Original Notice.

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

     Title of Rule and Other Identifying Information: Part 2 of 6; amending WAC 388-550-3450 Payment method for calculating CBCF rates; and new WAC 388-550-3460 Payment method -- Per diem rate and 388-550-3470 Payment method -- Bariatric surgery -- Per case rate.

     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

     (a) Uses each hospital's base period cost data to calculate the hospital's total operating, capital, and direct medical education costs for each of the ((nine)) accommodation categories described in WAC 388-550-3150(((5))); then

     (b) Divides those costs per category by total hospital days per category to arrive at a per day accommodation cost; then

     (c) Multiplies the per day accommodation cost for each category by the total medicaid and SCHIP days to arrive at total medicaid accommodation costs per category for the three components.

     (2) For ancillary costs ((MAA)) the department:

     (a) Uses the base period cost data to calculate total operating, capital, and direct medical education costs for each of the hospital's ((twenty-nine)) ancillary categories described in WAC 388-550-3150; then

     (b) Divides these costs by total charges per category to arrive at a ratio of costs-to-charges (RCC) per ancillary category; then

     (c) Multiplies these RCCs by medicaid and SCHIP charges per category, as tracked by the medicaid management information system (MMIS), to arrive at total medicaid and SCHIP ancillary costs per category for the three components (operating, capital, and medical education).

     (3) ((MAA)) The department:

     (a) Combines medicaid and SCHIP accommodation and ancillary costs to derive the hospital's total costs for operating, capital, and direct medical education components for the base year; then

     (b) Divides the hospital's combined total cost by the number of medicaid and SCHIP cases during the base year to arrive at an average medicaid and SCHIP cost per ((DRG admission)) discharge; then

     (c) For dates of admission before August 1, 2007, adjusts, for hospitals with a fiscal year ending different than the common fiscal year end, the medicaid and SCHIP average cost by a factor determined by ((MAA)) the department to standardize hospital costs to the common fiscal year end. ((MAA)) The department adjust the hospital's medicaid and SCHIP average cost by the hospital's specific case mix index.

     (4) ((MAA)) For dates of admission before August 1, 2007, the department caps the medicaid and SCHIP average cost per case for peer groups B and C at seventy percent of the peer group average. In calculation of the peer group cap, ((MAA)) the department removes the indirect medical education and outlier costs from the Medicaid average cost per admission.

     (a) For hospitals in ((MAA)) department peer groups B or C, ((MAA)) the department determines aggregate costs for the operating, capital, and direct medical education components at the lesser of hospital-specific aggregate cost or the peer group cost cap; then

     (b) To whichever is less, the hospital-specific aggregate cost or the peer group cost cap determined in subsection (4) of this section, ((MAA)) the department adds:

     (i) The individual hospital's indirect medical education costs, as determined in WAC 388-550-3250(2); and

     (ii) An outlier cost adjustment in accordance with WAC 388-550-3350(((2))).

     (5) For dates of admission before August 1, 2007, for an inflation adjustment ((MAA)) and outlier set-aside adjustment, the department may:

     (a) Multiply the sum obtained in subsection (4) of this section by an inflation factor as determined by the legislature for the period January 1 of the year after the base year through October 31 of the rebase year; ((then))

     (b) Reduce the product obtained in (a) of this subsection by the outlier set-aside percentage determined in accordance with WAC 388-550-3350(3) to arrive at the hospital's adjusted CBCF((; then

     (c) Multiply the hospital's adjusted CBCF by the applicable DRG relative weight to calculate the DRG payment for each admission)).

     (6) For dates of admission on and after August 1, 2007, the department establishes medicaid DRG conversion factors for calculation of the medicaid and SCHIP DRG payments.

     (a) The department determines DRG conversion factors based on the estimated hospital operating, capital, and direct medical education costs from medicaid and SCHIP fee-for-services and Health Option claims data for the most current state fiscal year, or "base year claims data." The claims data is designated by the department as the "base year claims data" used for the DRG conversion factor calculation process. The "base year claims data" consists of medicaid and SCHIP fee-for-service and health options claims data for the most current state fiscal year (at the time the rebasing process takes place) from instate acute care hospitals that are not a critical access hospital (CAH) or a long term acute care (LTAC) hospital. The detailed cost calculation is described in WAC 388-550-3150. Only base year claims grouped to a DRG classification that has a stable DRG relative weight are included in the DRG conversion factor calculation. Stable relative weight DRGs are defined in WAC 388-550-3100.

     (b) The department calculates and adjusts hospital-specific operating, capital and direct medical education costs as follows:

     (i) For hospital-specific operating costs, the department divides the labor portion of the hospital-specific operating costs by the hospital-specific medicare wage index; then divides the result by (1.0 plus the hospital-specific medicare operating indirect medical education factor); then divides that result by the hospital-specific medicaid case-mix index; then

     (ii) For hospital-specific capital costs, the department divides hospital-specific capital costs by (1.0 plus the hospital-specific medicare capital indirect medical education factor); then divides that result by the hospital-specific medicaid case-mix; then

     (iii) For hospital-specific direct medical education costs, the department divides hospital-specific direct medical education costs by the hospital-specific medicaid case-mix; then

     (iv) To make adjustments to hospital-specific costs derived in subsections (i) through (iii) of this subsection, the department uses:

     (A) The medicare wage indices and indirect medical education factors in effect for the medicare inpatient prospective payment system (PPS) federal fiscal year that most closely matches the time period covered by the medicare cost report used for these calculations; and

     (B) The medicaid case mix indices based on the recalibrated DRG relative weights applied to the base year claims data. Medicaid case mix index is described in WAC 388-550-3400.

     (c) Calculates statewide operating and capital standardized amounts to adjust hospital-specific operating and capital costs as follows. The department:

     (i) Divides the statewide aggregate adjusted operating costs by the statewide aggregate number of discharges in the base year claims data (cost and discharges are described in subsection (a) and (b) of this subsection); and

     (ii) Divides the statewide aggregate adjusted capital costs by the statewide aggregate number of discharges in the base year claims data (costs and discharges described in subsection (a) and (b) of this section.

     (d) The department makes hospital-specific adjustments to the statewide operating and capital standardized amounts as follows:

     (i) Operating standardized amount is multiplied by the most currently available (in the medicare final rule) hospital-specific medicare wage index, and the resulting product is multiplied by (1.0 plus the most currently available hospital-specific medicare operating indirect medical education factor in the medicare final rule). These adjustments are made only at the time the rate setting calculation takes place during the rebasing process.

     (ii) Capital standardized amount is multiplied by (1.0 plus the most current available hospital-specific medicare capital indirect medical education factor that has been published at the point the rate setting calculation takes place during the rebasing process).

     (e) To determine hospital-specific DRG conversion factors, the department sums for each hospital:

     (i) The adjusted operating standardized amount;

     (ii) The adjusted capital standardized amount; and

     (iii) The direct medical education cost per discharge adjusted for hospital-specific case-mix index.

     (f) The department adjusts the hospital-specific DRG conversion factors for inflation based on the CMS PPS input price index. The adjustment is to reflect the increases in price index levels between the base year data and the rebased inpatient payment system implementation year.

     (g) The department may adust the hospital-specific DRG conversion factors by a factor to achieve budget neutrality for the state's aggregate inpatient payments for all hospital inpatient services for the rebasing implementation year.

     (h) The department may make other necessary adjustments as directed by the legislature.

     (i) The hospital's specific DRG conversion factor may not be changed unless the inpatient payment system is rebased or the legislature authorized the changes.

[Statutory Authority: RCW 74.09.090, 42 U.S.C. 1395x(v) and 1396r-4, 42 C.F.R. 447.271, 11303 and 2652. 99-14-027, § 388-550-3450, filed 6/28/99, effective 7/1/99. 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, § 388-550-3450, filed 12/18/97, effective 1/18/98.]

     Reviser's note: The typographical error in the above section occurred in the copy filed by the agency and appears in the Register pursuant to the requirements of RCW 34.08.040.
NEW SECTION
WAC 388-550-3460   Payment method--Per diem rate.   (1) For dates of admission before August 1, 2007 the department established per diem rates for:

     (a) Inpatient chronic pain management as indicated in WAC 388-550-2400;

     (b) Long term acute care (LTAC) hospitals as indicated in WAC 388-550-2595;

     (c) Community psychiatric inpatient hospitalization as indicated in WAC 388-550-2650; and

     (d) Administrative day status, and nursing facility swing bed day status, as indicated in WAC 388-550-4500.

     (2) For dates of admission on and after August 1, 2007, the department continues to pay per diems for the services identified in subsection (1), except for the community psychiatric hospitalization per diem indicated in subsection (1)(c).

     (3) For dates of admission on and after August 1, 2007, with the exception of psychiatric services, the department establishes per diem rates for specialty services that are generally based on statewide standardized average cost per day amounts, which are then adjusted to reflect the unique characteristic of hospitals in the state of Washington for payment purposes.

     (a) The department calculates statewide standardized per diem rates for the following categories:

     (i) Rehabilitation services--Rehabilitation claims are identified as all claims with a rehabilitation diagnosis (i.e., assigned to a rehabilitation AP-DRG classification) at acute care hospitals and freestanding rehabilitation hospitals including distinct part units;

     (ii) Detoxification services--Detoxification claims are identified as all claims from hospital-based detoxification units, and all claims with a detoxification diagnosis (i.e., assigned to a detoxification AP-DRG classification) at acute care hospitals.

     (iii) CUP women program services--Chemically using pregnant (CUP) women program services are identified as any claims with units of service (days) submitted to revenue code 129 in the claim record.

     (b) The department calculates hospital-specific per diem rates for all medicaid services provided by free-standing psychiatric hospitals, and all psychiatric services provided by acute care hospitals, including distinct part units.

     (c) To determine statewide standardized cost per day amounts for rehabilitation, detoxification and CUP women program services, the department uses the estimated costs of the claims identified for each category based on the department's cost finding process for the new system. These claims include any statistical outliers. These statewide standardized amounts serve as the basis for calculating per diem rates for each hospital for each service. The department then makes adjustments to the cost amounts for each hospital to factor out differences related to approved medical education programs.

     (i) For each in-state acute care hospital, excluding critical access hospitals (CAHs) and LTAC hospitals, the department estimates operating and capital costs for each of the three specialty services.

     (ii) The department then adjusts these costs to remove the indirect costs associated with approved medical education programs. Medicare publishes separate indirect medical education factors for operating and capital components, so these adjustments are made separately for both of these components. These factors are intended to reflect the indirect costs incurred by hospitals in support of approved graduate medical education programs.

     (A) For hospital-specific operating costs, the department divides the labor portion of the hospital-specific operating costs by the hospital-specific medicare wage index; then divides the result by (1.0 plus the hospital-specific medicare operating indirect medical education factor); then divides that result by the hospital-specific medicaid case-mix index; then

     (B) For hospital-specific capital costs, the department divides hospital-specific capital costs by (1.0 plus the hospital-specific medicare capital indirect medical education factor); then divides the result by the hospital-specific medicaid case-mix; then

     (iii) The department then sums the costs and days for all included hospitals for each service, and calculates each services' statewide standardized weighted average cost per day amounts, weighted based on number of days.

     (d) Once the department establishes the statewide standardized amounts, hospital-specific per diem rates for each specialty service are calculated.

     (i) Starting with the statewide standardized operating amount, the department multiplies the labor portion of the amount times the most currently available hospital-specific wage index, as published by medicare. This adjustment is made to reflect wage differences incurred by hospitals in different regions of the state.

     (ii) The department also adjusts the operating and capital amounts to reflect the indirect costs associated with approved teaching programs. The department adjusts for the indirect costs by multiplying the operating and capital amounts by (1.0 plus the most currently available hospital-specific medicare indirect medical education factor in the medicare final rule for the operating and capital components). These adjustments are made only at the time the rate setting calculation takes place during the rebasing process.

     (iii) The department then adds to the operating and capital amounts the hospital-specific direct medical education cost per day (hospital-specific direct medical education cost per day adjusted for hospital-specific case-mix index).

     (iv) Finally, the department adjusts the facility-specific combined operating, capital and medical education cost per day amounts to reflect increases in inflation between the base year and the implementation year using the CMS PPS Input Price Index. For purposes of this adjustment, the department applies the operating index to the operating and direct medical education components of the per diem rate, and the capital-related index to the capital component of the per diem rate.

     (e) Specialty service claims are not eligible for high outlier payments. See WAC 388-550-3700.

     (4) For dates of admission on and after August 1, 2007, the department establishes hospital-specific per diem rates for psychiatric services provided by instate non-critical access hospitals that are free-standing psychiatric hospitals, acute care hospitals with psychiatric distinct part units, or other acute care hospitals with more than two hundred medicaid fee-for-service and healthy options psychiatric patient days in the base year.

     (a) The department identifies psychiatric claims for hospitals meeting the criteria in this subsection as all claims from free-standing psychiatric hospitals, and all claims with a psychiatric diagnosis (i.e., assigned to a psychiatric AP-DRG classification) at the acute care hospitals. The department includes all claims from freestanding psychiatric hospitals, regardless of AP-DRG assignment.

     (b) To determine facility-specific cost per day amounts for psychiatric services, the department uses the estimated costs of the psychiatric claims in the base year claims dataset. These claims include any statistical outliers.

     (c) The department calculates average cost per day amounts for each hospital and then makes adjustments to the average cost per day amounts to reflect changes in the indirect medical education factor and hospital-specific wage index between the base year and the implementation year.

     (d) Finally, the department adjusts the hospital-specific combined operating, capital and medical education cost per day amounts to reflect increases in inflation between the base year and the implementation year using the CMS PPS Input Price Index. For purposes of this adjustment, the department applies the operating index to the operating and direct medical education components of the per diem rate, and the capital-related index to the capital component of the per diem rate.

     (5) For dates of admission on and after August 1, 2007, for hospitals not meeting the criteria in subsection (4), the department calculates per diem rates using the same method used for rehabilitation, detoxification and CUP women program payments described in this section, except that the department uses only the psychiatric claims from those facilities identified as qualifying for hospital-specific rates.

     (6) For dates of admission on and after August 1, 2007, for freestanding rehabilitation facilities, the department uses the per diem rate established for rehabilitative services rather than a facility-specific rate.

     (7) For dates of admission on and after August 1, 2007, for claims that are classified into AP-DRG classifications that do not have enough claims volume to establish stable relative weights, and that are not specialty claims as described in this section, the department also uses a per diem rate.

     (a) These types of claims are less homogeneous than the specialty claims described in this section, and the costs of these claims are more variable than the costs of those that are included under the DRG payment method. The department conducts significant analyses to establish per diem rates based on groupings that would distinguish between higher cost per day claims and lower cost per day claims. As part of this analysis, the department analyzes costs per day based on the following criteria for groupings, which are not mutually exclusive:

     (i) Neonatal claims, based on assignment to Major Diagnostic Category (MDC) 15;

     (ii) Burn claims based on assignment to MDC 22;

     (iii) AP-DRG assignments that include primarily medical procedures;

     (iv) AP-DRG assignments that include primarily surgical procedures;

     (v) Cranial procedure claims, based on specific cranial procedure AP-DRG classifications, and

     (vi) MDC assignment.

     (b) Based on the analyses of cost per day amounts for each grouping criteria identified in subsection (7)(a), the department identified four non-specialty service groupings appropriate for establishing per diem payments. These are:

     (i) Neonatal claims, based on assignment to MDC 15;

     (ii) Burn claims based on assignment to MDC 22;

     (iii) AP-DRG assignments that include primarily medical procedures, excluding any neonatal or burn classifications identified in this subsection; and

     (iv) AP-DRG assignments that include primarily surgical procedures, excluding any neonatal or burn classifications identified in this subsection.

     (c) For each service group, except for burn cases, the department calculates a per diem rate for each hospital based on the aggregate statewide weighted average cost per day for the service after adjusting costs for regional wage differences and differences in graduate medical education program costs. Unstable burn claim per diem rates are based on the average cost per day of unstable burn claims at Harborview Medical Center, which treats the vast majority of burn cases in the state.

     (d) The per diem calculations are based on the estimated costs of the claims for each service group in the base year, including both fee-for-service and healthy options claims data. After determining the statewide weighted average cost per day after these adjustments, the department calculates the per diem rate for each hospital for each service group by adjusting the statewide weighted average cost per day amount for each hospital based on its hospital-specific wage index and medical education program costs.

     (e) Because of the variability of the cost of claims in unstable AP-DRG classifications, the department developed an outlier policy for these per diem payments, similar to the outlier methodology recommended for the DRG payment method.

     (f) Claims that are not in the specialty service groupings indicated in subsection (3)(a) and (b), may qualify for a high outlier payment if the claim qualifies under the high outlier criteria. See WAC 388-550-3700.

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     (a) Pays for bariatric surgery provided in designated department-approved hospitals when all criteria established in WAC 388-550-2301 and 388-550-3020 are met;

     (b) Requires qualification and prior authorization of the provider before bariatric surgery related services are provided (see WAC 388-550-2301); and

     (c) Uses a per case rate to pay for bariatric surgery.

     (2) For dates of admission before August 1, 2007, the department determines the per case rate by using a hospital-specific medicare fee schedule rate the department used to pay for bariatric surgery.

     (3) For dates of admission on and after August 1, 2007, the department determines the per case rate by using the bariatric per case rate calculation method described in this subsection and established by the department's new inpatient payment system implemented on August 1, 2007.

     (a) To adjust hospital-specific operating, capital, and direct medical education costs, the department:

     (i) Inflates the hospital-specific operating, capital, and direct medical education routine costs from the hospital's medicare cost report fiscal year to the mid-point of the state fiscal year.

     (ii) Divides the labor portion of the hospital-specific operating costs by the hospital-specific medicare wage index in effect for the medicare inpatient prospective payment system federal fiscal year that most closely matches the time period covered by the medicare cost report used for these calculations.

     (b) To determine the statewide standardized weighted average cost per case by using the adjusted hospital-specific operating and capital costs derived in (a) of this subsection, the department:

     (i) Adjusts the hospital-specific operating and capital costs to remove the indirect costs associated with approved medical education programs; then

     (ii) Calculates the operating standardized amount by dividing statewide aggregate adjusted operating costs by the statewide aggregate number cases in the base year claims data; then

     (iii) Calculates the capital standardized amount by dividing statewide aggregate adjusted capital costs by the statewide aggregate number of cases in the base year claims data.

     (c) To make hospital-specific adjustments to the statewide operating and capital standardized amounts, the department:

     (i) Defines the adjusted operating standardized amount for bariatric services as the average of all instate hospitals operating standardized amount after making adjustments for the wage index and the indirect medical education. The department:

     (A) Multiplies the labor portion of the operating standardized amount by (1.0 plus the most currently available hospital-specific medicare wage index); then

     (B) Adds the non-labor portion of the operating standardized amount to the labor portion derived in (c)(i)(A) of this subsection; then

     (C) Multiplies the amount derived in (c)(i)(B) of this subsection by 1.0 plus the most currently available hospital-specific medicare operating indirect medical education factor to derive the operating standardized amount for bariatric services; then

     (D) Adjusts the hospital-specific operating standardized amount for bariatric services for inflation based on the CMS PPS Input Price Index. The adjustment is to reflect the increases in price index levels between the base year data and the payment system implementation year.

     (E) Calculates the statewide bariatric operating payment per case amount by:

     (I) Totaling the hospital-specific amounts derived in (c)(i)(D) of this subsection for each hospital approved by the department to provide bariatric services; and

     (II) Dividing the results in (E)(I) of this subsection by the number of instate hospitals approved by the department to provide bariatric services.

     (ii) Defines the adjusted capital standardized amount for bariatric services as the average of all instate hospitals capital standardized amount after adjusting for the indirect medical education. The department:

     (A) Multiplies the amount derived in (b)(iii) of this subsection by (1.0 plus the most currently available hospital-specific medicare capital indirect medical education factor) to derive the adjusted indirect medical education capital standardized amount for bariatric services.

     (B) Adjusts the hospital-specific capital standardized amount for bariatric services for inflation based on the CMS PPS Input Price Index. The adjustment is to reflect the increases in price index levels between the base year data and the payment system implementation year.

     (C) Calculates the statewide bariatric capital payment per case amount by:

     (I) Totaling the hospital-specific amounts derived in (c)(ii)(B) of this subsection for each hospital approved by the department to provide bariatric services; and

     (II) Dividing the results derived in (C)(I) of this subsection by the number of instate hospitals approved by the department to provide bariatric services.

     (iii) Defines the direct medical education standardized amount for bariatric services as the instate hospitals hospital-specific direct medical education weighted cost per case multiplied by the CMS PPS Input Price Index. The adjustment is to reflect the increases in price index levels between the base year data and the payment system implementation year. The department calculates the statewide bariatric direct medical education standardized payment per case by:

     (A) Multiplying the hospital-specific direct medical education weighted cost per case for each hospital approved by the department to provide bariatric services by the CMS PPS Input Price Index; then

     (B) Totaling the hospital-specific amounts derived in (iii)(A) of this subsection for each hospital approved by the department to provide bariatric services.

     (d) To determine hospital-specific bariatric payment per case amount, the department sums for each hospital the instate statewide bariatric operating payment per case, the instate statewide bariatric capital payment per case, and the hospital-specific direct medical education payment per case. (For critical border hospitals, the direct medical education payment per case is limited at the highest direct medical education payment per case amount for the instate hospitals approved by the department to provide bariatric services.)

     (e) The department adjusts the hospital-specific bariatric payment per case amount by a factor to achieve budget neutrality for the state's aggregate inpatient payments for all hospital inpatient services.

     (f) The department may make other necessary adjustments as directed by the legislature (i.e., rate rebasing and other changes as directed by the legislature).

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