Original Notice.

     Preproposal statement of inquiry was filed as WSR 06-22-054.

     Title of Rule and Other Identifying Information: Part 1 of 6; new WAC 388-550-3010 Payment method--Per diem payment and 388-550-3020 Payment method -- Bariatric surgery--Per case payment; and amending WAC 388-550-3100 Calculating DRG relative weights, 388-550-3150 Base period costs and claims data, and 388-550-3250 Indirect medical education costs.

     Hearing Location(s): Blake Office Park East, Rose Room, 4500 10th Avenue S.E., Lacey, WA 98503 (one block north of the intersection of Pacific Avenue S.E. and Alhadeff Lane. A map or directions are available at http://www1.dshs.wa.gov/msa/rpau/docket.html or by calling (360) 664-6097), on June 5, 2007, at 10:00 a.m.

     Date of Intended Adoption: Not earlier than June 6, 2007.

     Submit Written Comments to: DSHS Rules Coordinator, P.O. Box 45850, Olympia, WA 98504, delivery 4500 10th Avenue S.E., Lacey, WA 98503, e-mail schilse@dshs.wa.gov, fax (360) 664-6185, by 5:00 p.m. on June 5, 2007.

     Assistance for Persons with Disabilities: Contact Stephanie Schiller by June 1, 2007, TTY (360) 664-6178 or (360) 664-6097 or by e-mail at schilse@dshs.wa.gov.

     Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The proposed amended rules and new rules describe policy regarding the department's hospital services coverage, rate-setting methods, and payment methods, based on recommendations made in the navigant study and supported by the state legislature. In addition, the proposed rules replace "medical assistance administration (MAA)" with "the department," and update and clarify other language.

     Reasons Supporting Proposal: In 2005, ESSB 6090, recommended that a study be done by navigant to look at the department's inpatient payment system and include recommendations on the design. These rules are written to incorporate into rule the results of the navigant study, and to update information on the department's hospital coverage, rate-setting, and payment processes. At the same time and for the same reasons, the department is proposing rule making to reflect changes and new sections in chapter 388-550 WAC.

     Statutory Authority for Adoption: RCW 74.08.090 and 74.09.500.

     Statute Being Implemented: RCW 74.08.090 and 74.09.500.

     Rule is not necessitated by federal law, federal or state court decision.

     Name of Proponent: Department of social and health services, governmental.

     Name of Agency Personnel Responsible for Drafting: Kathy Sayre, P.O. Box 45504, Olympia, WA 98504-5504, (360) 725-1342; Implementation and Enforcement: Larry Linn, P.O. Box 45502, Olympia, WA 98504-5502, (360) 725-1856.

     No small business economic impact statement has been prepared under chapter 19.85 RCW. The department has determined that the proposed rule will not create more than minor costs for affected small businesses.

     A cost-benefit analysis is required under RCW 34.05.328. A preliminary cost-benefit analysis may be obtained by contacting Larry Linn, P.O. Box 45502, Olympia, WA 98504-5502, phone (360) 725-1856, fax (360) 753-9152, e-mail linnld@dshs.wa.gov.

April 26, 2007

Stephanie E. Schiller

Rules Coordinator

     (2) The department uses the all-patient diagnosis related group (AP-DRG) grouper software to assign a DRG classification to each inpatient hospital stay. The department periodically evaluates which version of the AP-DRG grouper software to use and updates the grouper version. This update is normally completed once every three years during inpatient payment system rebasing.

     (3) A per diem payment includes, but is not limited to:

     (a) A hospital covered service(s) provided to a client during the client's inpatient hospital stay.

     (b) An outpatient hospital covered service(s), including preadmission, emergency room, and observation services related to an inpatient hospital stay and provided within one calendar day of a client's inpatient hospital stay. These outpatient services must be billed on the inpatient hospital claim (see WAC 388-550-6000 (3)(c)).

     (c) Any specific service(s), treatment(s), or procedure(s) (such as renal dialysis services) that the admitting hospital is unable to provide when:

     (i) The admitting hospital sends the client to another facility or provider for the service(s), treatment(s), or procedure(s) during the client's inpatient stay; and

     (ii) The client returns as an inpatient to the admitting hospital.

     (d) All transportation costs for an inpatient client when the client requires transportation to another facility or provider for a specific service(s), treatment(s), or procedure(s) that the admitting hospital is unable to provide when:

     (i) The admitting hospital sends the client to another facility or provider for the service(s), treatment(s), or procedure(s); and

     (ii) The client returns as an inpatient to the admitting hospital.

     (4) The department establishes the average length of stay (ALOS) for each DRG classification during the rebasing process. If a client's actual length of stay (LOS) exceeds the ALOS for the DRG classification, the department may retrospectively review the appropriateness of the LOS for payment.

     (a) For hospital admissions that require prior authorization, the department determines the allowed amount for the per diem payment by multiplying the assigned per diem rate by the LOS authorized by the department or department's designee, or the actual number of days if the actual LOS is less than the approved LOS.

     (b) For hospital admissions that do not require authorization, the department determines the allowed amount for the per diem payment by multiplying the assigned per diem rate by the actual LOS. If the actual LOS exceeds the ALOS, the department may perform a retrospective review to determine the appropriate payment.

     (c) The department adds to the allowed amount any high outlier amount determined by the department for those per diem paid claims in a DRG classification that is in a non-specialty service category. See WAC 388-550-3000, 388-550-3460, and 388-550-3700.

     (5) The department's per diem payments to hospitals may be adjusted when one or more of the following occur:

     (a) A claim qualifies as a per diem high outlier claim (see WAC 388-550-3700). The outlier provision does not include a claim grouped to a DRG classification in a specialty service category. The specialty services categories include psychiatric, rehabilitation, detoxification, and CUP program services. Long term acute care (LTAC), administrative days and swing bed days do not qualify for high outlier payment;

     (b) A client is not eligible for a medical assistance program on one or more of the days of the hospital stay;

     (c) A client has third party liability coverage at the time of admission to the hospital or distinct unit;

     (d) A client is eligible for medicare, and medicare has made a payment for the hospital charges; or

     (e) A client is discharged from an inpatient hospital stay and, within seven calendar days, is readmitted as an inpatient to the same hospital or a different hospital. The department or its designee performs a retrospective utilization review (see WAC 388-550-1700) on the initial admission and the readmission(s) to determine which, if any, inpatient hospital stay(s) qualify for payment. An outlier payment may be made if the department determines the claim for the combined hospital stays qualifies as a high outlier. (See WAC 388-550-3700 for high outliers.)

     (6) The department does not pay for a client's day(s) of absence from the hospital.

     (7) The department pays an interim billed hospital claim for covered inpatient hospital services provided to an eligible client only when the interim billed claim meets the criteria in WAC 388-550-2900.

     (8) The department applies all applicable claim payment adjustments for client responsibility, third party liability, medicare, etc., to the payment.

[]

     (2) For dates of admission before and on and after August 1, 2007, the department pays for claims grouped to a DRG classification in a bariatric surgery service category (diagnosis and procedure codes recognized by the department for bariatric surgery per case payment) using a per case rate. See WAC 388-550-3470.

     (3) The department applies all applicable claim payment adjustments for client responsibility, third party liability, medicare, etc., to the payment.

[]

     (a) Classifies the Washington hospital admissions data using the all-patient ((grouper)) diagnosis related group (AP-DRG).

     (b) Statistically tests each DRG for adequacy of sample size to ensure that relative weights meet acceptable reliability and validity standards.

     (c) Establishes a single set of medicaid-specific relative weights from Washington hospital admissions data. For dates of admission before August 1, 2007, the relative weights are based on claim charges. The department identifies these relative weights ((may be)) as stable or unstable.

     (d) Tests the stability of the relative weights from subsection (1)(c) of this section using a reasonable statistical test to determine if the weights are stable. ((MAA)) The department accepts as stable and adopts those relative weights that pass the reasonable statistical test.

     (e) For dates of admission before August 1, 2007, may compare the medicaid-specific relative weights to non-medicaid relative weights. ((MAA)) The department:

     (i) May combine the medicaid-specific relative weights with the non-medicaid relative weights if the non-medicaid relative weights are statistically comparable to the medicaid-specific weights; or

     (ii) Uses only the medicaid-specific relative weights if the non-medicaid relative weights are not statistically comparable to the medicaid-specific relative weights.

     (f) For dates of admission before August 1, 2007, uses the ratio of costs-to-charges (RCC) payment method to pay for hospital stays that have unstable DRG relative weights.

     (2) When using ratios with a DRG relative weight as base, ((MAA)) the department adjusts all stable relative weights so that the average weight of the case mix population equals 1.0.

     (3) For dates of admission on and after August 1, 2007, the department:

     (a) Bases the relative weights on the estimated wage adjusted cost of the claims in each stable DRG classification. the operating and capital component costs were used for this process. To calculate relative weights, the department divides the average cost per discharge for each stable AP-DRG classification by the average cost per discharge for all stable AP-DRG classifications combined. For purposes of these calculations, the department uses the two most current years of medicaid inpatient hospital paid claims data available at the time of relative weight calibration.

     (i) The department uses a combination of medicaid fee-for-service and healthy options (HO) managed care organization (MCO) data from the two most current years of fully adjudicated paid claims data available at the time of relative weight calibration.

     (ii) The department removes:

     (A) Claims that represent statistical outliers from the dataset prior to calculating relative weights, based on the assumption that these claims are likely to be paid under an alternative outlier payment methodology. The department identifies statistical outliers as those claims with estimated costs that exceed three standard deviations of the mean cost of all claims in each AP-DRG classification;

     (B) Claims to be paid by alternative methods, including psychiatric, rehabilitation, detoxification, CUP woman program, bariatric surgery cases, and organ transplant claims;

     (C) Transfer-out claims;

     (D) Same day discharges;

     (E) Claims that were either ungroupable or had invalid diagnosis for AP-DRG classification purposes; and

     (F) Claims related to state-administered programs where the payment calculations are based on reduced state-administered program payment rates.

     (b) Uses the term "unstable" generically to describe an AP-DRG classification that has fewer than ten occurrences, or that is unstable based on the statistical stability test indicated below. The formula for the statistical stability test calculates the required size of a sample population of values necessary to estimate a mean cost value with ninety percent confidence and within an acceptable error of plus or minus twenty percent given the populations's estimated standard deviation.

     The Formula is:

     N = (Z² * S²)/R², where

     • The Z statistic for 90 percent confidence is 1.64;

     • S = the standard deviation for the AP-DRG classification; and

     • R = acceptable error range, per sampling unit

     (c) Uses:

     (i) The per diem payment method to pay for hospital stays that group to an unstable DRG relative weight, some long term acute care (LTAC) services, and other specialty service and low volume services groups identified in WAC 388-550-3460.

     (ii) One of the other non-DRG payment methods (e.g., RCC, per case rate, etc.) to pay for claims paid using other non-DRG payment methods (e.g., some transplants, the high outlier portion of high outlier claims, non-per diem portion of LTAC claims, bariatric surgery, etc.).

[Statutory Authority: RCW 74.08.090, 74.04.050. 04-13-048, § 388-550-3100, filed 6/10/04, effective 7/11/04. Statutory Authority: RCW 74.08.090, 42 USC 1395 x(v), 42 CFR 447.271, 447.11303, and 447.2652. 99-06-046, § 388-550-3100, filed 2/26/99, effective 3/29/99. Statutory Authority: RCW 74.08.090, 74.09.730, 74.04.050, 70.01.010, 74.09.200, [74.09.]500, [74.09.]530 and 43.20B.020. 98-01-124, § 388-550-3100, filed 12/18/97, effective 1/18/98.]

     (2) The department ((shall)) may use in rate-setting ((only)), "as filed" base period cost data, or "final settled" medicare cost report base period cost data that have been desk reviewed and/or field audited by the medicare intermediary.

     (3) The department ((shall)), to the extent feasible, factors out of a hospital's base period cost data nonallowable hospital charges associated with the items/services listed in WAC 388-550-1600(((1))) before calculating the hospital's conversion factor.

     (4) For dates of admission before August 1, 2007, the department ((shall)) uses the figures for total costs, capital costs, and direct medical education costs from a hospital's ((HCFA 2552 report)) medicare cost report in calculating that hospital's allowable costs for each of the thirty-eight categories of cost/revenue centers, listed in subsections (5) and (6) below, used to categorize medicaid claims.

     (5) For dates of admission before August 1, 2007, the department ((shall)) uses nine categories to assign a hospital's accommodation costs and days of care. These accommodation categories are:

     (a) Routine;

     (b) Intensive care;

     (c) Intensive care-psychiatric;

     (d) Coronary care;

     (e) Nursery;

     (f) Neonatal intensive care unit;

     (g) Alcohol/substance abuse;

     (h) Psychiatric; and

     (i) Oncology.

     (6) For dates of admission before August 1, 2007, the department ((shall)) uses twenty-nine categories to assign ancillary costs and charges. These ancillary categories are:

     (a) Operating room;

     (b) Recovery room;

     (c) Delivery/labor room;

     (d) Anesthesiology;

     (e) Radiology-diagnostic;

     (f) Radiology-therapeutic;

     (g) Radioisotope;

     (h) Laboratory;

     (i) Blood storage;

     (j) Intravenous therapy;

     (k) Respiratory therapy;

     (l) Physical therapy;

     (m) Occupational therapy;

     (n) Speech pathology;

     (o) Electrocardiography;

     (p) Electroencephalography;

     (q) Medical supplies;

     (r) Drugs;

     (s) Renal dialysis;

     (t) Ancillary oncology;

     (u) Cardiology;

     (v) Ambulatory surgery;

     (w) Computerized tomography scan/magnetic resonance imaging;

     (x) Clinic;

     (y) Emergency;

     (z) Ultrasound;

     (aa) Neonatal intensive care unit transportation;

     (bb) Gastrointestinal laboratory; and

     (cc) Miscellaneous.

     (7) The department shall:

     (a) Extracts from the medicaid management information system all medicaid and SCHIP paid claims data for each hospital's base year;

     (b) Assigns line item charges from the paid hospital claims to the appropriate accommodation and ancillary cost center categories; and

     (c) Uses the cost center categories to apportion medicaid and SCHIP costs.

     (8) For dates of admission on and after August 1, 2007, the department rebased the hospital inpatient payment system and used claim and estimated cost data to estimate costs for the system development.

     (a) Claim data used for rebasing process. The department uses the following claim data resources considered the most complete and available at the time the system is developed for the rebase:

     (i) From the department's medicaid management information system (MMIS) database, two years of fee-for-service paid claim data, excluding claims related to state programs and paid at the Title XIX reduced rates;

     (ii) From the comprehensive hospital abstract reporting system (CHARS) dataset that is maintained by the department of health (DOH), two years of sample claims representing healthy options (HO) services that are identified from the CHARS dataset based on the medicaid HO eligibility data files; and

     (iii) From the healthcare cost report information system (HCRIS) that is maintained by the centers for medicare and medicaid (CMS), the hospital's most current medicare cost report data. If the hospital's medicare cost report from the HCRIS system is not available, the department uses the medicare cost report provided by the hospital.

     (b) Claim data used to estimate costs. The department uses:

     (i) The fee-for-service and HO claims for two fiscal years to calculate diagnosis related group (DRG) relative weights.

     (ii) The fee-for-service and HO claims for the most current single fiscal year to calculate conversion factors, per diem rates, and per case rates.

     (iii) The payments from fee-for-service only claims for a single year to model the fiscal impacts to the department and individual hospitals that result from the implementation of the payment methodology.

     (c) Estimated costs of claims. The department:

     (i) Identifies the operating (routine and ancillary), capital (routine and ancillary), and direct medical education (routine and ancillary) cost components from different worksheets from the hospital's medicare cost report;

     (ii) estimates costs for each separate component identified in (c)(i) of this subsection for each fee-for-service and HO claim in the dataset by:

     (A) Calculating the operating, capital, and direct medical education routine costs for each fee-for-service and HO claim by multiplying the average hospital cost per day reported in the medicare cost report data for each type of accommodation service (e.g., adult and pediatric, intensive care unit, psychiatric, nursery) by the number of days reported at the claim line level by type of service.

     (B) Calculating the operating, capital, and direct medical education ancillary costs for each fee-for-service and HO claim by multiplying the ration of costs-to-charges (RCC) reported for each ancillary type of services (e.g., operating room, recovery room, radiology, laboratory, pharmacy, clinic) by the allowed charges reported at the claim line level by type of service.

     (d) Routine and ancillary cost components. For purposes of estimating costs consistently for all hospitals' claims, the department uses standard routine and ancillary cost components. The standard cost components used for estimating costs of claims are:

     (i) Routine cost components:

     (A) Routine care;

     (B) Intensive care;

     (C) Intensive care-psychiatric;

     (D) Coronary care;

     (E) Nursery;

     (F) Neonatal ICU;

     (G) Alcohol/Substance abuse;

     (H) Psychiatric;

     (I) Oncology; and

     (J) Rehabilitation.

     (ii) Ancillary cost components:

     (A) Operating room;

     (B) Recovery room;

     (C) Deliver/labor room;

     (D) Anesthesiology;

     (E) Radio, diagnostic;

     (F) Radio, therapeutic;

     (G) Radioisotope;

     (H) Laboratory;

     (I) Blood administration;

     (J) Intravenous therapy;

     (K) Respiratory therapy;

     (L) Physical therapy;

     (M) Occupational therapy;

     (N) Speech pathology;

     (O) Electrocardiography;

     (P) Electroencephalography;

     (Q) Medical supplies;

     (R) Drugs;

     (S) Renal dialysis/home dialysis;

     (T) Ancillary oncology;

     (U) Cardiology;

     (V) Ambulatory surgery;

     (W) CT scan/MRI;

     (X) Clinic;

     (Y) Emergency;

     (Z) Ultrasound;

     (AA) NICU transportation;

     (BB) GI laboratory;

     (CC) Miscellaneous; and

     (DD) Observation beds.

[Statutory Authority: RCW 74.08.090, 74.09.730, 74.04.050, 70.01.010, 74.09.200, [74.09.]500, [74.09.]530 and 43.20B.020. 98-01-124, § 388-550-3150, filed 12/18/97, effective 1/18/98.]

     (2) For dates of admission before August 1, 2007, to arrive at indirect medical education costs for each component, the department ((shall)):

     (a) ((Multiply)) Multiplies medicare's indirect cost factor of 0.579 by the ratio of the number of interns and residents in the hospital's approved teaching programs to the number of hospital beds; and

     (b) ((Multiply)) Multiplies the product obtained in subsection (2)(a) of this section by the hospital's operating and capital components.

     (3) For dates of admission before August 1, 2007, after the peer group's cost cap has been calculated, the department ((shall)) adds back to the hospital's aggregate costs its indirect medical education costs. See WAC 388-550-3450(((6))).

     (4) For dates of admission on and after August 1, 2007, the department:

     (a) Uses the indirect medical costs in the calculation of the hospital DRG conversion factor, per diem rates, and per case rates.

     (b) Uses the medicare's indirect medical education factor matching the same period of the hospital medicare cost report used in calculating the hospital cost to estimate the hospital aggregate operating and capital costs. The indirect medical education costs were removed from the hospital aggregate operating and capital costs in determination of statewide standardized average operating and capital cost per discharge, per day, and per case amounts.

     (c) To calculate the hospital-specific DRG conversion factor, per diem rates, and per case rates, adjusts the hospital's indirect medical education costs to the statewide standardized average operating and capital costs. The hospital's indirect medical education factor is the most current factor from the inpatient medicare pricer that is available from CMS's website at the time the rate calculations are made.

[Statutory Authority: RCW 74.08.090, 74.09.730, 74.04.050, 70.01.010, 74.09.200, [74.09.]500, [74.09.]530 and 43.20B.020. 98-01-124, § 388-550-3250, filed 12/18/97, effective 1/18/98.]

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