TITLE 1. ADMINISTRATION

PART 15. TEXAS HEALTH AND HUMAN SERVICES COMMISSION

CHAPTER 353. MEDICAID MANAGED CARE

SUBCHAPTER O. DELIVERY SYSTEM AND PROVIDER PAYMENT INITIATIVES

1 TAC §353.1301

The Texas Health and Human Services Commission (HHSC) proposes new Subchapter O, Delivery System and Provider Payment Initiatives, §353.1301, concerning General Provisions.

BACKGROUND AND JUSTIFICATION

This proposed new rule describes certain general provisions that apply to all Medicaid managed care delivery system and provider payment initiatives, or directed payments. As part of the recent overhaul of federal Medicaid managed care (MMC) rules, the Centers for Medicare & Medicaid Services (CMS) allowed states that operate MMC to direct managed care organizations' (MCOs') payments to providers. This rule describes provisions HHSC considers to be universal to all such directed payment programs that are, or will be, implemented in Texas.

All such provisions of the rule are described in the section-by-section summary below. However, HHSC believes four provisions of the rule require additional explanation: reconciliation of the non-federal share, disallowance of federal funds, recoupment, and the state's cost of administering programs authorized under Subchapter O.

The reconciliation provision describes the same process previously used for other enhanced payment programs. The programs included in this subchapter are funded with intergovernmental transfers (IGTs). Since actual expenditures are based on MCO member enrollment, which may fluctuate, HHSC initially requires governmental entities to transfer 10% more non-federal funds than anticipated in order to protect state general revenue in the event that member months increase beyond that which is expected. If there is no increase in member months, or the increase in cost due to increased member months does not go beyond 10%, the difference is returned to the governmental entity that transferred the non-federal funds. If, however, the increase in cost due to increased member months does go beyond 10%, HHSC will require additional funds from the governmental entities.

The disallowance provision describes the actions HHSC will take in the event of a disallowance of federal funds by CMS related to payments under this subchapter. If the disallowance is based on a finding by CMS of an impermissible provider donation related to payments under this subchapter, HHSC proposes that the governmental entity responsible for the non-federal share of the payments must transfer to HHSC the amount of the disallowance. HHSC proposes this approach in light of recent heightened scrutiny by CMS of the funding arrangements underlying payments to private providers and because of the uncertain authority of HHSC to recoup from providers or the MCO when CMS disallows federal funds on these grounds. HHSC is particularly interested in receiving comments on this provision of the proposed rule.

If CMS disallows federal funds related to payments under this subchapter on grounds other than provider donations, HHSC proposes relying on other federal and state law and contract authority to recoup from MCOs, providers, or governmental entities.

The recoupment provision describes circumstances other than disallowances under which HHSC may recoup from MCOs or MCOs may recoup from providers, or under which adjustments to payments may be made.

The state's cost of administering programs provision indicates that, to the extent authorized under state and federal law, HHSC will collect the state's cost of administering a program authorized under Subchapter O from participants in the program generating the costs.

SECTION-BY-SECTION SUMMARY

Proposed new §353.1301(a) describes the purpose of this subchapter.

Proposed new §353.1301(b) defines key terms used in the subchapter.

Proposed new §353.1301(c) details that CMS approval is necessary prior to implementation of any directed payment program.

Proposed new §353.1301(d) states that other sections within the subchapter describe program specific requirements.

Proposed new §353.1301(e) describes the different sources of the non-federal share of these Medicaid payments.

Proposed new §353.1301(f) states that each program will detail its own requirements surrounding the transfer of the non-federal share of the Medicaid payments.

Proposed new §353.1301(g) describes the reconciliation process for IGT.

Proposed new §353.1301(h) describes the consequences for a governmental entity not transferring the non-federal share of a Medicaid payment.

Proposed new §353.1301(i) describes the consequences for an MCO not complying with a contract provision described in this subchapter.

Proposed new §353.1301(j) describes the methods by which payments will be recouped and the procedure in the event of a disallowance.

Proposed new §353.1301(k) describes circumstances under which HHSC or an MCO may recoup overpayments or payments made in error or as the result of fraud.

Proposed new §353.1301(l) indicates that, to the extent authorized under state and federal law, HHSC will collect the state's cost of administering a program authorized under Subchapter O from participants in the program generating the costs.

FISCAL NOTE

Greta Rymal, Deputy Executive Commissioner for Financial Services, has determined that for the each year of the first five years the proposed rule is in effect, there will be no fiscal impact to state government or local governments as a result of this rule. This rule sets out the general requirements for directed payment models but does not create any such model.

PUBLIC BENEFIT AND COST

Pam McDonald, Director of Rate Analysis, has determined that for each year of the first five years the rule is in effect, the anticipated public benefit of adopting the proposed rule is the understanding of basic elements applicable to all directed payment programs.

Ms. McDonald has also determined that there are no probable economic costs to persons required to comply with the proposed rule.

HHSC has determined that the proposed rule will not affect a local economy. There is no anticipated negative impact on local employment.

SMALL BUSINESS AND MICRO-BUSINESS IMPACT ANALYSIS

HHSC has determined that there will be no adverse economic effect on small businesses or micro-businesses to comply with the proposed rule. The implementation of the proposed rule does not require any changes in practice or any additional cost.

REGULATORY ANALYSIS

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

TAKINGS IMPACT ASSESSMENT

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

PUBLIC COMMENT

Written comments on the proposal may be submitted to Monica Leo, Staff Counsel, Brown Heatly Building, MC: 1100, 4900 North Lamar Blvd, Austin, TX 78714-9030; by fax to (512) 424-6586; or by e-mail to Monica.Leo@hhsc.state.tx.us within 30 days of publication of this proposal in the Texas Register.

PUBLIC HEARING

A public hearing is scheduled for February 1, 2017, from 2:00 p.m. to 4:15 p.m. (Central Time) in the Public Hearing Room, Brown Heatly Building, 4900 North Lamar Blvd, Austin, TX 78714-9030. Persons requiring further information, special assistance, or accommodations should contact Amy Chandler at (512) 487-3419.

STATUTORY AUTHORITY

The new rule is proposed under Texas Government Code §531.033, which provides the Executive Commissioner of HHSC with board rulemaking authority; Texas Human Resources Code §32.021 and Texas Government Code §531.021(a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas; Texas Government Code §531.021(b), which establishes HHSC as the agency responsible for adopting reasonable rules governing the determination of fees, charges, and rates for medical assistance payments under the Texas Human Resources Code, Chapter 32; and with Texas Government Code §533.002, which authorizes HHSC to implement the Medicaid managed care program.

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

§353.1301.General Provisions.

(a) Purpose. The purpose of this subchapter is to describe the circumstances and programs under which the Texas Health and Human Services Commission may direct expenditures for delivery system and provider payment initiatives through its contracts with Medicaid managed care organizations. Federal authority for such directed expenditures is codified at 42 C.F.R. §438.6(c).

(b) Definitions. The following definitions apply when the terms are used in this subchapter. Terms that are used in only one program described in this subchapter may be defined in the section of this subchapter describing that program.

(1) Capitation rate--A fixed, predetermined fee paid by HHSC to the managed care organization each month, in accordance with the contract, for each enrolled member. In exchange for this, the managed care organization arranges for or provides a defined set of covered services to the enrolled member, regardless of the amount of covered services used by the enrolled member.

(2) Centers for Medicare & Medicaid Services (CMS)--The federal agency within the United States Department of Health and Human Services responsible for overseeing and directing Medicare and Medicaid.

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

(4) Intergovernmental transfer (IGT)--A transfer of public funds from another state agency or a non-state governmental entity to HHSC.

(5) Managed care organization (MCO)--A Medicaid managed care organization contracted with HHSC to provide health care services to Medicaid recipients.

(6) Non-federal share--The portion of program expenditures that is not federal funds. The non-federal share is equal to 100 percent minus the federal medical assistance percentage (FMAP) for Texas for the state fiscal year corresponding to the program year and for the population served.

(7) Non-state governmental entity--A hospital authority, hospital district, health district, city, or county.

(8) Program rate component--The fixed percentage of the capitation rate that is attributable to the delivery system or provider payment initiative.

(9) Provider--A credentialed and licensed individual, facility, agency, institution, organization, or other entity that has a contract with the MCO for the delivery of covered services to the MCO's members.

(10) Public funds--Funds derived from taxes, assessments, levies, investments, and other public revenues within the sole and unrestricted control of a governmental entity. Public funds do not include gifts, grants, trusts, or donations, the use of which is conditioned on supplying a benefit solely to the donor or grantor of the funds.

(11) Service delivery area--The counties included in any HHSC-defined geographic area as applicable to each MCO.

(12) Sponsoring governmental entity--A state or non-state governmental entity that agrees to transfer to HHSC some or all of the non-federal share of program expenditures under this subchapter.

(c) CMS approval. Implementation of each of the programs described in this subchapter is contingent upon HHSC receiving written approval from CMS of the contract provisions directing the MCO expenditures. Federal requirements for CMS approval of directed MCO expenditures are codified in 42 C.F.R. §438.6(c)(2).

(d) Program specifications, provider eligibility, and payment calculations. Descriptions of program specifications, provider eligibility, and payment calculations are contained in the sections of this subchapter that describe each delivery system or provider payment initiative program.

(e) Source of the non-federal share. The non-federal share of expenditures under this subchapter is limited to timely receipt by HHSC of public funds from sponsoring governmental entities.

(1) State-owned providers. A state-owned provider may transfer to HHSC any non-federal funds within the control of the provider, including appropriated state general revenue funds, as the non-federal share of program expenditures associated with that provider.

(2) All other providers. For all other providers, the non-federal share of program expenditures is funded through IGTs from non-state governmental entities. No state general revenue is available to support program expenditures to non-state providers under this subchapter.

(f) Amount and timing of transfer of the non-federal share. The amount of the non-federal share that governmental entities transfer to HHSC for expenditures under this subchapter and the timing of such transfers are specific to each delivery system or provider payment initiative and are described in the section of this subchapter governing each such program.

(g) Reconciliation of the non-federal share.

(1) Purpose. The amount of HHSC's expenditures under this subchapter is dependent on member enrollment in each participating MCO, which may fluctuate from month to month. HHSC's actual expenditures cannot be determined until final member enrollment data is available, which may not occur for up to two years following the end of the program period. The purpose of the reconciliation process is to ensure that HHSC's actual total expenditures for each program are determined based on accurate and final member enrollment data for each program period, and that the non-federal share of HHSC's actual expenditures are borne by the appropriate governmental entity or entities.

(2) Methodology. For each program described in this subchapter, HHSC reconciles the amount of the non-federal funds actually expended during the program period with the amount of funds transferred to HHSC by the sponsoring governmental entities. For programs with multiple provider classes, HHSC reconciles expenditures for each provider class. HHSC completes each reconciliation in multiple parts.

(A) The first reconciliation occurs no later than 120 days after the end of the program period.

(i) Using the best-available member enrollment data at the time of the first reconciliation, HHSC:

(I) calculates the amount expended for the program period by multiplying the program rate component by the total member months included in the program period;

(II) calculates the non-federal share of the amount determined in subclause (I) of this clause; and

(III) compares the amount determined in subclause (II) of this clause to the amount previously transferred to HHSC by the participating governmental entities for the program period.

(ii) If the amount previously transferred is less than 102 percent of the amount determined in clause (i)(II) of this subparagraph:

(I) the participating governmental entities must transfer additional funds to HHSC such that total transferred funds equals 102 percent of the amount determined in clause (i)(II) of this subparagraph;

(II) if more than one governmental entity is responsible for the non-federal share of payments under the program, the additional required funds are allocated proportional to each governmental entity's initial contribution to funding the program; and

(III) HHSC notifies the governmental entities of the amount and timing of the required transfers.

(iii) If the amount previously transferred is more than 102 percent of the amount determined in clause (i)(II) of this subparagraph, HHSC refunds the excess amount to the governmental entities in proportion to each entity's initial contribution to funding the program.

(B) Interim reconciliations may occur as updated member enrollment data for the program period becomes available. HHSC follows the process described in subparagraph (A) of this paragraph for such interim reconciliations.

(C) The final reconciliation occurs no later than 25 months after the end of the program period.

(i) Using the final member enrollment data for the program period, HHSC:

(I) calculates the amount expended for the program period by multiplying the program rate component by the total member months included in the program period;

(II) calculates the non-federal share of the amount determined in subclause (I) of this clause; and

(III) compares the amount determined in subclause (II) of this clause to the amount previously transferred to HHSC by the sponsoring governmental entities for the program period, including any amounts transferred pursuant to subparagraphs (A)(ii) or (B) of this paragraph.

(ii) If the amount previously transferred is less than the non-federal share of the amount expended:

(I) the participating governmental entities must transfer additional funds to HHSC such that total transferred funds equals the amount determined in clause (i)(II) of this subparagraph;

(II) if more than one governmental entity is responsible for the non-federal share of payments under the program, the additional required funds are allocated proportional to each governmental entity's initial contribution to funding the program; and

(III) HHSC notifies the governmental entities of the amount and timing of the required transfers.

(iii) If the amount previously transferred is more than the amount determined in clause (i)(II) of this subparagraph, HHSC refunds the excess amount to the governmental entities in proportion to each entity's initial contribution to funding the program.

(h) Failure of a governmental entity to transfer funds. If a governmental entity does not timely complete the transfer of funds described in this section, HHSC withholds Medicaid payments from any provider operated by the governmental entity until HHSC has recovered an amount equal to the amount of the funding shortfall. Providers operated by the governmental entity are ineligible for future participation in programs under this subchapter.

(i) Failure of an MCO to comply with contract provisions. HHSC may review MCO payments to network providers or other documentation to verify that the MCO is in compliance with contract provisions directing expenditures for delivery system and provider payment initiatives. HHSC may also investigate provider claims of contract violations. In the event HHSC identifies any contract deficiency or violation, HHSC takes corrective action to remedy such deficiency or violation, as authorized by §353.5 of this chapter (relating to Internet Posting of Sanctions Imposed For Contractual Violations).

(j) Disallowance of federal funds.

(1) If an arrangement associated with the funding of payments under this subchapter is determined by CMS to constitute an impermissible provider donation, resulting in a disallowance of federal matching funds, the governmental entities responsible for the non-federal share of such payments must transfer funds to HHSC in the amount of the disallowed federal funds. HHSC notifies the governmental entities of the amount and timing of the required transfers.

(2) If payments under this subchapter are disallowed by CMS on grounds other than those described in paragraph (1) of this subsection, to the extent allowed by federal and state law and contract, HHSC may recoup the amount of the disallowance from MCOs, providers, or governmental entities that participated in the program associated with the disallowance.

(k) Recoupment.

(1) If payments under this subchapter result in an overpayment to an MCO, HHSC may recoup the amount of the overpayment from the MCO, pursuant to the terms of the contract between them.

(2) If payments under this subchapter result in an overpayment to a provider, the MCO may recoup an amount equivalent to the overpayment.

(3) Payments made under this subchapter may be subject to any adjustments for payments made in error or due to fraud, including without limitation adjustments made under the Texas Administrative Code, the Code of Federal Regulations, and state and federal statutes. The MCOs may recoup an amount equal to any such adjustments from the providers in question.

(l) State's cost of administering programs. To the extent authorized under state and federal law, HHSC will collect the state's cost of administering a program authorized under this subchapter from participants in the program generating the costs.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on January 9, 2017.

TRD-201700102

Karen Ray

Chief Counsel

Texas Health and Human Services Commission

Earliest possible date of adoption: February 19, 2017

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


1 TAC §353.1303

The Texas Health and Human Services Commission (HHSC) proposes new Subchapter O, Delivery System and Provider Payment Initiatives, §353.1303, concerning Quality Incentive Payment Program for Nursing Facilities.

Elsewhere in this issue, related §353.1301 of this title (relating to General Provisions) is proposed concurrent with this section and describes general provisions that apply to this and other sections under this new Subchapter O.

Background and Justification

This proposed new rule describes the Quality Incentive Payment Program (QIPP). QIPP is designed to incentivize nursing facilities (NFs) to improve quality and innovation in the provision of NF services, using the Centers for Medicare & Medicaid (CMS) Five-Star Quality Rating System as its measure of success.

During the 83rd Session, the Texas Legislature outlined its goals for the Medicaid managed care carve-in of NFs. In implementing the NF carve-in, HHSC was directed to encourage transformative efforts in the delivery of NF services, including "efforts to promote a resident-centered care culture through facility design and services provided" (Senate Bill 7, 83rd Texas Legislature Regular Session).

In 2014, HHSC established the Minimum Payment Amount Program (MPAP). The MPAP, which became effective March 1, 2015, established minimum payment amounts for qualified NFs participating in STAR+PLUS. The STAR+PLUS managed care organizations (MCOs) paid the minimum payment amounts to qualified NFs based on state direction. The MPAP was always intended to be a short-term program that would ultimately transition to a performance-based initiative.

The goal of transition was reinforced during the 84th Legislative Session. The General Appropriations Act for the 2016 - 2017 biennium contains HHSC Budget Rider 97, which directs HHSC to transition the MPAP to QIPP.

Conceptual Framework

Eligibility

QIPP is open to two classes of NFs: non-state government-owned NFs and private NFs. To ensure that QIPP funds are focused on the Medicaid population, private NF participation in QIPP is limited to private NFs with Medicaid utilization as a percentage of total utilization at least equal to the mean for all private Medicaid NFs in Texas plus one standard deviation. Based on the most current data available from 2014 Texas Medicaid NF cost reports, this value is equal to 78 percent, meaning at least 78 percent of a private NF's units of service must have been provided to Medicaid recipients for the private NF to be eligible to participate in QIPP.

Capitation Rate Structure

QIPP dollars will be limited by 1115 waiver budget-neutrality capacity and the amount of intergovernmental transfer (IGT) funds available for the program. No general revenue will be invested in QIPP. QIPP IGTs for a specific capitation rate period will be due to HHSC approximately three months prior to the beginning of the rate period to allow HHSC's actuaries certainty as to the amount of funding to be incorporated into the capitation rates for QIPP. The amount of the capitation will be determined by the amount of the non-federal share available for the program.

QIPP funds will be paid through three new components of the STAR+PLUS NF managed care capitation rates. Each component's value will be determined as a percentage of the total amount of funding available for the QIPP program.

Capitation Rate Components

- Component One will have a total value equal to 110 percent of the non-federal share of the QIPP program. The interim allocation of funds across qualifying non-state government-owned NFs will be based on historical Medicaid days of NF service. Monthly payment to non-state government-owned NFs will be triggered by the NF's submission to the MCO of a monthly Quality Assurance Performance Improvement (QAPI) Validation Report. Private NFs are not eligible for payments from Component One. The interim allocation of funds across qualifying non-state government-owned NFs will be reconciled to the actual distribution of Medicaid NF days of service across these NFs during the eligibility period as captured by HHSC's Medicaid contractors for fee-for-service and managed care 180 days after the last day of the eligibility period. This reconciliation will only be performed if the weighted average (weighted by Medicaid NF days of service during the eligibility period) of the absolute values of percentage changes between each NFs proportion of historical Medicaid days of NF service and actual Medicaid days of NF service is greater than 20 percent.

- Component Two will have a total value equal to 35 percent of remaining QIPP funds after accounting for the funding of Component One. Allocation of funds across qualifying non-state government-owned and private NFs will be proportional, based on historical Medicaid days of NF service. Quarterly payments to NFs will be triggered by improvement on specific quality metrics.

- Component Three will have a total value equal to 65 percent of remaining QIPP funds after accounting for the funding of Component One. Allocation of funds across qualifying non-state government-owned and private NFs will be proportional, based on historical Medicaid days of NF service. Quarterly payments to NFs will be triggered by improvement on specific quality metrics. Payments made to NFs meeting the standards of Component Three will include both the 35 percent allocated for Component Two and the remaining 65 percent allocated for Component Three.

- Funds that would lapse due to failure of one or more NFs to meet quality metrics will be distributed across all QIPP NFs based on each NF's proportion of total earned QIPP funds from Components One, Two, and Three combined.

Quality Design

Payments from MCOs to qualified NFs will be made based on improvement on specific quality metrics. QIPP will include at least three quality measures, equally weighted for payment each quarter and currently utilized by CMS' Five-Star Quality Rating System for NFs. Quality metrics may change from eligibility period to eligibility period. Information regarding specific quality metrics for an eligibility period will be provided annually through the QIPP webpage on the HHSC website.

NFs must make incremental improvements towards pre-set goals to qualify for payments. A NF's baseline will remain the same throughout the eligibility period, while the amount of improvement required each quarter increases. Higher levels of improvement are required to access funds from Component Three than are required to access funds from Component Two.

Quality targets will be quarterly in order to allow for quarterly payments. Each successful NF within a class will receive an equal payment amount per Medicaid day of service with days of service based upon an historical measure. A NF that performs better than the national average (e.g., benchmark) for a specific quality indicator may decline in performance and still earn 100 percent of the available funds as long as the NF remains above the benchmark.

Section-by-Section Summary

Proposed new §353.1303(a) describes the purpose and goals of QIPP.

Proposed new §353.1303(b) defines key terms used in the section.

Proposed new §353.1303(c) describes the eligibility criteria for QIPP.

Proposed new §353.1303(d) describes the data sources used to determine historical units of service.

Proposed new §353.1303(e) describes participation requirements for QIPP.

Proposed new §353.1303(f) describes how the non-federal share of QIPP payments will be funded through IGTs.

Proposed new §353.1303(g) describes the QIPP capitation rate components.

Proposed new §353.1303(h) describes the distribution of QIPP payments.

Proposed new §353.1303(i) describes the QIPP performance requirements.

Proposed new §353.1303(j) describes QIPP processes and requirements pertaining to changes of ownership during an eligibility period.

Proposed new §353.1303(k) indicates that payments under §353.1303 may be subject to recoupment as described in 1 TAC §353.1301(k) of this subchapter.

FISCAL NOTE

Greta Rymal, Deputy Executive Commissioner for Financial Services, has determined that for each year of the first five years the proposed rule is in effect, capitation payments for managed care payments could increase to provide performance-based incentives for NFs. The increase would be funded with federal funds and with the non-federal share provided through IGTs from non-state governmental entities. The amounts of such funds are dependent upon the actions of local units of government and cannot be estimated, but could be significant.

PUBLIC BENEFIT AND COST

Pam McDonald, Director of Rate Analysis, has determined that for each year of the first five years the rule is in effect, the anticipated public benefit of adopting the proposed rule is the incentivizing of improvements in care in participating NFs.

Ms. McDonald has also determined that there are no probable economic costs to persons required to comply with the proposed rule.

HHSC has determined that the proposed rule will not affect a local economy. There is no anticipated negative impact on local employment.

SMALL BUSINESS AND MICRO-BUSINESS IMPACT ANALYSIS

HHSC has determined that there will be no adverse economic effect on small businesses or micro-businesses to comply with the proposed rule. The implementation of the proposed rule does not require any changes in practice or any additional cost to the contracted provider, because participation in QIPP is voluntary.

REGULATORY ANALYSIS

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

TAKINGS IMPACT ASSESSMENT

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

PUBLIC COMMENT

Written comments on the proposal may be submitted to Jennifer Carrillo, 11307 Roszell Street, San Antonio, Texas, 78217, Mail Code 279-4; by fax at (512) 438-5768; or by e-mail to Jennifer.Carrillo@hhsc.state.tx.us within 30 days of publication of this proposal in the Texas Register.

PUBLIC HEARING

A public hearing is scheduled for February 1, 2017, at 3:15 p.m. to 4:15 p.m. (Central Time) in the Public Hearing Room, Brown Heatly Building, 4900 North Lamar Boulevard, Austin, TX 78714-9030. Persons requiring further information, special assistance, or accommodations should contact Amy Chandler at (512) 487-3419.

STATUTORY AUTHORITY

The new rule is proposed under Texas Government Code §531.033, which provides the Executive Commissioner of HHSC with board rulemaking authority; Texas Human Resources Code §32.021 and Texas Government Code §531.021(a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas; and Texas Government Code §531.021(b), which establishes HHSC as the agency responsible for adopting reasonable rules governing the determination of fees, charges, and rates for medical assistance payments under the Texas Human Resources Code, Chapter 32; and with Texas Government Code §533.002, which authorizes HHSC to implement the Medicaid managed care program.

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

§353.1303.Quality Incentive Payment Program for Nursing Facilities.

(a) Introduction. This section establishes the Quality Incentive Payment Program (QIPP) for nursing facilities (NFs) providing services under Medicaid managed care (MC). QIPP is designed to incentivize NFs to improve quality and innovation in the provision of NF services to Medicaid recipients, using the Centers for Medicare & Medicaid Services (CMS) Five-Star Quality Rating System as its measure of success.

(b) Definitions. The following definitions apply when the terms are used in this section. Terms that are used in this and other sections of this subchapter may be defined in §353.1301 of this subchapter (relating to General Provisions).

(1) Baseline--A NF-specific starting measure used as a comparison against NF performance throughout the eligibility period to determine progress in the QIPP Quality Measures.

(2) Benchmark--The CMS National Average prior to the start of the eligibility period by which a NF's progress with the Quality Measures is determined.

(3) CHOW application--An application filed with the Department of Aging and Disability Services (DADS) for a NF change of ownership (CHOW).

(4) DADS--The Texas Department of Aging and Disability Services or its successor agency.

(5) Eligibility period--A period of time for which an eligible and enrolled NF may receive the QIPP amounts described in this section. Each QIPP eligibility period is equal to a state fiscal year (FY) beginning September 1 and ending August 31 of the following year. Eligibility Period One is equal to FY 2018, beginning September 1, 2017, and ending August 31, 2018.

(6) MCO--A Medicaid managed care organization contracted with HHSC to provide NF services to Medicaid recipients.

(7) Network nursing facility--A NF that has a contract with an MCO for the delivery of Medicaid covered benefits to the MCO's enrollees.

(8) Non-state government-owned NF--A network NF where a non-state governmental entity holds the license and is a party to the NF's Medicaid provider enrollment agreement with the state.

(9) Private NF--A NF that is not owned by a governmental entity.

(10) Quality Assurance Performance Improvement (QAPI) Validation Report--A monthly report submitted by a NF, that is eligible for and enrolled in QIPP, to an MCO that demonstrates that the NF has convened a meeting to review the NF's CMS-compliant plan for maintaining and improving safety and quality in the NF.

(11) Regional Healthcare Partnership (RHP)--A collaboration of interested participants that work collectively to develop and submit to the state a regional plan for health care delivery system reform as defined and established under Chapter 354, Subchapter D, of this title (relating to Texas Healthcare Transformation and Quality Improvement Program).

(c) Eligibility for participation in QIPP. A NF is eligible to participate in QIPP if it complies with the requirements described in this subsection for each eligibility period.

(1) Eligibility Period One. A NF is eligible to participate in QIPP for Eligibility Period One if it meets the following requirements:

(A) The NF is a non-state government-owned NF.

(i) The NF must be a non-state government-owned NF with a Medicaid contract effective date of April 1, 2017, or earlier. A NF undergoing a CHOW from privately owned to publically owned will only be eligible under this subparagraph if DADS received a completed CHOW application by March 2, 2017, and all required documents pertaining to the CHOW (i.e., DADS must have a complete application for a change of ownership license as described under 40 TAC §19.201 (relating to Criteria for Licensing), §19.210 (relating to Change of Ownership License), and §19.2308 (relating to Change of Ownership)) by March 31, 2017.

(ii) The non-state governmental entity that owns the NF must certify the following facts on a form prescribed by HHSC.

(I) that it is a non-state government-owned NF where a non-state governmental entity holds the license and is party to the facility's Medicaid contract; and

(II) that all funds transferred to HHSC via an intergovernmental transfer (IGT) for use as the state share of payments are public funds.

(iii) The NF must have been a participant in the Minimum Payment Amounts Program (MPAP) or must be located in the same RHP as, or within 150 miles of, the non-state governmental entity taking ownership of the facility. This geographic proximity criterion does not apply to NFs that can establish good cause for an exception to this criterion.

(B) Private NFs. The NF must have a percentage of Medicaid NF days of service that is greater than or equal to the private NF QIPP eligibility cut-off point. The private NF QIPP eligibility cut-off point will be equal to the mean percentage of historical Medicaid NF days of service provided under fee-for-service (FFS) and MC by all private NFs plus one standard deviation, as determined by HHSC. For each private NF, the percentage of Medicaid NF days is calculated by summing the NF's Medicaid NF FFS and MC days of service and dividing that sum by the facility's total days of service in all licensed beds. Medicaid hospice days of service are included in the denominator but excluded from the numerator.

(2) Future eligibility periods. Eligibility requirements for eligibility periods after Eligibility Period One are the same as the requirements under paragraph (1) of this subsection except that the deadlines specified in paragraph (1)(A)(i) of this subsection will be updated by HHSC. Updated deadlines will be shared with all NFs by a date to be determined by HHSC.

(d) Data sources for historical units of service. Historical units of service are used to determine the private NF QIPP eligibility cut-off point, individual private NF QIPP eligibility status, and the distribution of QIPP funds across eligible and enrolled NFs.

(1) All audits referred to in this subsection are performed by HHSC under the guidance of §355.106 of this title (relating to Basic Objectives and Criteria for Audit and Desk Review of Cost Reports).

(2) The data source for the determination of the private NF QIPP eligibility cut-off point is the most recently available, audited Texas Medicaid NF cost report database.

(3) Data sources for the determination of each private NF's QIPP eligibility status are listed in priority order below:

(A) The most recently available, audited Medicaid NF cost report for the private NF. If no audited Medicaid NF cost report is available, the data source in subparagraph (B) of this paragraph must be used.

(B) The most recently available, audited Medicaid Direct Care Staff Rate Staffing and Compensation Report for the private NF. If no audited Medicaid Direct Care Staff Rate Staffing and Compensation Report is available, the data source in subparagraph (C) of this paragraph must be used.

(C) The most recently available, audited Medicaid NF cost report for the immediately prior owner of the private NF. If no audited Medicaid NF cost report for the immediately prior owner of the private NF is available, the data source in subparagraph (D) of this paragraph must be used.

(D) The most recently available, audited Medicaid Direct Care Staff Rate Staffing and Compensation Report for the immediately prior owner of the private NF. If no audited Medicaid Direct Care Staff Rate Staffing and Compensation Report for the immediately prior owner of the private NF is available, the private NF is not eligible for participation in QIPP.

(4) Data sources for determination of distribution of QIPP funds across eligible and enrolled NFs.

(A) The most recently available, audited Medicaid NF cost report for the NF. If the cost report covers less than a full year, reported values are annualized to represent a full year. If no audited Medicaid NF cost report is available, the data source in subparagraph (B) of this paragraph must be used.

(B) The most recently available, audited Medicaid Direct Care Staff Rate Staffing and Compensation Report for the NF. If the Staffing and Compensation Report covers less than a full year, reported values are annualized to represent a full year. If no audited Staffing and Compensation Report is available, the data source in subparagraph (C) of this paragraph is must be used.

(C) The most recently available, audited Medicaid NF cost report for the immediately prior owner of the NF. If the cost report covers less than a full year, reported values are annualized to represent a full year. If no audited Medicaid NF cost report for the immediately prior owner of the NF is available, the data source in subparagraph (D) of this paragraph must be used.

(D) The most recently available, audited Medicaid Direct Care Staff Rate Staffing and Compensation Report for the immediately prior owner of the NF. If the Staffing and Compensation Report covers less than a full year, reported values are annualized to represent a full year.

(e) Participation requirements. As a condition of participation, all NFs participating in QIPP must allow for the following:

(1) HHSC must be able to access data for the NF from one of the data sources listed in subsection (d) of this section.

(2) The NF must submit a properly completed enrollment application by the due date determined by HHSC.

(3) The entity that owns the NF must certify, on a form prescribed by HHSC, that no part of any payment made under the QIPP will be used to pay a contingent fee, consulting fee, or legal fee associated with the NF's receipt of QIPP funds and the certification must be received by HHSC with the enrollment application described in paragraph (2) of this subsection.

(4) The entity that owns the NF must submit to HHSC, upon demand, copies of contracts it has with third parties that reference the administration of, or payments from, QIPP.

(f) Non-federal share of QIPP payments. The non-federal share of all QIPP payments is funded through IGTs from sponsoring non-state governmental entities. No state general revenue is available to support QIPP.

(1) HHSC will share suggested IGT responsibilities for the eligibility period with all QIPP eligible and enrolled non-state government-owned NFs on or around May 15 of the calendar year that also contains the first month of the eligibility period. Suggested IGT responsibilities will be based on the maximum dollars to be available under the QIPP program for the eligibility period as determined by HHSC, plus ten percent; forecast STAR+PLUS NF member months for the eligibility period as determined by HHSC; and the distribution of historical Medicaid days of service across non-state government-owned NFs enrolled in QIPP for the eligibility period. HHSC will also share estimated maximum revenues each eligible and enrolled NF could earn under QIPP for the eligibility period with those estimates based on HHSC's suggested IGT responsibilities and an assumption that all enrolled NFs will meet 100 percent of their quality metrics. The purpose of sharing this information is to provide non-state government-owned NFs with information they can use to determine the amount of IGT they wish to transfer.

(2) Sponsoring governmental entities will determine the amount of IGT they wish to transfer to HHSC for the entire eligibility period and will transfer one-half of that amount by May 31 of the calendar year that also contains the first month of the eligibility period. The second half of the IGT amount will be transferred by November 30 of the calendar year that also contains the first month of the eligibility period.

(3) Reconciliation. HHSC will reconcile the amount of the non-federal funds actually expended under this section during each eligibility period with the amount of funds transferred to HHSC by the sponsoring governmental entities for that same period using the methodology described in §353.1301(g) of this subchapter.

(g) QIPP capitation rate components. QIPP funds will be paid to MCOs through three new components of the STAR+PLUS NF MC per member per month (PMPM) capitation rates. The MCOs' distribution of QIPP funds to the enrolled NFs will be based on each NF's performance on a set of defined quality metrics.

(1) Component One.

(A) The total value of Component One will be equal to 110 percent of the non-federal share of the QIPP program.

(B) Interim allocation of funds across qualifying non-state government-owned NFs will be proportional, based upon historical Medicaid days of NF service.

(C) Monthly payments to non-state government-owned NFs will be triggered by the NF's submission to the MCOs of a monthly QAPI Validation Report.

(D) Private NFs are not eligible for payments from Component One.

(E) The interim allocation of funds across qualifying non-state government-owned NFs will be reconciled to the actual distribution of Medicaid NF days of service across these NFs during the eligibility period as captured by HHSC's Medicaid contractors for fee-for-service and managed care 180 days after the last day of the eligibility period. This reconciliation will only be performed if the weighted average (weighted by Medicaid NF days of service during the eligibility period) of the absolute values of percentage changes between each NFs proportion of historical Medicaid days of NF service and actual Medicaid days of NF service is greater than 20 percent.

(2) Component Two.

(A) The total value of Component Two will be equal to 35 percent of remaining QIPP funds after accounting for the funding of Component One.

(B) Allocation of funds across qualifying non-state government-owned and private NFs will be proportional, based upon historical Medicaid days of NF service.

(C) Quarterly payments to NFs will be triggered by achievement of performance requirements as described in subsection (h) of this section.

(3) Component Three.

(A) The total value of Component Three will be equal to 65 percent of remaining QIPP funds after accounting for the funding of Component One.

(B) Allocation of funds across qualifying non-state government-owned and private NFs will be proportional, based upon historical Medicaid days of NF service.

(C) Quarterly payments to NFs will be triggered by achievement of performance requirements as described in subsection (h) of this section. Payments made to NFs meeting the standards of Component Three will include both the 35 percent allocated for Component Two and the remaining 65 percent allocated for Component Three.

(4) Funds that would lapse due to failure of one or more NFs to meet quality metrics will be distributed across all QIPP NFs based on each NF's proportion of total earned QIPP funds from Components One, Two, and Three combined.

(h) Distribution of QIPP payments.

(1) Prior to the beginning of the eligibility period, HHSC will calculate the portion of each PMPM associated with each QIPP-enrolled NF broken down by QIPP capitation rate component, quality metric, and payment period. For example, for NF A, HHSC will calculate the portion of each PMPM associated with that NF that would be paid from the MCO to the NF as follows:

(A) Monthly payments from Component One as QAPI reporting requirements are met will be equal to the total value of Component One for the NF divided by twelve.

(B) Quarterly payments from Component Two associated with each quality metric will be equal to the total value of Component Two associated with the quality metric divided by four.

(C) Quarterly payments from Component Three associated with each quality metric will be equal to the total value of Component Three associated with the quality metric divided by four.

(D) For purposes of the calculations described in subparagraphs (B) and (C) of this paragraph, each metric will be allocated an equal portion of the total dollars included in the component.

(2) MCOs will distribute payments to enrolled NFs as they meet their reporting and quality metric requirements. Payments will be equal to the portion of the QIPP PMPM associated with the achievement for the time period in question multiplied by the number of member months for which the MCO received the QIPP PMPM.

(i) Performance requirements.

(1) Quality metrics.

(A) There will be a minimum of three quality metrics for an eligibility period.

(B) Quality metrics may change from eligibility period to eligibility period. Information regarding specific quality metrics for an eligibility period will be provided annually through the QIPP webpage on the HHSC website on or before February 1 of the calendar year that also contains the first month of the eligibility period.

(C) Quality metric baselines will be based on each individual NF's average performance on the metric as reported by CMS for the federal quarter that ends prior to the first day of the eligibility period and the three prior federal quarters, or as determined by HHSC.

(D) Quality metric benchmarks will be based on the national average for the metric as reported by CMS for the federal quarter that ends prior to the first day of the eligibility period, or as determined by HHSC.

(2) Achievement requirements. In order to receive payments from Components Two and Three for a quality metric, a NF must show improvement over the baseline or exceed the benchmark for the metric.

(A) To qualify for a payment from Component Two, a NF must meet at least the initial quarterly goal of 1.7 percent improvement from the baseline, with subsequent quarterly goals increasing to a maximum of seven percent by the end of the eligibility period. For example, to qualify for a payment from Component Two for a quality metric for the second quarter of the eligibility period, the NF must meet at least the second quarter goal of 3.4 percent improvement from the baseline.

(B) To qualify for a payment from Component Three, a NF must meet at least the initial quarterly goal of 5.0 percent improvement from the baseline with subsequent quarterly goals increasing to a maximum of 20 percent by the end of the eligibility period. For example, to qualify for a payment from Component Three for a quality metric for the second quarter of the eligibility period, the NF must meet at least the second quarter goal of 10.0 percent improvement from the baseline. A NF that qualifies for a payment from Component Three for a metric automatically qualifies for a payment from Component Two for the same metric.

(C) A NF that exceeds the benchmark for a metric qualifies for a payment from both Component Two and Component Three for that metric. A NF that exceeds the benchmark may decline in performance and still qualify for a payment from both Component Two and Component Three as long as the NF continues to exceed the benchmark for the metric.

(j) Changes of ownership.

(1) If an enrolled NF changes ownership during the eligibility period to private ownership, the NF under the new ownership must meet the private NF eligibility requirements described in this section in order to continue QIPP participation during the eligibility period.

(2) If a non-state government-owned NF changes ownership during the eligibility period to another non-state governmental entity, the NF under the new ownership must meet the non-state government-owned eligibility requirements described in this section in order to continue QIPP participation during the eligibility period.

(k) Recoupment. Payments under this section may be subject to recoupment as described in §353.1301(k) of this subchapter.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on January 9, 2017.

TRD-201700103

Karen Ray

Chief Counsel

Texas Health and Human Services Commission

Earliest possible date of adoption: February 19, 2017

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


1 TAC §353.1305

The Texas Health and Human Services Commission (HHSC) proposes new Subchapter O, Delivery System and Provider Payment Initiatives, §353.1305, concerning Regional Uniform Rate Increases for Hospital Services.

Elsewhere in this issue, related §353.1301 of this title (relating to General Provisions), is proposed concurrent with this section and describes general provisions that apply to this and other sections under this new Subchapter O.

BACKGROUND AND JUSTIFICATION

The proposed new section describes the circumstances under which HHSC will direct a Medicaid managed care organization (MCO) to provide a uniform percentage rate increase to hospitals in the MCO's network in a participating service delivery area (SDA) for the provision of inpatient services, outpatient services, or both. This section also describes the methodology used by HHSC to determine the percentage rate increase.

Currently, Texas' Medicaid hospital payments, made through either the fee-for-service (FFS) or managed care models, do not fully cover Medicaid allowable costs for hospital services. A portion of the Medicaid shortfall is reimbursed through supplemental payment programs such as the disproportionate share hospital (DSH) program and the uncompensated care (UC) pool under the 1115 waiver known as the Texas Healthcare Transformation and Quality Improvement Program. These supplemental payments are paid outside of the managed care capitation apparatus and, for payments to non-state-owned providers, rely on intergovernmental transfers (IGTs) from non-state governmental entities or other state agencies for the non-federal share of the payments.

Healthcare policy experts posit that reimbursing provider costs more fully through managed care payments would enhance care coordination. Flowing additional funds for hospital services prospectively through managed care entities, rather than retrospectively reimbursing hospitals for services provided but not fully reimbursed through Medicaid, would increase the ability of the state and its managed care contractors to pursue approaches to provider reimbursement that prioritize achieving health outcomes versus the delivery of services.

In May, 2016, the Centers for Medicare & Medicaid Services (CMS) finalized a rule that allows a state to direct expenditures under its contracts with MCOs under certain limited circumstances. Under the new federal rule, a state may direct an MCO to raise rates for a class of providers of a particular service by a uniform dollar amount or percentage, subject to approval of the contract arrangements by CMS. To obtain approval, the arrangements must be based on the utilization and delivery of services; direct expenditures equally for a class of providers of a particular service; advance at least one of the goals and objectives of the state's quality strategy and have an evaluation plan to measure the effectiveness of the arrangements at doing so; not condition provider participation on an IGT; and not be automatically renewed.

In light of the recent federal regulation and with the goal of enhancing care coordination and achieving better health outcomes, this proposed rule authorizes HHSC to use IGTs from non-state governmental entities or from other state agencies to support capitation payment increases in one or more SDAs. Each MCO within the SDA would then be contractually required by the state to increase hospital payment rates by a uniform percentage for one or more classes of hospital that provide services within the SDA.

Eligibility

HHSC determines eligibility for rate increases by SDA and class of hospital. The SDA must have at least one governmental entity willing to provide IGT to support the rate increase. Also, to be eligible for the rate increase, a hospital must be within a class designated by HHSC to receive the increase.

HHSC proposes classifying hospitals into seven groups: state-owned hospitals, children's hospitals, non-urban public hospitals, rural hospitals, urban public hospitals, institutions for mental diseases, and all other hospitals. The classifications allow HHSC to direct rate increases where they are most needed to bring reimbursement closer to cost for all hospitals in the participating SDA. The percentage rate increase will be uniform for all hospitals within each class; but if HHSC directs rate increases to more than one class within an SDA, the percentage rate increase may vary between classes.

Services subject to rate increase

HHSC may direct rate increases for all or a subset of inpatient hospital services; all or a subset of outpatient hospital services; or all or a subset of both types of services, based on advancing the goals and objectives of HHSC's quality strategy.

Determination of rate increase

HHSC will consider several factors in determining the percentage rate increase that will be directed for one or more classes of hospital within an SDA, including the amount of available funding; the class or classes of hospital eligible to receive the increase; the type of service subject to the rate increase; the actuarial soundness of the capitation payment needed to support the rate increase; available budget neutrality room under any applicable federal waiver programs; and other HHSC goals and priorities.

Reconciliation and recoupment

HHSC will follow the methodology described in §353.1301 of this subchapter (proposed concurrent with this §353.1305) to reconcile the amount of non-federal funds expended under this section and to authorize recoupments of overpayment or disallowance amounts.

SECTION-BY-SECTION SUMMARY

Proposed new §353.1305(a) describes the circumstances under which HHSC will direct a uniform percentage rate increase.

Proposed new §353.1305(b) defines key terms used in the section.

Proposed new §353.1305(c) describes the classes of hospital eligible for rate increases.

Proposed new §353.1305(d) describes the eligibility criteria for receiving the rate increase.

Proposed new §353.1305(e) describes the basis for identifying hospital services subject to the rate increase.

Proposed new §353.1305(f) describes the methodology for determining the percentage of rate increase.

Proposed new §353.1305(g) describes when sponsoring governmental entities must transfer funds to HHSC to support the rate increases and the amount of funds that must be transferred.

Proposed new §353.1305(h) describes the effective date of rate increases.

Proposed new §353.1305(i) refers to §353.1301(g) for the description of the reconciliation process.

Proposed new §353.1305(j) refers to §353.1301(k) for the description of the recoupment authority.

FISCAL NOTE

Greta Rymal, Deputy Executive Commissioner for Financial Services, has determined that for each year of the first five years the proposed rule is in effect, there may be a fiscal impact to state government for rate increases to state-owned hospitals, but there is insufficient information to provide an estimate at this time because HHSC does not know what state-owned hospitals or state agencies will choose to sponsor rate increases under this section or at what level of funding. There will be no fiscal impact to state government for rate increases to non-state-owned hospitals because the non-federal share of the increase in capitation payments will be funded with IGTs from non-state governmental entities. There may be a fiscal impact to local governments, but there is insufficient information to provide an estimate because HHSC does not know which non-state governmental entities will choose to sponsor rate increases under this section or at what level of funding.

SMALL BUSINESS AND MICRO-BUSINESS IMPACT ANALYSIS

HHSC has determined that there will be no adverse economic effect on small businesses or micro-businesses to comply with the proposed rule. Hospitals eligible for the rate increases will not be required to alter their business practices and will receive higher reimbursement for providing the same services.

PUBLIC BENEFIT AND COST

Pam McDonald, Director of Rate Analysis, has determined that for each year of the first five years the rule is in effect, the public will benefit from the adoption of the rule. The anticipated public benefit will be enhanced care coordination and better health outcomes as a result of flowing funding through the managed care organizations.

Ms. McDonald has also determined that there are no probable economic costs to persons who are required to comply with the proposed rule.

HHSC has determined that the proposed rule will not affect a local economy. There is no anticipated negative impact on local employment.

REGULATORY ANALYSIS

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

TAKINGS IMPACT ASSESSMENT

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

PUBLIC COMMENT

Written comments on the proposal may be submitted to Monica Leo, Staff Counsel, Brown Heatly Building, MC: 1100, 4900 North Lamar Blvd, Austin, TX 78714-9030; by fax to (512) 424-6586; or by e-mail to Monica.Leo@hhsc.state.tx.us within 30 days of publication of this proposal in the Texas Register.

PUBLIC HEARING

A public hearing is scheduled for February 1, 2017, from 2:00 p.m. to 3:00 p.m. (Central Time) in the Public Hearing Room, Brown Heatly Building, 4900 North Lamar Blvd, Austin, TX 78714-9030. Persons requiring further information, special assistance, or accommodations should contact Amy Chandler at (512) 487-3419.

STATUTORY AUTHORITY

The new rule is proposed under Texas Government Code §531.033, which provides the Executive Commissioner of HHSC with broad rulemaking authority, and Texas Human Resources Code §32.021 and Texas Government Code §531.021(a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas; and with Texas Government Code §533.002, which authorizes HHSC to implement the Medicaid managed care program.

The proposed rule implements Texas Human Resources Code, Chapter 32; Texas Government Code, Chapter 531; and Texas Government Code Chapter 533.

§353.1305.Regional Uniform Rate Increases for Hospital Services.

(a) Introduction. This section describes the circumstances under which HHSC directs an MCO to provide a uniform percentage rate increase to hospitals in the MCO's network in a designated service delivery area for the provision of inpatient services, outpatient services, or both. This section also describes the methodology used by HHSC to calculate and administer such rate increase.

(b) Definitions. The following definitions apply when the terms are used in this section. Terms that are used in this and other sections of this subchapter may be defined in §353.1301 of this subchapter (relating to General Provisions).

(1) Children's hospital--A Medicaid hospital designated by Medicare as a children's hospital.

(2) Inpatient hospital services--Services ordinarily furnished in a hospital for the care and treatment of inpatients under the direction of a physician or dentist, or a subset of these services identified by HHSC. Inpatient hospital services do not include skilled nursing facility or intermediate care facility services furnished by a hospital with swing-bed approval, and any other services that HHSC determines should not be subject to the rate increase.

(3) Institution for mental diseases (IMD)--A hospital that is primarily engaged in providing psychiatric diagnosis, treatment, or care of individuals with mental illness.

(4) Non-urban public hospital--

(A) A hospital owned and operated by a governmental entity, other than a hospital described in paragraph (9) of this subsection defining urban public hospital; or

(B) A hospital meeting the definition of rural public-financed hospital in §355.8065(b)(37) of this title (relating to Disproportionate Share Hospital Reimbursement Methodology), other than a hospital described in paragraph (7) of this subsection defining rural hospital.

(5) Outpatient hospital services--Preventive, diagnostic, therapeutic, rehabilitative, or palliative services that are furnished to outpatients of a hospital under the direction of a physician or dentist, or a subset of these services identified by HHSC. HHSC may, in its contracts with MCOs governing rate increases under this section, exclude from the definition of outpatient hospital services such services as are not generally furnished by most hospitals in the state, or such services that HHSC determines should not be subject to the rate increase.

(6) Program period--A period of time for which HHSC will contract with participating MCOs to pay increased capitation rates for the purpose of provider payments under this section. Each program period is equal to a state fiscal year beginning September 1 and ending August 31 of the following year.

(7) Rural hospital--A hospital located in a county with 60,000 or fewer persons according to the most recent United States Census, a Medicare-designated rural referral center, a sole community hospital, or a critical access hospital.

(8) State-owned hospital--A hospital that is owned and operated by a state university or other state agency.

(9) Urban public hospital--A hospital that is operated by or under a lease contract with one of the following entities: the Dallas County Hospital District, the El Paso County Hospital District, the Harris County Hospital District, the Tarrant County Hospital District, the Travis County Healthcare District dba Central Health, the University Health System of Bexar County, the Ector County Hospital District, the Lubbock County Hospital District, or the Nueces County Hospital District.

(c) Classes of participating hospitals.

(1) HHSC may direct the MCOs in a service delivery area to provide a uniform percentage rate increase to all hospitals within one or more of the following classes of hospital with which the MCO contracts for inpatient or outpatient services:

(A) children's hospitals;

(B) non-urban public hospitals;

(C) rural hospitals;

(D) state-owned hospitals;

(E) urban public hospitals;

(F) institutions for mental diseases; and

(G) all other hospitals.

(2) If HHSC directs rate increases to more than one class of hospital within the service delivery area, the percentage rate increases directed by HHSC may vary between classes of hospital.

(d) Eligibility. HHSC determines eligibility for rate increases by service delivery area and class of hospital.

(1) Service delivery area. Only hospitals in a service delivery area that includes at least one sponsoring governmental entity are eligible for a rate increase.

(2) Class of hospital. HHSC will identify the class or classes of hospital within each service delivery area described in paragraph (1) of this subsection to be eligible for a rate increase. HHSC will consider the following factors when identifying the class or classes of hospital eligible for a rate increase and the percent increase applicable to each class:

(A) whether a class of hospital contributes more or less significantly to the goals and objectives in HHSC's quality strategy, as required in 42 C.F.R. §438.340, relative to other classes;

(B) which class or classes of hospital the sponsoring governmental entity wishes to support through intergovernmental transfers (IGTs) of public funds; and

(C) the percentage of Medicaid costs incurred by the class of hospital in providing care to Medicaid managed care clients that are reimbursed by Medicaid MCOs prior to any uniform rate increase administered under this section.

(e) Services subject to rate increase. HHSC may direct the MCOs in a service delivery area to increase rates for all or a subset of inpatient services, all or a subset of outpatient services, or all or a subset of both, based on the service or services that will best advance the goals and objectives of HHSC's quality strategy.

(f) Determination of percentage of rate increase.

(1) In determining the percentage of rate increase applicable to one or more classes of hospital, HHSC will consider the following factors:

(A) information from the sponsoring governmental entities on one or both of the following:

(i) the amount of IGT the sponsoring governmental entities propose to transfer to HHSC to support the non-federal share of the increased rates for the first six months of a program period; and

(ii) the percentage rate increase the sponsoring governmental entities propose for one or more classes of hospital for the first six months of a program period;

(B) the class or classes of hospital determined in subsection (d)(2) of this section;

(C) the type of service or services determined in subsection (e) of this section;

(D) actuarial soundness of the capitation payment needed to support the rate increase;

(E) available budget neutrality room under any applicable federal waiver programs; and

(F) other HHSC goals and priorities.

(2) After determining the percentage of rate increase as described in paragraph (1) of this subsection, HHSC will modify its contracts with the MCOs in the service delivery area to direct the percentage rate increases.

(g) Timing and amount of transfer of non-federal share.

(1) Sponsoring governmental entities must complete the IGT for the first six months of the program period no later than May 1 of the calendar year that also contains the first month of the program period, unless otherwise instructed by HHSC.

(2) Following the transfer of funds described in paragraph (1) of this subsection, sponsoring governmental entities must transfer additional IGT at such times and in such amounts as determined by HHSC to be necessary to ensure the availability of funding of the non-federal share of the state's expenditures under this section and HHSC's compliance with the terms of its contracts with MCOs in the service delivery area.

(3) HHSC will instruct sponsoring governmental entities as to the required IGT amounts. Required IGT amounts will include all costs associated with the uniform rate increase, including costs associated with premium taxes, risk margins, and administration, plus ten percent.

(h) Effective date of rate increases. HHSC will direct MCOs to increase rates under this section beginning the first day of the program period that includes the increased capitation rates paid by HHSC to each MCO pursuant to the contract between them.

(i) Reconciliation. HHSC will reconcile the amount of the non-federal funds actually expended under this section during the program period with the amount of funds transferred to HHSC by the sponsoring governmental entities for that same period using the methodology described in §353.1301(g) of this subchapter.

(j) Recoupment. Payments under this section may be subject to recoupment as described in §353.1301(k) of this subchapter.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on January 9, 2017.

TRD-201700105

Karen Ray

Chief Counsel

Texas Health and Human Services Commission

Earliest possible date of adoption: February 19, 2017

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