dentists and other providers; (iv) are included in physician, dentist and other provider manuals; and (v) include preventive health services. (G) The QI committee shall take action to improve quality and assess the effectiveness of actions through systematic follow-up. (i) There shall be evidence that results of evaluation are used to improve clinical care where availability, accessibility and quality of care need improvement. (ii) There shall be a systematic method of tracking areas identified for improvement to assure that appropriate action is taken to effect the needed improvement. (iii) The QI committee shall assure follow-up of identified issues to determine whether actions have been effective. (H) The QI committee shall evaluate the overall effectiveness of the QI program. (i) There shall be a written report on quality, which includes a report of completed QI activities, trending of clinical and service indicators and other performance data, and demonstrated improvements in availability, accessibility and quality of care. (ii) There shall be evidence that QI activities have contributed to improvement in the care and services provided enrollees. (iii) The written report shall be presented to and reviewed by the HMO governing body on a regular basis but not less than yearly. sec.119.25. Utilization Review. (a) Pursuant to the Insurance Code, Article 21.58A, sec.14(g), the Texas Department of Insurance (TDI) has established rules at 28 TAC sec.19.1719(a) (relating to Responsibility of HMOs and Insurers Performing Utilization Review Under the Insurance Code, Article 21.58A, sec.14, paragraphs (g) and (h). (b) To the extent that an HMO does perform utilization review (UR), the HMO may delegate UR activities to licensed contractors or perform the UR itself unless the Insurance Code, Article 20A.26(f)(4) applies. (c) The QI committee shall receive and review reports of utilization review decisions and take action when appropriate as part of the QI process. (d) Reasons for denial, reduction or termination of a service shall be provided in writing to the enrollee in a simple and understandable format. The notification shall include the HMO's rationale for the decision, including the clinical basis, and provide the enrollee with complaint and appeal process information and the TDI complaint address, Texas Department of Insurance, P.O. Box 149091, Austin, Texas 78714-9091 and the toll free number of TDI. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be within the agency's authority to adopt. Issued in Austin, Texas, on August 7, 1996 TRD-9611353 Susan K. Steeg General Counsel Texas Department of Health Effective date: October 1, 1996 Proposal publication date: March 12, 1996 For further information, please call: (512) 458-7236 SUBCHAPTER C. Services 25 TAC sec.sec.119.51-119.56 The new sections are adopted under the Texas Insurance Code, Chapter 20A, which provides the Texas Board of Health with authority to adopt rules to establish minimum standards regarding the quality of health care services, including availability, accessibility and continuity of services, to be furnished by an HMO to its enrollees; and under Health and Safety Code, sec.12.001 which provides the board with the authority to adopt rules for the performance of every duty imposed by law upon the board, the department and the commissioner of health. sec.119.51. Ambulatory Health Care Services. (a) Primary care physician services. (1) Participating primary care physicians or their designated physician coverage shall be available and accessible to enrollees 24 hours per day, seven days per week within the health maintenance organization's (HMO's) service area. (A) There shall be telephone access to participating primary care physicians or their designated physician coverage at all times. (B) The HMO shall develop a method by which enrollees may secure health care services after hours which shall be clearly communicated in writing to enrollees in the languages predominantly spoken in the service area. (2) An adequate number of participating primary care physicians shall have admitting privileges at one or more participating general hospitals located within the HMO's service area to assure that necessary admissions are made. (3) There shall be a sufficient number of participating primary care physicians to meet the needs of the enrollees. (b) Referral specialists. (1) Referral specialist services shall be available and accessible 24 hours per day, seven days per week, within the HMO's service area. (2) There shall be sufficient number of referral specialists with appropriate hospital admitting privileges who are available and accessible 24 hours per day, seven days per week, to meet the needs of the enrollees. sec.119.52. Emergency Care. (a) Emergency care shall be available and accessible 24 hours per day, seven days per week, without restrictions as to where the services are rendered. (b) The health maintenance organization (HMO) shall have documentation demonstrating that the HMO will pay for emergency care services performed by non-network physicians, dentists or other providers at the negotiated or usual and customary rate and that the health care plan contains the following provisions and procedures for coverage of emergency care services without regard to whether the physician, dentist or other provider furnishing the services has a contractual or other arrangement with the entity to provide items or services to covered individuals. (1) Any medical screening examination or other evaluation required by state or federal law which is necessary to determine whether an emergency medical condition exists will be provided to covered enrollees in the emergency department of a hospital. (2) Necessary emergency care services will be provided to covered enrollees, including the treatment and stabilization of an emergency medical condition. (3) Services originating in a hospital emergency department following treatment or stabilization of an emergency medical or dental condition as approved by the HMO will be provided. This provision must require the HMO to approve or deny coverage of post stabilization care as requested by a treating physician, dentist or other provider within the time appropriate to the circumstances relating to the delivery of the services and the condition of the patient, but in no case to exceed one hour. The HMO must respond to inquiries from the treating physician, dentist or other provider in compliance with this provision in the HMO's health care plan. sec.119.53. Inpatient Hospital and Medical Service. (a) General hospital care shall be available and accessible 24 hours per day, seven days per week, within the health maintenance organization's (HMO) service area. (b) Based upon the evidence of coverage, the HMO shall provide for the necessary hospital services by contracting with special and psychiatric hospitals, and, if necessary, other general hospitals. Such services shall be available and accessible 24 hours per day, seven days per week, within the HMO service area. (c) General, special and psychiatric hospitals, which provide services to HMO enrollees, shall have current licenses by the State of Texas, unless exempt from licensure requirements. sec.119.54. Diagnostic and Therapeutic Services. (a) Laboratories must meet the requirements of Federal Public Law 100-578, Clinical Laboratory Improvement Amendments of 1988 (CLIA 1988). CLIA 1988 applies to all laboratories that examine human specimens for the diagnosis, prevention or treatment of any disease or impairment of, or the assessment of the health of, human beings. (1) The reference laboratory services shall be of sufficient size and scope to meet the non-emergent and emergent needs of the enrolled population. (2) Reference laboratory specimen procurement services shall facilitate the provision of clinical diagnostic services for physicians, providers and enrollees through the use of convenient reference satellite labs, strategically located specimen collection areas, and the use of a courier system under the management of the reference lab. (3) Pathology laboratory services shall be available and accessible. (b) Diagnostic imaging services shall be available and accessible to all enrollees. (1) Diagnostic imaging procedures that require the injection or ingestion of radiopaque chemicals shall be performed only under the direction of physicians qualified to perform those procedures. (2) Diagnostic imaging machines shall be registered and inspected according to state law. (3) Technicians, physicians, and other personnel who work with imaging machines shall comply with state law regarding monitoring. (c) Services involving therapeutic/oncological radiology shall be available and accessible to all enrollees. (d) If other diagnostic and therapeutic services are part of the services offered by the health maintenance organization, they shall be available and accessible to all enrollees. sec.119.55. Optional Services. The provisions in this section apply to categories of other health care services which a health maintenance organization (HMO) may offer in a basic health care plan pursuant to any service agreement. If offered, the following optional services shall be available and accessible to the enrolled population within the service area. (1) Inpatient skilled nursing care may be offered by one or a combination of the following: (A) a skilled nursing facility that is licensed by the state, unless exempt from licensure requirements; (B) a hospital that is licensed by the state, unless exempt from licensure requirements, which provides post hospital extended care services in Medicare approved swing-beds; and (C) a general or special hospital licensed by the state, unless exempt from licensure requirements, a distinct part of which is a skilled nursing facility; (2) Licensed home and community support services agencies or their licensed branches and alternate delivery sites (hospice only) may offer one or a combination of the following services: (A) licensed and certified home health services; (B) licensed home health services; (C) hospice services; (D) licensed home health services with home dialysis designation; and (E) personal assistance services. (3) Pharmacy services shall be available and accessible within the service area for the enrolled population through pharmacies licensed by the Texas State Board of Pharmacy. (A) Pharmacy services shall be offered directly by the HMO or through contracts. (B) The quality of pharmacy services, including the specifics of any drug formulary, shall be regularly reviewed by a committee established by the quality improvement (QI) committee. The functions of the committee may be performed by the QI committee or by a separate committee composed of physicians, pharmacists and other professionals as needed, a majority of whom practice within the service area. (i) The committee shall be responsible for assuring that drug utilization review is performed on a regular basis, but not less than quarterly, to detect and prevent inappropriate drug use and negative outcomes. (ii) The committee shall assure that contracting pharmacies maintain medication records on the enrollee population and make use of such profiles to detect inappropriate drug use. (iii) The committee shall make recommendations on policies under which pharmacists provide patient instruction and education on correct use of medications. (iv) The committee shall report its findings and recommendations to the QI committee on a regular basis but not less than quarterly. (4) Other services may be offered by the HMO. The following is not intended to be a complete list of all possible benefit additions. (A) If health care services such as dental, physical therapy, occupational therapy, podiatric, nutrition or dietary, vision, durable medical equipment, mental health, chiropractic care, or any other health care services are offered, they shall be offered by the HMO or through contracts with physicians and other providers such as dentists and physical therapists who are licensed or otherwise authorized to practice in this state. (B) Such services shall be of sufficient number and location as to be readily available and accessible within the service area to the enrolled population. sec.119.56. Single Health Care Service. (a) A single health care service health maintenance organization (HMO) may choose to offer to an enrolled population a particular service as defined in sec.119.55 of this title (relating to Optional Services). The single health care service shall be offered directly by the HMO or by contract. (b) A single health care service HMO offering a particular service must be prepared to deal with specific health care situations which may require emergency intervention, as described in sec.119.52 of this title (relating to Emergency Care). Emergency care shall be available and accessible 24 hours per day, seven days a week. Emergency care or a higher level of care shall be provided directly by the HMO or by contract. (c) A single health care service HMO offering a particular service which requires inpatient status for the management of the single health care problem shall provide for the appropriate inpatient facility according to the need by contracting with one or more general, special or psychiatric hospitals; nursing facilities; or home and community support services agencies for hospice inpatient services. (1) Inpatient care shall be available and accessible 24 hours per day, seven days a week, within the single health care service HMO's service area. (2) Inpatient facilities shall be currently licensed by the State of Texas, unless exempt from licensure requirements. (3) An adequate number of participating single health care physicians or dentists or other providers shall have admitting privileges at one or more inpatient facilities located within the HMO's service area to ensure that necessary admissions are made. (d) The following requirements apply to outpatient single health care services. (1) A sufficient number of single health care service physicians, dentists or other providers (initial contact and specialists, as appropriate or required) shall be available and accessible to meet the single health care needs of enrollees. Participating initial contact (primary care) physicians or providers shall be available for emergency care after normal business hours and shall comply with subsection (b) of this section. (2) The method by which enrollees may secure single health care services, which require after hours emergency response by physicians, dentists or other providers, shall be clearly communicated in writing to enrollees, in the languages predominantly spoken in the service area. (e) The following requirements apply to diagnostic and therapeutic services. (1) The single health care service which uses reference and pathological laboratory technologies in the care of patients shall provide those technologies in accordance with sec.119.54 of this title (relating to Diagnostic and Therapeutic Services). (2) The single health care service which uses diagnostic imaging or therapeutic radiology or other diagnostic or therapeutic services in the care of patients shall provide those procedures according to sec.119.54 of this title. (3) The single health care service which uses the expertise of an ancillary health care facility or service to fulfill its obligations to enrollees shall have in effect a written contract with each facility, physician, dentist or other provider and shall comply with all other applicable provisions in accordance with sec.119.55 of this title. (f) Other services. The following shall apply to single health care service plans: (1) sec.119.1 of this title (relating to Definitions); (2) sec.119.2 of this title (relating to Application, Assessments and Fees); (3) sec.119.3 of this title (relating to Examinations); (4) sec.119.4 of this title (relating to Reporting Complaints); (5) sec.119.21 of this title (relating to Organization of a Health Maintenance Organization and Service Area); (6) sec.119.22 of this title (relating to Quality Improvement); (7) sec.119.23 of this title (relating to Quality Improvement Program); (8) sec.119.24 of this title (relating to Quality Improvement Committee); (9) sec.119.25 of this title (relating to Utilization Review); (10) sec.119.55 of this title (relating to Optional Services); and (11) sec.119.71 of this title (relating to Enforcement). This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be within the agency's authority to adopt. Issued in Austin, Texas, on August 7, 1996 TRD-9611352 Susan K. Steeg General Counsel Texas Department of Health Effective date: October 1, 1996 Proposal publication date: March 12, 1996 For further information, please call: (512) 458-7236 SUBCHAPTER D. Enforcement 25 TAC sec.119.71 The new section is adopted under the Texas Insurance Code, Chapter 20A, which provides the Texas Board of Health with authority to adopt rules to establish minimum standards regarding the quality of health care services, including availability, accessibility and continuity of services, to be furnished by an HMO to its enrollees; and under Health and Safety Code, sec.12.001 which provides the board with the authority to adopt rules for the performance of every duty imposed by law upon the board, the department and the commissioner of health. sec.119.71. Enforcement. (a) The Texas Department of Health (department) or the commissioner may examine and use all information required by this chapter for any purpose consistent with the Health Maintenance Organization Act, Insurance Code, Chapter 20A (HMO Act) or any rule or regulation adopted thereunder. (b) The department may certify to the commissioner of insurance that any of the following conditions exist: (1) the health maintenance organization (HMO) does not meet the requirements as specified in the HMO Act, sec.20A.05(a)(2), or as specified in any rule or regulation adopted thereunder; or (2) the HMO is unable to fulfill, or is not fulfilling, its obligation to furnish health care services as required under its health care plan or to furnish a single health care service as required under its single health care service plan. (c) Such certification notice may constitute grounds for suspension or revocation of the HMO certificate of authority by the commissioner. (d) The department shall send a copy of such certification notice to the affected HMO. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be within the agency's authority to adopt. Issued in Austin, Texas, on August 7, 1996 TRD-9611356 Susan K. Steeg General Counsel Texas Department of Health Effective date: October 1, 1996 Proposal publication date: March 12, 1996 For further information, please call: (512) 458-7236 CHAPTER 229. Food and Drug Minimum Standards for Narcotic Treatment Programs 25 TAC sec.sec.229.141, 229.142, 229.145-229.148, 229.150-229.152 The Texas Department of Health (department) adopts amendments to sec.sec.229.141, 229.142, 229.145-229.148, and 229.150-229.152 concerning the licensure and operating standards for narcotic treatment programs (NTP). Sections 229.148 and 229.150 are adopted with changes to the proposed text as published in the March 12, 1996, issue of the Texas Register (21 TexReg 1995). Sections 229.141, 229.142, 229.145 - 229.147, 229.151, and 229.152 are adopted without changes. The undesignated head title is modified to remove the word "approved". A correction of error was published in the May 24, 1996, issue of the Texas Register (21 TexReg 4636). Most of the errors were formatting errors and were due to new Texas Register software; therefore, all sections will be republished. The amendments require programs to prepare and follow written procedures for conducting patient urinalysis screens for illicit drug use and to plan for emergencies that interrupt normal program functions. The amendments contain detailed patient requirements for tuberculosis screening and subsequent evaluation and treatment referral. In addition, programs are given detailed procedures to follow when patients transfer from one program to another. The amendments remove the three-mile distance requirement for new programs and establish new criteria based on location, funding, and competency and compliance history of the applicant. The new criteria are designed to discourage program violations of federal and state regulations that have resulted from competition among programs. The amendments will promote the effective oversight and continuity of care when patients wish to transfer between programs and during emergency situations that interrupt program functions. In addition, the amendments will facilitate the early detection and treatment of tuberculosis infection among this high risk population. A summary of the comments and the department's responses to the comments are as follows: Comment: Concerning sec.229.145 (a)(6), one commenter stated that the language did not effectively address how the competency of new applicants to operate a narcotic treatment program would be demonstrated. The commenter recommended establishment of a panel of experts and officials to make the determination based on interview of the applicant. Response: The department agrees with the commenter that a board or panel is one method of assessing competency; however, this substantive change would require future proposed rule amendments to allow for Board of Health approval and public comment. The department will evaluate our ability to assess competency with the rules as proposed. Comment: Concerning sec.229.148 (p), one commenter stated that it is discriminatory to restrict employees formerly addicted to drugs of abuse from access to the drug stocks drug dispensing area. The commenter suggested allowing access for former addicts after a specified time in recovery (a one-year period was suggested). Another commenter noted that the section as proposed would allow persons addicted to prescribed methadone and other opiates to have access to the drug stocks and drug dispensing area. Response: The department disagrees with the first commenter. The U.S. Drug Enforcement Administration (DEA), which has primary responsibility for ensuring security of narcotic drug stocks in narcotic treatment programs, has specific regulations to address employee screening procedures in sec.1301.90, 21 Code of Federal Regulations. The regulation states that knowledge that an employee has knowingly used controlled substances other than those prescribed by a physician is vital in assessing the likelihood of an employee committing a drug security breach. The regulation states that DEA assumes that employers have questioned whether prospective employees have knowingly used any narcotics, amphetamines or barbiturates without a doctor's prescription within the past three years. The department agrees with the second commenter and has made the appropriate changes to include methadone and opiate addiction. Comment: Concerning sec.229.148(q), one commenter objected to the requirement to include dosing records in the patient file. Response: The department disagrees since dosing and attendance records represent a significant part of the documentation of the patient's progress in treatment and should be an integral part of the patient's file. To ensure comprehensive monitoring of patient care, dosing records should be readily accessible to all program health care personnel, counselors, and state and federal investigators. Comment: Concerning sec.229.148 (z), one commenter stated that the required employee information be submitted by the program only for new hires and that only notification of name is needed upon termination of the employee. Response: The department agrees that this was the intent of the regulation and has added clarifying language. Comment: Concerning sec.229.150 (e)(2)(D), one commenter stated that a 30-day grace period be given for patients who can not provide a state issued identification upon admission since the benefits of positive identification (ID) outweighs the harm done to the few patients who may not be able to produce an ID. Take-out doses of methadone would not be allowed during the grace period. Response: The department disagrees with the commenter since the rules as proposed allow the program to contact the State Methadone Authority to access the Central Registry and to discuss and gain approval for alternate forms of identification. The department has added language to clarify this intent and to allow a 72-hour grace period to contact the department. Comment: Several commenters addressed subsections of the rules that were not proposed for amendment. Response: The department will consider each of these comments when rule amendments are proposed in the future. The commenters were: Aliviane, Inc., Aeschbach and Associates, Drug Dependence Associates, Narcotics Withdrawal Center, The Pavilion, South Texas Substance Abuse Recovery Services, Inc., and the Texas Methadone Treatment Association. The commenters were generally in favor of the rules but expressed concerns, questions, and recommendations. The amendments are adopted under the Texas Health and Safety Code, sec.466.004, which provides the department with the authority to adopt rules to ensure the proper use of approved narcotic drugs to treat opiate addicted persons and for the issuance of permits to operate narcotic treatment programs; and sec.12.001, which provides the Texas Board of Health with the authority to adopt rules for the performance of every duty imposed by law on the Texas Board of Health, the department, and the Commissioner of Health. sec.229.141. General Provisions. The purpose of the sections in this chapter is to provide assurance that facilities holding an approved narcotic drug permit are regulated under a set of minimum standards for the establishment and operation of a narcotic treatment program pursuant to Texas Health and Safety Code, Chapter 466. Each facility shall be approved and monitored by the Texas Department of Health, Drugs and Medical Devices Division, 1100 West 49th Street, Austin, Texas 78756. sec.229.142. Definitions. The following words and terms, when used in the sections of this chapter, shall have the following meanings, unless the context clearly indicates otherwise. Central registry-A process in which an NTP shall share patient identifying information about individuals who are applying for or undergoing detoxification or maintenance treatment on an approved narcotic drug to a central record system at the Texas Department of Health, Drugs and Medical Devices Division, Austin, Texas. State Methadone Authority-The Texas Department of Health, Drugs and Medical Devices Division. sec.229.145. Application, Fees, Permits. (a) Application. (1)-(3) (No change.) (4) Currently addicted individuals, and individuals with a history of opiate usage (including methadone) within one year of application for a permit, are not eligible for ownership of an NTP. (5) (No change.) (6) Applicants must provide to the department complete information for evaluation of criteria concerning location, funding, compliance history, and competency to operate an NTP. (A) Scope. The department intends that new NTP locations be established to serve diverse patient populations without singular regard to proximity of location to an existing program(s). The department has established criteria to prevent competition for patients among NTPs in the same area that may result in increased noncompliance with state and federal regulations and compromised patient care. (B) Criteria. An applicant must affirmatively demonstrate the following: (i) serviceability of the program at the proposed location by providing the department the following: (I) a map showing proximity of the proposed NTP to existing programs within a three-mile radius; (II) description of how the new program will ensure it will not duplicate treatment services for existing patients at an established program in the area; (III) copies of planned promotional materials, advertisements, and other techniques to publicize the proposed program; and (IV) procedures that will be used to identify whether a patient is enrolled in another clinic; (ii) the source and adequacy of financial assets necessary to operate the program; (iii) if applicable, the compliance history of the applicant, which includes any issues reported to the department by FDA, DEA or any other regulatory agency; (iv) adequate planning and organizational structure demonstrated by full and complete answers submitted to all questions in the application materials; and (v) a statement that the applicant has read, understood and agreed to follow all federal and state regulations concerning operation of an NTP. (b) Fees and fee assessments. (1) Initial fee. A nonrefundable initial fee of $700 must be submitted along with the complete application for the purpose of evaluation, inspection, and processing of the request to operate a NTP in accordance with subsection (a) of this section. An application will not be considered unless the application is accompanied by the initial fee. A nonrefundable initial fee of $100 shall be submitted for each medication unit requested in the initial application. (2) Annual patient fee. Upon issuance of the permit, the permit holder shall submit a fee of $20 for each patient which the NTP is approved to treat no later than 30 days after the permit is issued. A fee certificate will be issued for a 12-month period from date of issuance of the permit. The current annual renewal patient fee certificate is transferable until its expiration date in the following circumstances: (A) to the permit holder of a program which relocates with no change of ownership or; (B) to a new permit holder of a program which changes ownership at an existing location. (3) Annual renewal fee. A nonrefundable annual renewal fee of $20 for each patient which the NTP is approved to treat shall be submitted by the permit holder to the department by filing a renewal form provided by the department prior to the expiration of the current fee certificate. A person who files a renewal fee after the expiration date must pay an additional $100 as a delinquency fee. A fee certificate will be issued for a 12-month period from date of issuance of the permit. (A)-(B) (No change.) (4) Medication unit fee. A nonrefundable annual renewal fee of $100 shall be paid for each medication unit the permit holder may operate. (c) (No change.) sec.229.146. Failure to Comply. (a)-(b) (No change.) (c) The department will assess administrative or civil penalties in accordance with the provisions in sec.229.261 of this title (relating to Assessment of Administrative or Civil Penalties). sec.229.147. Denial of Application; Suspension or Revocation of a Narcotic Drug Permit. (a) Failure to comply with any of these sections shall be grounds for denial, suspension, or revocation of a narcotic drug permit. (b) The commissioner may refuse an application for a license or may suspend or revoke a license if the applicant or licensee: (1) has been convicted of a felony that involves moral turpitude; (2) is an association, partnership, or corporation and the managing officer has been convicted of a felony that involves moral turpitude; (3) has been convicted of a felony in a state or federal court of the illegal use, sale or transportation of narcotic drugs, barbiturates, amphetamines, or any other dangerous or habit-forming drugs; (4) is an association, partnership, or corporation and the managing officer has been convicted of a felony in a state or federal court of the illegal use, sale, or transportation of narcotic drugs, barbiturates, amphetamines, or any other dangerous or habit-forming drugs; (5) has had a permit to operate a narcotic treatment program refused, revoked, and/or suspended by the Texas Department of Health (department), Drug Enforcement Administration (DEA), and/or Food and Drug Administration (FDA); and (6) has obtained or attempted to obtain a license by fraud or deception. (c) If it appears that an applicant or permit holder has failed to achieve or demonstrate compliance with these sections, the applicant or permit holder shall be given written notice of an opportunity for a hearing in accordance with the department's formal hearing procedures in Chapter 1 of this title (relating to Board of Health), prior to denying the application, or suspending or revoking the permit. (d) An applicant or permit holder may request one informal reconsideration conference with the department prior to the requesting or setting of an administrative hearing under this chapter. The request for such an informal reconsideration may be in addition to the request for a formal hearing and will not waive the person's right to a formal hearing if the outcome of the informal reconsideration is adverse to the person. Requests for the informal reconsideration conference shall be addressed as provided in subsection (e) of this section. (e) If the applicant or permit holder requests a hearing or informal reconsideration, he/she shall so notify, in writing, the Texas Department of Health, Drugs and Medical Devices Division, 1100 West 49th Street, Austin, Texas 78756, within 15 days of receipt of the notice of an opportunity for a hearing. If the applicant or permit holder does not request a hearing within the specified time, then the notice of an opportunity for a hearing shall be construed to be a notice of denial of the application, or suspension or revocation of the permit as stated in the notice. (1) The request shall: (A) indicate if the applicant or permit holder will be accompanied by counsel or other representative; (B) indicate the name(s) of the person(s) who will represent the applicant or permit holder; and (C) include an explanation of the specific point(s) that are being disputed. (2) Regarding the informal reconsideration conference, the department will contact the applicant or permit holder in writing or verbally to discuss a mutually agreeable time and place for the meeting. (3) The department may verbally advise the applicant or permit holder of their decision relative to the informal hearing, with written confirmation to follow. (f) The department may take action under emergency orders of the Health and Safety Code, Chapter 466, to immediately suspend an approved narcotic drug permit when approval is withdrawn from the permit holder by the FDA or a registration is revoked by the DEA. The suspension shall be effective until the permit is surrendered, revoked, or reinstated in accordance with the department's formal hearing procedures in Chapter 1 of this title. sec.229.148. State Operational Requirements. (a) (No change.) (b) If a patient, because of exceptional circumstances or hardship, requests to receive additional take-home doses of narcotic drug before the next scheduled clinic visit or to ingest a previously dispensed take-home dose as an observed dose and receive additional take-home doses, the patient shall be required to return all remaining dispensed doses to the program for verification of the correct number of doses, the container content, and label dates. Discrepancies shall be reported to the State Methadone Authority before doses are returned to the patient. The rationale for allowing the exception shall be documented in the patient file and signed or countersigned and dated within 72 hours by the program physician. The clinic may dispense only the minimum number of take-home doses of methadone to change a patient's take-home schedule. (c)-(o) (No change.) (p) Employees who are currently or formerly addicted to drugs of abuse and/or opiates including methadone are considered risks to the security of drug stocks and may not have access to the drug stocks or to the drug dispensing area. (q) A narcotic drug may be administered or dispensed only by a practitioner licensed under the appropriate state law and registered under the appropriate state and federal laws to order narcotic drugs for patients, or by an agent of such a practitioner, supervised by and under the order of the practitioner. This agent is required to be a pharmacist, registered nurse, or licensed practical nurse, or any other health care professional authorized by federal and state law to administer or dispense narcotic drugs. The licensed practitioner assumes responsibility for the amounts of narcotic drugs administered or dispensed and shall record and countersign all changes in dosage schedules within 72 hours. If the program keeps the record of administration and dispensing of narcotic drugs separate from the patient's file, the program shall transfer data from the dosing record to the patient's file at least monthly. (r) The person(s) responsible for a program shall ensure that an initial drug- screening test or analysis is collected for each new patient, including permanent transfer patients, before the initial or maintenance dose is administered. The program medical director shall ensure that the initial dose of methadone for a new patient does not exceed 30 milligrams and that the total dose for the first day does not exceed 40 milligrams, unless the program medical director documents in the patient's record that 40 milligrams did not suppress opiate abstinence symptoms. A patient is to be given an initial dose of 30 milligrams and then observed for one hour to see if opiate abstinence symptoms are suppressed. If not, an additional dose of up to 10 milligrams may be given. The patient is to be observed for an additional hour. If opiate abstinence symptoms are still not suppressed, then the patient may be given up to an additional 10 milligrams. This procedure, administering methadone in up to 10 milligram increments with a one-hour observance period after each addition, may be continued until abstinence symptoms are suppressed and within a scope that ensures patient safety. (s)-(t) (No change.) (u) Upon admission, each patient must receive an intradermal skin test using the Mantoux technique, using 0.1ml of purified protein derivative (PPD) tuberculin containing 5 tuberculin units (TU) into the volar surface of the forearm. The reaction to the Mantoux test should be read by a trained health care worker 48 to 72 hours after the injection and the results (induration only) recorded in millimeters (mm). A patient with a documented previously positive PPD should not be retested. Rather, a verification of documentation of satisfactory record of diagnostic evaluation and therapeutic follow up, including preventive treatment or treatment of TB, shall be placed in the patient file. If disposition cannot be verified, the patient must be referred for further evaluation. Patients who had negative tuberculin skin tests on admission must be retested each year. Patients with a positive skin test result of five millimeters or greater must be referred for diagnostic evaluation. The program shall document in the patient file verification of follow-up on all patients referred for TB evaluation, HIV counseling, and HIV testing to make sure appointments are kept. (1) HIV seropositive patients found to be tuberculin-negative must be tested for anergy. Anergy is the absence of a reaction to the tuberculin test. In immunosuppressed patients, delayed-type hypersensitivity responses such as tuberculin reactions may decrease or disappear. A test for anergy is done by administering at least two other delayed-type hypersensitivity antigens in conjunction with tuberculin skin testing. As new methods for testing anergy are developed, the most recent method recommended by the Center for Disease Control and Prevention may be utilized in lieu of the test method required in this paragraph. (2) Results of anergy testing shall be recorded in millimeters of induration, not simply as positive or negative. If anergy is demonstrated, the patient must be referred for further evaluation. Anergic HIV-positive patients must be referred for clinical assessment and possible preventative therapy. (3) Generally, patients who successfully complete recommended preventive therapy are not likely to develop TB. However, in immunosuppressed populations a subsequent exposure can lead to reinfection. Consequently, immunosuppressed individuals must be evaluated periodically as indicated to rule out active tuberculosis, particularly after contact with persons known to be infectious. All HIV-infected persons with a positive tuberculin skin test (equal to or greater than 5mm of induration) should have a chest x-ray and be evaluated by a clinician to rule out active tuberculosis. HIV-infected individuals who have symptoms suggestive of tuberculosis should be referred for chest x-ray and clinical evaluation regardless of their tuberculin skin test status. (v) Each employee working in a narcotic treatment program must receive an intradermal skin test using the Mantoux technique at the start of employment and annually thereafter, if the test result is negative, or present a certificate signed by a physician that states that: (1) (No change.) (2) the results of the test and subsequent medical evaluation including x-ray indicate that the person does not have tuberculosis. (w)-(y) (No change.) (z) Each NTP shall notify the State Methadone Authority in writing of any change in the employment status of any of its program personnel. For new hires, the employee's home address and phone number, copies of a current Texas driver's license and verification of professional licensure shall be provided with this notification. In addition, copies of a curriculum vitae, physician permit, and DEA and DPS registrations shall be provided for physicians. This notice shall be provided within 20 days of the event. (aa) NTP counselors not exempted shall meet the requirements of a qualified credentialed counselor or counselor intern as defined in regulations of the Texas Commission on Alcohol and Drug Abuse (TCADA), Title 40, Texas Administrative Code, Section 150. (bb) (No change.) (cc) There shall be written procedures that must be followed by the program for the screening of urine for illicit drugs. The procedures shall describe in sufficient detail a plan for collection, storage, handling and analysis of urine samples, and the program's response to test results that include at least the following: (1) training for staff members of the importance and relevance of reliable and timely urinalysis procedures and reports, the purpose of conducting urinalyses, and the significance of the results; (2) the drugs or substances for which the urine is analyzed; (3) a protocol for collection of urine that minimizes the opportunity for falsification and incorporates the elements of randomness and surprise; (4) storage of urine in a secure place to avoid substitution; (5) a requirement for disclosure of urine screen results to the patient and documentation in the patient file of program and patient response to test results; and (6) refusal by the patient to provide a urine sample shall be considered the same as a positive result for illicit drugs. Such refusals shall be documented in the patient file. (dd) A patient readmitted within six months after discharge does not require a repeat physical examination unless requested by the program physician. (ee) There shall be a written procedure for handling the admission of patients who wish to transfer with no lapse in treatment from another program. At a minimum, the procedure shall contain the following information: (1) a requirement to obtain from the patient an authorization for disclosure of confidential information, pursuant to 42 Code of Federal Regulations (CFR), sec.sec.2.31-2.34, for the purpose of obtaining accurate and current information concerning the patient's treatment at the former program. (2) The program physician or an appropriately trained health care professional supervised by the admitting program physician shall consider data obtained from the transferring program that verifies the amount of time the patient has spent satisfactorily adhering to the eight criteria found in subsection (c) of this section in determining if the patient may continue the same frequency of clinic attendance permitted at the former program immediately before transferring to the new program. The program physician shall not allow the patient to attend the clinic less frequently than the most recent schedule allowed at the former program unless: (A) copies of the patient's records are obtained to sufficiently document the patient's satisfactory adherence to federal and state regulations for the required time in treatment; and (B) the physician has completed an evaluation of the patient that includes consideration of the eight criteria in subsection (c) of this section and the additional criteria for patients considered for once weekly clinic attendance as found in 21 CFR, sec.291.505(d)(6)(v)(A)(3). (3) At a minimum, the admitting program shall document in the patient file the following information before administering the initial dose of narcotic drug to a transfer patient: (A) the last date and amount of narcotic drug administered or dispensed at the former program; (B) the name, address and phone number of the program contacted; (C) the date and time of the contact; and (D) the name of the program employee furnishing the information. (4) Unless an exception is granted by the State Methadone Authority, the admitting program shall, in addition to the requirements in paragraph (3) of this subsection, document in the patient file at a minimum the following information before dispensing an initial dose of take-home narcotic drug to a transferred patient: (A) the length of time in continuous treatment; (B) the most recent schedule of clinic attendance; (C) verification of satisfactory urinalysis screen results that correspond to requirements for the most recent take-out schedule of narcotic drug at the former program; and (D) satisfactory compliance with the criteria in subsection (c) of this section and 21 CFR, sec.291.505(d)(6)(v)(A)(3), relating to patients on a weekly clinic attendance schedule. (5) The admitting program shall obtain and place in the patient file copies of medical records, including the results of the most recent physical examination, laboratory tests, urinalysis screen results, and all other required patient records listed above within 30 days. Patients who have had a physical examination and laboratory tests within the past three months can be admitted without a new physical examination and laboratory tests, unless the program physician requests it, if the admitting program obtains significant results of the previous examination and tests. The admitting program shall obtain copies of these results within 30 days of admission. If records are not obtained within 30 days, the program shall consider the patient a new patient and fulfill the minimum standards for admission. (ff) Each program shall develop and maintain a written plan to ensure the continuity of patient treatment in the event that an emergency or disaster disrupts the program's functions. sec.229.150. Central Registry. (a)-(d) (No change.) (e) Each NTP shall report to the central registry specific information. (1) The following changes in patient status: new patient, readmitted to the same clinic, admitted from another NTP as a permanent transfer patient, transferred to another narcotic maintenance or detoxification program, deceased patient, or discharged (terminated) from maintenance or detoxification treatment shall be identified and reported to the central registry located at the Texas Department of Health, Drugs and Medical Devices Division, by telephone on the day the action occurs and written documentation must be submitted within a 24-hour period (or the next state working day immediately following weekends or holidays). (2) Each NTP's verbal and written report to the central registry shall identify and provide the following information for each patient: (A)-(B) (No change.) (C) action taken identified as: (i) new patient, readmitted patient (NP); or (ii) terminated patient (TP); (iii) permanent transfer inpatient (TIP); (iv) permanent transfer outpatient (TOP); and (v) deceased patient (DP); and (D) patient identification as follows. (i) The patient must be identified with a current state driver's license containing a photograph of the patient or state-issued identification card containing a photograph of the patient or other identification approved by the State Methadone Authority. Photocopies of each of these must be maintained in the patient's file. The program shall document in the patient's file attempts to induce the patient to obtain state identification before admission. If a patient is not able or willing to furnish the required documents, the program shall contact the State Methadone Authority within 72 hours to access the Central Registry to check for possible duplicate enrollment and to discuss acceptable, alternate forms of identification. (ii)-(iii) (No change.) sec.229.151. Approved Hospital Narcotic Drug Detoxification Treatment. (a) (No change.) (b) Fees. (1) (No change.) (2) The nonrefundable annual renewal fee of $200 shall be submitted by the permit holder to the department by filing a renewal form provided by the department prior to the expiration of the current fee certificate. A person who files a renewal fee after the expiration date must pay an additional $100 as a delinquency fee. A fee certificate will be issued for a 12-month period from date of issuance of the permit. The department will not issue a permit if the current permit has been suspended, revoked, or surrendered by the permit holder. (c) (No change.) (d) Compliance by existing hospital NTPs. (1)-(3) (No change.) (4) Methadone, or any other drug approved by the United States Food and Drug Administration for the treatment of opiate addiction, is the only drug which is approved to be used in hospital inpatient detoxification treatment of patients with opiate addiction. sec.229.152. Federal Regulations. The Texas Department of Health adopts by reference the federal regulations on "Drugs Used For Treatment of Narcotic Addicts" found in Title 21, Code of Federal Regulations, Part 291, 1993. A copy of these regulations are indexed and filed in the Drugs and Medical Devices Division, Texas Department of Health, 1100 West 49th Street, Austin, Texas 78756. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be within the agency's authority to adopt. Issued in Austin, Texas, on August 7, 1996 TRD-9611384 Susan K. Steeg General Counsel Texas Department of Health Effective date: August 28, 1996 Proposal publication date: March 12, 1996 For further information, please call: (512) 458-7236 TITLE 28. INSURANCE PART I. Texas Department of Insurance CHAPTER 21.Trade Practices SUBCHAPTER I.Prohibited Agent Practices 28 TAC sec.21.901 The Texas Department of Insurance adopts new sec.21.901, relating to the prohibition against solicitation or acceptance of a power of attorney for the purpose of placing insurance business by any person required to be licensed as an agent pursuant to the Insurance Code. The new section is adopted with changes to the proposal as published in the June 28, 1996 issue of the Texas Register (21 TexReg 5940). The adopted new section is necessary to curb practices identified by the department as constituting unfair competition and unfair and deceptive practices by certain licensed agents. Such practices have been identified by the department as constituting unfair practices pursuant to a number of investigations and enforcement actions in which certain agents obtained powers of attorney without full disclosure to, or the actual knowledge of, the prospective insured that the agent was being named attorney-in-fact. Such powers of attorney, obtained without the informed consent of the prospective insured, were then utilized to place unwanted coverages or enroll the prospective insured in programs adding to the total cost of coverage and services charged to the prospective insured, including but not limited to accidental death and dismemberment coverages, rental vehicle reimbursement coverages, towing coverages, or "extras" such as auto club memberships. Further, such practices have been identified as constituting unfair competitive practices because of their interference with, and negative impact on, the legitimate business activities of scrupulous insurance agents who refrain from securing and using unwarranted powers of attorney. The rule will benefit the public by more effectively regulating insurance agent licensees, reducing or eliminating unfair and potentially deceptive practices, and giving greater protection to the insurance consuming public in making informed choices in the process of procuring insurance coverages. The change to the adopted section adds a new subsection (c) to clarify that the section does not apply to insurance activities for which the Insurance Code expressly authorizes a person to conduct particular insurance activities as an attorney-in-fact pursuant to a power of attorney, and that it likewise does not apply to situations in which a relative or household member of a person subject to this section has appointed such person as attorney-in-fact for purposes which include placing personal lines insurance coverages for such relative or household member. The adopted section provides that no person subject to the provisions of the section is permitted to require, solicit or accept any power of attorney from any applicant for any insurance coverage in this state, unless that person is expressly authorized by the Insurance Code to conduct particular insurance activities as an attorney-in-fact pursuant to a power of attorney. The section provides that an agent may accept a power of attorney from a family or household member which includes authorization to place personal lines coverage for such family or household member. The adopted section also provides that applications may be accepted under the rule for premium financing on forms that include a power of attorney in favor of the premium financing company, so long as such forms comply with statutory provisions of the Insurance Code, Chapter 24, relating to the financing of insurance premiums. The adopted section also provides that the failure to comply with the provisions of the section constitutes unfair competition and unfair practices pursuant to the Insurance Code, Article 21.21, and is subject to the provisions of that article. One comment recommended a change to the section as proposed and published to clarify that the section is not intended to restrict or conflict with provisions of the Insurance Code, Chapter 19, as those provisions relate to the legitimate insurance business activities of recprocal exchanges. Chapter 19 permits persons, including persons who otherwise would be subject to the provisions of the section, to obtain a power of attorney and to engage in certain insurance activities as attorney-in-fact for subscribers to the exchange. The department agrees that the section can be made more clear and has included a new subsection (c) as part of the adoption. Paragraph (1) of the new subsection clarifies that the section does not apply to insurance activities for which the Insurance Code or other insurance law expressly authorizes a person to conduct such activities as an attorney-in-fact pursuant to a power of attorney. One comment recommended recognition of an exception in instances where a family or household member of an agent wants to appoint that person attorney-in-fact for financial matters, including the placement of personal lines coverages. The department agrees the section can be made more clear with respect to this narrow exception and has included a new subsection (c) as part of this adoption. Paragraph (2) of the new subsection clarifies that the section does not apply to instances in which a person required to be licensed as an agent under the Insurance Code is appointed attorney-in-fact by a relative or household member of such person for purposes which include placing personal lines insurance coverages for such relative or household member. One comment requested clarification about whether the practice by certain agents of obtaining blank signed "disbursement" forms later utilized by the agent to reduce the cash value of an inforce policy by performing certain transactions (for example, purchasing more coverage, paying premiums, taking out policy loans) comes within the prohibition of this section as proposed and published. The department believes that the practice described in the comment is in many instances factually dissimilar to the practice addressed by the section as proposed and published. However, the practice of obtaining signatures on blank disbursement forms without the informed consent of the insured and later using such forms for transactions neither intended nor authorized by the insured is a violation of current law. One comment suggested that the language of the text might need to be tightened to make it more clear that it applies only to agents. The department disagrees that the language needs to be clarified. The text makes it clear that the section is applicable to any person acting in the capacity of an insurance agent and therefore required by the Insurance Code to be licensed. The language was drafted so that it would clearly apply to all licensed agents and to persons who might be engaged in the unauthorized practice of insurance; for example, persons performing the acts of a licensed agent even if they have no currently valid agent license. For reasons outlined, no change is made as a result of the comment submitted. Comments generally in favor of the section were received from Consumers' Union, MetLife, the Office of Public Insurance Counsel, the Texas Lawyers' Insurance Exchange and United Services Automobile Association. No comments were received in opposition to the section as proposed and published. The new section is adopted pursuant to the Insurance Code, Article 21.21, sec.13. Article 21.21, sec.13 provides that the department is authorized to promulgate and enforce reasonable rules and regulations and order such provision as is necessary in the accomplishment of the purposes of Article 21.21, relating to unfair competition and unfair practices. sec.21.901.Prohibition Against Solicitation or Acceptance of Power of Attorney. (a) Scope and application. This section applies to any person required to be licensed as an agent pursuant to the provisions of the Insurance Code or other insurance law of this state. For purposes of this section, "person" means both natural persons and business association entities. (b) Prohibition. No person subject to the provisions of this section is permitted, directly or indirectly, to require, solicit or accept any power of attorney to act as attorney-in-fact for any applicant for any insurance coverage in this state for purposes of placing, procuring, instituting, maintaining, canceling or nonrenewing any insurance coverage, or for any other act in connection with the placement or institution of such insurance coverage. (c) Exceptions. This section does not apply to the situations described in paragraphs (1) and (2) of this subsection, as follow: (1) insurance activities for which the Insurance Code or other insurance law of this state expressly authorizes a person to conduct such insurance activities as an attorney-in-fact pursuant to a power of attorney; or (2) instances in which a person required to be licensed as an agent under the Insurance Code is appointed attorney-in-fact by a relative or household member of such person for purposes which include placing personal lines insurance coverages for such relative or household member. (d) Premium finance company provisions. The provisions of this section shall not prohibit any person subject to the provisions of this section from accepting applications for premium financing on premium financing agreement forms that include a power of attorney in favor of the premium financing company for purposes of canceling a financed insurance contract, so long as the power-of- attorney provisions comply with statutory provisions of the Insurance Code, Chapter 24, relating to the financing of insurance premiums. (e) Declaration of unfair practice. The failure to comply with the provisions of this section shall constitute unfair competition and unfair practices pursuant to the Insurance Code, Article 21.21, and shall be subject to the provisions of that article. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 9, 1996. TRD-9611411 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Effective date: August 29, 1996 Proposal publication date: June 28, 1996 For further information, please call: (512) 463-6327 TITLE 31. NATURAL RESOURCES AND CONSERVATION PART II. Texas Parks and Wildlife Department CHAPTER 59.Parks Sea Rim State Park Special Rules and Regulations 31 TAC sec.sec.59.221-59.236 The Texas Parks and Wildlife Commission in a regularly scheduled public hearing, July 11, 1996, adopted repeal of sec.sec.59.221-59.236 concerning the Sea Rim State Park Special Rules and Regulations without change to text as published in the June 7, 1996 issue of the Texas Register (21 TexReg 5152). Park rules in 31 TAC sec.sec.59.131-59.136 contain sufficient provisions to administer activities contained in Sea Rim State Park Special Rules. This renders sec.sec.59.221-59.236 redundant. The repeal of rules removes a redundant section from the Texas Administrative Code. The department received no public comment concerning the proposed repeal of the section. The repeal is adopted under Parks and Wildlife Code, Chapter 13, Subchapter B which provide the Parks and Wildlife Commission's authority to regulate the activities on lands under the control of the Department. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611416 William D. Harvey, Ph.D. Regulatory Coordinator Texas Parks and Wildlife Department Effective date: August 29, 1996 Proposal publication date: June 7, 1996 For further information, please call: 1-800-792-1112, extension 4642 or (512) 389-4642 Mustang Island State Park Special Rules 31 TAC sec.59.251 The Texas Parks and Wildlife Commission in a regularly scheduled public hearing, July 11, 1996, adopted repeal of sec.59.251 concerning the Mustang Island State Park Special Rules without changes to the proposed text as proposed in the June 7, 1996, issue of the (21 TexReg 5151). The provisions of these sections have been incorporated into 31 TAC Chapter 65, Subchapter H, concerning the Public Lands Hunting and Fishing Proclamation. This action rendered sec.59.251 redundant. Park rules in 31 TAC sec.sec.59.131-59.136 contain sufficient provisions to administer activities contained in Mustang Island Park Rules. This renders sec.59.251 redundant. The repeal of rules removes a redundant section from the Texas Administrative Code. The department received no public comment concerning the proposed repeal of the section. The repeal is adopted under Parks and Wildlife Code, Chapter 13, Subchapter B which provide the Parks and Wildlife Commission's authority to regulate the activities on lands under the control of the Department. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611415 William D. Harvey, Ph.D. Regulatory Coordinator Texas Parks and Wildlife Department Effective date: August 29, 1996 Proposal publication date: June 7, 1996 For further information, please call: 1-800-792-1112, extension 4642 or (512) 389-4642 CHAPTER 65.Wildlife The Texas Parks and Wildlife Commission adopts the repeal of sec.sec.65.311- 65.317 and sec.sec.65.331-65.336, concerning Early Season Migratory Game Bird Proclamation and Late Season Migratory Game Bird Proclamation; and new sec.sec.65.311-65.316, 65.319, and 65.320, concerning Migratory Game Bird Proclamation. Sections 65.311-65.313, 65.315 and 65.319 are adopted with changes to the proposed text as published in the April 16, 1996, issue of the Texas Register (21 TexReg 3319). The repeals and new sec.sec.65.314, 65.316, and 65.320 are adopted without changes and will not be republished. The change to sec.65.111 replaces the definition of 'personal abode' with a definition of 'personal residence,' and adds a definition of 'wildlife resources' for purposes of clarification. The change to sec.65.312(a) and (b) modifies the restrictions on the take of migratory game birds to permit migratory game birds to be taken from watercraft, provided that all motion from sail or motive power has ceased; alters subsection (g) and adds new subsection (h) to create separate subsections setting forth the requirements relating to importation and possession of migratory game birds, respectively; and replaces the word 'abode' with the word 'residence.' The change to sec.65.313 modifies subsection (h) to clarify that shooting hours during the special white-winged dove season are from noon to sunset. The change to sec.65.315 adjusts the teal season such that it will run from September 14 -September 22. The change to sec.65.319 corrects inaccurate references to calendar year dates. The repeals and new sections are necessary to eliminate duplication, restructure and reorganize regulatory provisions in the interest of promoting user- friendliness, and to establish the season dates, shooting hours, and bag limits for early season migratory species during the 1996-1997 hunting season. The repeals and new sections will function to establish legal species, zone boundaries, means and methods, season dates, shooting hours, and bag limits for the harvest of migratory game birds. One commenter requested that the special white-winged dove season begin on the Labor Day weekend. The department responds that opening day for the 1996-1997 white-winged dove season in the special white-winged dove area will be the first two complete weekends to avoid opening on a Sunday. No changes were made as a result of the comment. One commenter requested that the daily bag limit for doves be reduced to ten birds. The department responds that the bag limit as proposed will not constitute a threat to the stability of dove populations. No changes were made as a result of the comment. One commenter requested that the Central Zone dove season be extended to the end of October. The department responds that the dates adopted for the Central Zone represent the commission's policy of providing the greatest opportunity to the largest number of hunters. No changes were made as a result of the comment. One commenter requested that nontoxic shot be mandatory for dove hunting. The department responds that the federal government has approved lead shot for the take of doves. No changes were made as a result of the comment. One commenter requested that the department permit unlimited take of white- winged doves. The department responds that the maximum bag limits for migratory birds are established by the U.S. Fish and Wildlife Service, and the department may not exceed those limits. No changes were made as a result of the comment. Six commenters opposed the proposed 60-day dove season and 15-bird bag limit, requesting a 70-day/12-bird season instead. The department responds that the 60- day/15-bird season was initiated two years ago with the intention of maintaining it for at least three years so that the data collected would be sufficient to provide for a reliable evaluation of this regulatory option. No changes were made as a result of the comment. Five commenters requested that the department restrict legal shooting hours for dove hunting to afternoon-only. The department responds that hunter opinion surveys indicate a majority of dove hunters support all-day dove hunting. No changes were made as a result of the comment. One commenter requested that the regulation limiting the number of shells that may be kept in a shotgun be eliminated. The department responds that the regulation in question is a federal requirement. No changes were made as a result of the comment. One commenter requested that the South Zone winter segment for dove begin around January 1. The department responds that the commission established the winter segment to cover a portion of the holiday season so that school-age children could have an opportunity to hunt. No changes were made as a result of the comment. One commenter requested that the regulations permit the take of migratory game birds from floating craft. The department agrees with the comment and the change has been made accordingly. One commenter requested the elimination of the requirement that a fully feathered wing remain attached to doves taken in the South Zone. The department agrees with the comment and the change has been made accordingly. Seven commenters requested that early teal season be moved to an earlier date. The department agrees with the comment and the change has been made accordingly. Two comments in favor of all day hunting were received. SUBCHAPTER N.Early Season Migratory Game Bird Proclamation 31 TAC sec.sec.65.311-65.317 The repeals and new sections are adopted under Parks and Wildlife Code, Chapter 64, Subchapter C, which provides the Commission with authority to regulate seasons, means, methods, and devices for taking and possessing migratory game bird wildlife resources. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 9, 1996. TRD-9611572 William D. Harvey, Ph.D. Regulatory Coordinator Texas Parks and Wildlife Department Effective date: September 2, 1996 Proposal publication date: April 16, 1996 For further information, please call: 1-800-792-1112, Ext. 4642 or (512) 389-4642 SUBCHAPTER N.Migratory Game Bird Proclamation 31 TAC sec.sec.65.311-65.316, 65.319, 65.320 The new sections are adopted under Parks and Wildlife Code, Chapter 64, Subchapter C, which provides the Commission with authority to regulate seasons, means, methods, and devices for taking and possessing migratory game bird wildlife resources. sec.65.311.Definitions. The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise. All other words and terms shall have the meanings assigned in Subchapter A of this chapter (relating to Statewide Hunting and Fishing Proclamation. Baiting-The placing, exposing, depositing, distributing, or scattering of shelled, shucked, or unshucked corn, wheat, or other grain, salt, or other feed so as to constitute for migratory game birds a lure, attraction, or enticement to, on, or over areas when hunters are attempting to take such birds. Baited area-Any area where shelled, shucked, or unshucked corn, wheat, or other grain, salt, or other feed capable of luring, attracting, or enticing such birds is directly or indirectly placed, exposed, deposited, distributed, or scattered; and the area shall remain a baited area for ten days following complete removal of all such corn, wheat, or other grain, salt or other feed. Dark geese-Canada, white-fronted, and all other geese except light geese. Legal shotgun-A shotgun not larger than 10 gauge, fired from the shoulder, and incapable of holding more than three shells. (Guns capable of holding more than three shells must be plugged with a one-piece filler which is incapable of removal without disassembling the gun, so the gun's total capacity does not exceed three shells.) Light geese-snow, blue, and Ross' geese. Nontoxic shot-Any shot-type that does not cause sickness and death when ingested by migratory birds as determined by criteria established under Code of Federal Regulations, Title 50, Chapter 1, sec.20.134. The only nontoxic shot currently approved by the director, U.S. Fish and Wildlife Service, is steel shot (including copper, nickel, or zinc coated steel shot) or bismuth-tin shot. Personal residence-One's principal or ordinary home or dwelling place, as distinguished from his temporary or transient place of residence or dwelling such as a hunting club, or any club house, cabin, tent, or trailer house used as a hunting club, or any hotel, motel, or rooming house used during a hunting, pleasure, or business trip. Sinkbox-Any type of low floating device having a depression which affords the hunter a means of concealing himself below the surface of water. Wildlife resource-For the purposes of this subchapter, wildlife resources includes all migratory birds. sec.65.312.Means, Methods, and Special Requirements. (a) The following means and methods are lawful, subject to control of subsection (b) of this section, in the taking of migratory game birds: (1) dogs, artificial decoys, manual or mouth-operated birdcalls, lawful archery equipment (except crossbows), legal shotguns, and by means of falconry; (2) positions in the open or from a blind or other place of concealment except a sinkbox; (3) taking from floating craft (other than a sinkbox), provided that at the time of take: (A) any motion by the craft is the result of manual propulsion or natural current or wind, and not by sail or motive power; and (B) any sails are furled and any motor is completely shut off; (4) taking on or over unbaited areas; (5) taking by the use of power boats, sailboats, or other craft when used solely as a means of picking up dead or injured birds; and (6) paraplegics and single or double amputees of the legs may take migratory game birds from any stationary motor vehicle or motor-driven land conveyance. (b) The following means and methods are unlawful in the taking of migratory game birds: (1) trap, snare, net, crossbow, fish hook, poison, drug, explosive, or stupefying substance; (2) any firearm other than a legal shotgun; (3) from, or by means, aid, or use of sinkbox, motor-driven conveyance, motor vehicle, or aircraft of any kind; (4) by the use of recorded or electrically amplified birdcalls or sounds; (5) by the use of live birds as decoys; (6) by the means or aid of motor-driven land, water, or air conveyance or sailboat used for the purpose of or resulting in the concentrating, driving, rallying, or stirring up of any migratory game bird; and (7) by the aid of baiting, or on or over any baited area, or where migratory birds are lured, attracted, or enticed by bait. However, nothing in this subsection shall prohibit: (A) the taking of migratory game birds, including waterfowl, on or over standing crops, flooded standing crops (including aquatics), flooded harvested croplands, grain crops properly shocked on the field where grown, or grains found scattered solely as the result of normal agricultural planting or harvesting; and (B) the taking of migratory game birds, except waterfowl, on or over lands where shelled, shucked, or unshucked corn, wheat, or other grain, salt, or other feed that has been distributed or scattered as the result of bona fide agricultural operations or procedures, or as a result of manipulation of a crop or other feed on the land where grown for wildlife management purposes; provided that manipulation for wildlife management purposes does not include the distributing or scattering of grain or other feed once it has been removed from or stored on the field where grown. (c) No person may possess shotgun shells containing any shot material, or loose shot for muzzleloading firearms, other than nontoxic shot while hunting waterfowl (ducks, geese, and coots) anywhere in Texas, including the shooting of privately owned banded pen-reared mallards on licensed private bird hunting areas. (d) Nothing in this subchapter applies to persons taking birds pursuant to valid collection or depredation permits when operating within the terms of such permits. (e) Except for doves, one fully feathered wing or the head must remain attached on dressed migratory game birds while being transported between the place where taken and the final destination. (f) Tagging requirements. (1) No person shall give, put, or leave any migratory game birds at any place or in the custody of another person or receive, possess, or give to another any freshly killed migratory game bird as a gift, except at the personal residence of the donor or donee, unless the birds are tagged according to the provisions of subsection (h) of this section. (2) A wildlife resource document is required if the birds are being transported by another person for the hunter, or if the birds have been left for cleaning, storage (including temporary storage), shipment, or taxidermy services. (g) Importation of migratory game birds. (1) No person may import into this state or possess a wildlife resource taken outside this state, unless the person possessing the wildlife resource produces upon demand by a game warden a valid hunting license, stamp, tag, permit, or document for the state or country in which the wildlife resource was legally taken. (2) A person possessing a wildlife resource under this section must produce upon demand by a game warden a valid driver's license or personal identification certificate. (3) In lieu of the requirements set forth in this subsection, a statement from the United States Customs Officer at the port of entry showing that the migratory birds were brought from Mexico is satisfactory. (4) One fully feathered wing or the head must remain attached to all migratory game birds while being transported by any means from Mexico into Texas and must remain attached until reaching the final destination as defined in Subchapter A of this chapter. (h) Possession of wildlife resource. (1) For all wildlife resources taken for personal consumption and for which there is a possession limit, the possession limit shall not apply after the wildlife resource has reached its final destination. (2) A person may give, leave, receive, or possess any species of legally taken wildlife resource, or a part of the resource, that is required to have a tag or permit attached or is protected by a bag or possession limit, if the wildlife resource is accompanied by a wildlife resource document from the person who killed the wildlife resource. The wildlife resource document shall accompany the wildlife resource until it reaches its final destination. The document must contain the following information: (A) the name, signature, address, and hunting license number of the person who killed the wildlife resource; (B) the name of the person receiving the wildlife resource; (C) a description of the wildlife resource (number and type of species or parts); (D) the date the wildlife resource was killed; and (E) the location where the wildlife resource was killed (name of ranch; area; lake, bay or stream; and county). It is a defense to prosecution if the person receiving the wildlife resource does not exceed any possession limit or possesses a wildlife resource or a part of a wildlife resource that is accompanied by a wildlife resource document as described in this paragraph. sec.65.313.General Rules. (a) No person shall take migratory game birds except during the open season as provided herein, or at any time except during the hours as provided herein. All dates are inclusive. (b) No person may take or have in possession more than the bag and possession limits of each species of migratory game birds except as provided herein. (c) No person may possess migratory game birds on the opening day of the season in excess of the applicable daily bag limit. (d) No person may possess more than one daily bag limit of freshly killed migratory game birds while in the field or while returning from the field to one's hunting camp, automobile or other motor driven land conveyance, aircraft, temporary lodging facility, personal residence, or public cold storage plant. (e) No person may possess freshly killed migratory game birds during the closed season. (f) No person shall kill or wound a migratory game bird without making a reasonable effort to retrieve it. (g) Every migratory game bird wounded by hunting and retrieved by the hunter shall be immediately killed and become a part of the daily bag limit. (h) Shooting hours are from one-half hour before sunrise to sunset, except during the special white-winged dove season. During the special white-winged dove season, shooting hours are from noon to sunset. sec.65.315.Open Seasons and Bag and Possession Limits-Early Season. (a) Rails. (1) Dates: September 21-September 29, 1996 and November 16, 1996-January 15, 1997. (2) Daily bag and possession limits: (A) king and clapper rails: 15 in the aggregate per day; 30 in the aggregate in possession. (B) sora and Virginia rails: 25 in the aggregate per day; 25 in the aggregate in possession. (b) Mourning doves. (1) North Zone. (A) Dates: September 1-October 30, 1996. (B) Daily bag and possession limits: 15 mourning doves, white-winged doves, and white-tipped (white-fronted) doves in the aggregate including no more than six white-winged doves and two white-tipped doves per day; 30 mourning doves, white- winged doves, and white-tipped doves in the aggregate including no more than 12 white-winged doves and four white-tipped doves in possession. (2) Central Zone. (A) Dates: September 1-October 19, 1996 and December 26, 1996-January 5, 1997. (B) Daily bag and possession limits: 15 mourning doves, white-winged doves, and white-tipped (white-fronted) doves in the aggregate including no more than six white-winged doves and two white-tipped doves per day; 30 mourning doves, white- winged doves, and white-tipped doves in the aggregate including no more than 12 white-winged doves and four white-tipped doves in possession. (3) South Zone. (A) Dates: Except in the special white-winged dove area as defined in sec.65.314 of this title (relating to Zones and Boundaries for Early Season Species), September 20-November 7, 1996 and December 26, 1995 - January 5, 1997. In the special white-winged dove area, the mourning dove season is September 20- November 3, 1996 and December 26, 1996-January 5, 1997. (B) Daily bag and possession limits: 15 mourning doves, white-winged doves, and white-tipped (white-fronted) doves in the aggregate including no more than six white-winged doves and two white-tipped doves per day; 30 mourning doves, white- winged doves, and white-tipped doves in the aggregate including no more than 12 white-winged doves and four white-tipped doves in possession. (c) White-winged doves. (1) Dates: September 7, 8, 14 and 15, 1996. (2) Daily bag and possession limits: 10 white-winged doves, mourning doves, and white-tipped (white-fronted) doves, in the aggregate to include no more than five mourning doves and two white-tipped doves per day; 20 white-winged doves, mourning doves, and white-tipped doves in the aggregate to include no more than 10 mourning doves and four white-tipped doves in possession. (d) Gallinules. (1) Dates: September 21-29, 1996 and November 16, 1996-January 15, 1997. (2) Daily bag and possession limits: 15 in the aggregate per day; 30 in the aggregate in possession. (e) Teal ducks. (1) Dates: September 14-22, 1996. (2) Daily bag and possession limits: four in the aggregate per day; eight in the aggregate in possession. (f) Red-billed pigeons, and band-tailed pigeons. No open season. (g) Shorebirds. No open season. sec.65.319.Extended Falconry Season. (a) It is lawful to hunt migratory birds by means of falconry, but the hunting is limited to persons holding valid falconry permits issued by the department. (b) It is lawful to take the species of migratory birds listed in this section by means of falconry during the following Extended Falconry Seasons: (1) mourning doves and white-winged doves: November 13-December 19, 1996; (2) rails and gallinules: October 10-November 15, 1996; (3) ducks, coots, and mergansers: (A) High Plains Mallard Management Unit: January 20, 1997-February 3, 1997; (B) Greater Texas Management Unit: January 20, 1997-February 26, 1997; (4) woodcock: November 25-27, 1996 and February 1, 1997-March 10, 1997. (c) The daily bag and possession limits for all permitted migratory game birds shall not exceed three and six birds respectively, singly or in the aggregate. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 9, 1996. TRD-9611573 William D. Harvey, Ph.D. Regulatory Coordinator Texas Parks and Wildlife Department Effective date: September 2, 1996 Proposal publication date: April 16, 1996 For further information, please call: 1-800-792-1112, Ext. 4642 or (512) 389- 4642 SUBCHAPTER O.Late Season Migratory Game Bird Proclamation 31 TAC sec.sec.65.331-65.336 The repeals are adopted under Parks and Wildlife Code, Chapter 64, Subchapter C, which provides the Commission with authority to regulate seasons, means, methods, and devices for taking and possessing migratory game bird wildlife resources. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 9, 1996. TRD-9611571 William D. Harvey, Ph.D. Regulatory Coordinator Texas Parks and Wildlife Department Effective date: September 2, 1996 Proposal publication date: April 16, 1996 For further information, please call: 1-800-792-1112, Ext. 4642 or (512) 389-4642 TITLE 34. PUBLIC FINANCE PART I. Comptroller of Public Accounts CHAPTER 3.Tax Administration SUBCHAPTER V.Franchise Tax 34 TAC sec.3.544 The Comptroller of Public Accounts adopts an amendment to sec.3.544, concerning reports and payments, without changes to the proposed text as published in the June 11, 1996, issue of the Texas Register (21 TexReg 5244). The reasons for amending the rule are as follows: the term "beginning date" was revised in accordance with Senate Bill 644, 74th Legislature, 1995. The current rate of interest has been revised to show changes made by the legislature to interest rates charged taxpayers. Amendments have also been made to reflect agency policy concerning accounting year ending dates, revisions to other section references, the filing of amended reports as a result of Internal Revenue Service audits, and the payment of jeopardy determinations. A new subsection has been added concerning the public information report, in accordance with Senate Bill 644, 74th Legislature, 1995. No comments were received regarding adoption of the amendment. The amendment is adopted under the Tax Code, sec.111.002, which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of the Tax Code, Title 2. The amendment implements Tax Code, sec.171.001, et. seq. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611468 Martin Cherry Chief, General Law Comptroller of Public Accounts Effective date: August 29, 1996 Proposal publication date: June 11, 1996 For further information, please call: (512) 463-4028 TITLE 40. SOCIAL SERVICES AND ASSISTANCE PART I. Texas Department of Human Services CHAPTER 15.Medicaid Eligibility SUBCHAPTER D.Resources 40 TAC sec.15.425 The Texas Department of Human Services (DHS) adopts the repeal of sec.15.425 and new sec.15.425, concerning replacement value of excluded resources, in its Medicaid Eligibility rule chapter. The repeal and new section are adopted without changes to the proposed text as published in the June 28, 1996, issue of the Texas Register (21 TexReg 5941), and will not be republished. The justification for the repeal and new section is to track Federal regulations. When an excluded resource is lost, stolen, or damaged, repair or replacement funds are excluded for nine months, with extensions allowed for good cause. The repeal and new section will function by ensuring that DHS will be in compliance with federal regulations. No comments were received regarding adoption of the repeal and new section. The repeal is adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which provides the department with the authority to administer public and medical assistance programs and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The repeal implements the Human Resources Code sec.sec.22.001-22.024 and sec.sec.32.001-32.042. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611452 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: June 28, 1996 For further information, please call: (512) 438-3765 The new section is adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which provides the department with the authority to administer public and medical assistance programs and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The new section implements the Human Resources Code sec.sec.22.001-22.024 and sec.sec.32.001-32.042. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611453 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: June 28, 1996 For further information, please call: (512) 438-3765 SUBCHAPTER E.Income 40 TAC sec.15.455 The Texas Department of Human Services (DHS) adopts an amendment to sec.15.455, concerning unearned income, in its Medicaid Eligibility rule chapter. The purpose of the amendment is to include information mandated by settlement of a federal lawsuit regarding support and maintenance. The amendment will function by ensuring that DHS will be in compliance with federal regulations. The amendment is adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which provides the department with the authority to administer public and medical assistance programs and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The amendment is adopted in compliance with federal requirements effective May 1, 1996. The amendment implements the Human Resources Code sec.sec.22.001-22.024 and sec.sec.32.001-32.042. sec.15.455.Unearned Income. (a) (No change.) (b) Support and maintenance (S/M). The following requirements apply to support and maintenance. (1)-(3) (No change.) (4) Support and maintenance when the client resides in his own household. If the client is the householder (has ownership interest or rental liability), then count 1/3 FBR plus $20. If the client is income-eligible, no further development is needed. If counting 1/3 FBR plus $20 causes ineligibility, prior to denial the client must be given an opportunity to rebut and show that the actual value of the S/M is less. The principle of 1/3 of FBR is never applicable when the client is the householder. (A) (No change.) (B) Support and maintenance from outside the household. If the amount of rent required by the landlord equals or exceeds either the current market rental value (CMRV) or 1/3 FBR plus $20, then there is no S/M. If the amount of rent required by the landlord is less than both the CMRV and 1/3 FBR plus $20, then the difference between 1/3 FBR plus $20 and the amount of rent required, or the difference between the CMRV and the amount of rent required, whichever is less, is countable S/M. (C) (No change.) (5)-(9) (No change.) (c)-(e) (No change.) This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 12, 1996. TRD-9611603 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: May 1, 1996 Proposal publication date: N/A For further information, please call: (512) 438-3765 CHAPTER 19.Nursing Facility Requirements for Licensure and Medicaid Certification The Texas Department of Human Services (DHS) adopts the repeal of sec.19.1929, amendments to sec.19.204, sec.19.1921, and sec.19.2112, and new sec.19.1929. The repeal of sec.19.1929, amendments to sec.19.2112 and sec.19.1921, and new sec.19.1929 are adopted without changes to the proposed text as published in the April 12, 1996, issue of the Texas Register (21 TexReg 3152) and in the May 31, 1996, issue of the Texas Register (21 TexReg 4880). Section 19.204 is adopted with a change. Amendments to sec.sec.19.204 and 19.1921 were originally published in the April 12, 1996, issue and were withdrawn and reproposed in the May 31, 1996, issue. Justification of the repeal, amendments, and new section is to be in compliance with Texas law. The sections will function by implementing Senate Bills 436 and 1059. Senate Bill 436 requires a disclosure statement from nursing facilities which advertise, market, or otherwise promote that they provide special services for residents with Alzheimer's disease or a related disorder and provides an administrative penalty for noncompliance. The amendment to sec.19.1921(j), proposed as (k), corrects a reference to the chapter concerning criminal history checks. Senate Bill 1059 requires that nursing staff (licensed nurses and nurse aides) receive yearly inservice training in geriatric care. The department received comments from the Texas Health Care Association regarding adoption of the sections. Comment: Regarding sec.19.204(8)(B)(i) which requires a facility to disclose its philosophy of care, what will the department look for in this requirement? Response: The facility should simply state its philosophy of care; the department will not be judging a facility on the merits of its answer. Comment: Regarding sec.19.204(8)(B)(iii), how does the department suggest the facility comply with placing the resident assessment, care planning, and implementation of the care plan in the disclosure statement? Response: Each facility will make its own decision as to how to explain these processes. The disclosure statement is for the benefit of the consumer. The department will not be qualitatively evaluating a facility's answers. Comment: In sec.19.204(8)(B)(vii), program costs are requested. Change this to program charges. Response: The department has made this change. Comment: Regarding sec.19.204(8)(C), which requires a facility to update the disclosure statement as needed to reflect changes in its programs, change this item to require updating the disclosure statement with the licensure renewal. Response: The department will retain the requirement as proposed. The disclosure statement is designed to provide information to consumers. Failing to update the disclosure statement as changes in the programming occur would not provide the consumer with accurate information. Comment: Regarding the posting requirements at sec.19.1921(e), change them to allow a notice that the information is available in the office. Response: All of the posting requirements, except for (e)(5), are mandated by the Texas Health and Safety Code, sec.242.042 and sec.242.202. While the requirement to post information about reporting abuse and neglect is not statutorily mandated, the department's position is that the information is important enough to require posting. Consequently, the department has made no changes to the rule. SUBCHAPTER C.Nursing Facility Licensure Application Process 40 TAC sec.19.204 The amendments to sec.19.204(c)(8)(B) and (C) are adopted under the Health and Safety Code, Chapter 242, which provides the department with the authority to license nursing facilities; under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs; and under Texas Government Code, sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The amendment to sec.19.204(8)(A) is adopted under the Health and Safety Code, Chapter 242, which provides the department with the authority to license nursing facilities. The amendments to sec.19.204(c)(8)(B) and (C) implement the Health and Safety Code, sec.sec.242.001- 242.186, Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. The amendment to sec.19.204(8)(A) implements the Health and Safety Code, sec.sec.242.001-242.186. sec.19.204.Applicant Disclosure Requirements. (a)-(b) (No change.) (c) General information required. An applicant must file with DHS an application which contains: (1)-(7) (No change.) (8) for a facility which advertises, markets, or otherwise promotes that it provides services to residents with Alzheimer's disease and related disorders, a disclosure statement, using the departmental form, describing the nature of its care or treatment of residents with Alzheimer's disease and related disorders, as required by the Texas Health and Safety Code, sec.242.202. (A) Failure to submit the required disclosure statement will result in an administrative penalty in accordance with sec.19.2112 of this title (relating to Administrative Penalties). (B) The disclosure statement must contain the following information: (i) the facility's philosophy of care for residents with Alzheimer's disease and related disorders; (ii) the preadmission, admission, and discharge process; (iii) resident assessment, care planning, and implementation of the care plan; (iv) staffing patterns, such as resident to staff ratios, and staff training; (v) the physical environment of the facility; (vi) resident activities; (vii) program charges; (viii) systems for evaluation of the facility's program; (ix) family involvement in resident care; and (x) the telephone number for DHS's toll-free complaint line. (C) The disclosure statement must be updated and submitted to DHS as needed to reflect changes in special services for residents with Alzheimer's disease or a related condition. (d)-(f) (No change.) This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611448 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 31, 1996 For further information, please call: (512) 438-3765 SUBCHAPTER T.Administration 40 TAC sec.19.1921, sec.19.1929 The amendments to sec.19.1921(e)(1)-(6) and sec.19.1921(g)-(l) are adopted under the Health and Safety Code, Chapter 242, which provides the department with the authority to license nursing facilities; under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs, and under Texas Government Code, sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The amendment to sec.19.1921(f) is adopted under the Health and Safety Code, Chapter 242, which provides the department with the authority to license nursing facilities The new section is adopted under the Health and Safety Code, Chapter 242, which provides the department with the authority to license nursing facilities; the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs, and under Texas Government Code, sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The amendments to sec.19.1921(e)(1)-(6) and sec.19.1921(g)-(l) implement the Health and Safety Code, sec.sec.242.001-242.186, and the Human Resources Code, sec.sec.22.001- 22.030 and sec.sec.32.001-32.042. The amendment to sec.19.1921(f) implements the Health and Safety Code, sec.sec.242.001-242.186. The new section implements the Health and Safety Code, sec.sec.242.001-242.186, and the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611449 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 31, 1996 For further information, please call: (512) 438-3765 40 TAC sec.19.1929 The repeal is adopted under the Health and Safety Code, Chapter 242, which provides the department with the authority to license nursing facilities; the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs, and under Texas Government Code, sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The repeal implements the Health and Safety Code, sec.sec.242.001-242.186, and the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611450 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: April 12, 1996 For further information, please call: (512) 438-3765 SUBCHAPTER V.Enforcement 40 TAC sec.19.2112 The amendment is adopted under the Health and Safety Code, Chapter 242, which provides the department with the authority to license nursing facilities; the Human Resources Code, Title 2, Chapter 22, which authorizes the department to administer public assistance programs. The amendment implements the Health and Safety Code, sec.sec.242.001 - 242.186, and the Human Resources Code, sec.sec.22.001-22.030. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611451 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: April 12, 1996 For further information, please call: (512) 438-3765 CHAPTER 19.Nursing Facilities Requirements for Licensure and Medicaid Certification The Texas Department of Human Services (DHS) adopts the repeal of sec.19.1808 and sec.19.1809, amendments to sec.sec.19.1801-19.1807, sec.19.1810, and sec.19.2703, and new sec.19.2701 and sec.19.2702 in new Subchapter BB. The repeal of sec.19.1808 and sec.19.1809, amendments to sec.19.1801, sec.19.1803- 19.1805, sec.19.1810, and sec.19.2703, and new sec.19.2701, are adopted without changes to the proposed text published in the May 13, 1996, issue of the Texas Register (21 TexReg 4523), and the text will not be republished. The amendments to sec.19.1802, sec.19.1806, and sec.19.1807, and new sec.19.2702 are adopted with changes. Justification of the repeals, amendments, and new sections is the establishment of a single set of guidelines to facilitate financial accountability relating to service delivery, a better understanding of the reimbursement methodology due to inclusion of additional detail, and simplification of the method of reimbursing facilities for the allowable costs of oxygen. The repeals, amendments, and new sections will function by establishing cost determination rules that are consistent across programs, providing explicit guidelines for auditors, providing specific instructions concerning cost reporting, providing guidelines in areas such as documentation and allocation methods, clarifying current reimbursement methodology practices, and incorporating cost report procedural changes. The proposal also discontinues voucher payments for oxygen costs incurred after December 31, 1994; for costs incurred after December 31, 1994, the allowable costs for oxygen will be part of the daily reimbursement. A public hearing was held on June 10, 1996, in the Texas Department of Human Services Board Room, 701 West 51st Street, Austin, Texas. The department received comments from the Texas Health Care Association and the Texas Association of Homes and Services for the Aging. Summaries of the comments and the responses follow. Comment concerning sec.19.1802(11)(C) and sec.19.1806(a)(1)(A)(iii): One commenter stated that providers should not be excused from filing cost reports for low utilization. This commenter stated that such excuses would be a change from the current methodology and inconsistent with the Medicare program, which requires at least an abbreviated cost report from all participating providers. Response: The department has deleted this exemption from the portions of the rules commented on and from sec.19.2702(c). Comment concerning sec.19.1802(12)(A) and (B) and sec.19.2702(d)(1)-(2): One commenter stated that language should be added to the subparagraph that outlines the time parameters in which DHS must perform its audit of the referenced cost reports. These time parameters must be reasonable from both the provider's and the agency's perspective. Response: No outside time frame can be given due to circumstances which may delay the review of a cost report for acceptability which are outside of the auditor's control. A time frame of seven calendar days is included in this subparagraph to specify the number of days within which the final cost report will be forwarded for an audit. DHS is adopting these subparagraphs without change. Comment concerning sec.19.1802(14) and sec.19.1807(b)(1)(C)(i)(I)-(II): One commenter stated that, in calculating the fixed capital asset use fee, until a complete database of appraisals is available, DHS should use the most recent appraisal available for those facilities that do not submit appraisals with their cost reports. Response: The department has revised the proposed rules. Until tax-exempt facilities which are not provided an appraisal from the local property taxing authority are required to provide an independent appraisal, the most recent appraisal available will be utilized in the use fee calculation. Comment concerning sec.19.1802(14) and sec.19.1807(b)(1)(C)(i)(I)-(II): In discussing the tax-exempt facility appraisals, one commenter stated that the rules for calculating the use fee should be revised. Response: The comment does not apply to sec.19.1802(14) and sec.19.1807(b)(1)(C)(i)(I)-(II) as stated by the commenter. The portion of the rules commented on is in 19.1807(b)(1)(C)(v). This subsection was not modified in the proposed rules and hence is not open for public comment and revision. Comment concerning sec.19.1802(14)(B)(ii)(III): One commenter stated that this paragraph should include a minimum amount to trigger the need for a reappraisal to ensure that reappraisals are not required after minor improvements or reconstructions. This commenter recommended a $2,000 to $3,000 per bed amount. Response: The department has added a $2,000 per bed minimum amount to trigger the need for a reappraisal in both sec.19.1802(14)(B)(iii)(III) and sec.19.2702(f)(2)(B)(iii). Comment concerning sec.19.1806(a): One commenter stated that this rule should include (1) a requirement that DHS notify the provider(s) when costs or the cost report itself are/is excluded from the reimbursement determination base and (2) a provision for informal and formal appeals processes in the event that the provider(s) disagree with DHS' determination. Response: 40 TAC 20.107 (Notification of Exclusions and Adjustments) provides for the notification of providers when costs have been adjusted due to desk reviews and field audits of cost reports. Section 20.110 (Informal Reviews and Formal Appeals) provides for informal and formal appeals processes related to those adjustments. The field audit report will inform the provider of any recommendation not to include the cost report in the reimbursement database due to unauditability. Section 19.1806(a)(3) provides for notification to the public of the number of cost reports eliminated from reimbursement determination for reasons stated in clause sec.19.1806(a)(1)(B)(i). DHS is adopting this subsection without change. Comment concerning sec.19.1806(a)(2)(A)(i): One commenter stated that this paragraph should be rephrased so as not to disallow the routine costs associated with Medicare, private pay, V.A., private insurance, or any other payor type. The commenter stated that this would not take advantage of higher staffing ratios, would cause private pay residents to further subsidize Medicaid, and would not show a very clear picture of how well the Medicaid payments actually cover cost of care. Response: This subparagraph clearly refers to ancillary services, not routine costs. This section ensures that each payor pays its appropriate share of the ancillary costs. If other programs require higher costs, then those programs should bear the financial burden of those costs. DHS is adopting this subparagraph without change. Comment concerning sec.19.1806(a)(2)(A)(i): One commenter stated that the department should clarify that the interest income should only be offset if derived from nursing facility patient activities and that the rules should recognize debt service reserve funds required by lenders. Response: The department has revised the wording to clarify this. Comment concerning sec.19.2701(c)(3): One commenter stated that this paragraph should include a mechanism for periodically rebasing voucher limits to accurately reflect the impact of inflation and other external forces on provider costs. Response: This section does not define the methods by which the voucher payment amounts are calculated or determined; therefore, this comment does not apply. DHS is adopting this paragraph without change. In addition, the department made editorial changes to sec.19.1802(14)(B)(i) and (iii) for consistency. SUBCHAPTER S.Reimbursement Methodolgy for Nursing Facilities 40 TAC sec.sec.19.1801-19.1807, 19.1810 The amendments are adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs, and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assis- tance funds. The amendments implement the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. sec.19.1803.Allowable and Unallowable Costs: 1995 and 1996 Cost Reports. (a) General information. Cost reports pertaining to providers' fiscal years ending in calendar year 1995 or 1996 will be governed by the information in this section. Cost reports pertaining to providers' fiscal years ending in calendar year 1997 and subsequent years will be governed by the information in sec.19.2701 of this title (relating to Allowable and Unallowable Costs: 1997 and Subsequent Cost Reports). The Texas Department of Human Services (DHS) defines allowable and unallowable costs to identify expenses which are reasonable and necessary to provide recipient care to Medicaid recipients on the part of an economical and efficient provider. The primary objective of the cost reporting process is to determine fair and reasonable reimbursements to providers. To achieve that objective, DHS compiles a rate base consisting, if possible, only of allowable cost information. If DHS classifies a particular type of expense as unallowable for purposes of compiling a reimbursement base, it does not mean that individual providers may not make expenditures of this type. Allowable costs included in the reimbursement determination database determine only the costs and maximum reimbursement rates associated with an economical and efficient operator. Cost reporting by DHS Medicaid contracted providers should be consistent with generally accepted accounting principles (GAAP). In cases where DHS cost reporting rules conflict with GAAP, the Internal Revenue Service, or other authorities, DHS rules take precedence for Medicaid provider cost reporting purposes. (b) (No change.) sec.19.1806.Cost Finding Methodology. (a) Exclusion of and adjustments to certain reported expenses. Providers are responsible for eliminating unallowable expenses from the cost report. The Texas Department of Human Services (DHS) reserves the right to exclude any unallowable costs from the cost report and to exclude entire cost reports from the reimbursement determination database if there is reason to doubt the accuracy or allowability of a significant part of the information reported. (1) Cost reports included in the database used for reimbursement determination. (A) Individual cost reports will not be included in the database used for reimbursement determination if: (i) the cost report represents costs accrued during a time period immediately preceding a period of decertification where the decertification was greater than 30 calendar days; (ii) the cost report is a final cost report (due to a change of ownership or the facility no longer contracting to serve Medicaid clients) and one of the following applies: (I) the final cost reporting period ended more than 30 days before the end of the facility's cost report fiscal year during the reporting period in question; or (II) the final cost report was due before DHS finalized the appropriate cost report form and hence the final cost report was completed on an inappropriate year's cost report form; or (iii) the cost reporting period is less than or equal to 30 calendar days. (B) In addition to the reasons for excluding a cost report from the reimbursement determination database specified in subparagraph (A) of this paragraph, individual cost reports may not be included in the database used for reimbursement determination if: (i) there is reasonable doubt as to the accuracy or allowability of a significant part of the information reported; or (ii) an auditor determines that reported costs are not verifiable. (C) In the event that a facility is controlled by different owners during a single calendar year and each owner submits a cost report with an ending date that falls within that calendar year and neither subparagraph (A) nor (B) of this paragraph preclude the use of either cost report, the cost report representing the most recent time period ending in the calendar year will be used in the reimbursement database. (D) In the event that all cost reports submitted for a specific facility are disqualified through the application of subparagraph (A) and/or (B) of this paragraph, the facility will not be represented in the reimbursement database for the cost report year in question. (2) Adjustments and exclusions of cost report data include, but are not necessarily limited to: (A) Revenue offsets. (i) For the 1995 and 1996 cost reports, expenses incurred from operations not associated with providing contracted services are unallowable for Medicaid cost reporting purposes and must be excluded from the cost report by the provider. These types of expenses include costs related to meals sold to employees or guests, non-medical rentals, barber and beauty shop operations, canteen and gift shops, vending machines, and any other non- contract related activities. Interest income, derived from nursing facility operations, with the exception of interest income from funded depreciation accounts, qualified pension funds, and debt service reserve funds required by non-related party lenders, is to be offset against working capital interest expense, not to exceed total working capital interest costs. Providers' central office operations must also comply with this interest income offset. Costs incurred and revenues accrued for providing ancillary services to Non-Medicaid Only residents are unallowable for Medicaid cost reporting purposes and must be excluded from the cost report by the provider. Ancillary refers to any service for which a separate charge is customarily made in addition to the routine daily service charge. Non-Medicaid Only residents refers to nursing facility residents who are eligible for payments for ancillary services from another source such as private pay, private insurance, Veterans Administration, and Medicare (including Medicaid Qualified Medicare Beneficiary (MQMB) and Dual Eligible (Medicare/Medicaid)) residents. (ii) Beginning with the 1997 cost report data, providers must complete and submit cost reports in accordance with sec.20.103(b)(15)(D) and sec.20.104 of this title (relating to Specifications for Allowable and Unallowable Costs, and Revenues). (B) Fixed capital asset costs. (i) DHS staff determine fixed capital asset costs as detailed in this section. (ii) Fixed capital asset costs are reimbursed in the form of a use fee calculated as described in sec.19.1807 of this title (relating to Reimbursement Setting Methodology). The following fixed capital charges are excluded from the reimbursement base: (I) building and building equipment depreciation and lease expense; (II) mortgage interest; (III) land improvement depreciation; and (IV) leasehold improvement amortization. (C)-(D) (No change.) (E) Cost projections. DHS projects certain expenses in the reimbursement [rate] base to normalize or standardize the reporting period and to account for cost inflation between reporting periods and the period to which the prospective reimbursement applies as specified in sec.20.108 of this title (relating to Determination of Inflation Indices). (3) When material pertinent to proposed reimbursements is made available to the public, the material will include the number of cost reports eliminated from reimbursement determination for the reason stated in paragraph (1)(B)(i) of this subsection. (b) (No change.) (c) Reimbursement determinations and allowable costs. Providers are responsible for reporting only allowable costs on the cost report, except where cost report instructions indicate that other costs are to be reported in specific lines or sections. Only allowable cost information is used to determine recommended reimbursement. DHS excludes from reimbursement determinations any unallowable expenses included in the cost report and makes the appropriate adjustments to expenses and other information reported by providers. (d) General information. In addition to the requirements of this section, cost reports pertaining to provider's fiscal years ending in calendar year 1995 and subsequent years will be governed by the information in sec.20.101 of this title (relating to Introduction), sec.20.106 of this title (relating to Basic Objectives and Criteria for Audit and Desk Review of Cost Reports), sec.20.107 of this title (relating to Notification of Exclusions and Adjustments), sec.20.109 of this title (relating to Adjusting Reimbursement When New Legislation, Regulations, or Economic Factors Affect Costs), and sec.20.110 of this title (relating to Informal Reviews and Formal Appeals). Cost reports pertaining to providers' fiscal years ending in calendar year 1997 and subsequent years will be governed by the information in sec.20.104 of this title (relating to Revenues). sec.19.1807.Reimbursement Setting Methodology. (a) (No change.) (b) Reimbursement determination. For reimbursements calculated using cost reports pertaining to providers' fiscal years ending in calendar year 1995 or 1996, the Texas Board of Human Services (board) determines general reimbursements for medical assistance programs for Medicaid recipients under provisions of the Human Resources Code, Chapter 24 (relating to Reimbursement Methodology). For reimbursements calculated using cost reports pertaining to providers' fiscal years ending in 1997 and subsequent years, the board determines general reimbursements for medical assistance programs for Medicaid recipients under provisions of Chapter 20 of this title (relating to Cost Determination Process). The board determines reimbursements for nursing facilities based on consideration of Texas Department of Human Services (DHS) staff recommendations. To develop reimbursement rate recommendations for nursing facilities, DHS staff apply the following procedures. (1) Rate Components. Under the case mix methodology, reimbursements are comprised of three cost-related components: the Recipient Care component; the General, Administration, and Dietary component; and the Fixed Capital Asset component. (A)-(B) (No change.) (C) The Fixed Capital Asset component is calculated as follows: (i) Determine the 80th percentile in the array of allowable appraised property values per licensed bed, including land and improvements. (I) For reimbursements calculated using cost reports pertaining to providers' fiscal years ending in calendar year 1995 or 1996, appraised values for this purpose are determined as follows: (-a-) For proprietary facilities, tax exempt facilities provided an appraisal from their local property taxing authority, and tax exempt facilities not provided an appraisal from their local property taxing authority during their fiscal year ending in calendar year 1996 as described in sec.19.1802(14)(B)(iii) of this title (relating to Cost Reporting Requirements: 1995 and 1996 Cost Reports), allowable appraised values are determined as described in sec.19.1802(14) of this title (relating to Cost Reporting Requirements: 1995 and 1996 Cost Reports). (-b-) For tax exempt facilities not provided an appraisal from the local property taxing authority during their fiscal year ending in calendar year 1995, the property appraisal value that was utilized in the calculations for the 1996 reimbursements will be utilized in the calculations for the 1997 reimbursements. (-c-) Those facilities which do not report an allowable appraised value as described in sec.19.1802(14) of this title (relating to Cost Reporting Requirements: 1995 and 1996 Cost Reports) and do not have an appraisal value calculated as described in item (-b-) of this subclause are not included in the array for purposes of calculating the use fee. (II) For reimbursements calculated using cost reports pertaining to providers' fiscal years ending in calendar year 1997 and subsequent years, appraised values for this purpose are determined as follows: (-a-) For proprietary facilities, tax exempt facilities provided an appraisal from their local property taxing authority, and tax exempt facilities not provided an appraisal from their local property taxing authority because of an "exempt" status whose independent appraisal is in the first year of its five- year interval as described in sec.19.2702(f)(2)(B)(ii) of this title (relating to Cost Report Requirements: 1997 and Subsequent Cost Reports), allowable appraised values are determined as described in sec.19.2702(f) of this title (relating to Cost Report Requirements: 1997 and Subsequent Cost Reports). (-b-) For tax exempt facilities not provided an appraisal from their local property taxing authority because of an "exempt" status whose independent appraisal is not in the first year of its five-year interval as described in sec.19.2702(f)(2)(B)(ii) of this title (relating to Cost Report Requirements: 1997 and Subsequent Cost Reports), allowable appraised values are determined by indexing the facility's allowable appraised value as determined in sec.19.2702(f) of this title (relating to Cost Report Requirements: 1997 and Subsequent Cost Reports) to the median increase in appraised values among contracted facilities in the state as a whole from the reporting period coinciding with the first year of the facility's five-year interval to the reporting period upon which reimbursements are to be based. (-c-) Those facilities which do not report an allowable appraised value as described in sec.19.2702(f) are not included in the array for purposes of calculating the use fee. (ii)-(v) (No change.) (2)-(5) (No change.) (c)-(d) (No change.) (e) Oxygen costs. Oxygen costs incurred on or after January 1, 1995, will not be reimbursed on cost reimbursement vouchers. Those oxygen costs must be reported as expenses on the cost report. (1)-(3) (No change.) Issued in Austin, Texas, on August 8, 1996. TRD-9611427 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 438-3765 40 TAC sec.sec.19.1980-19.1809 The repeals are adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs, and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The repeals implement the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. Issued in Austin, Texas, on August 8, 1996. TRD-9611428 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 438-3765 SUBCHAPTER BB.Nursing Facility Program Cost Determination Process 40 TAC sec.sec.19.2701-19.2703 The amendment and new sections are adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs; and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The amendment and new sections implement the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. sec.19.2702.Cost Report Requirements: 1997 and Subsequent Cost Reports. (a) General information. For the completion and submittal of cost reports pertaining to providers' fiscal years ending in calendar year 1997 and subsequent years, providers must apply the information detailed in this section. Except where specific exceptions are noted herein, the Nursing Facility program follows the cost report requirements in sec.20.105 of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures). (b) Cost reports for Medicaid-decertified facilities. If a provider has been Medicaid- decertified for more than 30 consecutive days during its fiscal year, a cost report must be prepared to reflect the activities of the provider for the portion of its fiscal year prior to decertification. The provider must submit this cost report to the Texas Department of Human Services (DHS) no later than 90 calendar days following the provider's decertification date. If the provider is recertified, the provider must prepare a cost report to reflect the activities of the provider during the remainder of the provider's fiscal year following recertification. The cost report pertaining to the fiscal year subsequent to recertification must be submitted to DHS according to sec.20.105(c) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures). (c) Providers excused from cost report submission. DHS may excuse providers from the requirement to submit a cost report. Requests to be excused from submitting a cost report must be received by DHS before the due date of the cost report. In instances when providers are excused from cost report submission, the payment to the provider is made in accordance with sec.19.1807 of this title (relating to Reimbursement Setting Methodology). (1) Providers are excused from cost report submission if the provider's Medicaid contract was in effect for 30 consecutive days or fewer during the provider's cost report fiscal year. (2) DHS may excuse providers from the requirement to submit a cost report if DHS determines that circumstances beyond the control of the provider made cost report completion impossible, such as the loss of records due to natural disasters or removal of records from the provider's custody by a governmental entity. (d) Final cost reports for change of ownership. Except when excused from the requirement to submit a cost report according to subsection (c) of this section, when a facility changes ownership, the prior owner must submit a completed cost report reflecting the facility's activities from the beginning of the prior owner's cost report fiscal year until the ownership-change effective date. The prior owner's vendor payments may be held until DHS receives an acceptable final cost report according to sec.19.2308(2) of this title (relating to Change of Ownership). (1) In cases where the prior owner's vendor payment is held, DHS will forward the final cost report to audit within seven calendar days of its receipt. (2) In cases where the facility is sold and its prior year's cost report is pending audit completion, the owner's vendor payment may be held until the audit of the prior year's cost report and the final cost report are complete. (e) Requirements for cost report completion. A completed nursing facility cost report must: (1) meet the definition of completed cost report specified in sec.20.105(b)(4)(A) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures); (2) have attached the property appraisal used to determine the allowable appraised property value as described in sec.19.2702(g) of this title (relating to Cost Report Requirements: 1997 and Subsequent Cost Reports); (3) not report figures for days of service and number of beds that reflect occupancy of greater than 100%; (4) have a management contract attached, if applicable; and (5) have a lease agreement attached, if applicable. (f) Allowable appraised property values. Allowable appraised property values are determined as follows: (1) Proprietary facilities. The allowable appraised values of proprietary facilities to be reported on Texas Medicaid cost reports are determined from local property taxing authority appraisals. The year of the property appraisal must be the calendar year within which the provider's cost report fiscal year ends, or the prior calendar year. (2) Tax exempt facilities. The allowable appraised property values for tax exempt facilities are determined as follows. (A) Tax exempt facilities provided an appraisal from their local property taxing authority. Tax exempt facilities provided an appraisal from their local property taxing authority must report this appraised value on their Texas Medicaid cost report. The year of the property appraisal must be the calendar year within which the provider's cost report fiscal year ends, or the prior calendar year. (B) Tax exempt facilities not provided an appraisal from their local property taxing authority. Tax exempt facilities not provided an appraisal from their local property taxing authority because of an "exempt" status must provide documentation received from the local taxing authority certifying exemption for the current reporting period and must contract with an independent appraiser to appraise the facility land and improvements. These independent appraisals must meet the following criteria. (i) The appraisal must value land and improvements using the same basis used by the local taxing authority under Texas laws regarding appraisal methods and procedures. (ii) The appraisal must be updated every five years with the initial appraisal setting the five-year interval. (I) Facilities achieving exempt status during their fiscal year ending in calendar year 1997 or a subsequent year must submit an initial appraisal to DHS's Rate Analysis Department as part of their cost report for the fiscal year during which the exempt status was achieved. This appraisal must be reflective of the facility's appraised value during that fiscal year. (II) If a facility is reappraised due to improvements or reconstruction as defined in clause (iii) of this subparagraph, a new five-year interval will be set. (iii) Facilities making capital improvements, or requiring reconstruction due to fire, flood, or other natural disaster, when the improvements or reconstruction cost more than $2000 per licensed bed, must contract with an independent appraiser to have land and improvements reappraised within the cost reporting period in which the improvement(s) is placed into service. (iv) If for any reason an appraisal becomes available from the local taxing authority for a provider who previously lacked such an appraisal, the provider must report, on the next Texas Medicaid cost report submitted, the local taxing authority's appraised values instead of the independent appraisal values. (3) Governmental facilities. Governmental facilities are exempt from the requirement to report an appraised property value. sec.19.2703. Vendor Hold. The information in this section will govern cost reports for providers' fiscal years ending in calendar year 1997 and subsequent years. The Texas Department of Human Services (DHS) may delay or withhold vendor payment to a provider in order to investigate or correct financial or accounting irregularities or to obtain required documentation. (1)-(3) (No change.) This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611429 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: April 12, 1996 For further information, please call: (512) 438-3765 CHAPTER 20.Cost Determination Process 40 TAC sec.sec.20.101-20.111 The Texas Department of Human Services (DHS) adopts new sec.sec.20.101-20.111, in its new Cost Determination Process chapter. Sections 20.102 and 20.103 are adopted with changes to the proposed text published in the May 24, 1996, issue of the Texas Register (21 TexReg 4558). Sections 20.101 and 20.104-20.111 are adopted without changes and will not be republished. Justification for the new sections is the establishment of a single set of guidelines to facilitate financial accountability relating to service delivery. The new sections will function by establishing cost determination rules that are consistent across programs, providing explicit guidelines for auditors, providing specific instructions concerning cost reporting, and providing guidelines in areas such as documentation and allocation methods. Also in this issue of the Texas Register, DHS is adopting related policies in Chapter 19, Nursing Facility Requirements for Licensure and Medicaid Certification; Chapter 24, Reimbursement Methodology; Chapter 46, Residential Care; Chapter 47, Primary Home Care; Chapter 48, Community Care for Aged and Disabled, which includes client-managed attendant services, shared attendant care services, congregate and home- delivered meals, the community based alternatives waiver program, and the community living assistance and support services program; Chapter 50, Day Activity and Health Services; and Chapter 52, Emergency Response Services, all concerning reimbursement methodology. There will be no effect on small businesses. There is no anticipated economic cost to persons who are required to comply with the proposed sections. A public hearing was held on June 10, 1996, in the Texas Department of Human Services Board Room, 701 West 51st Street, Austin, Texas. The department received comments from representatives from the following associations: Texas Health Care Association, Texas Association of Homes and Services for the Aging, and Texas Association of Retirement Communities. Comments were also received from a representative of EduCare Community Living Corporation and Pine Tree Lodge. General comments: One commenter stated the proposed rules represent a continued departure from accepted financial standards such as Generally Accepted Accounting Principles (GAAP). Response: Guidelines are needed in addition to GAAP to define unallowable costs to ensure that only reasonable and necessary costs under the performance of the contract are reported as allowable costs. The rules serve to ensure that costs used to determine reimbursement do not include amounts reflecting imprudent business practices (e.g., fines or penalties) or give providers discretion to report unlimited costs in areas where they have considerable control (e.g., related-party markups and owners' salaries). GAAP provides no clear guidelines for the appropriateness of particular costs or limits on costs; GAAP only outlines standardized reporting methods. Thus, most public policy organizations that utilize cost accounting data specify appropriate modifications to ensure that generally acceptable principles outlined in GAAP are specifically appropriate to promote the particular objectives of each public policy organization. DHS is adopting these sections without change. General comments: One commenter expressed concern that the cost report needs to be revised first before considering revising these rules. Response: The cost report is a mechanism to capture costs in a consistent format for analysis and does not in itself determine the allowability of costs or the costs which are incurred by a provider. The process of providing clear definitions for allowable and unallowable costs, guidelines for documenting costs, and guidelines for determining appropriate allocation methods are necessary to assist providers to properly complete a cost report. The cost report format should be developed after cost determination rules are developed to ensure that the cost report format properly collects costs in accordance with the rules. DHS is adopting these sections without change. General comments: One commenter stated that these rules are prescriptive and complex and could be confusing to providers who would not be able to follow them. The commenter stated that these rules would provide great latitude in interpretation and would add administrative costs to the agency. The commenter suggested that the department start the process over and include an outside objective firm to develop these rules. Response: These rules were developed in response to concerns and problems brought to the department's attention by providers and staff. These concerns identified a need to have cost determination rules that are consistent across programs, provide explicit guidelines for providers and auditors, contain more specific instructions as to how costs should be reported, and provide guidelines in areas such as documentation and allocation methods. These rules were reviewed by an independent firm which indicated that these rules were within the scope of the agency's authority and were necessary to facilitate collection of allowable costs. DHS is adopting these sections without change. Comment concerning sec.20.102(f)(2)(E): One commenter stated that this paragraph should be rephrased so as not to disallow the routine costs associated with Medicare, private pay, V. A., private insurance, or any other payor type. The commenter stated that this would not take advantage of higher staffing ratios and the associated benefits of increased patient care quality, and would cause private pay residents to further subsidize Medicaid. Response: This rule section ensures that each payor pays its appropriate share of the cost of care. If other programs require higher costs, then those programs should bear the financial burden of those costs. DHS is adopting this subparagraph without change. Comment concerning sec.20.102(g): One commenter stated that the language should be rephrased so as to allow providers to report unallowable costs in the appropriate place on the cost report. Response: Language has been added to clarify that unallowable costs should not be reported on the cost report as allowable costs. sec.20.102(h) specifies that unallowable costs may be reported in sections or line items specified on the cost report. Comment concerning sec.20.102(j)(1)(B): One commenter stated that it is not clear who approved the existing or approved allocation method. It is not appropriate for department auditors at a later date to retroactively determine that the previously approved allocation method does not fairly and reasonably represent the operations of the contracted provider. Response: This section specified that the department will prior-approve allocation methods and will review allocation methods from outside sources to determine if they are appropriate. Department auditors may determine an approved allocation method is no longer representative because the situation surrounding the approved allocation method (size of provider, variety of business entities, change in functions or structure, etc.) may have changed to render the allocation method unfair or unreasonable. Since the reimbursement amounts are determined prospectively, the determination of appropriateness of an allocation method would occur prior to reimbursement determination and would not be retroactive. DHS is adopting this subparagraph without change. Comment concerning sec.20.102(j)(1)(C): One commenter stated that it may be impossible for multi-state operators to use an allocation method (across all business entities) that all the states and the department will approve. Response: For cost reporting purposes in Texas, an approved allocation method must be used and all costs reported on the Texas cost reports must be based on the approved allocation method, consistently applied to all business entities. The department does not control what is actually reported on cost reports or other documents for other states or the federal government, and it is obliged to adopt procedures which are consistent among providers and cost-efficient for the state. DHS is adopting this subparagraph without change. Comment concerning sec.20.103(b): One commenter stated that the resident trust account is a mandated service and the fees and costs of this account should be allowable. Response: Not all allowable costs are identified in these rules. Costs which are related to client care and to the services for which the department has contracted are allowable. The bank fees and administrative costs related to management of client trust accounts are allowable. DHS is adopting this subsection without change. Comment concerning sec.20.103(b)(1)(A)(iii)(III)(-a-)(-7-): One commenter requested that language similar to the language for pension plans be included in the deferred compensation section regarding the handling of employer paid contributions in the event the employee does not vest. Response: Language has been added for allowable deferred compensation plans to have employer-paid contributions revert to the employer if an employee does not vest in accordance with the written requirements for vested benefits. Comment concerning sec.20.103(b)(2)(C)(i)(II): One commenter requested clarification of the meaning of audit fees associated with the performance of a single audit. Response: Single audits are accounting requirements for subrecipients of federal grants and contracts. Medicaid providers are vendors and the Medicaid program does not require single audits. DHS is adopting this subclause without change. Comment concerning sec.20.103(b)(2)(C)(ii): One commenter stated that the costs associated with litigation with a governmental entity should be allowable if the provider wins the cause of action. Response: Legal and accounting costs related to litigation which has determined the provider to be out of compliance with regulations or laws are unallowable. If the provider prevails, they may request cost coverage in the court award. Subparagraph 20.103(b)(17)(I) refers to legal fees associated with settlements. DHS is adopting this clause without change. Comment concerning sec.20.103(b)(3)(A): One commenter stated that management fees paid to a separate corporation should be allowed whether or not there is common ownership. Response: Management fees paid to related parties are allowable but are limited to the actual cost to the related party. DHS is adopting this subparagraph without change. Comment concerning sec.20.103(b)(6)(B): One commenter recommended raising the threshold for extraordinary repair cost from the proposed $1,000 to $5,000. Response: Extraordinary repairs whose cost exceed $1,000 and with a useful life in excess of one year should be capitalized and depreciated to reflect the increase in service life or value of the asset beyond what it was before the repair. DHS is adopting this subparagraph without change. Comment concerning sec.20.103(b)(7)(F): One commenter stated this section should be deleted because it has no basis in Generally Accepted Accounting Principles and contradicts the reporting of expenses in the period they were incurred. The commenter stated that if these costs are to be treated as a deferred charge, then the department should recognize as an allowable cost the reserves that providers must accumulate to absorb these types of expenses. Response: Current rules do not allow for expensing these losses on the cost report. These rules will allow these losses to be reported on the cost report in a way that will not result in extraordinary fluctuations in the cost base from one year to the next. The loss of the depreciable asset which is over $5,000 is amortized similarly to the amortization of the intact asset and once the asset is replaced, the new asset is amortized. DHS is adopting this subparagraph without change. Comment concerning sec.20.103(b)(9)(D)(ii): One commenter stated that the words "...and excess profit or surplus revenue based taxes" should be deleted, as portions of the franchise tax, an allowable cost, are sometimes calculated in this manner. Response: Subparagraph 20.103(b)(9)(C) clearly states that the Texas franchise tax is an allowable cost. DHS is adopting this clause without change. Comment concerning sec.20.103(b)(9)(D)(vi): One commenter stated that the sales taxes paid by the provider in the purchase of goods and services used in the provision of care are allowable costs. Response: Sales taxes paid by the provider to purchase goods and services used in the provision of care are allowable costs. The sales tax incurred for private purchases made by or for the client as specified in sec.20.103(b)(9)(D)(vi) are unallowable. DHS is adopting this clause without change. Comment concerning sec.20.103(b)(10)(B)(i): Two commenters stated that self- insurance should be allowed on an actuarially determined basis and not only on a claims- paid (cash) basis. Response: Actual claim costs are allowed in a fiscal year up to a limit, with carry forwards on amounts that exceed the limit. Accrual reporting does not assure that amounts set aside will be used for claims payment. Accruals of known expenses which will be paid are allowed. Accrual based payments to an unrelated party that provide for the shifting of risk are allowed. DHS is adopting this clause without change. Comment concerning 20.103(b)(10)(E)(i): One commenter stated that the language should be clarified that the 10% ceiling applies to employee-related insurance or workers' compensation coverage separately and not combined. Response: The language has been revised to clarify that the 10% ceiling applies separately to employee-related insurance and workers' compensation coverage. Comment concerning sec.20.103(b)(10)(E) and sec.20.105(b)(2)(B)(ix)and(x): One commenter stated these sections should be deleted because they have no basis in Generally Accepted Accounting Principles and contradict the reporting of expenses in the period they were incurred. Response: All losses in excess of coverage are allowable; however, loss amounts in excess of the ceiling are carried forward to future fiscal year periods. This carry forward spreads the excess loss across periods of time much in the same manner that insurance coverage would spread losses through premiums across periods of time. DHS is adopting this subparagraph without change. Comment concerning sec.20.103(b)(11)(A): One commenter requested that the travel costs and other expenses incurred to attend professional association board of directors meetings should be allowable. Response: The rule language has been changed to allow the travel and per diem costs of board members of professional associations which are directly and primarily concerned with the provision of services for which the provider has contracted. The travel and per diem costs are limited to those costs specified in sec.20.103(b)(12)(B)(i). Comment concerning sec.20.103(b)(11)(B): One commenter stated that assessments from associations to fund lawsuits should be allowable. Response: The department should not include in reimbursement determination the association's costs to sue the state. If the association prevails, they may request cost coverage in the court award. DHS is adopting this subparagraph without change. Comment concerning sec.20.103(b)(13)(B): One commenter stated that advertising expenses should be an allowable business cost, however if the department will not recognize 100% of the cost, then these costs should be capped at $25,000 per year. One commenter stated that advertising costs should be allowable to compete for residents with other providers in an open enrollment system. Response: Advertising beyond that which is allowed in this subparagraph is not necessary to recruit or retain the state's clients and is therefore unallowable. DHS is adopting this subparagraph without change. Comment concerning sec.20.105(b)(1): One commenter requested that an exception be given to the 180 day payment requirement for certain expenses such as pension contributions that are not required to be paid in 180 days. Response: For a cost to be considered allowable it should be paid within 180 days after the end of the provider's fiscal year. This should allow sufficient time for the provider to close out its books and pay accruals. DHS is adopting this paragraph without change. Comment concerning sec.20.105(b)(2)(B)(ix)(II): One commenter stated that administrative fees and reinsurance costs should be allowed for health insurance and workers' compensation. Response: Provider related costs for claims processing, for safety programs for the reduction/prevention of employee injuries, and for attorney fees and/or other third party fees which apply to these costs are allowable as administrative costs and not reported as insurance costs. Reinsurance costs when incurred by a commercial insurance carrier or nonprofit service corporation are passed on to the provider in the form of premiums or adjustments which are allowable costs. DHS is adopting this subclause without change. Comment concerning sec.20.105(c)(1): One commenter requested allowing an additional 30 day extension for submission of a cost report if the provider is undergoing a financial audit. Response: The provider is allowed 90 days after the end of its fiscal year to complete and submit a cost report. If an amendment needs to be made to the submitted cost report due to an error detected by the financial audit, amended cost reports are accepted (in most instances) 60 days after the original due date of the cost report, which is 150 days after the end of the provider's fiscal year end. DHS is adopting this paragraph without change. Comment concerning sec.20.105(f): One commenter stated that the state agency audit staff should comply with the travel guidelines, limits and documentation requirements in sec.20.103(b)(12)(B). Response: State agency audit staff comply with agency policy regarding travel and documentation. DHS is adopting this subsection without change. Comment concerning sec.20.108(d): One commenter stated that the department should replace the use of the IPD-PCE as the general cost of living index and require the use of the DRI Nursing Facility Market Basket index (for nursing facilities). Response: Subsection 20.108(b) allows for the contracting of an appropriate optional index specific to Texas. The department retains the option on an individual program basis to utilize the contracted index, any other index described in section 20.108 or a combination of these. DHS is adopting this subsection without change. Comment concerning sec.20.109(a): One commenter requested that the current rule language remain intact and not deviate from the Human Resources Code. The current rule language: 1) requires that the department must adjust medical assistance rates when laws, regulations, or policies are adopted that can reasonably be expected to affect allowable costs, 2) does not require that rates must change by more than 2.0% before a rate adjustment is made, 3) states that the adjustment be proposed at the nearest feasible meeting of the Board of DHS, and complies with the Human Resources code which requires the department to adopt rules that include "a method for adjusting rates if new legislation, regulations or economic factors affect costs". Response: The language has been deleted that required a 2.0% change in a reimbursement before proposing a reimbursement adjustment. The language has also been simplified by not including examples of economic factors. These rules meet the requirement of the Human Resources Code by specifying the method which will be used to adjust rates for new legislation, regulations, or economic factors affecting costs. Proposed rule language allows the department to recommend adjustments at the earliest feasible opportunity to become effective on the effective date of the legislation or regulations or effective when appropriate federal notice requirements are met. Comment concerning sec.20.109(a)(4): One commenter stated that the threshold for adjustment to the rate should be lowered from the proposed 2.0% to 1.0% or 1.5%. Response: The language has been deleted that required a 2% change in a reimbursement before proposing a reimbursement adjustment. Comment concerning sec.20.109(c): One commenter stated that this language was a direct departure from current regulations and is incompatible with the Boren amendment. The commenter stated that the current regulations should remain intact. Response: In sec.20.101(c) it specifies the limitations to budget adjustments for the nursing facility program which is subject to the Boren amendment. DHS is adopting this subsection without change. Comment concerning sec.20.110(c)(1)(A): One commenter recommended changing from the proposed 20 days to 30 days the time frame to request an informal review. Response: Informal reviews need to be conducted in a timely manner for inclusion of the review decisions in the cost database for reimbursement determination. The 20-day time frame expedites the informal review process in an effort to be responsive to resolving these audit issues. DHS is adopting this subparagraph without change. In addition, the department has made editorial revisions to the rule language for clarification and consistency as appropriate. The new sections are adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs; and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The new sections implement the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. sec.20.102.General Principles of Allowable and Unallowable Costs. (a) Allowable and unallowable costs. Allowable and unallowable costs, both direct and indirect, are defined to identify expenses which are reasonable and necessary to provide contracted client care and are consistent with federal and state laws and regulations. When a particular type of expense is classified as unallowable, the classification means only that the expense will not be included in the database for reimbursement determination purposes because the expense is not considered reasonable and/or necessary. The classification does not mean that individual contracted providers may not make the expenditure. The description of allowable and unallowable costs is designed to be a general guide and to clarify certain key expense areas. This description is not comprehensive, and the failure to identify a particular cost does not necessarily mean that the cost is an allowable or unallowable cost. (b) Cost-reporting process. The primary objective of the cost-reporting process is to provide a basis for determining appropriate reimbursement to contracted providers. To achieve this objective, the reimbursement determination process uses allowable cost information reported on cost reports or other surveys. The cost report collects actual allowable costs and other financial and statistical information, as required. Costs may not be imputed and reported on the cost report when no costs were actually incurred (except as stated in sec.20.103(b)(16)(A)(i) of this title (relating to Specifications for Allowable and Unallowable Costs) or when documentation does not exist for costs even if they were actually incurred during the reporting period. (c) Accurate cost reporting. Accurate cost reporting is the responsibility of the contracted provider. The contracted provider is responsible for including in the cost report all costs incurred, based on an accrual method of accounting, which are reasonable and necessary, in accordance with allowable and unallowable cost guidelines in this section and in sec.20.103 of this title (relating to Specifications for Allowable and Unallowable Costs), revenue reporting guidelines in sec.20.104 of this title (relating to Revenues), cost report instructions, and applicable program rules. Reporting all allowable costs on the cost report is the responsibility of the contracted provider. The Texas Department of Human Services (DHS) is not responsible for the contracted provider's failure to report allowable costs; however, in an effort to collect reliable, accurate, and verifiable financial and statistical data, DHS is responsible for providing cost report training, general and/or specific cost report instructions, and technical assistance to providers. Furthermore, if unreported and/or understated allowable costs are discovered during the course of an audit desk review or field audit, those allowable costs will be included on the cost report or brought to the attention of the provider to correct by submitting an amended cost report. (d) Cost report training. DHS is responsible for conducting, at no charge to the provider, comprehensive cost report training for each contracted program. Beginning with the 1997 cost reports, it is the responsibility of the provider to ensure that each preparer signing the Cost Report Methodology Certification has attended cost report training conducted by DHS. Preparers may be employees of the provider or persons who have been contracted by the provider for the purpose of cost report preparation. Preparers must attend cost report training for each program for which a cost report is submitted. Preparers must attend cost report training for two consecutive years, after which they are required to attend training on at least a biannual basis. A copy of the most recent cost report training certificate for each preparer of the cost report must be submitted with each cost report. Travel costs to attend the state-sponsored cost report training are allowable within the travel limits specified in sec.20.103(b)(12) of this title (relating to Specifications for Allowable and Unallowable Costs). Contracted preparer's fees to attend state-sponsored cost report training are allowable. (1) For nursing facilities, failure to file a completed cost report signed by preparers who have attended the required cost report training may result in vendor hold as specified in sec.19.2703 of this title (relating to Vendor Hold). (2) For all other programs, failure to file a completed cost report signed by preparers who have attended the required cost report training constitutes an administrative contract violation. In the case of an administrative contract violation, procedural guidelines and informal reconsideration and/or appeal processes are specified in sec.20.111 of this title (relating to Administrative Contract Violations). (e) Generally accepted accounting principles. Except as otherwise specified by the cost determination process rules of this chapter, cost report instructions, or policy clarifications, cost reports should be prepared consistent with generally accepted accounting principles (GAAP), which are those principles approved by the American Institute of Certified Public Accountants (AICPA). Internal Revenue Service (IRS) laws and regulations do not necessarily apply in the preparation of the cost report. In cases where cost reporting rules differ from GAAP, IRS, or other authorities, DHS rules take precedence for provider cost- reporting purposes. (f) Allowable costs. Allowable costs are expenses, both direct and indirect, that are reasonable and necessary, as defined in paragraphs (1) and (2) of this subsection, and which meet the requirements as specified in subsections (i), (j), and (k) of this section, in the normal conduct of operations to provide contracted client services meeting all pertinent state and federal requirements. Only allowable costs are included in the reimbursement determination process. (1) "Reasonable" refers to the amount expended. The test of reasonableness includes the expectation that the provider seeks to minimize costs and that the amount expended does not exceed what a prudent and cost-conscious buyer pays for a given item or service. In determining the reasonableness of a given cost, the following are considered: (A) the restraints or requirements imposed by arm's-length bargaining, i.e., transactions with nonowners or other unrelated parties, federal and state laws and regulations, and contract terms and specifications; and (B) the action that a prudent person would take in similar circumstances, considering his responsibilities to the public, the government, his employees, clients, shareholders, and members, and the fulfillment of the purpose for which the business was organized. (2) "Necessary" refers to the relationship of the cost, direct or indirect, incurred by a provider to the provision of contracted client care. Necessary costs are direct and indirect costs that are appropriate in developing and maintaining the required standard of operation for providing client care in accordance with the contract and state and federal regulations. In addition, to qualify as a necessary expense, a direct or indirect cost must meet all of the following requirements: (A) the expenditure was not for personal or other activities not directly or indirectly related to the provision of contracted services; (B) the cost does not appear as a specific unallowable cost in sec.20.103 of this title (relating to Specifications for Allowable and Unallowable Costs); (C) if a direct cost, it bears a significant relationship to contracted client care. To qualify as significant, the elimination of the expenditure would have an adverse impact on client health, safety, or general well-being; (D) the direct or indirect expense was incurred in the purchase of materials, supplies, or services provided to clients or staff in the normal conduct of operations to provide contracted client care; (E) the direct or indirect costs are not allocable to or included as a cost of any other program in either the current, a prior, or a future cost-reporting period; (F) the costs are net of all applicable credits; (G) allocated costs of each program are adequately substantiated; and (H) the costs are not prohibited under other pertinent federal, state, or local laws or regulations. (3) Direct costs are those costs which are incurred by a provider which are definitely attributable to the operation of providing contracted client services. Direct costs include, but are not limited to, salaries and nonlabor costs necessary for the provision of contracted client care. Whether or not a cost is considered a direct cost depends upon the specific contracted client services covered by the program. In programs in which client meals are covered program services, the salaries of cooks and other food service personnel are direct costs, as are food, nonfood supplies, and other such dietary costs. In programs in which client transportation is a covered program service, the salaries of drivers are direct costs, as are vehicle repairs and maintenance, vehicle insurance and depreciation, and other such client transportation costs. (4) Indirect costs are those shared costs which benefit, or contribute to, the operation of providing contracted services, other business components, or the overall entity with which DHS has contracted. These costs could include, but are not limited to, administration salaries and nonlabor costs, building costs, insurance expense, and interest expense. Central office and/or home office administrative expenses are considered indirect costs. Indirect costs must be allocated, directly or as a pool of costs, across those business components sharing in the benefits of those costs. (g) Unallowable costs. Unallowable costs are expenses that are not reasonable or necessary, according to the criteria specified in subsection (f)(1)-(2) of this section and which do not meet the requirements as specified in subsections (i), (j), and (k) of this section or which are specifically enumerated in sec.20.103 of this title (relating to Specifications for Allowable and Unallowable Costs) or program-specific reimbursement methodology. Providers must not report as an allowable cost on a cost report a cost that has been determined to be unallowable. Such reporting may constitute fraud. (Refer to sec.79.2103 of this title (relating to Statutory Bases) for the statutory basis for Medicaid fraud and sec.20.106(a) of this title (relating to Basic Objectives and Criteria for Audit and Desk Review of Cost Reports)). (1) For nursing facilities, placement as an allowable cost on a cost report of a cost which has been determined to be unallowable may result in vendor hold as specified in sec.19.2703 of this title (relating to Vendor Hold). (2) For all other programs, placement as an allowable cost on a cost report of a cost which has been determined to be unallowable constitutes an administrative contract violation. In the case of an administrative contract violation, procedural guidelines and informal reconsideration and/or appeal processes are specified in sec.20.111 of this title (relating to Administrative Contract Violations). (h) Other financial and statistical data. The primary purpose of the cost report is to collect allowable costs to be used as a basis for reimbursement determination. In addition, providers may be required on cost reports to provide information in addition to allowable costs to support allowable costs, such as wage surveys, workers' compensation surveys, or other statistical and financial information. Additional data requested may include, when specified and in the appropriate section or line number specified, costs incurred by the provider which are unallowable costs. All information, including other financial and statistical data, shown on a cost report is subject to the documentation and verification procedures required for an audit desk review and/or field audit. (1) For nursing facilities, inaccuracy in providing, or failure to provide, required financial and statistical data may result in vendor hold as specified in sec.19.2703 of this title (relating to Vendor Hold). (2) For all other programs, inaccuracy in providing, or failure to provide, required financial and statistical data constitutes an administrative contract violation. In the case of an administrative contract violation, procedural guidelines and informal reconsideration and/or appeal processes are specified in sec.20.111 of this title (relating to Administrative Contract Violations). (i) Related party transactions. (1) In determining whether a contracted provider organization is related to a supplying organization, the tests of common ownership and control are to be applied separately. Related to a contracted provider means that the contracted provider to a significant extent is associated or affiliated with, has control of, or is controlled by the organization furnishing the services, equipment, facilities, or supplies. Common ownership exists if an individual or individuals possess any ownership or equity in the contracted provider and the institution or organization serving the contracted provider. Control exists if an individual or an organization has the power, directly or indirectly, to significantly influence or direct the actions or policies of an organization or institution. If the elements of common ownership or control are not present in both organizations, then the organizations are deemed not to be related to each other. The existence of an immediate family relationship will create an irrebuttable presumption of relatedness through control or attribution of ownership or equity interests where the significance tests are met. The following persons are considered immediate family for cost-reporting purposes: (A) husband and wife; (B) natural parent, child, and sibling; (C) adopted child and adoptive parent; (D) stepparent, stepchild, stepsister, and stepbrother; (E) father-in-law, mother-in-law, sister-in-law, brother-in-law, son-in-law, and daughter-in-law; (F) grandparent and grandchild; (G) uncles and aunts by blood or marriage; (H) nephews and nieces by blood or marriage; and (I) first cousins. (2) A determination as to whether an individual (or individuals) or organization possesses ownership or equity in the contracted provider organization and the supplying organization, so as to consider the organizations related by common ownership, will be made on the basis of the facts and circumstances in each case. This rule applies whether the contracted provider organization or supplying organization is a sole proprietorship, partnership, corporation, trust or estate, or any other form of business organization, proprietary or nonprofit. In the case of a nonprofit organization, ownership or equity interest will be determined by reference to the interest in the assets of the organization, e.g., a reversionary interest provided for in the articles of incorporation of a nonprofit corporation. (3) The term control includes any kind of control, whether or not it is legally enforceable and however it is exercisable or exercised. It is the reality of the control which is decisive, not its form or the mode of its exercise. The facts and circumstances in each case must be examined to ascertain whether legal or effective control exists. Since a determination made in a specific case represents a conclusion based on the entire body of facts and circumstances involved, such determination should not be used as a precedent in other cases unless the facts and circumstances are substantially the same. Organizations, whether proprietary or nonprofit, are considered to be related through control to their directors in common. (4) Costs applicable to services, equipment, facilities, and supplies furnished to the contracted provider by organizations related to the provider by common ownership or control are includable in the allowable cost of the provider at the cost to the related organization. However, the cost must not exceed the price of comparable services, equipment, facilities, or supplies that could be purchased or leased elsewhere. The purpose of this principle is twofold: to avoid the payment of a profit factor to the contracted provider through the related organization (whether related by common ownership or control), and to avoid payment of artificially inflated costs which may be generated from less than arm's-length bargaining. The related organization's costs include all reasonable costs, direct and indirect, incurred in the furnishing of services, equipment, facilities, and supplies to the provider. The intent is to treat the costs incurred by the supplier as if they were incurred by the contracted provider itself. Therefore, if a cost would be unallowable if incurred by the contracted provider itself, it would be similarly unallowable to the related organization. The principles of reimbursement of contracted provider costs described throughout this title will generally be followed in determining the reasonableness and allowability of the related organization's costs, where application of a principle in a nonprovider entity would be clearly inappropriate. (5) An exception is provided to the general rule applicable to related organizations. The exception applies if the contracted provider demonstrates on each cost report by convincing evidence to the satisfaction of DHS that certain criteria have been met. If all of the conditions of this exception are met, then the charges by the supplier to the contracted provider for such services, equipment, facilities, or supplies are allowable costs. If Medicare has made a determination that a related party situation does not exist or that an exception to the related party definition was granted, DHS will review the determination made by Medicare to determine if it is applicable to the current situation of the contracted provider and in compliance with this subsection (relating to Related party transactions). In order to have the Medicare determination considered for approval by the department, a copy of the applicable Medicare determination must accompany each affected cost report submitted to the department, along with evidence supporting the Medicare determination for the current cost report period. If the exception granted by Medicare no longer is applicable due to changes in circumstances of the contracted provider or because the circumstances do not apply to the contracted provider, DHS may choose not to accept the Medicare determination. The contracted provider must demonstrate that the following criteria have been met. (A) The supplying organization is a bona fide separate organization. This means that the supplier is a separate sole proprietorship, partnership, joint venture, association or corporation and not merely an operating division of the contracted provider organization. (B) A majority of the supplying organization's business activity of the type carried on with the contracted provider is transacted with other organizations not related to the contracted provider and the supplier by common ownership or control and there is an open, competitive market for the type of services, equipment, facilities, or supplies furnished by the organization. In determining whether the activities are of similar type, it is important also to consider the scope of the activity. The requirement that there be an open, competitive market is merely intended to assure that the item supplied has a readily discernible price that is established through arm's-length bargaining by well-informed buyers and sellers. (C) The services, equipment, facilities, or supplies are those which commonly are obtained by entities such as the contracted provider from other organizations and are not a basic element of contracted client care ordinarily furnished directly to clients by such entities. This requirement means that entities such as the contracted provider typically obtain the services, equipment, facilities, or supplies from outside sources, rather than producing them internally. (D) The charge to the contracted provider is in line with the charge of such services, equipment, facilities, or supplies in the open, competitive market and no more than the charge made under comparable circumstances to others by the organization for such services, equipment, facilities, or supplies. (6) Disclosure of all related-party information on the cost report is required for all costs reported by the contracted provider, including related-party transactions occurring at any level in the provider's organization, (e.g., the central office level, and the individual contracted provider level). The contracted provider must make available, upon request, adequate documentation to support the costs incurred by the related party. Such documentation must include an identification of the related person's or organization's total costs, the basis of allocation of direct and indirect costs to the contracted provider, and other business entities served. If a contracted provider fails to provide adequate documentation to substantiate the cost to the related person or organization, then the reported cost is unallowable. For further guidelines regarding adequate documentation, refer to sec.20.105(b)(2) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures). (7) When calculating the cost to the related organization, the cost determination guidelines specified in sec.20.102 and sec.20.103 of this title (relating to General Principles of Allowable and Unallowable Costs and Specifications for Allowable and Unallowable Costs) apply. (j) Cost allocation. Direct costing must be used whenever reasonably possible. Direct costing means that allowable costs, direct or indirect, incurred for the benefit of, or directly attributable to, a specific business component must be directly charged to that particular business component. In the case of direct costs as defined in subsection (f)(3) of this section, direct costing is required. In the case of indirect costs as defined in subsection (f)(4) of this section, it is necessary to allocate these costs either directly or as a pool of costs across those business components sharing in the benefits. (1) If cost allocation is necessary for cost-reporting purposes, contracted providers must use reasonable methods of allocation and must be consistent in their use of allocation methods for cost-reporting purposes across all program areas and business entities. (A) The allocation method should be a reasonable reflection of the actual business operations. Allocation methods that do not reasonably reflect the actual business operations and resources expended toward each unique business entity are not acceptable. Allocated costs are adjusted if DHS considers the allocation method to be unreasonable. An indirect allocation method approved by some other department, program, or governmental entity is not automatically approved by DHS for cost-reporting purposes. (B) DHS reviews each cost-reporting allocation method on a case-by-case basis in order to ensure that the reported costs fairly and reasonably represent the operations of the contracted provider. If in the course of an audit it is determined that an existing or approved allocation method does not fairly and reasonably represent the operations of the contracted provider, then an adjustment to the allocation method will be made consistent with subsection (f)(3)-(4) of this section. A contracted provider may request an informal review, and subsequently an appeal, of a decision concerning its allocation methods in accordance with sec.20.110 of this title (relating to Informal Reviews and Formal Appeals). (C) Any allocation method used for cost-reporting purposes must be consistently applied across all contracted programs and business entities in which the contracted provider has an interest. (D) Any change in cost-reporting allocation methods from one year to the next must be fully disclosed by the contracted provider on its cost report, must be accompanied by a written explanation of the reasons and justification for such change, and must be accompanied by written prior approval from DHS's Rate Analysis Department. (i) Requests for approval of a provider's change in cost-reporting allocation method must be received by DHS's Rate Analysis Department prior to the end of the contracted provider's fiscal year. Requests for approval of allocation methods will not be acceptable as a basis for the extension of the cost report due date. (ii) The Rate Analysis Department will forward its written decision to the contracted provider within 45 days of its receipt of the provider's original written request. If sufficient documentation is not provided by the provider to verify the acceptability of the allocation method, then DHS may extend the decision time frame. However, an extension of the due date of the cost report will not be granted. Written decisions made on or after the due date of the cost report will apply to the next year's cost report. A contracted provider may request an informal review, and subsequently an appeal, of a decision concerning its allocation methods in accordance with sec.20.110 of this title (relating to Informal Reviews and Formal Appeals). (iii) Providers must use an allocation method approved or required by DHS. A change in an allocation must be disclosed to DHS. (I) For nursing facilities, failure to disclose a change in an allocation method or failure to use the allocation method approved or required by DHS may result in vendor hold as specified in sec.19.2703 of this title (relating to Vendor Hold). (II) For all other programs, failure to disclose a change in an allocation method or failure to use the allocation method approved or required by DHS constitutes an administrative contract violation. In the case of an administrative contract violation, procedural guidelines and informal reconsideration and/or appeal processes are specified in sec.20.111 of this title (relating to Administrative Contract Violations). (E) Any new contracted provider submitting its first cost report must have its cost-reporting allocation methods approved by the DHS's Rate Analysis Department prior to submitting its first cost report. Submittal of a cost report for a new contracted provider without an approved allocation method is considered a failure to file a completed cost report in accordance with sec.20.105(b)(4)(C) of this title (General Reporting and Documentation Requirements, Methods, and Procedures). (i) Requests for approval of a new provider's cost report allocation methods must be received by the Rate Analysis Department 60 days prior to the due date of the cost report. Requests for approval of allocation methods will not be acceptable as a basis for the extension of the cost report due date. (ii) The Rate Analysis Department will forward its written decision to the contracted provider within 45 days of its receipt of the provider's original written request. If sufficient documentation is not provided by the provider to verify the acceptability of the allocation method, then DHS may extend the decision time frame. However, an extension of the due date of the cost report will not be granted. Written decisions made on or after the due date of the cost report will apply to the next year's cost report. A contracted provider may request an informal review, and subsequently an appeal, of a decision concerning its allocation methods in accordance with sec.20.110 of this title (relating to Informal Reviews and Formal Appeals). (2) Cost-reporting methods for allocating costs must be clearly and completely documented in the contracted provider's workpapers, with details as to how pooled costs are allocated to each segment of the business entity, for both contracted and noncontracted programs. (A) If a contracted provider has questions regarding the reasonableness of an allocation method, that contracted provider should request written approval from the Rate Analysis Department prior to submitting a cost report utilizing the allocation method in question. Requests for approval must be received by the Rate Analysis Department prior to the end of the contracted provider's fiscal year. Requests for approval of allocation methods will not be acceptable as a basis for the extension of the cost report due date. (B) The Rate Analysis Department will forward its written decision to the contracted provider within 45 days of its receipt of the original written request. If sufficient documentation is not provided by the provider to verify the acceptability of the allocation method, DHS may extend the decision time frame. However, an extension of the due date of the cost report will not be granted. Written decisions made on or after the due date of the cost report will apply to the next year's cost report. A contracted provider may request an informal review, and subsequently an appeal, of a decision concerning its allocation methods in accordance with sec.20.110 of this title (relating to Informal Reviews and Formal Appeals). (3) When a building is shared and the building usage is separate and distinct for each entity using the building, the building costs, such as rent, depreciation, utilities, maintenance, and insurance, should be allocated based upon square footage and may not be allocated with other indirect costs as a pool of costs. When the same building space is shared by various entities, the shared building costs, such as rent, depreciation, utilities, maintenance, and insurance, should be allocated using a reasonable method which reflects the actual usage, such as an allocation based on time in shared activity areas or meals served in shared dining and kitchen areas. (4) Where costs are shared, are not directly chargeable and are allocated as a pool of costs, the following allocation methods are acceptable for cost- reporting purposes. (A) If all the business components of a contracted provider have equivalent units of equivalent service, indirect costs must be allocated based upon each business component's units of service. For example, if a provider had two nursing facilities, indirect costs requiring allocation as a pool of costs must be allocated based upon each nursing facility's units of service, since the units of service are equivalent units and the services are equivalent services. If a provider had a nursing facility and a residential care program, indirect costs requiring allocation as a pool of costs could not be allocated based upon units of service because even though the units of service for a nursing facility and a residential care facility are equivalent units, the services are not equivalent services. If a home health agency has indirect costs requiring allocation as a pool of costs across its Medicare home health services and its Medicaid primary home care services, it could not use units of service to allocate those costs, since neither the units of service nor the services are equivalent. (B) If all of a contracted provider's business components are labor-intensive without programmatic residential facility or residential building costs, the contracted provider must allocate its indirect costs requiring allocation as a pool of costs based either on each business component's pro rata share of salaries or labor costs or on a cost-to-cost basis. (i) For cost-reporting cost allocation purposes, the term "salaries" includes wages paid to employees directly charged to the specific business component. The term "salaries" also includes fees paid to contracted individuals, excluding consultants, who perform services routinely performed by employees, which are directly charged to the specific business component. The term "salaries" does not include payroll taxes and employee benefits associated with the wages of employees. (ii) For cost-reporting cost-allocation purposes, the term "labor costs" includes salaries as defined in clause (i) of this subparagraph, plus the payroll taxes and employee benefits associated with the wages of the employees. (iii) The cost-to-cost method allocates costs based upon the percentage of each business component's directly-charged costs to the total directly-charged costs of all business components. (C) If a contracted provider's business components are mixed, with some being labor-intensive and others having a programmatic residential or institutional component, the contracted provider must allocate its indirect costs requiring allocation as a pool of costs either: (i) based upon the ratio of each business component's total costs less that business component's facility or building costs, as related to the contracted provider's total business component costs less facility or building costs for all the contracted provider's business components; or (ii) based upon the labor costs method stated in subparagraph (B)(ii) of this paragraph. (D) In order to achieve a more accurate and representative reporting of costs than results from allocating indirect costs as a pool of costs, a provider may choose to allocate its indirect shared expenses on a functional basis. For example, costs of a central payroll operation could be allocated to all business components based on the number of checks issued; the costs of a central purchasing function could be allocated based on the dollar amount of purchases made or requisitions handled; payroll costs for an employee working across business components could be allocated based upon that employee's time sheets and/or a documented time study; food costs could be allocated based upon the number of meals served; transportation equipment costs could be allocated based upon mileage logs. (E) Because the determination of reimbursement is based on cost data, allocation methods based upon revenue streams are inappropriate and unallowable. (k) Net expenses. Net expenses are gross expenses less any purchase discounts or returns and allowances. Purchase discounts are cash discounts reducing the purchase price as a result of prompt payment, quantity purchases, or for other reasons. Purchase returns and allowances are reductions in expenses resulting from returned merchandise or merchandise which is damaged, lost, or incorrectly billed. Only net expenses may be reported on the cost report. Expenses reported on the cost report must be adjusted for all such purchase discounts or returns and allowances. sec.20.103.Specifications for Allowable and Unallowable Costs. (a) Introduction. The following list of allowable and unallowable costs is not comprehensive but serves as a guide and clarifies certain key expense areas. If a particular type of expense is classified as unallowable for purposes of reporting on a cost report, it does not mean that individual contracted providers may not make such expenditures. Except where specific exceptions are noted, the allowability of all costs is subject to the general principles specified in sec.20.102 of this title (relating to General Principles of Allowable and Unallowable Costs). In addition, refer to program-specific allowable and unallowable costs, as applicable. (1) Accounting and audit fees. See subsection (b)(2)(C)(i) of this section. (2) Advertising and public relations. See subsection (b)(13) of this section. (3) Amortization expense. See subsection (b)(7) of this section. (4) Bad debt expense. See subsection (b)(17)(M) of this section. (5) Boards of directors. See subsection (b)(2)(E) of this section. (6) Bonuses. See subsection (b)(1)(A)(i) of this section. (7) Central office costs. See subsection (b)(4) of this section. (8) Charity allowance. See subsection (b)(17)(N) of this section. (9) Compensation of employees. See subsection (b)(1) of this section. (10) Compensation of owners and related parties. See subsection (b)(2) of this subsection. (11) Compensation of outside consultants. See subsection (b)(2)(C) of this section. (12) Courtesy allowance. See subsection (b)(17)(N) of this subsection. (13) Depreciation expense. See subsection (b)(7) of this section. (14) Donated revenues. See subsection (b)(15) of this section. (15) Donated services, supplies, and assets. See subsection (b)(16) of this section. (16) Dues or contributions to organizations. See subsection (b)(11) of this section. (17) Employee relations expenses. See subsection (b)(17)(A) of this section. (18) Employment-related taxes. See subsection (b)(9)(B) of this section. (19) Endowment income. See subsection (b)(15) of this section. (20) Expenses not related to contracted services. See subsection (b)(17)(H) of this section. (21) Fines and penalties. See subsection (b)(17)(G) of this section. (22) Franchise tax. See subsection (b)(9)(C) of this section. (23) Finance charges. See subsection (b)(8)(E) of this section. (24) Franchise fees. See subsection (b)(17)(C) of this section. (25) Fringe benefits. See subsection (b)(1)(A)(iii) of this section. (26) Fundraising activities. See subsection (b)(14) of this section. (27) Gains on disposal of assets. See subsection (b)(7)(F) of this section. (28) Gifts. See subsection (b)(15) of this section. (29) Goodwill. See subsection (b)(7) and (17)(C)(ii) of this section. (30) Grants, gifts and income from endowments. See subsection (b)(15) of this section. (31) In-kind donations. See subsection (b)(16) of this section. (32) Insurance expense. See subsection (b)(10) of this section. (33) Interest expense. See subsection (b)(8) of this section. (34) Legal fees. See subsection (b)(2)(C)(ii) of this section. (35) Life insurance. See subsection (b)(10)(G) of this section. (36) Litigation expenses and awards. See subsection (b)(17)(I) of this section. (37) Lobbying costs. See subsection (b)(17)(J) of this section. (38) Losses on disposal of assets. See subsection (b)(7)(F) of this section. (39) Losses due to theft. See subsection (b)(17)(L) of this section. (40) Management fees. See subsection (b)(3) of this section. (41) Medicaid as payor of last resort. See subsection (b)(18) of this section. (42) Medical supplies and medical costs. See subsection (b)(17)(F) of this section. (43) Nonpaid workers. See subsection (b)(2)(D) of this section. (44) Operating revenue. See subsection (b)(15)(D) of this section. (45) Organization costs. See subsection (b)(17)(B) of this section. (46) Payroll taxes and insurance. See subsection (b)(1)(A)(ii) of this section. (47) Penalties. See subsection (b)(17)(G) of this section. (48) Planning and evaluation expenses. See subsection (b)(7)(E) of this section. (49) Promotional activities. See subsection (b)(14) of this section. (50) Public relations. See subsection (b)(13) of this section. (51) Repairs and maintenance. See subsection (b)(6) of this section. (52) Research and development costs. See subsection (b)(17)(E) of this section. (53) Salaries and wages. See subsection (b)(1) and (2) of this section. (54) Self-insurance. See subsection (b)(10)(B) of this section. (55) Staff training costs. See subsection (b)(12)(A) of this section. (56) Startup costs. See subsection (b)(17)(D) of this section. (57) Tax expense and credits. See subsection (b)(9) of this section. (58) Travel costs. See subsection (b)(12)(B) of this section. (59) Utilities. See subsection (b)(5) of this section. (60) Volunteers. See subsection (b)(2)(D) of this section. (61) Voucher-paid expenses. See subsection (b)(17)(K) of this section. (62) Workers' compensation insurance. See subsection (b)(10) of this section. (b) Allowable and unallowable costs. (1) Compensation of employees. Compensation includes both cash and non-cash forms of compensation subject to federal payroll tax regulations. Compensation includes wages and salaries (including bonuses); payroll taxes and insurance; and fringe benefits. Payroll taxes and insurance include Federal Insurance Contributions Act (old age, survivors, and disability insurance (OASDI) and Medicare hospital insurance); Unemployment Compensation Insurance; and Workers' Compensation Insurance. (A) Allowable compensation of employees is compensation paid to employees in arm's-length transactions as nonowners and non-related parties and is subject to the reasonable and necessary costs which must be incurred by providers in the provision of contracted client services. Guidelines for compensation of owners and related parties are specified in paragraph (2) of this subsection. (i) A bonus is a type of compensation granted to employees as a wage enhancement. Bonuses paid to employees in arm's-length transactions are allowable costs, subject to the reasonable and necessary costs which must be incurred by providers in the provision of contracted client services. In determining the employee classification type, part-time employees may be considered a different classification type than full-time employees. To be allowable, bonuses to owners and/or related parties: (I) must not represent any form of profit sharing and must not be determined on the level of profit earned by the contracted provider; (II) effective with the 1997 cost report, must be clearly defined in a written agreement or employment policy; (III) must not be made only to related parties, in which case the bonuses are unallowable costs; (IV) must be based upon the same criteria for all members of the same employee classification type; (V) must be made available to all employees of the same classification type, unless the employee classification type predominantly consists of related parties, in which case the bonuses are unallowable costs; and (VI) must not discriminate in favor of certain employees, such as employees who are officers, stockholders, or the highest paid individual(s) of the organization. (ii) Payroll taxes and insurance are described in paragraph (9) of this subsection, concerning tax expense and credits, and paragraph (10) of this subsection. (iii) Fringe benefits are amounts paid to or on behalf of an employee, in addition to direct salary or wages, and from which the employee, his dependent, or his beneficiary derives a personal benefit before or after the employee's retirement or death. (I) Fringe benefits paid to employees in arm's length transactions as nonowners and non-related parties are allowable costs, subject to the reasonable and necessary costs which must be incurred by providers in the provision of contracted client care. To be allowable, fringe benefits paid to owners and/or related parties must not discriminate in favor of certain employees, such as employees who are officers, stockholders, or the highest paid individual(s) of the organization. (II) Allowable fringe benefits are reported on cost reports either as salaries and/or wages, as employee benefits, or as costs applicable to specific cost areas. Any fringe benefit subject to payroll taxes is reported as salary and wages. Allowable fringe benefits which are routinely reported as salaries and wages include paid vacations, paid holidays, sick leave, voting leave, court or jury duty leave, and/or all-inclusive paid days, as specified in subclause (III)(-c-) of this clause. Allowable fringe benefits which are routinely reported as employee benefits include employer contributions to certain deferred compensation plans, as specified in subclause (III)(-a-) of this clause, employer contributions to an employee retirement fund or certain pension plans, as specified in subclause (III)(-b-) of this clause, and costs of certain employer-paid health, life, and disability insurance premiums, as specified in subclause (III)(-f-) of this clause. The contracted provider's unrecovered cost of meals and room and board furnished to direct care employees are fringe benefits which are reported as costs applicable to specific cost areas, as specified in subclause (III)(-e-) of this clause, unless they are subject to payroll taxes, whereas they are reported as salaries and wages. (III) Fringe benefits include the following: (-a-) Employer contributions to certain deferred compensation plans. Deferred compensation is remuneration currently earned by an employee but which is not received until a subsequent period, usually after retirement. For the cost to be allowable, the deferred compensation plan must be formal, established, and maintained by the contracted provider and communicated to all eligible employees. A formal plan is one that is provided for in a written agreement executed between the contracted provider and the participating employees. The plan must: (-1-) prescribe the method for calculating all contributions to the fund; (-2-) be funded with contributions made systematically to a funding agency outside the contracted provider's ownership or control, such as a trustee, an insurance company, or a custodial bank account; (-3-) provide for the protection of the plan's assets; (-4-) designate the requirements for vested benefits; (-5-) provide the basis for the computation of the amounts of benefits to be paid; (-6-) be expected to continue despite normal fluctuations in the contracted provider's economic experience; and (-7-) use all fund contributions and earnings for the sole benefit of the participating employees. Contributions made during the cost-reporting period to a deferred compensation plan meeting the requirements specified in subitems (-1- )-(-7-) of this item which represent legal obligations of the contracted provider and which are clearly enumerated as to dollar amount are allowable costs and should be reported on cost reports as employee benefits. Reasonable trustee or custodial fees paid by the contracted provider will be allowed as an administrative cost. However, such fees will not be allowable where the deferred compensation plan provides that they will be paid out of the corpus or earnings of the fund. To be allowable, contributions representing the employee's share cannot revert to the contracted provider. However employer-paid contributions can revert back to the contracted provider in the event an employee does not vest if designated in the requirements for vested benefits. (-b-) Employer contributions to an employee retirement fund or certain pension plans. A pension plan is a type of deferred compensation plan which is established and maintained by the employer to provide systematic payment of definitely determinable benefits to its employees over a period of years, or for life, after retirement. Such a plan may include disability, withdrawal, option for lump-sum payment, or insurance or survivorship benefits incidental and directly related to the pension benefits. A pension plan must meet all the requirements of a deferred compensation plan. All employees' pension fund rights must be nonforfeitable after such time as they vest under the plan. Pension fund rights cannot be contingent on continuance of employment or other factors. Only the amount the contracted provider or employer contributed to the pension fund during the reporting period is allowable and should be reported as an employee benefit. To be allowable, contributions representing the employee's share cannot revert to the contracted provider. However employer-paid contributions can revert to the contracted provider in the event an employee does not vest. (-c-) Paid leave. Paid vacations, paid holidays, sick leave, voting leave, court or jury duty leave, and/or all-inclusive paid days, all are reported as employee salaries and/or wages rather than as employee benefits, as follows: (-1-) A vacation benefit is a right granted by an employer to an employee to be absent from his job for a stipulated period of time without loss of pay or to be paid an additional salary in lieu of taking a vacation. The contracted provider's vacation policy must be consistent among all employees of a specific category. Vacation expense subject to payroll taxes must be reported as salaries and wages. Accrued vacation expense not yet subject to payroll taxes must be reported as employee benefits. Providers must maintain adequate documentation to substantiate that costs reported one year as accrued benefits are not also reported, either the same or another year, as salaries and wages. (-2-) The cost of sick leave taken, or payment in lieu of sick leave taken, is not to exceed the salary or wage the employee would have earned had they reported for work. Sick leave costs subject to payroll taxes must be reported as salaries and wages. Accrued sick leave costs not yet subject to payroll taxes must be reported as employee benefits. Providers must maintain adequate documentation to substantiate that costs reported one year as accrued benefits are not also reported, either the same or another year, as salaries and wages. (-3-) A formal plan for all-inclusive paid days off (PDO) is one under which all employees earn accrued vested leave, or payment in lieu of leave taken, for an unallocated combination of occasions such as illness, medical appointments, holi- days, vacations, family leave, and care of a sick child, based on actual hours worked. The cost of PDO subject to payroll taxes must be reported as salaries and wages. Accrued costs of PDO not yet subject to payroll taxes must be reported as employee benefits. Providers must maintain adequate documentation to substantiate that costs reported one year as accrued benefits are not also reported, either the same or another year, as salaries and wages. (-d-) Provider-paid instructional courses benefiting the employee's interest. Costs related to provider-paid instructional courses for the benefit of the employee only are unallowable costs. Refer to paragraph (12)(A) of this subsection, concerning staff training costs. (-e-) Contracted provider's unrecovered cost of meals and room and board furnished on-site to direct care employees. Any reasonable unrecovered cost of meals and/or room and board furnished on-site by a contracted provider to its direct care employees, which are equivalent to the meals and/or room and board provided to clients, are allowable costs since they are related to client care in that such reasonable costs are appropriate and helpful in developing and maintaining the contracted provider's operations to deliver contracted services. Such allowable costs should be reported in the cost area where the costs were incurred, such as meal costs being reported in the cost area associ- ated with food and meal preparation and room and/or board costs being reported in the cost area associated with building costs. (-f-) Costs of health, disability and life insurance premiums paid or incurred by the contracted provider if the benefits of the policy are payable to the employee or his beneficiary. Report allowable health, disability, and life insurance premium costs as employee benefits. Refer to paragraph (10) of this subsection, concerning insurance expense. (B) Compensation of employees that is not clearly enumerated as to dollar amount or which represent profit or surplus revenue distributions are unallowable costs. Accrued expenses that are not legal obligations of the contracted provider are unallowable costs, including any form of profit sharing and the accrued liabilities of unfunded deferred compensation plans. (2) Compensation of owners and related parties. Compensation includes both cash and non-cash forms of compensation subject to federal payroll tax regulations. Compensation includes withdrawals from an owner's capital account; wages and salaries (including bonuses); payroll taxes and insurance; and fringe benefits. Payroll taxes and insurance include Federal Insurance Contributions Act (old age, survivors, and disability insurance (OASDI) and Medicare hospital insurance); Unemployment Compensation Insurance; and Workers' Compensation Insurance. Allowable compensation must be reported as salaries and not as management fees. (A) Allowable compensation of owners and related parties. (i) A person who is a sole proprietor, partner, or corporate stockholder- employee owning any of the outstanding stock of the contracted provider is considered an owner for the purposes of this subparagraph. Allowable compensation for a related party, as defined in sec.20.102(i) of this title (relating to General Principles of Allowable and Unallowable Costs), a sole proprietor-employee, a partner-employee, or a corporate stockholder-employee is governed by the principles that the services rendered are necessary functions and that the remuneration is the reasonable value of the services rendered. (I) A function is deemed necessary when, if the owner or related party had not performed said function, the contracted provider would have had to employ another person to perform that function. To be necessary, a function must pertain to direct or indirect activities in the provision or supervision of contracted client services. The fact that an owner may have potential supervisory and managerial authority and responsibility is not as important as the manner in which this authority and responsibility is actually exercised. As an example, the right of the owner-administrator to overrule decisions does not solely constitute a basis for recognition of compensation comparable to nonowner- administrators. (II) The test of reasonableness requires that the compensation of owners or related parties be such an amount as would ordinarily be paid for comparable services performed by nonowners or unrelated parties. Reasonable compensation is limited to the fair market value of services rendered by the owner or related party in connection with contracted client care. Education and experience of the owner are pertinent only as they relate to the job being performed and the services being rendered. For example, where an owner-administrator is also a physician or a nurse or a lawyer, but the services evaluated are administrative in nature rather than the actual practice of medicine or nursing or law, the allowable compensation is based on the compensation nonphysician or nonnurse or nonlawyer administrators receive rather than on the rate physicians or nurses or lawyers receive for their professional services. (ii) The compensation must be for services performed by the related party, owner, partner, or stockholder that do not duplicate services performed by another employee of the contracted provider. (iii) Compensation for "full-time" service requires that at least 40 hours per week be devoted to the duties of the position for which compensation is requested. For owners devoting less than 40 hours per week to the position, allowable compensation is limited to the proportion of 40 hours actually devoted to the contract services. Documentation regarding owners and related parties must be kept in accordance with sec.20.105(b)(2)(B)(xi) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures). (iv) Compensation must be in accordance with paragraph (1)(A) of this subsection concerning compensation of employees, must be made in regular periodic payments, must be subject to payroll or self-employment taxes, and must be verifiable by adequate documentation maintained by the contracted provider. (B) Unallowable compensation of owners and related parties. (i) Forms of compensation that are not clearly enumerated as to dollar amount or which represent profit or surplus revenue distributions are unallowable costs. (ii) Compensation in the form of salaries, benefits, or any form of perquisite provided to owners, partners, officers, directors, stockholders, employees, or others who do not provide services directly to clients or who do not provide services required in the normal conduct of operations to provide contracted client services, is an unallowable cost. Services which would be required in the normal conduct of operations to provide contracted client services would include expenses such as administration of the program or supervision of direct care staff. (C) Compensation for outside consultants and fees for services provided by outside vendors. Allowable compensation for outside consultants and contracted services must meet the criteria in sec.20.102 of this title (relating to General Principles of Allowable and Unallowable Costs). Specific criteria for certain types of compensation of outside consultants and contracted services are as follows: (i) Accounting and audit fees. (I) Allowable accounting and audit fees. Fees for preparation of business tax reports and returns, financial statements, and cost reports are allowable costs. Audit fees associated with the performance of a financial audit are allowable costs. (II) Unallowable accounting and audit fees. Expenses related to the preparation of personal tax returns are unallowable costs as are certain taxes. Refer to paragraph (9) of this subsection, concerning tax expense and credits. Audit fees associated with the performance of a single audit are unallowable costs. The cost attributable to a financial audit that was conducted along with a single audit is allowable if the cost of the financial audit can be identified separately from the cost attributable to the single audit. Accounting fees and related costs associated with litigation between a provider and a governmental entity are unallowable. Accounting costs associated with any other unallowable costs are also unallowable. Fees related to the preparation of annual reports, reports to stockholders or other interested parties, or for investment management are unallowable costs. (ii) Legal fees. Legal retainers are not allowable in and of themselves, but rather must be documented as specified in sec.20.105(b)(2)(B)(viii) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures). Legal costs associated with litigation between a provider and a governmental entity are unallowable. Legal costs associated with any other unallowable costs are also unallowable. (D) Value of services of nonpaid workers. Since the contracted provider incurs no actual costs for nonpaid and/or volunteer workers, the value of the nonpaid work is not an element of cost; and the value of such nonpaid work is an unallowable cost. (E) Boards of directors. Fees and expenses related to boards of directors are unallowable costs except for: (i)Travel costs incurred by the contracted provider's board members to attend meetings of the contracted provider's board of directors are allowable costs in accordance with the travel guidelines as stated in paragraph (12)(B) of this subsection; and (ii) Errors and omissions (liability) insurance for boards of directors are allowable costs. (3) Management fees. (A) Allowable management fees. Reasonable management fees paid to unrelated parties are allowable costs. Allowable management fees paid to related parties are the actual costs to the related party for the materials, supplies, and services provided directly to the individual contracted provider. Any related party compensation or owner compensation included in allowable management fees paid to related parties must follow the guidelines specified in sec.20.102(i) of this title (relating to General Principles of Allowable and Unallowable Costs) and in paragraph (2) of this subsection, concerning compensation of owners and related parties. Expenses for management provided by the contracted provider's central office must be reported as central office costs on the cost report. Cash management fees related to minimizing interest costs and banking expenses in the management of operating revenue necessary for contracted services are allowable costs. (B) Unallowable management fees. Fees for management of personal investments or investments not necessary for the provision of contracted services are unallowable costs. (4) Central office costs. A chain organization consists of a group of two or more contracted entities which are owned, leased or controlled through any other arrangement by one organization. A chain may also include business organizations which are engaged in other activities and which are not contracted program entities. Central offices of a chain organization vary in the services furnished to the components in the chain. The relationship of the central office to an entity providing contracted services is that of a related party organization to a contracted provider. Central offices usually furnish central management and administrative services such as central accounting, purchasing, personnel services, management direction and control, and other necessary services. To the extent the central office furnishes services related directly or indirectly to contracted client care, the reasonable costs of such services are allowable. Allowable central office costs include costs directly related to those services necessary for the provision of client care for contracted services in Texas and an appropriate share of allowable indirect costs. Where functions of the central office have no direct or indirect bearing on delivering contracted client care, the cost for those functions are not allowable costs. Costs which are unallowable to the contracted provider are also unallowable as central office costs. Where a contracted provider is furnished services, facilities, or supplies from its central office, the costs allowed are subject to the guidelines of related party transactions in sec.20.102 (i) of this title (relating to General Principles of Allowable and Unallowable Costs). Owner- employees and related parties receiving compensation for services provided through the central office are allowable to the extent provided in paragraph (2)(A) and (B) of this subsection, concerning compensation of owners and related parties. (5) Utilities. To be allowable, the utilities must be used directly or indirectly in the provision of contracted services. (6) Repairs and maintenance. For cost-reporting purposes, repairs and maintenance are categorized as ordinary or extraordinary (major) repairs and should be handled as follows. (A) Ordinary repairs and maintenance are defined as outlays for parts, labor, and related supplies which are necessary to keep the asset in operating condition, but neither add materially to the use value of the asset nor prolong its life appreciably. Ordinary repairs are recurring and usually involve relatively small expenditures. Ordinary repairs include, but are not limited to, painting, wall papering, copy machine repair, repairing an electrical circuit, or replacing spark plugs. Because maintenance costs and ordinary repairs are similar, they are usually combined for accounting purposes. Ordinary repairs may be expensed. (B) Extraordinary repairs (major repairs) involve relatively large expenditures, are not normally recurring in nature, and usually increase the use value (efficiency and use utility) or the service life of the asset beyond what it was before the repair. Extraordinary repairs costing $1,000 or more, with a useful life in excess of one year, should be capitalized and depreciated. The cost of the extraordinary repair should be added to the cost of the asset and depreciated over the remaining useful life of the original asset. If the life of the asset has been extended due to the repair, the useful life should be adjusted accordingly. Extraordinary repairs include, but are not limited to, major vehicle overhauls, major improvements in a building's electrical system, carpeting an entire building, replacement of a roof, or strengthening the foundation of a building. (7) Depreciation and amortization expense. For purchases made after the beginning of the contracted provider's fiscal year 1997, an asset valued at $1,000 or more and with an estimated useful life of more than one year at the time of purchase must be depreciated or amortized, using the straight line method. In determining whether to expense or depreciate a purchased item, a contracted provider may expense any single item costing less than $1,000 or having a useful life of one year or less. Depreciation and amortization expenses for unallowable assets and costs are also unallowable, including amounts in excess of those resulting from the straight line method, capitalized lease expenses in excess of actual lease payments, and goodwill or any excess above the actual value of physical assets at the time of purchase. The minimum useful lives to be assigned to common classes of depreciable property are as follows: (A) Buildings. A building's life must be reported as a minimum of 30 years, with a minimum salvage value of 10%. All buildings, excluding the value of the land, are uniformly depreciated on a 30-year life basis, regardless of the actual date of construction or original purchase. Exceptions to this policy are permissible when contracted providers choose a useful-life basis in excess of 30 years. An example of depreciation on a 30-year life basis is: Figure 1 for 40 TAC 20.103(b)(7)(A) (B) Building equipment; buildings and grounds improvements and repairs; durable medical equipment, furniture, and appliances; and power equipment and tools used for buildings and grounds maintenance. Use minimum schedules consistent with "Estimated Useful Lives of Depreciable Hospital Assets," published by the American Hospital Association. Copies of this publication may be obtained by contacting American Hospital Publishing, Inc., 737 North Michigan Ave., Chicago, IL 60611. Leasehold improvements whose estimated useful lives according to the guidelines for depreciable hospital assets are longer than the term of the lease must be depreciated and/or amortized over the remaining life of the lease or the life of the leasehold improvement, whichever is longer. Building improvements which are not structural in nature and do not extend the depreciable life of the building, but whose estimated useful lives according to the guidelines for depreciable hospital assets are longer than the remaining depreciable life of the building, must be depreciated over the normal useful life of the building improvements, or the remaining life of the building, whichever is longer. Once the estimated useful life of the leasehold improvement has been established using the guidelines above, subsequent extensions of the lease period do not change the useful life of the leasehold improvement. Any exceptions to this policy shall be stated in each program-specific reimbursement methodology rules. (C) Transportation equipment used for the transport of clients, staff, or materials and supplies utilized by the contracted provider. Cost reporting must reflect a minimum of three years for automobiles (including minivans); five years for light trucks and vans; and seven years for buses and airplanes. Depreciation expenses for transportation equipment not generally suited or not commonly used to transport clients, staff, or provider supplies are unallowable costs. This includes motor homes and recreational vehicles; sports automobiles; motorcycles; heavy trucks, tractors and equipment used in farming, ranching, and construction; and transportation equipment used for other activities unrelated to the provision of contracted client care, unless program-specific reimbursement methodology rules provide otherwise. Refer to sec.20.105(b)(2)(B)(iii) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures) for requirements for the maintenance of mileage logs and other documentation required to substantiate transportation equipment costs. (i) Luxury automobiles are defined for cost-reporting purposes as passenger vehicles, excluding buses, with an historical cost at time of purchase or a market value at execution of the lease exceeding $30,000 when purchased or leased before January 1, 1997. For vehicles leased or purchased on or after January 1, 1997, luxury vehicles are defined as a base value of $30,000 with 2.0% being added (using the compound method) to the base value each January 1 beginning on January 1, 1998. Any amount above the definition of a luxury vehicle stated above is an unallowable cost. When a passenger vehicle's cost exceeds the amount determined by the definition of a luxury vehicle stated above, the historical cost is reduced to the amount determined by the definition of a luxury vehicle. When a passenger vehicle's market value at the execution of the lease exceeds the amount determined by the definition of a luxury vehicle stated above, the allowable lease payment is limited to the lease amount for a vehicle with the base value as determined above, with substantiating documentation as specified in sec.20.105(b)(2)(B)(iv) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures). Luxury vehicles must be depreciated according to depreciation guidelines in this paragraph. Expenses for passenger luxury vehicles will be allowable if the contracted provider maintains adequate mileage logs substantiating the use of the luxury vehicles to transport clients, contracted provider staff or provider supplies. Refer to sec.20.105(b)(2)(B)(iii) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures) for requirements for the maintenance of mileage logs. The base value does not include specialized equipment, such as wheelchair lifts, added to assist clients. (ii) The estimated life of a previously owned (used) vehicle is the longer of the number of years remaining in the vehicle's depreciable life or three years. For example, if a 1994 van were purchased in 1995, it would have four years remaining in its five-year depreciable life and that would become the depreciable life for the used vehicle. If a 1994 minivan were purchased in 1995, it would have two years remaining in its three-year depreciable life and the depreciable life for the used vehicle would then be three years. (iii) Specialized equipment added to a vehicle to assist a client should be depreciated separately from the vehicle. Wheelchair lifts have an estimated useful life of four years. (D) Depreciation for the first reporting period. Depreciation for the first reporting period is based on the length of time from the date of acquisition to the end of the reporting period. Depreciation on disposal is based on the length of time from the beginning of the reporting period in which the asset was disposed to the date of disposal. (E) Planning and evaluation expenses. Planning and evaluation expenses for the purchase of depreciable assets are allowable costs only where purchases are actually made and the assets are put into service in the provision of care by the provider for contracted services. (F) Gains and losses. Gains and losses realized from the trade-in or exchange of depreciable assets are included in the determination of allowable cost. When an asset is acquired by trading-in an asset that was being depreciated, the historical cost of the new asset is the sum of the undepreciated cost of the asset traded-in plus any cash or other assets transferred or to be transferred to acquire the new asset. Losses resulting from the involuntary conversion of depreciable assets, such as condemnation, fire, theft, or other casualty, are includable as allowable costs in the year of involuntary conversion, provided the total aggregate allowable losses incurred in any cost-reporting period do not exceed $5,000 and provided the assets are replaced. If the total aggregate allowable losses in any cost-reporting period exceed $5,000, the total amount of the losses over $5,000 is recognized as a deferred charge and treated as follows: (i) If a depreciable asset is destroyed by an involuntary conversion beyond repair, then the amount of the loss over $5,000 must be capitalized as a deferred charge over the estimated useful life of the asset which replaces it. The allowable loss for a total casualty is the undepreciated cost of the asset, less insurance proceeds, gifts, and grants from any source as a result of the involuntary conversion. If the unrepairable asset is disposed of by scrapping, income received from salvage is treated as a reduction in the amount of the allowable loss. Conversely, where additional expense is incurred in the scrapping operation, such cost would be added to the allowable loss of the destroyed asset. (ii) If a depreciable asset is partially destroyed or damaged as a result of an involuntary conversion, a reduction in its cost basis is assumed to have taken place. Therefore, the cost basis of the asset must be reduced to reflect the amount of the casualty loss, regardless of whether the loss is covered by insurance. (I) The amount of the casualty loss is the difference between the fair market value immediately before the casualty and the fair market value immediately after the casualty; however, for cost-reporting purposes, the allowable loss is limited to the percent of loss in fair market value applied to the net book value of the asset at the time the casualty occurred. This method of calculating the allowable loss recognizes the actual reduction in the cost value of the asset rather than the reduction in replacement value. (II) Any loss over $5,000 must be capitalized as a deferred charge and amortized over the useful life of the restored asset. (III) The fair market value generally can be ascertained by competent appraisal. If no appraisal is made, the cost of repairs to the damaged property is acceptable as evidence of the loss of value if the repairs restore the property to its condition immediately before the casualty and, as a result of the repairs, the value of the property has not been increased. The amount of the allowable loss is then deducted from the cost basis of the asset before the casualty, to arrive at the adjusted cost basis of the asset. Any insurance proceeds received or recoverable must be deducted from the amount of the casualty loss to determine the gain or the loss. (IV) Actual costs incurred in the restoration of an asset are added to the adjusted cost basis of the asset to arrive at the revised cost of the restored asset and capitalized over the remaining useful life of the restored asset. (V) When the repairs materially improve or add to the value or utility of the property or appreciably prolong its useful life, the repairs must be depreciated over the estimated life of the repairs. (VI) When the contracted provider maintains a self-insurance reserve fund, the amount of the casualty loss recognized as an allowable cost is limited to the lesser of the decrease in fair market value, as adjusted, of the damaged or destroyed asset or the amount of cash, and/or investments, comprising the accumulated balance of the self-insurance reserve account. (VII) When an asset is sold before the end of its useful life and a gain is realized (the sales price is greater than the remaining allowable depreciation), no additional depreciation or expense is allowed. (8) Interest expense. Reasonable and necessary interest on current and capital indebtedness is an allowable cost. In the case of allowable interest incurred on a loan, in order to be determined necessary, the loan must have been made to satisfy a financial need for a purpose reasonably related to contracted client care. (A) For cost-reporting purposes, allowable interest expenses are limited to that net portion of interest accrued which has not been reduced or offset by interest income. To be allowable, the following requirements must be met. (i) The loan must be supported by evidence in writing of an agreement that funds were borrowed and that payment of interest and repayment of the funds are required and systematically made. Refer to sec.20.105(b)(2)(B)(ii) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures); (ii) The loan must be made in the name of the contracted provider entity as maker or comaker of the note; and (iii) The proceeds of the note or loan must be used for allowable costs. (B) Interest expense on a demand note is allowable if the loan is the result of an arm's-length transaction. (C) Where the lender is a related party, allowable interest is limited to the prevailing national average prime interest rate in effect at the time at which the loan contract was finalized, as reported by the United States Department of Commerce, Bureau of Economic Analysis, in the Survey of Current Business. (D) Interest costs incurred during the period of construction or enlarging of a building must be capitalized as part of the cost of the building. (E) Reasonable finance charges and service charges, together with interest on indebtedness, are allowable costs. (F) Other fees associated with obtaining an allowable loan, such as broker's fees to solicit financing, lender's fees, attorney's fees, and due diligence fees, are allowable costs. (G) Interest expenses on funds borrowed for purposes of investing in operations other than contracted services, on loans pertaining to unallowable items, and on borrowed funds creating excess working capital are unallowable costs. (9) Tax expense and credits. (A) Generally, taxes assessed against the contracted provider, in accordance with the levying enactments of Texas and lower levels of government and for which the contracted provider is liable for payment, are allowable costs. Tax expense based on fines and penalties are unallowable costs. (B) Employment-related taxes such as Federal Insurance Contribution Act (FICA), Workers' Compensation and Unemployment Compensation, are allowable costs. Refer to paragraph (1) and (1)(A) of this subsection. (C) Franchise taxes are allowable costs. A franchise tax is a periodic assessment, as defined by the Texas Comptroller of Public Accounts and paid to the Texas State Treasurer, levied on the operation of a business in the State of Texas. Franchise taxes do not refer to franchise fees, which are the costs associated with a company's granting the right to sell its products or services in a specified territory. (D) Unallowable taxes include: (i) federal income taxes and excess profit or surplus revenue based taxes, including any interest or penalties paid thereon. However, fees for preparation of business tax reports and business returns required by law are allowable. (ii) state or local income and excess profit or surplus revenue based taxes. However, fees for preparation of business tax reports and/or business returns are allowable. (iii) taxes in connection with financing, refinancing, or refunding operations, such as taxes on the issuance of bonds, property transfers, issuance or transfer of stocks. Generally, these costs are either amortized over the life of the securities or depreciated over the life of the asset. They are, however, unallowable as tax expense. (iv) taxes from which exemptions are available to the contracted provider. (v) special assessments on land which represent capital improvements should be capitalized and depreciated over their estimated useful lives and are not allowable as tax expenses. (vi) taxes, such as sales taxes, levied against the client and collected and remitted by the contracted provider. (vii) self-employment taxes. (10) Insurance expense. This section covers the following types of insurance: property damage and destruction; fire and casualty; malpractice and comprehensive general liability; errors and omissions insurance covering boards of directors; theft insurance (fidelity bonds and burglary insurance); workers' compensation; transportation equipment insurance; life insurance for owners, officers, and key employees; health; disability; and unemployment compensation. (A) Purchased and commercial insurance. The reasonable costs of insurance purchased from a commercial carrier or a nonprofit service corporation are allowable if resulting from an arm's-length transaction. The commercial carrier or nonprofit service corporation must meet the standards as set by the Texas Department of Insurance. Costs of insurance purchased from a limited purpose insurer are allowable if they are not in excess of the cost of available comparable commercial insurance premiums and meet the reasonable cost provisions. If comparable insurance premiums are not available, the limited purpose insurer or captive insurance company must obtain an evaluation of the adequacy and reasonableness of its insurance premium by an independent actuary, commercial insurance company, or broker. (B) Self-Insurance. Self-insurance is a means whereby a contracted provider undertakes the risk to protect itself against anticipated liabilities by providing funds in an amount equivalent to liquidate those liabilities. Self- insurance can also be described as being uninsured. To qualify as an allowable self-insurance plan, a contracted provider must enter into an agreement with an unrelated party that does not provide for the shifting of risk to the unrelated party designed to provide only administrative services to liquidate those liabilities and manage risks. Self-insurance costs for contracted providers who have received certificates of authority to self-insure from the Texas Workers' Compensation Commission are allowable costs. Self-insurance costs in excess of costs for similar, comparable coverage by purchased and/or commercial insurance premiums are subject to a cost ceiling in accordance with subparagraph (E)(i)- (iv) of this paragraph. Documentation substantiating the cost of comparable coverage by purchased and/or commercial insurance premiums must be obtained and maintained as specified in sec.20.105(b)(2)(B)(ix) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures). (i) Costs related to self-insurance are allowable on a claims-paid basis. Contributions to the self-insurance fund or reserve which do not represent payments based on current liabilities are not considered actual incurred expenses and are not allowable costs. For cost-reporting purposes, self- insurance costs are reported on a cash basis. For cost-reporting purposes, compensation paid to employees who have been injured on the job is allowable and should be reported as compensation according to the type of compensation expense incurred in accordance with paragraphs (1) and (2) of this subsection. (ii) For cost-reporting purposes, allowable employee-related paid claims, such as health insurance and workers' compensation costs, may either be directly charged to the business component in which the employee worked or may be allocated across all business components as an administrative expense. The method chosen to report these costs must remain consistent each year. Changes in the method for reporting those costs must be approved in accordance with sec.20.102(j) of this title (relating to General Principles of Allowable and Unallowable Costs). (C) Determining self-insurance or purchased commercial insurance. There may be situations in which there is a fine line between self-insurance and purchased or commercial insurance. This is particularly true of "cost-plus" type arrangements. As long as there is at least some shifting of risk to the unrelated party, even if limited to situations such as provider bankruptcy or employee termination, the arrangement will not be considered self-insurance. Contributions to a special risk management fund or pool which is operated by a third party which assumes some of the risk and which has an annual actuarial review are allowable costs. Examples of such special risk management funds and pools include the Texas Council Risk Management Fund and the Texas Municipal League Intergovernmental Risk Pool. (D) Reporting of insurance costs. All allowable insurance premium costs should be reported on cost reports, with amounts accrued for premiums, modifiers, and surcharges during the cost-reporting period being adjusted by any refunds and discounts actually received or settlements paid during the same cost-reporting period. (E) Losses in excess of coverage. When a contracted provider is not fully insured by a purchased commercial insurance policy, i.e., the provider's coverage includes coinsurance provisions and/or deductibles, the amount of allowable insurance costs reported for each cost-reporting period is subject to a cost ceiling. (i) The cost ceiling for employee-related insurance, such as health insurance, or workers' compensation coverage, is either the amount that would have been incurred had the provider purchased full coverage for its entire business entity through a commercial insurance policy or an amount equal to 10% of the payroll for employees eligible for such coverage. This cost ceiling is applied separately to employee-related insurance and to workers' compensation coverage. (ii) The cost ceiling for non-employee-related insurance, such as malpractice insurance, comprehensive general liability insurance, or property insurance, is the amount that would have been incurred had the provider purchased full coverage for its entire business entity through a commercial insurance policy. (iii) If, during a cost-reporting period, a provider incurs allowable paid claims in excess of the applicable cost ceiling, the provider reports on its current cost report allowable insurance costs up to the amount of the applicable cost ceiling, with the allowable costs in excess of the applicable cost ceiling being carried forward to future cost-reporting periods. When, during a future cost-reporting period, a provider incurs allowable insurance costs in an amount less than the applicable cost ceiling, the provider reports on its cost report the allowable insurance costs (paid claims) incurred during that cost-reporting period plus any allowable carry forward amount up to the amount of the applicable cost ceiling, with any excess carry forward being carried forward to future cost reporting periods. (iv) Documentation requirements are stated in sec.20.105(b)(2)(B)(ix) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures). (F) Absence of coverage. Where a contracted provider, other than a governmental provider, has no insurance protection, the reporting of the provider's paid claims must follow the guidelines stated in paragraph (10)(E) of this subsection. For governmental providers, allowable paid claims for cost-reporting purposes include all claims paid during the cost-reporting period only if the provider demonstrates that it has a claims management and risk management program. (G) Life insurance costs. (i) In general, premiums related to insurance on the lives of owners, officers, and key employees where the contracted provider is a direct or indirect beneficiary are unallowable costs. (ii) Life insurance costs are allowable if: (I) a contracted provider is required by a lending institution or other lender to purchase such insurance to guarantee the outstanding loan balance; (II) the lending institution or other lender must be designated as the beneficiary of the insurance policy; and (III) upon the death of the insured, the proceeds are restricted to paying off the balance of the loan. (iii) Allowable insurance premiums are limited to premiums equivalent to that of a decreasing term life insurance policy needed to pay off the outstanding loan balance or that portion of the premium which can be equated to the premium for a similar face amount of a decreasing term life policy. In addition, the loan must be reasonable and necessary and must meet the criteria for allowable loans and interest expense as stated in sec.20.103(b)(8) of this title (relating to Specifications for Allowable and Unallowable Costs). (iv) Provider-paid premiums related to insurance on the lives of owners- employees, officers, and key employees where the individual's relatives or his estate are the beneficiary are considered to be employee benefits to the individual and are allowable costs to the extent such employee benefits are allowable. Provider-paid premiums related to insurance on the lives of owners- employees, officers, and key employees where required by a financial institution and the financial institution is the beneficiary is allowable. (H) Insurance costs pertaining to unallowable costs. Insurance costs pertaining to items of unallowable costs are themselves unallowable costs. (I) Board of directors' insurance. Errors and omissions insurance (liability) on members of boards of directors is an allowable cost. (11) Dues or contributions to organizations. (A) Allowable dues and contributions to organizations. Costs are allowable for membership in professional associations directly and primarily concerned with the provision of services for which the provider is contracted. Allowable costs of memberships in such organizations include initiation fees, dues, and subscriptions to related professional periodicals. Allowable costs related to meetings and conferences whose primary purpose is to disseminate information for the advancement of contracted client care or the efficient operation of the contracted program include reasonable travel costs in accordance with paragraph (12)(B) of this subsection and reasonable registration fees and other costs incidental to those functions. Travel costs incurred by members of the board of directors of professional associations which are directly and primarily concerned with the provision of services for which the provider has contracted are allowable in accordance with paragraph (12)(B) of this subsection. Dues or licensing fees related to maintaining the professional accreditation or license of an employee are allowable to the extent that the professional accreditation or license is directly related to and necessary for the performance of that employee's functions. (B) Unallowable dues and contributions to organizations. Dues to nonprofessional organizations are unallowable. Assessments whose purpose is to fund lawsuits or any legal action against the state or federal government are unallowable. Portions of dues based on revenue or for the purposes of lobbying, or campaign contributions are unallowable costs. Costs of membership in civic organizations whose primary purpose is the promotion and implementation of civic objectives are unallowable. Dues or contributions made to any type of political, social, fraternal, or charitable organization are unallowable. Chamber of Commerce dues are unallowable. Franchise fees are not considered dues or contributions to organizations. (C) Dues to purchasing organizations or buying clubs. Allowable dues to purchasing organizations or buying clubs are limited to the pro-rata amount representing purchases made for use in providing contracted services. (12) Training and travel costs. (A) Staff training costs. (i) Staff training costs refer to costs associated with educational activities for provider staff. To qualify as an allowable staff training cost, the training must: (I) have a direct relationship with the employee's job responsibilities, thereby increasing the quality of contracted client care or the efficient operation of the contracted provider. Management training, if it is designed to enhance quality or improve administration and is relevant to the contracted service, is an allowable cost. The following apply to staff training costs. (-a-) Non-related party staff. Costs of tuition, books, and related fees for courses required to complete the designated degree or certification are allowable. The degree or certification must be necessary to the provision of contracted client services of the contracted provider. An example would be any course required to be taken by a licensed vocational nurse (LVN) working toward a degree as a registered nurse (RN) where RN services are necessary to deliver services as required under the contract. (-b-) Related party staff. Allowable costs are restricted to specific courses which have a direct relationship with the employee's job responsibilities. Examples of allowable staff training costs include tuition, books, and related fees for an accounting course for a bookkeeper and a management course for a supervisor. However, a history course for a bookkeeper, even though it may be a requirement for a college degree in accounting or business, is unallowable. (II) be located within the state of Texas unless the purpose of the training is for staff training in contracted client care-related services or quality assurance which is not available in the state of Texas. All costs for training outside the continental United States are unallowable costs. For further guidelines regarding adequate documentation, refer to sec.20.105(b)(2)(B)(vi) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures). (ii) Staff training may be conducted within the provider setting or off-site. It may be operated by the contracted provider, provided by an accredited academic or technical institution, or conducted by a recognized professional organization for the particular training activity. Workshops on particular contracted client services, health applications, on-the-job safety, data processing, accounting, the Texas Department of Human Services (DHS) programmatic or cost related training, supervisory techniques, and other administrative activities are examples of allowable types of training. Costs of orientation, on-the-job training, and inservice training are recognized as normal operating costs and are allowable training costs. (iii) For staff training conducted within the provider setting, allowable training costs include, but are not limited to, instructor and consultant fees, training supplies, and visual aids. For off-site training, allowable costs include costs such as allow- able travel costs, registration fees, seminar supplies, and classroom costs. For additional guidelines regarding allowable travel costs, please refer to paragraph (12)(B) of this subsection. (iv) Staff training costs must be reported as net costs, having been offset by any reimbursement from grants, tuitions, or donations received for staff educational purposes. (v) For information regarding nursing facility nurse aide training, refer to paragraph (17)(K) of this subsection and program-specific reimbursement methodology rules. (vi) For guidelines on allowability for client prevocational, vocational, and educational costs, refer to program-specific reimbursement methodology rules for guidelines on allowability. (B) Travel costs. (i) Maximum allowable travel costs for allowable activities are as follows: (I) 150% of the limits established by the Texas Legislature for non- exempt state employees, with respect to hotel costs and per diem rates. (II) the maximum allowable mileage reimbursement amount set by the Texas Legislature for non-exempt state employees. (ii) Out-of-state travel costs are unallowable, unless the purpose of the travel is for staff training in contracted client-care-related services or in quality assurance which is not available in the state of Texas; the purpose of delivering direct contracted client services within 25 miles of the Texas border with adjoining states or Mexico; or the purpose for the travel is to conduct business related to contracted client services in Texas and the travel is between Texas and the contracted provider's central office. All costs for travel outside the continental United States are unallowable costs, with the singular exception of travel required for the delivery of direct contracted client services within 25 miles of the Texas-Mexico border. (iii) Expenses for private aircraft are allowable only if: (I) all criteria in flight logs are maintained as specified in sec.20.105(b)(2)(B)(iii) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures); and (II) the contracted provider furnishes documentation demonstrating that the expenses for travel via private aircraft are not greater than those for commercial alternatives or ground transportation at the time the travel took place. Documentation demonstrating the cost of ground transportation may include the staff costs for the employee's time during the trip, and for commercial alternatives, the staff costs for the employee's time during the trip and at the terminal/station. (13) Advertising and public relations. (A) Allowable advertising and public relations. (i) Costs of advertising to meet statutory or regulatory requirements, such as program standards, rules, or contract requirements, are allowable costs. (ii) Informational listings of contracted providers in a telephone directory, including yellow page listings up to one-eighth of a page per telephone directory in the provider's service area or in a directory of similar facilities in a given area are allowable if the listings are consistent with practices that are common and accepted in the industry. (iii) Costs of advertising for the purpose of recruiting necessary personnel are allowable costs. Refer to the definition of necessary in sec.20.102(f)(2) of this title (relating to General Principles of Allowable and Unallowable Costs). (iv) Costs of advertising for procurement of items related to contracted client care, and for sale or disposition of surplus or scrap material are treated as adjustments of the purchase or selling price. (v) Costs of advertising incurred in connection with obtaining bids for construction or renovation of the contracted provider's facilities should be included in the capitalized cost of the asset. Refer to paragraph (7) of this subsection. (B) Unallowable advertising and public relations include: (i) Costs of advertising of a general nature designed to invite physicians to utilize a contracted provider's facilities in their capacity as independent practitioners; (ii) Costs of advertising incurred in connection with the issuance of a contracted provider's own stock, or the sale of stock held by the contracted provider in another corporation considered as reductions in the proceeds from the sale; (iii) Costs of advertising to the general public which seeks to increase client utilization of the contracted provider's facilities; (iv) Public relations costs; (v) Any business promotional advertising; and (vi) Costs of the development of logos or other company identification. (14) Promotional and fundraising activities. Promotional refers to any activity whose intent is to advertise or aid in the development of the business. Expenses relating to fundraising and promotional activities are unallowable, including salaries, benefits, and payroll taxes for staff performing these activities. If a staff member performs these activities along with allowable activities, a portion of that staff member's salary must be allocated to these unallowable activities and as such not be reported on the cost report. Other expenses associated with these activities are also unallowable, including advertising, publicity, travel, and meals. (15) Grants, gifts, and income from endowments and operating revenue. (A) Restricted grants, gifts, and income from endowments from private sources used to purchase allowable program costs should not be deducted and offset from allowable costs prior to reporting on the cost report. (B) Grants and contracts from federal, state or local government, such as transportation grants, United States Department of Agriculture grants, education grants, Housing and Urban Development grants, and Community Service Block Grants, should be offset, prior to reporting on the cost report, against the particular cost or group of costs for which the grant was intended. If federal funds are paid for the care of a specified client, those federal funds should not be offset prior to reporting on the cost report, unless otherwise specified in the program-specific reimbursement methodology rules. (C) Unrestricted grants, gifts, and income from endowments from private sources used to purchase allowable program items should not be offset by the contracted provider prior to reporting on the cost report. All unrestricted funds which are properly allocable to the cost report should be reported on a contracted provider's cost report, as well as any allowable costs to which the unrestricted funds were applied. (D) Nonroutine revenues such as income from operations not associated with providing contracted services, including, but not limited to, beauty and barber shops, vending machines, gift shops, canteen stores, and meals sold to employees or guests should be offset or reduced by the related expenses prior to reporting the revenue on the cost report. Expenses related to providing these types of non-contracted operations are unallowable costs. If nonroutine operating expenses, including overhead costs incurred to generate nonroutine operating revenue, exceed nonroutine operating revenues, the net nonroutine operating expenses are unallowable costs. Routine operating revenue received as payments for the contracted services, such as income from private clients, private room and board, or other sources of routine contracted services are not to be offset. Refer to sec.20.102(k) of this title (relating to General Principles of Allowable and Unallowable Costs) for further guidelines on reporting net expenses. (16) In-kind donations. (A) Allowable in-kind donations. (i) Depreciation of in-kind donations is limited to donated buildings and donated vehicles used in the direct provision of contracted client services, where title has been transferred to the provider entity by a third party in an arm's-length transaction. Depreciation must be reported in accordance with sec.20.103(b)(7) of this title (relating to Specifications for Allowable and Unallowable Costs). The historical cost basis used to depreciate vehicles must be consistent with the retail price of the National Automobile Dealers Association (NADA) listings; or, in the case of a new vehicle, the documented historical cost to the donor or NADA may be used. The historical cost basis used to depreciate donated buildings must be the lower of: (I) the most recent tax appraisal of the building prior to donation, unless the donor was exempt from tax appraisal, in which case an independent appraisal made by a third-party appraiser at the time of donation may be used in place of the tax appraisal (for donations made prior to the provider's 1997 fiscal year, a current appraisal from an independent third-party appraiser may be used to establish the historical cost); or (II) the documented historical cost to the donor. (ii) Expenses actually incurred to maintain a donated asset for use in providing contracted client care to DHS clients are allowable. (iii) If a provider receives a donation of the use of space owned by another organization and if the provider and the donor organization are both part of a larger organizational entity (such as units of a state or county government), the space is not considered a related-party donation, but rather treated as allowable costs requiring allocation between the provider and the other organization. For example, if a county home health agency is given space to use in the county office building, costs associated with the use of the space (such as depreciation, janitorial services, maintenance, and repairs) must be allocated from the county to the county home health agency. Allocation of costs must be in compliance with sec.20.102(j) of this title (relating to General Principles of Allowable and Unallowable Costs). (B) Unallowable in-kind donations. The value of unallowable in-kind donations may be collected for specific programs at the discretion of DHS for statistical purposes only, on a schedule separately identified for such purpose. The value of in-kind donations to a contracted provider, such as produce, supplies, materials, services, equipment, or other items used by the contracted provider which the contracted provider did not purchase, is an unallowable cost. The value of in-kind donations of buildings or vehicles when the title is not transferred to the provider is an unallowable cost. The value of in-kind donations to a contracted provider which are not arm's-length transactions are unallowable costs. The contracted provider may not treat as an allowable cost the imputed value for unallowable in-kind donations. (17) Miscellaneous costs. (A) Employee relations expenses. Costs relating to employee relations are different from fringe benefits, as specified in paragraph (1)(A)(iii) of this subsection, in that employee relations expenses incurred are for employees as a group rather than as a fringe benefit for an individual employee. Examples of allowable employee relations costs, which are reported as administrative costs for cost-reporting purposes, include a staff party, an employee outing, or other such staff expenses intended to boost employee morale and in turn increase the efficiency and quality of care provided. Other examples of allowable employee relations expenses are plaques or awards presented to employees for certain achievements or honors. Employee relations cost which discriminates in favor of certain employees, such as employees who are officers, stockholders, related parties, or the highest paid individual(s) in the organization are unallowable. Employee relations costs are limited to a ceiling of $50 per employee eligible to participate per year. If a staff party includes nonemployees, an allocation must be made such that only the portion of costs relating to employees and their families in attendance is reported on the cost report. If a staff party also serves as an open house for promotional purposes, an allocation of costs must be made so that only costs relating to employees and their families in attendance are reported as allowable costs. Entertainment expenses other than those for the benefit of current clients or those for staff employee relations described above are unallowable costs. (B) Organization costs. Organization costs are those costs directly incident to the creation of a corporation or other form of business necessary to provide contracted services. These costs are intangible assets in that they represent expenditures for rights and privileges which have a value to the business enterprise. (i) Allowable organization costs include, but are not limited to, legal fees incurred (such as drafting documents) in establishing the corporation or other organization, necessary accounting fees, and fees paid to states for incorporation. Allowable orga- nization costs must be amortized over a period of not less than 60 consecutive months, beginning with the first month in which services are delivered to the first client. (ii) The following types of costs are considered unallowable organization costs: costs relating to the issuance and sale of shares of capital stock or other securities, reorganization costs, and stockholder servicing costs. If the business or corporation never commences actual operations, the organization costs are unallowable. (C) Franchise fees. (i) Allowable franchise fees. Allowable franchise fees include those costs related to actual goods, supplies, and services received in return for fees paid to a company for the right to sell its goods and/or services in a specific territory. (ii) Unallowable franchise fees. Franchise fees based upon percentages of revenues and/or sales are unallowable costs. Franchise fees based upon goodwill are unallowable, with goodwill being that intangible, salable asset arising from the reputation of a business and its relationship with its customers. (D) Startup costs. Startup costs are those reasonable and necessary preparation costs incurred by a provider in the period of developing the provider's ability to deliver services. Startup costs can be incurred prior to the beginning of a newly-formed business and/or prior to the beginning of a new contract or program for an existing business. Allowable startup costs include, but are not limited to, employee salaries, utilities, rent, insurance, employee training costs, and any other allowable costs incident to the startup period. Startup costs do not include capital purchases, which are purchased assets meeting the criteria for depreciation in paragraph (7) of this subsection. Any costs that are properly identifiable as organization costs or capitalizable as construction costs must be appropriately classified as such and excluded from startup costs. Allowable startup costs should be amortized over a period of not less than 60 consecutive months. If the business or corporation never commences actual operations or if the new contract/program never delivers services, the startup costs are unallowable. (i) For a newly-formed business, startup costs should be accumulated up to the time the business begins (that is, when services are delivered to the first client/customer). Amortization of startup costs for a newly-formed business begins the month the business begins. In the event that a newly-formed business is established for the direct purpose of contracting with the State for delivery of client care services, startup costs should be accumulated up to the time the contract is effective or the time the first client receives services, whichever comes first, with amortization of startup costs beginning the same month. (ii) For a new contract or program implemented by an existing business, startup costs are related only to the development of the provider's ability to furnish services according to the standards of the new contract/program and should be accumulated up to the time the first client receives services according to the contract/program standards or the effective date of the contract, whichever occurs first. Amortization of startup costs for a new contract/program implemented by an existing business begins the month in which the first client receives services according to contract/program standards or the effective date of the contract, whichever occurs first. If a contracted provider intends to prepare all portions of its entire program at the same time, startup costs for all portions of the program should be accumulated in a single account and should be amortized beginning either when the first client is admitted or the effective date of the contract, whichever occurs first. However, if a contracted provider intends to prepare portions of its program on a piecemeal basis, startup costs should be capitalized and amortized separately for the portion(s) of the provider's program prepared during different time periods. For example, a newly- formed corporation opens a senior citizen center for private clients, serving its first client on April 4, 1995. Startup costs would be those costs incurred prior to April 4, 1995, which meet the above definition of startup costs. Amortization of the startup costs for this newly-formed business would begin April 1995. If this same corporation received a contract with DHS to provide Day Activity and Health Services (DAHS) effective October 1, 1995 and if the corporation served its first DAHS client on November 5, 1995, startup costs would be those costs incurred to be able to deliver services according to DAHS program standards. If the corporation was in compliance with the DAHS standards from its beginning (April 1995), no new startup costs would be allowable for amortization as a result of the implementation of the new DAHS contract by the existing corporation. On the other hand, if the corporation was required to incur additional costs to bring the operation up to the DAHS program standards, those startup costs incurred prior to October 1, 1995 (since the contract effective date occurred prior to serving the first DAHS client) would be amortized beginning with October 1995. (E) Research and development costs. Research and development costs, including, but not limited to, telephone costs, travel costs, attorney fees, and staff salaries, must be segregated into separate, individual accounts for each venture in the contracted provider's general ledger. Should such a "venture" result in a contract for a program, the allowable research and development costs would be incorporated as startup costs for that program. Research and development costs related to states other than Texas are not allowable costs for any allocation to any contracted program. (F) Medical supplies and medical costs. In general, medical supplies and equipment required by the Occupational Safety and Health Administration (OSHA), used for universal health and safety precautions, or otherwise required to meet contracted program requirements are allowable costs. Refer to program-specific reimbursement methodology rules to determine program requirements for medical supplies and medical costs. (G) Fines and penalties. Fines and penalties for violations of regulations, statutes, and ordinances of all types are unallowable costs. Penalties or charges for late payment of taxes, utilities, mortgages, loans or insufficient banking funds are unallowable costs. (H) Business expenses not directly related to contracted services. Business expenses not directly related to contracted services, including business investment activities, stockholder and public relations activities, and farm and ranch operations (unless farm and ranch operations are specifically allowed by the contracted program as necessary to the provision of client care), are unallowable costs. (I) Litigation expenses and awards. Unless explicitly allowed elsewhere in this chapter, no court-ordered award of damages or settlements made in lieu thereof or legal fees associated with litigation which resulted in any court-ordered award of damages or settlements made in lieu thereof, or a criminal conviction, are allowable. (J) Lobbying costs. Lobbying costs are unallowable. (i) Lobbying means the influencing or attempting to influence an officer or employee of any governmental agency, an officer or employee of Congress or State Legislature, or an employee of a Member of Congress or State Legislature in connection with any of the following actions: (I) the awarding of any governmental contract; (II) the making of any governmental grant; (III) the making of any governmental loan; (IV) the entering of any cooperative agreement; and (V) the extension, continuation, renewal, amendment, or modification of any governmental contract, grant, loan or cooperative agreement. (ii) Costs associated with the following activities are unallowable as lobbying costs: (I) attempting to influence the outcomes of any governmental election, referendum, initiative, or similar procedure, through in-kind or cash contributions, endorsements, publicity, or similar activity; (II) establishing, administering, contributing to, or paying the expenses of a political party, campaign, political action committee, or other organization established for the purpose of influencing the outcomes of elections; (III) attempting to influence the introduction of governmental legislation, the enactment or modification of any pending governmental legislation through communication with any member or employee of the Congress or State Legislature (including efforts to influence state or local officials to engage in similar lobbying activity) or any governmental official or employee in connection with a decision to sign or veto enrolled legislation; (IV) attempting to influence the introduction of governmental legislation, or the enactment or modification of any pending governmental legislation by preparing, distributing or using publicity or propaganda, or by urging members of the general public, or any segment thereof, to contribute to or participate in any mass demonstration, march, rally, fund raising drive, lobbying campaign or letter writing or telephone campaign; and (V) performing legislative liaison activities, including attendance at legislative sessions or committee hearings, gathering information regarding legislation, and analyzing the effect of legislation, when such activities are carried on in support of or in knowing preparation for an effort to engage in unallowable lobbying. (iii) The cost to contracted providers or their staff to attend meetings with the staff of state agencies or to attend public hearings or advisory committee meetings held by state agencies which are involved in the regulation of contracted client care in the program which they are contracting and which meetings do not meet the definition of lobbying stated above, are not considered lobbying and are therefore allowable costs. (iv) Expenses relating to lobbying are unallowable including salaries, benefits, and payroll taxes for staff performing these activities. If a staff member performs these activities along with allowable activities, a portion of that staff member's salary must be allocated to the unallowable activities and as such not be reported on the cost report. (K) Direct reimbursements. Any expenses directly reimbursable to the contracted provider which are considered outside the reimbursement payment system are unallowable costs, including, but not limited to, costs associated with Medicare Part A and B ancillary services. For guidelines on allowability of reporting costs in excess of those reimbursable directly through a voucher payment system, refer to program-specific reimbursement methodology rules. (L) Losses resulting from theft or embezzlement. Losses resulting from theft or embezzlement of property or funds of clients held in trust by the contracted provider are not allowable costs. (M) A bad debt. A bad debt allowance is a reduction in revenue resulting from unrecoverable revenue in uncollectible accounts created or acquired in the provision of contracted client care. Bad debt as an expense is unallowable. (N) A charity or courtesy allowance. A charity allowance is a reduction in normal charges due to the indigence of the client or resident. A courtesy allowance is a reduction in charges granted as a courtesy to certain individuals, such as physicians or clergy. These allowances themselves are not costs since the costs of the services rendered are already included in the contracted provider's costs. (18) Medicaid as payor of last resort. Medicaid is the payor of last resort. Costs for which a recipient had Medicare Part A or B benefits, third party payor benefits, vendor drug coverage, or any other benefits available are not allowable unless the provider can document that a provider of services was not accessible. At a minimum, the documentation must include a list of the providers contacted, dates(s) of contact, person to whom spoken, telephone number, and reason given for rejection. It is the availability of these benefits to cover the cost, not their utilization, which defines the cost as unallowable. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611430 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 438-3765 CHAPTER 24.Reimbursement Methodology The Texas Department of Human Services (DHS) adopts the repeal of sec.24.101, 24.102, 24.201, 24.301, 24.401, 24.501, and 24.601, and new sec.24.101, without changes to the proposed text published in the May 24, 1996, issue of the Texas Register (21 TexReg 4558). The text will not be republished. Justification for the repeals and new section is to clarify to which cost report fiscal years this chapter applies. The repeals and new section will function by clarifying to which cost report fiscal years this chapter applies. Also in this issue of the Texas Register, DHS is adopting new Chapter 20 and related policies in Chapters 19, 46, 47, 48, 50, and 52 of this title. A public hearing was held on June 10, 1996, in the Texas Department of Human Services Board Room, 701 West 51st Street, Austin, Texas. No comments were received regarding the adoption of the repeals. SUBCHAPTER A.Determination of Payment Rates 40 TAC sec.sec.24.101-24.102 The repeals are adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs, and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The repeals implement the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611431 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 438-3765 40 TAC sec.24.101 The new section is adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs, and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assis- tance funds. The new section implements the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611432 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 438-3765 SUBCHAPTER B.Desk Review of Cost Reports 40 TAC sec.24.201 The repeal is adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs, and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The repeal implements the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611433 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 438-3765 SUBCHAPTER C.Inflation Indices 40 TAC sec.24.301 The repeal is adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs, and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The repeal implements the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611434 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 438-3765 SUBCHAPTER D.Notification of Exclusions and Adjustments 40 TAC sec.24.401 The repeal is adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs, and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The repeal implements the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611435 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 438-3765 SUBCHAPTER E.Adjustments that Result from New Legislation, Regulations, or Economic Factors 40 TAC sec.24.501 The repeal is adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs, and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The repeal implements the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611436 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 438-3765 SUBCHAPTER F.Dispute Resolution 40 TAC sec.24.601 The repeal is adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs, and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The repeal implements the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611437 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 438-3765 CHAPTER 46.Residential Care Program The Texas Department of Human Services (DHS) adopts the repeal of sec.46.7001 and new sec.46.7001 and sec.46.7002, without changes to the proposed text published in the May 24, 1996, issue of the Texas Register (21 TexReg 4560). The text will not be republished. Justification for the repeal and new sections is the establishment of a better understanding of the reimbursement methodology due to inclusion of additional detail. The repeal and new sections will function by clarifying current reimbursement methodology practice and incorporate cost report procedural changes. Also in this issue of the Texas Register, DHS is adopting new Chapter 20 and related policies in Chapters 19, 24, 47, 48, 50 and 52 of this title. A public hearing was held on June 10, 1996, in the Texas Department of Human Services Board Room, 701 West 51st Street, Austin, Texas. No comments were received regarding the adoption of the repeal. Support Documents 40 TAC sec.46.7001 The repeal is adopted under the Human Resources Code, Title 2, Chapter 22, which authorizes the department to administer public assistance programs. The repeal implements Human Resources Code, sec.sec.22.001-22.030. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611438 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: April 12, 1996 For further information, please call: (512) 438-3765 40 TAC sec.sec.46.7001, sec.46.7002 The new sections are adopted under the Human Resources Code, Title 2, Chapter 22, which authorizes the department to administer public assistance programs. The new sections implement Human Resources Code, sec.sec.22.001-22.030. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611439 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: April 12, 1996 For further information, please call: (512) 438-3765 CHAPTER 47.Primary Home Care Support Documents 40 TAC sec.47.5901, sec.47.5902 The Texas Department of Human Services (DHS) adopts an amendment to sec.47.5901 and new sec.47.5902, without changes to the proposed text published in the May 24,1996, issue of the Texas Register (21 TexReg 4560). The text will not be republished. Justification for the amendment and new section is a better understanding of the reimbursement methodology due to inclusion of additional detail, and a single set of guidelines to facilitate financial accountability relating to service delivery. The amendment and new section will function by clarifying current reimbursement methodology practice and incorporating cost report procedural changes. In addition, the proposal establishes cost determination rules that are consistent across programs, provide explicit guidelines for auditors, provide specific instructions concerning cost reporting, and provide guidelines in areas such as documentation and allocation methods. The proposal also clarifies the calculation of administration costs to nonpriority and priority 1 services of the Primary Home Care and Family Care programs. Also in this issue of the Texas Register, DHS is adopting new Chapter 20 and related policies in Chapters 19, 24, 46, 48, 50 and 52 of this title. A public hearing was held on June 10, 1996, in the Texas Department of Human Services Board Room, 701 West 51st Street, Austin, Texas. No comments were received regarding the adoption of the amendments. The amendment and new section are adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs, and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The amendment and new section implements the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611440 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: April 12, 1996 For further information, please call: (512) 438-3765 CHAPTER 48.Community Care for Aged and Disabled Client-managed Attendant Services 40 TAC sec.48.2613, sec.48.2614 The Texas Department of Human Services (DHS) adopts the repeal of sec.48.6020 and sec.48.9805; amendments to sec.48.2613, sec.48.9801, sec.48.9808; and new sec.48.2614, sec.48.6020, sec.48.6021, sec.48.9802, sec.48.9805, sec.48.9806, and sec.48.9809, are adopted without changes to the proposed text as published in the May 24, 1996, issue of the Texas Register (21 TexReg 4560) and will not be republished. Justification of the repeals, amendments, and new sections is the establishment of a single set of guidelines to facilitate financial accountability relating to service delivery and a better understanding of the reimbursement methodology due to inclusion of additional detail. The repeal, amendments, and new sections will function by clarifying current reimbursement methodology practice, incorporating cost report procedural changes, establishing cost determination rules that are consistent across programs, providing explicit guidelines for auditors, providing specific instructions concerning cost reporting, and providing guidelines in areas such as documentation and allocation methods. Also in this issue of the Texas Register, DHS is adopting new Chapter 20 and related policies in Chapters 19, 24, 46, 47, 50 and 52 of this title. A public hearing was held on June 10, 1996, in the Texas Department of Human Services Board Room, 701 West 51st Street, Austin, Texas. The department received comments from the East Texas Council of Governments. A summary of the comments and the responses follow. General comment: One commenter stated that federal guidelines under the Office of Management Budget (OMB) require that each federal program should be responsible for its own share of the costs and that amounts not recoverable as indirect costs or administrative costs under one Federal award may not be shifted to another federal award, unless specifically authorized by Federal legislation or regulation. The commenter wanted to know how the disallowed costs would be picked up. Response: Each program or business entity operated by the provider should have all shared costs allocated to each program so that each program receives its fair share of shared costs. Unallowable costs may be incurred by the provider but are not reportable as allowable costs on a DHS cost report. These costs must be assumed by the provider or claimed under another program which allows the cost. The cost reports for this program are not used for determining a provider's individual reimbursement. The cost reports are used to determine a ceiling amount which individual provider negotiated reimbursement amounts cannot exceed. DHS is adopting these sections without change. Comment concerning sec.48.9805(e)(1): One commenter questioned if advertising to solicit bids and to dispose of surplus materials would be allowable. Response: These types of advertising are adjustments to the purchase or selling price. Advertising costs are removed from the revenue produced from the sale of the item and advertising costs to seek the purchase of an item is not reduced but is added to the cost of the item purchased. DHS is adopting this paragraph without change. Comment concerning sec.48.9805(e)(11): One commenter stated that fees and travel expenses for board of directors are allowed by (OMB) guidelines and that they are mandated as a Council of Government and subcontractor nonprofit agency to have a board of directors. Response: This rule language is a restatement of current rules and no changes in the language were proposed. The travel costs for boards of directors are allowable beginning with the 1997 cost report. The meals program is not anticipated to have a cost report covering provider's 1996 fiscal year. This cost will be allowable beginning with provider's costs incurred during their 1997 fiscal year. DHS is adopting this paragraph without change. The amendment and new section are adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The amendment and new section implement the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611441 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 438-3765 1915(c) Medicaid Home and Community-based Waiver Services for Aged and Disabled Adults Who Meet Criteria Alternatives to Nursing Facility Care 40 TAC sec.48.6020 The repeal is adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The repeal implements the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611442 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 438-3765 40 TAC sec.48.6020, sec.48.6021 The new sections are adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The new sections implement the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611443 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 438-3765 Support Documents 40 TAC sec.sec.48.9801, 48.9802, 48.9805, 48.9806, 48.9808, 48.9809 The amendments and new sections are adopted under the Human Resources Code, Title 2, Chapter 22, which authorizes the department to administer public assistance programs. The amendments and new sections implement the Human Resources Code, sec.sec.22.001-22.030. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611444 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 438-3765 40 TAC sec.48.9805 The repeal is adopted under the Human Resources Code, Title 2, Chapter 22, which authorizes the department to administer public assistance programs. The repeal implements the Human Resources Code, sec.sec.22.001-22.030. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611445 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 438-3765 CHAPTER 50.Day Activity and Health Services Reimbursement Methodology for Day Activity and Health Services 40 TAC sec.sec.50.6901-50.6907 The Texas Department of Human Services (DHS) adopts amendments to sec.sec.50.6901-50.6906, and new sec.50.6907. Sections 50.6901-50.6902, and 50.6904-50.6906 are adopted without changes to the proposed text as published in the May 24, 1996, issue of the Texas Register (21 TexReg 4596) and will not be republished. An amendment to sec.50.6903 and new sec.50.6907 are adopted with changes. Justification for the amendments and new section is the establishment of a single set of guidelines to facilitate financial accountability relating to service delivery and a better understanding of the reimbursement methodology due to inclusion of additional detail. The amendments and new section will function by clarifying current reimbursement methodology practice, incorporate cost report procedural changes, and to establish cost determination rules that are consistent across programs, provide explicit guidelines for auditors, provide specific instructions concerning cost reporting, and provide guidelines in areas such as documentation and allocation methods. Also in this issue of the Texas Register, DHS is adopting new Chapter 20 and related policies in Chapters 19, 24, 46, 47, 48, and 52 of this title. A public hearing was held on June 10, 1996, in the Texas Department of Human Services Board Room, 701 West 51st Street, Austin, Texas. The department received comments regarding the adoption of the sections from the Adult Day Care Association of Texas and from representatives from the following contracted providers: Sunglo Fellowship Centers, Seniors 2000, Caring People, and Seniors We Are, Inc. General comments: Three commenters requested that all calculations, factors, methods and proposed changes in methods be presented at least two years in advance to the public. Response: The methods used to determine reimbursement are processed according to the Administrative Procedures Act. This act identifies the public notice and comment process used for rule making by state agencies, including DHS. In addition, the Texas Health and Human Services Commission and the department require rules to be reviewed by advisory committees and the department's board prior to being published in the Texas Register. Information regarding reimbursement calculations are available to interested parties under the Open Records Act. Mandating that these processes involve two years of public notice unnecessarily delays action on rules and revision of reimbursement amounts. DHS is adopting these sections without change. Comment concerning sec.50.6903 and sec.50.6907(f): Three commenters requested that the occupancy rate be deleted from the methodology and not be used in rate calculations. These three commenters also requested that skewness and kurtosis be deleted from the methodology for calculating rates. Response: Occupancy adjustments, skewness and kurtosis are not in the proposed rule language and are not used in the calculations for reimbursement determination for this program. DHS is adopting this section and subsection without change. Comment concerning sec.50.6903(c)(2): Three commenters requested that in this paragraph the word "DHS" be deleted and the word "Provider" be inserted. Response: This sentence appropriately states that DHS allocates payroll taxes in the calculation of reimbursement amounts. Providers report lump sum payroll taxes on the cost report and the department allocates these lump sum amounts to the individual salary amounts reported on the cost report. DHS is adopting this paragraph without change. Comment concerning sec.50.6903(c)(4): Three commenters requested that the department amend the reimbursement rate semi-annually based on national inflation indices. Response: Inflation factors are used to inflate costs from the historical reporting period to the next ensuing reimbursement period. Reimbursement adjustments are not necessary semi-annually since the inflation factors adjust for anticipated inflation for the entire reimbursement period. Subsection 20.108(b) allows for the contracting of an appropriate optional index specific to Texas. Texas specific inflation indices are more appropriate than national indices in determining reimbursement for contracted services in Texas. DHS is adopting this paragraph without change. Comment concerning sec.50.6905(b)(5)(A): Three commenters requested that the limit for determining depreciation or amortization be increased from $500 to $1,000. The commenters further requested adding the phrase "for the period of the lease, but not less than 5 years" to the end of the subparagraph. Response: This rule language is a restatement of current rules and no changes in the language were proposed. The $1,000 limit for determining depreciation or amortization is effective with the provider's 1997 cost report. This implementation date affects providers costs which are incurred during the provider's fiscal year ending in 1997. For some providers this period begins as early as February 1996. This implementation time period was selected to allow providers time to capture costs according to this new limit. This statement cannot be added to the end of the subparagraph since the subparagraph refers to property both owned and leased. In addition, this subparagraph defines the limit for depreciation and amortization and does not define the period of time to depreciate or amortize property or improvements. DHS is adopting this subparagraph without change. Comment concerning sec.50.6905(b)(5)(A)(i): Three commenters requested that the historical cost not be used in the determination of the cost of the building. The commenters requested that an appraised rental or lease value from a certified appraiser be used to determine building cost. Response: This rule language is a restatement of current rules and no changes in the language were proposed. The historical cost is the actual cost to the provider in the purchase of the building. Independent appraisals do not reflect actual cost and can vary widely based on the methods used by the appraiser. These variances could result in an inaccurate reflection of the value of the building and do not represent the cost to the provider. DHS is adopting this clause without change. Comment concerning sec.50.6905(b)(5)(B): Three commenters requested that the related party cost be limited to the "appraised rental or lease value as provided by certified appraiser". Response: This rule language is a restatement of current rules and no changes in the language were proposed. See response to sec.50.6905(b)(5)(A)(i). Related party purchases should be limited to the actual cost incurred by the related party and should not include any mark-ups or profit from the related party transaction. DHS is adopting this subparagraph without change. Comment concerning sec.50.6906(b)(13): Two commenters stated that the language needed to be made clear that this section refers to fees and travel expenses for provider board meetings and not meetings with DHS. Response: This language is clear in stating that fees and travel expenses relating to "corporation or association board of directors" are unallowable. This subsection is a listing of unallowable costs and it would be inappropriate to list an allowable cost in this paragraph. DHS is adopting this paragraph without change. Comment concerning sec.50.6906(b)(15): Five commenters stated that fines and penalties for late payment of taxes, utilities, and mortgages and loans should be allowable because of cash flow problems caused by the state not paying on time or not paying for everything the providers bill. Response: This rule language is a restatement of current rules and no changes in the language were proposed. The department should not include in reimbursement determination the costs of imprudent business practices which could be avoided by providers. Interest expense on working capital loans is an allowable cost which can help providers to adjust to cash flow shortages. DHS is adopting this paragraph without change. Comment concerning sec.50.6906(b)(17): Three commenters stated that promotional and public relations expenses are a part of advocacy and the public needs to know what Day Activities and Health Services are. Two other commenters stated that often fund raising, promotion, and public relations is an activity for the clients and promotes interaction with clients and community. Response: This rule language is a restatement of current rules and no changes in the language were proposed. Successful fund raising receipts should exceed the expenses incurred by the fund raiser. The expenses to raise funds should be offset by the funds raised and are therefore not allowable expenses. Promotional and public relations activities are not necessary to recruit or retain the state's clients and are therefore unallowable. DHS is adopting this paragraph without change. Comment concerning sec.50.6906(b)(22): Five commenters stated that physicians' orders should be allowable costs since clients often do not have the funds to pay the doctors. Response: This rule language is a restatement of current rules and no changes in the language were proposed. Physicians should be billing the client for completion of physicians' orders. An exception occurs if a physician has accepted Medicaid payments for the diagnosis and treatment of the client's illness, which makes the client eligible for Day Activities and Health Services (DAHS). In this situation, the physician should bill Medicaid and cannot bill the client for completion of physician's orders. The completion of physician's orders is not a service covered under the DAHS program and is therefore unallowable. DHS is adopting this paragraph without change. Comment concerning sec.50.6906(b)(22): Three commenters stated that the expenses to recruit, train and other employment related expenses for volunteers and other unpaid staff should be allowable legitimate business expenses. Response: This rule language is a restatement of current rules and no changes in the language were proposed. The value of the services performed by the volunteer and unpaid staff is not an actual expense to the provider and is therefore unallowable. However, actual expenses to train and recruit all staff are allowable expenses. DHS is adopting this paragraph without change. Comment concerning sec.50.6906(b)(22): Three commenters stated that self insurance funds should be allowable costs provided they are secured and escrowed with a legal entity. Response: This rule language is a restatement of current rules and no changes in the language were proposed. Actual claim costs are allowed in a fiscal year up to a limit, with carry-forwards on amounts that exceed the limit. Accrual reporting does not assure that amounts set aside will be used for claims payment. Accruals of known expenses which will be paid are allowed. Accrual based payments to an unrelated party that provide for the shifting of risk are allowed. DHS is adopting this paragraph without change. Comment concerning sec.50.6906(b)(30): Five commenters stated that an owner's earnings should be allowable if they can verify that IRS taxes were paid on such earnings. Response: This rule language is a restatement of current rules and no changes in the language were proposed. Owner's paid salary for documented services performed is allowable. Profit distributions are not an expense to provide contracted client services and are therefore unallowable as a cost for cost reporting purposes. DHS is adopting this paragraph without change. Comment concerning sec.50.6907(f)(4): Two commenters requested the language be clarified to specify where the cost of a driver should be reported on the cost report. Response: The language has been changed to specify that driver's salary is to be reported in the salaries and benefits cost area. Comment concerning sec.50.6907(f)(5): This rule language is a restatement of current rules and no changes in the language were proposed. Three commenters stated that reimbursement should be calculated using the mean weighted average and not the median. Response: The median cost is less influenced by extreme costs, either high or low, than is the mean and therefore is less likely to fluctuate dramatically from year to year. DHS is adopting this paragraph without change. In addition, the department is changing sec.50.6903 (c)(6) and sec.50.6907(f)(5) to clarify existing procedures. The amendments and new section are adopted under the Human Resources Code, Title 2, Chapters 22 and 32, which authorizes the department to administer public and medical assistance programs, and under Texas Government Code sec.531.021, which provides the Health and Human Services Commission with the authority to administer federal medical assistance funds. The amendments and new section implement the Human Resources Code, sec.sec.22.001-22.030 and sec.sec.32.001-32.042. sec.50.6903.Reimbursement Determination. (a) General requirements. Cost reports pertaining to providers' fiscal years ending in calendar year 1994, 1995, or 1996 will be governed by the information in this section, and the information in sec.24.101(b) of this title (relating to General Specifications and Methodology). In addition, the Texas Department of Human Services (DHS) applies the general principles of cost determination as specified in sec.20.101 of this title (relating to Introduction). Cost reports pertaining to providers' fiscal years ending in calendar year 1997 and subsequent years will be governed by the information in sec.50.6907 of this title (relating to Reimbursement Methodology for Day Activity and Health Services: 1997 and Subsequent Cost Reports). (b) (No change.) (c) Reimbursement determination. DHS determines reimbursement in the following manner. (1) (No change.) (2) DHS staff allocate payroll taxes and employee benefits to each salary line item on the cost report on a pro rata basis based on the portion of that salary line item to the amount of total salary expense. The employee benefits for administrative staff are allocated directly to the corresponding salaries for those positions. The allocated payroll taxes are Federal Insurance Contributions Act (FICA) or Social Security, Workers' Compensation Insurance (WCI), Federal Unemployment Tax Act (FUTA), and the Texas Unemployment Compensation Act (TUCA). (3) 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 sec.20.108 of this title (relating to Determination of Inflation Indices). The prospective reimbursement period is the period of time that the reimbursement is expected to be in effect. (4) DHS may adjust reimbursement to compensate for anticipated future changes in the program requirements in accordance with sec.20.109 of this title (relating to Adjusting Reimbursement When New Legislation, Regulations, or Economic Factors Affect Costs). (5) DHS staff combine allowable reported costs into the following six cost areas. (A) Salaries and benefits cost area includes the salaries, wages, payroll taxes, and benefits of Day Activity and Health Services direct service personnel. (B)-(F) (No change.) (6) Allowable costs are totaled by cost area and then divided by the total units of service for the reporting period to determine the cost per unit of service. DHS staff rank from low to high all provider agencies' projected costs per unit of service in each cost area. The median projected unit of service cost from each cost area is then determined. Those median projected unit of service costs from each cost area are totaled. That resulting total is multiplied by 1.044 and becomes the recommended reimbursement. (d) Authority to determine reimbursement. The authority to determine reimbursement is specified in sec.20.101 of this title (relating to Introduction). sec.50.6907.Reimbursement Methodology for Day Activity and Health Services: 1997 and Subsequent Cost Reports. (a) Day Activity and Health Care Services. Day activity and health care facilities provide noninstitutional care to clients residing in the community through rehabilitative nursing and social services. The Texas Department of Human Services (DHS) reimburses Day Activity and Health Services (DAHS) provider agencies for the services they provide to clients. (b) General requirements. For the completion and submittal of cost reports pertaining to providers' fiscal years ending in calendar year 1997 and subsequent years, providers must apply the information in this section. DHS applies the general principles of cost determination as specified in sec.20.101 of this title (relating to Introduction). (c) Cost-reporting guidelines. Providers must follow the cost-reporting guidelines as specified in sec.20.105 of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures). (d) Exclusion of cost reports. (1) Providers are responsible for reporting only allowable costs on the cost report, except where cost report instructions indicate that other costs are to be reported in specific lines or sections. Only allowable cost information is used to determine recommended reimbursement. DHS excludes from reimbursement determination any unallowable expenses included in the cost report and makes the appropriate adjustments to expenses and other information reported by providers. The purpose is to ensure that the database reflects costs and other information which are necessary for the provision of services and are consistent with federal and state regulations. (2) Individual cost reports may not be included in the database used for reimbursement determination if: (A) there is reasonable doubt as to the accuracy or allowability of a significant part of the information reported; or (B) an auditor determines that reported costs are not verifiable. (3) When material pertinent to proposed reimbursements is made available to the public, the material will include the number of cost reports eliminated from reimbursement determination for the reason stated in paragraph (2)(A) of this subsection. (e) Review of cost reports. DHS staff perform either desk reviews or field audits of all contracted providers. The frequency and nature of the field audits are determined by DHS to ensure the fiscal integrity of the program. Desk reviews and field audits will be conducted in accordance with sec.20.106 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 sec.20.107 of this title (relating to Notification of Exclusions and Adjustments). Providers may request an informal and, if necessary, an administrative hearing to dispute an action taken by DHS under sec.20.110 of this title (relating to Informal Reviews and Formal Appeals). (f) Reimbursement determination. DHS determines reimbursement in the following manner. (1) All contracted providers must submit a cost report unless the number of days between the date the first DHS client received services and the provider's fiscal year end is 30 days or fewer. The provider may be excused from submitting a cost report if circumstances beyond the control of the provider make cost- report completion impossible, such as the loss of records due to natural disasters or removal of records from the provider's custody by any governmental entity. Requests to be excused from submitting a cost report must be received by the DHS's Rate Analysis Department before the due date of the cost report. (2) DHS staff allocate payroll taxes and employee benefits to each salary line item on the cost report on a pro rata basis based on the portion of that salary line item to the amount of total salary expense. The employee benefits for administrative staff are allocated directly to the corresponding salaries for those positions. The allocated payroll taxes are Federal Insurance Contributions Act (FICA) or Social Security, Workers' Compensation Insurance (WCI), Federal Unemployment Tax Act (FUTA), and the Texas Unemployment Compensation Act (TUCA). (3) DHS staff project all allowable expenses, excluding depreciation and mortgage interest, for the period from each provider's reporting period to the next ensuing reimbursement period. DHS staff determine reasonable and appropriate economic adjusters as described in sec.20.108 of this title (relating to Determination of Inflation Indices) to calculate the projected expenses. DHS staff also adjust reimbursement if new legislation, regulations, or economic factors affect costs as specified in sec.20.109 of this title (relating to Adjusting Reimbursement When New Legislation, Regulations, or Economic Factors Affect Costs). (4) DHS staff combine allowable reported costs into the following six cost areas: (A) Salaries and benefits cost area includes the salaries, wages, payroll taxes, and benefits of Day Activity and Health Services direct service personnel and drivers. (B) Transportation cost area includes the rental or lease of transportation equipment and operating costs. The driver's salary is not included in this cost area. (C) Food and food service cost area includes the cost of meals, related supplies, dieticians, and food servers. (D) Building, equipment, and capital cost area includes all building operation expenses. (E) Utility cost area includes all water, electric, gas, and telephone expenses. (F) Direct programmatic expenses cost area includes the costs of medical and activity supplies, and administration, including administrative staff. (5) Allowable costs are totaled by cost area and then divided by the total units of service for the reporting period to determine the cost per unit of service. DHS staff rank from low to high all provider agencies' projected costs per unit of service in each cost area. The median projected unit of service cost from each cost area is then determined. Those median projected unit of service costs from each cost area are totaled. That resulting total is multiplied by 1.044 and becomes the recommended reimbursement. (6) The reimbursement determination authority is specified in sec.20.101 of this title (relating to Introduction). (g) Allowable and unallowable costs. Providers must follow the guidelines specified in sec.20.102 of this title (relating to General Principles of Allowable and Unallowable Costs) in determining whether a cost is allowable or unallowable. Providers must follow the guidelines for allowable and unallowable costs specified in sec.20.103 of this title (relating to Specifications for Allowable and Unallowable Costs). (h) DAHS-specific allowable costs. Allowable costs specific to the DAHS program are certain medical equipment and supplies. These are allowable costs if they are related to the services for which DHS has contracted. This may include, but is not limited to, supplies and equipment considered necessary to perform client assessments, medication administration, and nursing treatment. (i) DAHS-specific unallowable costs. Unallowable costs specific to the DAHS program are: (1) physician's fees for completion of physician orders; (2) costs for food and food services which should have been offset by the United States Department of Agriculture (USDA) revenue as specified in sec.20.103(b)(15)(B) of this title (relating to Specification for Allowable and Unallowable Costs); and (3) costs for which the provider received federal funds which should have been offset as specified in sec.20.103(b)(15)(B) of this title (relating to Specification for Allowable and Unallowable Costs). (j) Reporting revenue. Revenue must be reported on the cost report according to sec.20.104 of this title (relating to Revenue). This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611446 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 438-3765 CHAPTER 52.Emergency Response Services Claims 40 TAC sec.52.502, sec.52.504 The Texas Department of Human Services (DHS) adopts an amendment to sec.52.502, and new sec.52.504, without changes to the proposed text as published in the May 24, 1996, issue of the Texas Register (21 TexReg 4601). The text will not be republished. Justification for the amendment and new section is a better understanding of the reimbursement methodology due to inclusion of additional detail and a single set of guidelines to facilitate financial accountability relating to service delivery. The amendment and new section will function by clarifying current reimbursement methodology practice, incorporating cost report procedural changes, establishing cost determination rules that are consistent across programs, providing explicit guidelines for auditors, providing specific instructions concerning cost reporting, and providing guidelines in areas such as documentation and allocation methods. Also in this issue of the Texas Register, DHS is adopting new Chapter 20 and related policies in Chapters 19, 24, 46, 47, 48, and 50 of this title. A public hearing was held on June 10, 1996, in the Texas Department of Human Services Board Room, 701 West 51st Street, Austin, Texas. No comments were received regarding the adoption of the new and amended sections. The amendment and new section are adopted under the Human Resources Code, Title 2, Chapter 22, which authorizes the department to administer public assistance programs. The amendment and new section implement the Human Resources Code, sec.sec.22.001-22.030. This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on August 8, 1996. TRD-9611447 Glenn Scott General Counsel, Legal Services Texas Department of Human Services Effective date: September 1, 1996 Proposal publication date: May 24, 1996 For further information, please call: (512) 438-3765