Effective Date of Rule: August 1, 2007.

     Purpose: The department is amending this WAC to incorporate the results of the Navigant Study. The health and recovery services administration (HRSA) is clarifying and updating existing rules and adopting new rules to 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. Hospitals providing services to medical assistance clients will be able to use the rules to understand the policy, services provided, and the rate-setting and payment methods in the new inpatient payment system.

     Citation of Existing Rules Affected by this Order: Amending WAC 388-550-3100, 388-550-3150, 388-550-3250, 388-550-3450, 388-550-3600, 388-550-3700, 388-550-3800, 388-550-3900, 388-550-4000, 388-550-4100, 388-550-4200, 388-550-4300, 388-550-4400, 388-550-4500, 388-550-4800, and 388-550-6700.

     Statutory Authority for Adoption: RCW 74.08.090, 74.09.500.

     Other Authority: Chapter 518, Laws of 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.

      Adopted under notice filed as WSR 07-10-095, 07-10-096, 07-10-097, 07-10-098, 07-10-099, and 07-10-100 on May 1, 2007.

     Changes Other than Editing from Proposed to Adopted Version: WAC 388-550-3010(4) The department has establishes the established an 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 nonspecialty service category. See WAC 388-550-3000, 388-550-3460, and 388-550-3700. The DRG ALOS is used as a benchmark to authorize and pay inpatient hospital stays that are exempt from the DRG payment method. See WAC 388-550-4300(6).

     WAC 388-550-3150 (8)(c)(i)(B) Calculating...the ration ratio of costs-to-charges...

     WAC 388-550-3250 (4)(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.) during rebasing. The department: (i) Multiplies the statewide standardized labor portion of the operating amount by the most currently available facility-specific wage index established by medicare that exists at the time of the medicaid rebasing (to determine the labor portion, the department used the factor established by medicare multiplied by the statewide operating standardized amount); then the nonlabor portion is added to the result to produce a hospital-specific operating amount.; then (ii) Multiplies the hospital-specific operating amount by 1.0 plus the most currently available operating indirect medical education factor established by medicare that exists at the time of the medicaid rebasing; then (iii) Multiplies the statewide standardized capital amount by 1.0 plus the most currently available capital indirect medical education factor established by medicare that exists at the time of the medicaid rebasing; then (iv) Adds this hospital-specific operating amount to the statewide standardized capital amount; then (v) Adds the hospital-specific direct medical education portion adjusted for hospital-specific case mix index to the operating and capital amounts.

     WAC 388-550-3450 (6)(b)(i) For hospital-specific operating costs, the department divides adjusts the labor portion of the hospital-specific operating costs (to determine the labor portion, the department used the factor established by medicare multiplied by the statewide operating standardized amount) by the most currently available hospital-specific medicare wage index established by medicare that exists at the time of the medicaid rebasing; then adds the nonlabor portion to the result; then divides the result by (1.0 plus the most currently available hospital-specific medicare operating indirect medical education factor established by medicare that exists at the time of the medicaid rebasing); then divides the result...

     WAC 388-550-3450 (6)(d)(i) To determine the labor portion, the department used the factor established by medicare multiplied by the statewide operating standardized amount. The labor portion of the hospital-specific ((O)) operating standardized amount is multiplied by the most currently available (in the medicare final rule) hospital-specific medicare wage index established by medicare that exists at the time of the medicaid rebasing; then the nonlabor portion is added to the result; and the resulting product then the result is multiplied by (1.0 plus the most currently available hospital-specific medicare operating indirect medical education factor established by medicare that exists at the time of the medicaid rebasing in the medicare final rule). These adjustments...

     WAC 388-550-3460 (3)(a) The department calculates separate statewide…

     WAC 388-550-3460 (3)(c) To determine...for the new system.

     WAC 388-550-3460 (3)(c)(ii)(A) For the hospital-specific operating costs, the department divides adjusts...operating costs by the most currently available hospital-specific medicare wage index established by medicare that exists at the time of the medicaid rebasing; then adds the nonlabor portion to the result; then divides the result by (1.0 plus the most currently available hospital-specific medicare operating indirect medical education factor established by medicare that exists at the time of the medicaid rebasing); then divides that result by the hospital-specific medicaid case-mix index.

     WAC 388-550-3460 (3)(d)(i) Starting with the statewide standardized operating amount, the department multiplies the labor portion of the amount (to determine the labor portion, the department used the factor established by medicare multiplied by the statewide operating standardized amount) by the most currently available hospital-specific wage index established by medicare that exists at the time of the medicaid rebasing. This adjustment is made to reflect wage differences incurred by hospitals in different regions of the state. The department then adds the nonlabor portion to the result.

     WAC 388-550-3460 (3)(d)(ii) The department also adjusts the adjusted operating and capital amounts to reflect...

     WAC 388-550-3460(4) For dates of admission on and after August 1, 2007...and other acute care hospitals with more than two hundred medicaid fee-for-service and healthy options psychiatric patient days in the base year.

     WAC 388-550-3460 (4)(b) To determine facility-specific cost per day amounts payment rate per day for psychiatric services, the department uses the greater of the estimated costs per diem of the: psychiatric claims in the base year claims dataset. The claims include any statistical outliers. (i) Hospital's inpatient psychiatric claims in the base year claims dataset; or (ii) Statewide average of the estimated costs of the hospital's inpatient psychiatric claims (as described in subsection (4)(a)) in the base year claims including adjustments for regional wage differences and for differences in medical education costs. These claims...

     WAC 388-550-3470 (3)(c)(i)(A) To determine the labor portion, uses the factor established by medicare multiplied by the statewide operating standardized amount, Then then multiplies...

     WAC 388-550-3700 (17)(c) The high outlier payment allowed amount…and the high outlier threshold for payment indicated in (b)(i) through (iv) of this subsection, respectively,

     WAC 388-550-3700 (17)(c)(i) Ninety-five percent for outlier claims... or pediatric AP-DRG classifications. Hospitals paid with the payment method used for out-of-state hospitals are paid using the percent of outlier adjustment factor identified in (c)(iii) of this subsection. All high outlier...

     WAC 388-550-3700 (17)(c)(iv) Reduced Used as indicated in WAC 388-550-4800 to calculate payment for state-administered...

     WAC 388-550-3900(4) For dates of admission on and after August 1, 2007, with the exception of outpatient payment to hospitals...

     WAC 388-550-3900 (5)(a) Under one of the inpatient DRG, RCC, per diem, or per case rate payment methods that are similar to the methods used to pay instate hospitals, whether the hospital does, or does not have a medicare cost report (Form 2552-96) for the rebasing year;

     WAC 388-550-3900(7) For dates of admission...and 388-550-7200. The department limits payment to bordering city hospitals that are noncritical border hospitals to the lesser of the billed charges or the calculated payment amount.

     WAC 388-550-4000 (2)(a) Inpatient hospital claims...group (DRG), ration ratio of costs-to-charges (RCC),...

     WAC 388-550-4000 (2)(a)(iii) Limits payment to out-of-state hospitals and bordering city hospitals that are noncritical border hospitals to the lesser of the billed charges or the calculated payment amount.

     WAC 388-550-4000 (2)(b)(ii)(B) The weighted instate average of hospital outpatient hospital rates rate for instate hospitals times the...

     WAC 388-550-4300(6) The department limits all inpatient hospital stays exempt from the DRG payment method, for For dates of admission on and after August 1, 2007, the department has established an average length of stay (ALOS) for each DRG classification. The DRG ALOS is based on the claims data used during the rebasing period. For DRGs with an exceptionally low volume of claims, the department uses a proxy DRG ALOS. The DRG ALOS is used as a benchmark to authorize and pay inpatient hospital stays exempt from the DRG payment method. When an inpatient hospital stay exceeds the department's DRG ALOS benchmark or prior authorized LOS: that have not received a length of stay extension from the department, to the average length of stay calculated for the specific DRG classification in the inpatient payment system effective August 1, 2007. Exceptions to this standard exist as follows. The inpatient stay is: (a) Approved for a specific number of days by the department, or for For a psychiatric inpatient stay, the hospital must obtain approval for additional days beyond the prior authorized days from the MHD or by a the MHD designee who prior authorized the admission. See WAC 388-550-2600; (b) For an acute physical medicine and rehabilitation (PM&R) or a long term acute care (LTAC) stay, the hospital must obtain approval for additional days beyond the prior authorized days from the department unit that prior authorized the admission. See WAC 388-550-2561 and 388-550-2590; (b) (c) For chemical dependency treatment an inpatient hospital stay for detoxification for a chemical dependent pregnant CUP client, which subject to see WAC 388-550-1100; or (e) (d) For other medical inpatient stays for detoxification, see WAC 388-550-1100 and subsection (7) of this section; of acute alcohol or other drug intoxication. (e) For an inpatient stay in a certified public expenditure (CPE) hospital, see WAC 388-550-4690; and (f) For an inpatient hospital stay not identified in (a) through (e) of this subsection, the department may perform retrospective utilization review to determine if the LOS was medically necessary and at the appropriate level of care.

     WAC 388-550-4300(7) If subsection (6) (c) (d) of this section applies...

     WAC 388-550-4800(13)

((Inpatient payment system for dates of admission before August 1, 2007	Inpatient payment system for dates of admission on and after August 1, 1007
DRG Grouper, version 14.1	DRG Grouper, version 23.0
RCC Rate:	Per Diem Rate:
Psych	Psych
Rehab	Rehab
Detox	Detox
Neonate	CUP
Transplant	Burns
HIV	Medical
Low volume services	Surgical
Military hospitals	Neonate and pediatric
Per Diem Rate:	Chronic pain management
Chronic pain management
Per Case Rate:	Per Case Rate:
Bariatric surgery	Bariatric surgery
	RCC Rate:
	Transplant services
	Military hospitals))

	Inpatient payment system for dates of admission before August 1 2007	Inpatient payment system for dates of admission on and after August 1 2007
Stable DRGs	DRG Grouper v 14.1	DRG Grouper v 23.0
Unstable Medical DRGs	RCC	Per diem
Unstable Surgical DRGs	RCC	Per diem
Unstable Neonate DRGs	RCC	Per diem
Psych	RCC	Per diem
Rehab	RCC	Per diem
Detox	RCC	Per diem
Transplant	RCC	RCC
Military hospitals	RCC	RCC
HIV	RCC	Not separately defined
Chronic pain management	Per diem	Per diem
Bariatric surgery	Per case rate	Per case rate
CUP	Not separately defined	Per diem
Burns	Not separately defined	Per diem

     WAC 388-550-4800 (15)(b)(iii) Refer to the to the...

     WAC 388-550-4800 (15)(c)(vii) Refer to the medicaid percent of...adjustment factor described in WAC 388-550-3700 and (d) of this subsection for how the percent of outlier adjustment factor is reduced by a ratable to determine the outlier portion allowed amount for the claim.

     WAC 388-550-4800(20) The department may pay for authorized psychiatric indigent inpatient claims submitted by an instate community hospital designated as an institution for mental diseases (IMD) using state funds when such funds are provided by the state legislature specifically for this purpose.

     WAC 388-550-4800(21) The department's policy for payment on state-administered program claims that involve third party liability (TPL) and/or client responsibility payments is the same policy indicated in the table in WAC 388-550-2800, except that when the department determines the payment on the claim, it applies state-administered program rates, not medicaid or SCHIP rates, when comparing the lesser of billed charges or the allowed amount on the claim.

     WAC 388-550-4900 (3)(g) (2) the ratio of inpatient charges...charges for inpatient services charity care charges.

     Reviser's note: WAC 388-550-4900 is referred to above; however, the text of the section was not included with the filing by the agency. cf. RCW 34.08.020 (1)(a).

     A final cost-benefit analysis is available by contacting Larry Linn, P.O. Box 45510, Olympia, WA 98504-5510, phone (360) 725-1856, fax (360) 753-9152, e-mail linnld@dshs.wa.gov.

     Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 4, Amended 16, Repealed 0.

     Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0;      Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 4, Amended 16, Repealed 0.

     Date Adopted: June 25, 2007.

Robin Arnold-Williams

Secretary

     (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 has established an average length of stay (ALOS) for each DRG classification during the rebasing process. The DRG ALOS is used as a benchmark to authorize and pay inpatient hospital stays that are exempt from the DRG payment method. See WAC 388-550-4300(6).

     (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.]

     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.
AMENDATORY SECTION(Amending WSR 98-01-124, filed 12/18/97, effective 1/18/98)

WAC 388-550-3150   Base period costs and claims data.   (1) The department ((shall)) sets a hospital's cost-based conversion factor for dates of admission before August 1, 2007, using base period cost data from its medicare cost report (Form ((HCFA)) CMS 2552) for its fiscal year corresponding with the base period.

     (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 ratio 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 during rebasing. The department:

     (i) Multiplies the statewide standardized labor portion of the operating amount by the most currently available facility-specific wage index established by medicare that exists at the time of the medicaid rebasing (to determine the labor portion, the department used the factor established by medicare multiplied by the statewide operating standardized amount), then the nonlabor portion is added to the result to produce a hospital-specific operating amount; then

     (ii) Multiplies the hospital-specific operating amount by 1.0 plus the most currently available operating indirect medical education factor established by medicare that exists at the time of the medicaid rebasing; then

     (iii) Multiplies the statewide standardized capital amount by 1.0 plus the most currently available capital indirect medical education factor established by medicare that exists at the time of the medicaid rebasing; then

     (iv) Adds this hospital-specific operating amount to the statewide standardized capital amount; then

     (v) Adds the hospital-specific direct medical education portion adjusted for hospital-specific casemix index to the operating and capital amounts.

[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.]

     (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 (to determine the labor portion, the department used the factor established by medicare multiplied by the statewide operating standardized amount) by the most currently available hospital-specific medicare wage index established by medicare that exists at the time of the medicaid rebasing; then adds the nonlabor portion to the result; then divides the result by (1.0 plus the most currently available hospital-specific medicare operating indirect medical education factor established by medicare that exists at the time of the medicaid rebasing); 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) To determine the labor portion, the department used the factor established by medicare multiplied by the statewide operating standardized amount. The labor portion of the hospital-specific operating standardized amount is multiplied by the most currently available hospital-specific medicare wage index established by medicare that exists at the time of the medicaid rebasing; then the nonlabor portion is added to the result; then the result is multiplied by (1.0 plus the most currently available hospital-specific medicare operating indirect medical education factor established by medicare that exists at the time of the medicaid rebasing). 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.]

     (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 separate 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 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 adjusts the labor portion of the hospital-specific operating costs by the most currently available hospital-specific medicare wage index established by medicare that exists at the time of the medicaid rebasing; then adds the nonlabor portion to the result; then divides the result by (1.0 plus the most currently available hospital-specific medicare operating indirect medical education factor established by medicare that exists at the time of the medicaid rebasing); 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 (to determine the labor portion, the department used the factor established by medicare multiplied by the statewide operating standardized amount) by the most currently available hospital-specific wage index established by medicare that exists at the time of the medicaid rebasing, as published by medicare. This adjustment is made to reflect wage differences incurred by hospitals in different regions of the state. The department then adds the nonlabor portion to the result.

     (ii) The department adjusted operating and capital amounts 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.

     (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 payment rate per day for psychiatric services, the department uses the greater of the estimated costs per diem of the:

     (i) Hospital's inpatient psychiatric claims in the base year dataset; or

     (ii) Statewide average of the estimated costs of the hospital's inpatient psychiatric claims (as described in subsection (4)(a)) in the base year claims including adjustments for regional wage differences and for differences in medical education costs.

     (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.

[]

     (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) To determine the labor portion, uses the factor established by medicare multiplied by the statewide operating standardized amount, then 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).

[]

     (1) The department does not ((reimburse)) pay a hospital for a ((nonemergent)) nonemergency case when the hospital transfers the client to another hospital.

     (2) The department pays a hospital that transfers ((emergent)) emergency cases to another hospital, the lesser of:

     (a) The appropriate diagnosis-related group (DRG) payment; or

     (b) For dates of admission:

     (i) Before August 1, 2007, a per diem rate multiplied by the number of medically necessary days the client stays at the transferring hospital. The department determines the per diem rate by dividing the hospital's DRG payment amount for the appropriate DRG by that DRG's average length of stay.

     (ii) On or after August 1, 2007, a per diem rate multiplied by the number of medically necessary days the client stays at the transferring hospital plus one, not to exceed the total calculated DRG-based payment amount including any outlier payment amount. The department determines the per diem rate by dividing the hospital's DRG allowed amount for payment for the appropriate DRG by that DRG's statewide average length of stay for the AP-DRG classification as determined by the department.

     (3) The department uses:

     (a) The hospital's midnight census to determine the number of days a client stayed in the transferring hospital prior to the transfer; and

     (b) ((MAA's)) The department's length of stay data to determine the number of medically necessary days for a client's hospital stay.

     (4) The department:

     (a) Pays the hospital that ultimately discharges the client to any residence other than a hospital (e.g., home, nursing facility, etc.) the full DRG payment; and

     (b) Applies the outlier payment methodology if a transfer case qualifies:

     (i) For dates of admission before August 1, 2007, as a high-cost or low-cost outlier; and

     (ii) For dates of admission on or after August 1, 2007, as a high outlier.

     (5) The department does not pay a discharging hospital any additional amounts as a transferring hospital if it transfers a client to another hospital (intervening hospital) which subsequently sends the client back.

     (a) The department's maximum payment to the discharging hospital is the full DRG payment.

     (b) The department pays the intervening hospital(s) a per diem payment based on the method described in subsection (2) of this section.

     (6) The department makes all applicable claim payment adjustments to claims for client responsibility, third party liability, medicare, etc.

[Statutory Authority: RCW 74.08.090 and 42 U.S.C. 1395x(v), 42 C.F.R. 447.271, .11303, and .2652. 01-16-142, § 388-550-3600, filed 7/31/01, effective 8/31/01. 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, § 388-550-3600, filed 12/18/97, effective 1/18/98.]

     (d) The department increases inpatient hospital rates only when mandated by the state legislature. These increases are implemented according to the base methodology in effect, unless otherwise directed by the legislature.

     (2) ((MAA)) The department periodically recalibrates diagnosis-related group (DRG) relative weights ((periodically)), as described in WAC 388-550-3100, but no less frequently than each time the rate rebasing ((is conducted)) process described in subsection (1) takes place. The department makes recalibrated relative weights effective on the ((rate)) rebasing implementation date, which can change with each rebasing process.

     (3) When recalibrating DRG relative weights without rebasing, ((MAA)) the department may apply a budget neutrality factor (BNF) to hospitals' ((cost based)) conversion factors to ensure that total DRG payments to hospitals do not exceed total DRG payments that would have been made to hospitals if the relative weights had not been recalibrated. For the purposes of this section, BNF equals the percentage change from total ((reimbursement)) aggregate payments calculated under a new payment system to total ((reimbursement)) aggregate payments calculated under the prior payment system.

[Statutory Authority: RCW 74.08.090, 74.09.500. 05-06-044, § 388-550-3800, filed 2/25/05, effective 7/1/05. Statutory Authority: RCW 74.08.090 and 42 U.S.C. 1395x(v), 42 C.F.R. 447.271, .11303, and .2652. 01-16-142, § 388-550-3800, filed 7/31/01, effective 8/31/01. 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, § 388-550-3800, filed 12/18/97, effective 1/18/98.]

     (a) ((MAA)) The department calculates the cost-based conversion factor (CBCF) of a bordering city ((area)) hospital as defined in WAC 388-550-1050, in accordance with WAC 388-550-3450.

     (b) For a bordering city ((area)) hospital with no ((HCFA)) medicare cost report (Form 2552-96) for the rebasing year, ((MAA)) the department assigns the ((MAA)) department peer group average conversion factor. This is the average of all final conversion factors of hospitals in that group.

     (2) ((MAA)) For dates of admission before August 1, 2007, the department calculates:

     (a) The ratio of costs-to-charges (RCC) in accordance with WAC 388-550-4500.

     (b) For a bordering city ((area)) hospital with no ((HCFA 2552)) medicare cost report submitted to the department, its RCC is based on the Washington in-state average RCC ((ratios)).

     (3) For dates of admission before August 1, 2007, the department pays a bordering city hospital using the same payment methods as for an instate hospital for allowed covered charges related to medically necessary services identified on an outpatient hospital claim.

     (4) For dates of admission on and after August 1, 2007, with the exception of outpatient payment to hospitals previously paid under the outpatient prospective payment system (OPPS) methodology and critical border hospitals located in bordering cities, the department pays bordering city hospitals for allowed covered charges related to medically necessary services based on the inpatient and outpatient hospital rates and payment methods used to pay out-of-state hospitals. See WAC 388-550-4000.

     (5) For dates of admission on and after August 1, 2007, the department pays a critical border hospital for allowed covered charges related to medically necessary services identified on an inpatient hospital claim:

     (a) Under one of the inpatient DRG, RCC, per diem, or per case rate payment methods that are similar to the methods used to pay instate hospitals;

     (b) Using a DRG conversion factor, per diem, or per case rate based on the statewide standardized average that will result in payment that does not exceed the payment that would be made to any instate hospital for the same service, including medical education components of payments; and

     (c) Using a hospital's specific RCC rate based on the hospital's annual medicare cost report information for the applicable period. For a critical border hospital that does not submit a medicare cost report to the department, the department determines which instate hospital has the lowest RCC rate and uses that rate as the critical border hospital's RCC rate.

     (6) The inpatient payment rates used to calculate payments to critical border hospitals are prospective payment rates. Those rates are not used to pay for claims with dates of admission before the hospital qualified as a critical border hospital. Bordering city hospitals' base period claims data is analyzed during the rebasing process, and annually thereafter, to determine if a bordering city hospital qualifies as a critical border hospital.

     (7) For dates of admission on and after August 1, 2007, the department pays a critical border hospital for allowed covered charges related to medically necessary services identified on an outpatient hospital claim using the outpatient hospital payment methods and payment criteria identified in WAC 388-550-6000 and 388-550-7200. The department limits payment to bordering city hospitals that are noncritical border hospitals to the lesser of the billed charges or the calculated payment amount.

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

[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, § 388-550-3900, 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, § 388-550-3900, filed 12/18/97, effective 1/18/98.]

     (1) For dates of admission before August 1, 2007, the department ((shall)) pays:

     (a) Inpatient hospital claims for emergency services provided in out-of-state hospitals, the lesser of:

     (i) Billed charges; or

     (ii) ((the amount calculated using)) The weighted average of ratio of cost-to-charge (RCC) ratios for in-state ((Washington)) hospitals multiplied by the allowed covered charges for medically necessary services.

     (b) Outpatient hospital claims for emergency services provided in out-of-state hospitals, the lesser of:

     (i) Billed charges; or

     (ii) The weighted average of outpatient hospital rates for instate hospitals multiplied by the allowed covered charges for medically necessary services.

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

     (a) Inpatient hospital claims for emergency services provided in out-of-state hospitals under the inpatient diagnostic related group (DRG), ratio of costs-to-charges (RCC), per diem, and per case rate payment methods, whether or not the hospital has submitted a medicare cost report (Form 2552-96) to the department for the rebasing year. The department:

     (i) Pays an out-of-state hospital and bordering city hospital that is not a critical border hospital, using the lowest of the instate inpatient hospital rates, and excludes payment for medical education (out-of-state hospitals are not eligible to receive payment for medical education.). This rate is the same rate calculated for all rural hospitals in Washington for the same service (excluding DWCC rates that are paid to instate critical access hospitals).

     (ii) Pays a department designated critical border hospital according to WAC 388-550-3900.

     (iii) Limits payment to out-of-state hospitals and bordering city hospitals that are noncritical border hospitals to the lesser of the billed charges or the calculated payment amount.

     (b) Pays outpatient hospital claims for emergency services provided in out-of-state hospitals that are:

     (i) Bordering city hospitals, including critical border hospitals previously paid under the outpatient prospective payment system (OPPS) methodology for dates of admission before August 1, 2007, in accordance with WAC 388-550-7200; and

     (ii) Out-of-state hospitals, including bordering city hospitals not previously paid under the OPPS methodology, the lesser of:

     (A) Billed charges; or

     (B) The instate average hospital outpatient rate times the allowed covered charges for medically necessary services.

     (3) The department does not pay for nonemergency hospital services provided to medical assistance clients in out-of-state hospitals unless the facility is contracted and/or prior authorized by the department or the department's designee, for the specific service provided.

     (i) Contracted services are paid according to the contract terms whether or not the hospital has signed a core provider agreement.

     (ii) Authorized services are paid according to subsections (1) and (2) of this section.

     (4) The department makes all applicable claim payment adjustments for clients responsibility, third party liability, medicare, etc., to claim payments.

[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, § 388-550-4000, filed 12/18/97, effective 1/18/98.]

     (a) A hospital which began services after the most recent rebased cost-based conversion factors (CBCFs) conversion factors, RCC rates, per diem rates, per case rates, etc.((,)) ; or

     (b) A hospital that has not been in operation for a complete fiscal year.

     (2) ((MAA)) The department determines a new hospital's:

     (a) CBCF as the average of the CBCF of all hospitals within the same ((MAA)) department peer group for dates of admission before August 1, 2007.

     (b) Conversion factor, per diem rate, or per case rate, to be the statewide average rate for the conversion factor, category of per diem rate, or per case rate, for dates of admission on and after August 1, 2007, adjusted by the geographically appropriate hospital specific medicare wage index.

     (3) ((MAA)) The department determines a new hospital's ratio of costs-to-charges (RCC) by calculating and using the average RCC rate for all current Washington in-state hospitals.

     (4) ((MAA)) The department considers that a change in hospital ownership does not constitute a new hospital.

[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, § 388-550-4100, 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, § 388-550-4100, filed 12/18/97, effective 1/18/98.]

     (a) A change in the composition of the partnership;

     (b) A sale of an unincorporated sole proprietorship;

     (c) The statutory merger or consolidation of two or more corporations;

     (d) The leasing of all or part of a provider's facility if the leasing affects utilization, licensure, or certification of the provider entity;

     (e) The transfer of a government-owned institution to a governmental entity or to a governmental corporation;

     (f) Donation of all or part of a provider's facility to another entity if the donation affects licensure or certification of the provider entity;

     (g) Disposition of all or some portion of a provider's facility or assets through sale, scrapping, involuntary conversion, demolition or abandonment if the disposition affects licensure or certification of the provider entity; or

     (h) A change in the provider's federal identification tax number.

     (2) A hospital ((shall)) must notify the department in writing ninety days prior to the date of an expected change in the hospital's ownership, but in no case later than thirty days after the change in ownership takes place.

     (3) When a change in a hospital's ownership occurs, the department ((shall)) sets the new provider's cost-based conversion factor (CBCF), conversion factor, per diem rates, per case rate, at the same level as the prior owner's, except as provided in subsection (4) below.

     (4) The department ((shall)) sets for a hospital formed as a result of a merger:

     (a) A blended CBCF, conversion factor, per diem rate, per case rate, based on the old hospitals' rates, proportionately weighted by admissions for the old hospitals; and

     (b) An RCC rate determined by combining the old hospitals' cost reports and following the process described in WAC 388-550-4500. Partial year cost reports will not be used for this purpose.

     (5) The department ((shall)) recaptures depreciation and acquisition costs as required by section 1861 (V)(1)(0) of the Social Security Act.

[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, § 388-550-4200, filed 12/18/97, effective 1/18/98.]

     (2) For dates of admission before August 1, 2007, subject to the restrictions and limitations listed in this section, the department exempts the following hospitals and units from the DRG payment method for inpatient services provided to medicaid-eligible clients:

     (a) Peer group A hospitals, as described in WAC 388-550-3300(2). Exception: Inpatient services provided to clients eligible under the following programs are ((reimbursed)) paid through the DRG payment method (see WAC 388-550-4400):

     (i) General assistance programs; and

     (ii) Other state((-only)) administered programs.

     (b) Peer group E hospitals, as described in WAC 388-550-3300(2). See WAC 388-550-4650 for how the department calculates payment to Peer group E hospitals.

     (c) Peer group F hospitals (critical access hospitals).

     (d) Rehabilitation units when the services are provided in department-approved acute physical medicine and rehabilitation (acute PM&R) hospitals and designated distinct rehabilitation units in acute care hospitals.

     The department uses the same criteria as the medicare program to identify exempt rehabilitation hospitals and designated distinct rehabilitation units. ((Exception:)) Inpatient rehabilitation services provided to clients eligible under the following programs are covered and ((reimbursed)) paid through the DRG payment method (see WAC 388-550-4400 for exceptions):

     (i) General assistance programs; and

     (ii) Other state-only administered programs.

     (e) Out-of-state hospitals excluding hospitals located in designated bordering cities as described in WAC 388-501-0175. Inpatient services provided in out-of-state hospitals to clients eligible under the following programs are not covered or ((reimbursed)) paid by the department:

     (i) General assistance programs; and

     (ii) Other state((-only)) administered programs.

     (f) Military hospitals when no other specific arrangements have been made with the department. Military hospitals may individually elect or arrange for one of the following payment methods in lieu of the RCC payment method:

     (i) A negotiated per diem rate; or

     (ii) DRG.

     (g) Nonstate-owned specifically identified psychiatric hospitals and designated hospitals with medicare certified distinct psychiatric units. The department uses the same criteria as the medicare program to identify exempt psychiatric hospitals and distinct psychiatric units of hospitals.

     (i) Inpatient psychiatric services provided to clients eligible under the following programs are ((reimbursed)) paid through the DRG payment method:

     (A) General assistance programs; and

     (B) Other state((-only)) administered programs.

     (ii) ((Regional support networks (RSNs))) Mental health division (MHD) designees that arrange to reimburse nonstate-owned psychiatric hospitals and designated distinct psychiatric units of hospitals directly, may use the department's payment methods or contract with the hospitals to reimburse using different methods. Claims not paid directly through ((an RSN)) a MHD are paid through the department's payment system.

     (3) The department limits inpatient hospital stays for dates of admission before August 1, 2007 that are exempt from the DRG payment method and identified in subsection (2) of this section to the number of days established at the seventy-fifth percentile in the current edition of the publication, "Length of Stay by Diagnosis and Operation, Western Region," unless the stay is:

     (a) Approved for a specific number of days by the department, or for psychiatric inpatient stays, by the regional support network (RSN);

     (b) For chemical dependency treatment which is subject to WAC 388-550-1100; or

     (c) For detoxification of acute alcohol or other drug intoxication.

     (4) If subsection (3)(c) of this section applies to an eligible client, the department will:

     (a) Pay for three-day detoxification services for an acute alcoholic condition; or

     (b) Pay for five-day detoxification services for acute drug addiction when the services are directly related to detoxification; and

     (c) Extend the three- and five-day limitations for up to six additional days if either of the following is invoked on a client under care in a hospital:

     (i) Petition for commitment to chemical dependency treatment; or

     (ii) Temporary order for chemical dependency treatment.

     (5) For dates of admission on and after August 1, 2007, the department exempts the following hospitals, units, and services from the DRG payment method for inpatient services provided to medicaid-eligible clients:

     (a) Peer group E hospitals as described in WAC 388-550-3300(2), i.e., hospitals participating in the department's certified public expenditure (CPE) payment program. See WAC 388-550-4650.

     (b) Peer group F hospitals, i.e., critical access hospitals. See WAC 388-550-2598.

     (c) Rehabilitation services. All rehabilitation services are paid through the per diem payment method except as indicated in (b), (c), and (f) of this subsection. See WAC 388-550-3010. Inpatient psychiatric services, involuntary treatment act services, and detoxification services provided in out-of-state hospitals are not covered or paid by the department or a MHD designee. The department does not cover or pay for other hospital services provided to clients eligible for those services in the following programs, when the services are provided in out-of-state hospitals that are not in designated bordering cities:

     (i) General assistance programs; and

     (ii) Other state-administered programs.

     (f) Military hospitals when no other specific arrangements have been made with the department. The department, or the military hospital, may elect or arrange for one of the following payment methods in lieu of the RCC payment method:

     (i) Per diem payment method; or

     (ii) DRG payment method.

     (g) Psychiatric services. All psychiatric services are paid through the per diem payment method except as indicated in (b), (c), and (f) of this subsection. See WAC 388-550-3010. A MHD designee that arranges to pay a hospital and/or a designated distinct psychiatric unit of a hospital directly, may use the department's payment methods or contract with the hospitals to pay using different methods. Claims not paid directly through a MHD designee are paid through the department's payment system.

     (6) For dates of admission on and after August 1, 2007, the department has established an average length of stay (ALOS) for each DRG classification. The DRG ALOS is based on the claims data used during the rebasing period. For DRGs with an exceptionally low volume of claims, the department uses a proxy DRG ALOS. The DRG ALOS is used as a benchmark to authorize and pay inpatient hospital stays exempt from the DRG payment method. When an inpatient hospital stay exceeds the department's DRG ALOS benchmark or prior authorized LOS:

     (a) For a psychiatric inpatient stay, the hospital must obtain approval for additional days beyond the prior authorized days from the MHD or the MHD designee who prior authorized the admission. See WAC 388-550-2600;

     (b) For an acute physical medicine and rehabilitation (PM&R) or a long term acute care (LTAC) stay, the hospital must obtain approval for additional days beyond the prior authorized days from the department unit that prior authorized the admission. See WAC 388-550-2561 and 388-550-2590;

     (c) For an inpatient hospital stay for detoxification for a chemical dependent pregnant CUP client, see WAC 388-550-1100;

     (d) For other medical inpatient stays for detoxification, see WAC 388-550-1100 and subsection (7) of this section;

     (e) For an inpatient stay in a certified public expenditure (CPE) hospital, see WAC 388-550-4690; and

     (f) For an inpatient hospital stay not identified in (a) through (e) of this subsection, the department may perform retrospective utilization review to determine if the LOS was medically necessary and at the appropriate level of care.

     (7) If subsection (6)(d) of this section applies to an eligible client, the department will:

     (a) Pay for three-day detoxification services for an acute alcoholic condition; or

     (b) Pay for five-day detoxification services for acute drug addiction when the services are directly related to detoxification; and

     (c) Extend the three- and five-day limitations for up to six additional days if either of the following is invoked on a client under care in a hospital:

     (i) Petition for commitment to chemical dependency treatment; or

     (ii) Temporary order for chemical dependency treatment.

[Statutory Authority: RCW 74.08.090, 74.09.500. 06-08-046, § 388-550-4300, filed 3/30/06, effective 4/30/06. Statutory Authority: RCW 74.04.050, 74.08.090. 05-12-132, § 388-550-4300, filed 6/1/05, effective 7/1/05. Statutory Authority: RCW 74.08.090 and 42 U.S.C. 1395x(v), 42 C.F.R. 447.271, .11303, and .2652. 01-16-142, § 388-550-4300, filed 7/31/01, effective 8/31/01. 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, § 388-550-4300, 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 34.08.040.3866.2
AMENDATORY SECTION(Amending WSR 03-13-053, filed 6/12/03, effective 7/13/03)

WAC 388-550-3700   DRG high-cost and low-cost outliers, and new system DRG and per diem high outliers.   This section applies to inpatient hospital claims paid under the diagnosis-related group (DRG) payment methodology, and for dates of admission on and after August 1, 2007. It also applies to inpatient hospital claims paid under per diem payment methodology.

     (1) For dates of admission before August 1, 2007, a medicaid or state-administered claim qualifies as a DRG high-cost outlier when:

     (a) The client's admission date on the claim is before January 1, 2001, the stay did not meet the definition of "administrative day," and the allowed charges exceed:

     (i) A threshold of twenty-eight thousand dollars; and

     (ii) A threshold of three times the applicable DRG payment amount.

     (b) The client's admission date on the claim is January 1, 2001, or after, the stay did not meet the definition of "administrative day," and the allowed charges exceed:

     (i) A threshold of thirty-three thousand dollars; and

     (ii) A threshold of three times the applicable DRG payment amount.

     (2) For dates of admission before August 1, 2007, if the claim qualifies as a DRG high-cost outlier, the high-cost outlier threshold, for payment purposes, is the amount in subsection (1)(a)(i) or (ii), whichever is greater, for an admission date before January 1, 2001; or subsection (1)(b)(i) or (ii), whichever is greater, for an admission date January 1, 2001 or after.

     (3) For dates of admission before August 1, 2007, the department determines payment for medicaid claims that qualify as DRG high-cost outliers as follows:

     (a) All qualifying claims, except for claims in psychiatric DRGs 424-432 and in-state children's hospitals, are paid seventy-five percent of the allowed charges above the outlier threshold determined in subsection (2) of this section, multiplied by the hospital's RCC rate, plus the applicable DRG payment.

     (b) In-state children's hospitals are paid eighty-five percent of the allowed charges above the outlier threshold determined in subsection (2) of this section, multiplied by the hospital's RCC rate, plus the applicable DRG payment.

     (c) Psychiatric DRG high-cost outliers for DRGs 424-432 are paid one hundred percent of the allowed charges above the outlier threshold determined in subsection (2) of this section, multiplied by the hospital's RCC rate, plus the applicable DRG payment.

     Three examples for DRG high-cost outlier claim qualification and payment calculation (admission dates are January 1, 2001, or after, and before August 1, 2007).

Examples for DRG high-cost outlier claim qualification and payment calculation (admission dates are January 1, 2001, or after).
Allowed Charges		Applicable DRG Payment		Three times App. DRG Payment		Allowed Charges > $33,000?	Allowed Charges> Three times App. DRG Payment?	DRG High-Cost Outlier Payment	Hospital's Individual RCC Rate
$17,000		$5, 000		$15,000		No	Yes	N/A	64%
*33,500		5,000		15,000		Yes	Yes	**$5,240	64%
10,740		35,377		106,131		No	No	N/A	64%

Medicaid Payment calculation example for allowed charges of:		Nonpsych DRGs/Nonin-state children's hospital (RCC is 64%)
*$33,500		Allowed charges
- $33,000 $500		The greater amount of 3 x app. DRG pymt ($15,000) or $33,000
x 48%		75% of allowed charges x hospital RCC rate (nonpsych DRGs/nonin-state children's) (75% x 64% = 48%)
$240		Outlier portion
+ $5,000		Applicable DRG payment
**$5,240		Outlier payment

     (4) For dates of admission before August 1, 2007, DRG high-cost outliers for state-administered programs are paid according to WAC 388-550-4800.

     (5) ((A)) For dates of admission before August 1, 2007, a medicaid or state-administered claim qualifies as a DRG low-cost outlier if:

     (a) The client's admission date on the claim is before January 1, 2001, and the allowed charges are:

     (i) Less than ten percent of the applicable DRG payment; or

     (ii) Less than four hundred dollars.

     (b) The client's admission date on the claim is January 1, 2001, or after, and the allowed charges are:

     (i) Less than ten percent of the applicable DRG payment; or

     (ii) Less than four hundred fifty dollars.

     (6) If the claim qualifies as a DRG low-cost outlier:

     (a) For an admission date before January 1, 2001, the low-cost outlier amount is the amount in subsection (5)(a)(i) or (ii), whichever is greater; or

     (b) For an admission date on January 1, 2001, or after, the low-cost outlier amount is the amount in subsection (5)(b)(i) or (ii), whichever is greater.

     (7) For dates of admission before August 1, 2007, the department determines payment for a Medicaid claim that qualifies as a DRG low-cost outlier by multiplying the allowed charges for each claim by the hospital's RCC rate.

     (8) For dates of admission before August 1, 2007, DRG low-cost outliers for state-administered programs are paid according to WAC 388-550-4800.

     (9) For dates of admission before August 1, 2007 the department makes day outlier payments to hospitals in accordance with section 1923 (a)(2)(C) of the Social Security Act, for clients who have exceptionally long stays that do not reach DRG high-cost outlier status. A hospital is eligible for the day outlier payment if it meets all of the following criteria:

     (a) The hospital is a disproportionate share hospital (DSH) and the client served is under age six, or the hospital may not be a DSH hospital but the client served is a child under age one;

     (b) The payment methodology for the admission is DRG;

     (c) The allowed charges for the hospitalization are less than the DRG high-cost outlier threshold as defined in subsection (2) of this section; and

     (d) The client's length of stay exceeds the day outlier threshold for the applicable DRG payment amount. The day outlier threshold is defined as the number of days in an average length of stay for a discharge (for an applicable DRG payment), plus twenty days.

     (10) For dates of admission before August 1, 2007 the department bases the day outlier payment on the number of days that exceed the day outlier threshold, multiplied by the administrative day rate.

     (11) For dates of admission before August 1, 2007, the department's total payment for day outlier claims is the applicable DRG payment plus the day outlier or administrative days payment.

     (12) For dates of admission before August 1, 2007, a client's outlier claim is either a day outlier or a high-cost outlier, but not both.

     (13) For dates of admission on and after August 1, 2007, the department does not identify a claim as a low cost outlier or day outlier. Instead, these claims are processed using the applicable payment method described in this chapter. The department may review claims with very low costs.

     (14) For dates of admission on and after August 1, 2007, the department allows a high outlier payment for claims paid using the DRG payment method when high outlier qualifying criteria are met. The estimated costs of the claim are calculated by multiplying the total submitted charges, minus the noncovered charges on the claim, by the hospital's ratio of costs-to-charges (RCC) rate. The department identifies a DRG high outlier claim based on the claim's estimated costs. To qualify as a DRG high outlier claim, the department determined estimated costs for the claim must be greater than both the fixed outlier cost threshold of fifty thousand dollars and one hundred seventy-five percent of the applicable base DRG allowed amount for payment. These criteria are also used to determine if a transfer claim qualifies for high outlier payment when a transfer claim is submitted to the department by a transferring hospital.

     For Children's Hospital Regional Medical Center, Mary Bridge Children's Hospital and Health Center, and claims grouped to neonatal and pediatric DRGs under the DRG payment method, the department identifies a high outlier claim based on the claim's estimated costs. To qualify as a high outlier claim, the claim's estimated cost amount must be greater than both the fixed outlier threshold of fifty thousand dollars and one hundred fifty percent of the applicable base DRG allowed amount for payment.

     (15) For dates of admission on and after August 1, 2007, the department may allow an adjustment for a high outlier for per diem claims grouped to a DRG classification in one of the acute unstable DRG service categories, i.e., medical, surgical, burn, and neonatal. These service categories are described in subsection (16) of this section.

     The department identifies high outlier per diem claims for medical, surgical, burn, and neonatal DRG service categories based on the claim estimated costs. The claim estimated costs are the total submitted charges, minus the noncovered charges for the claim, multiplied by the hospital's ratio of costs-to-charges (RCC) related to the admission. To qualify as a high outlier claim, when a claim is grouped to medical, surgical, burn, or neonatal DRG service category, the claim's estimated cost amount must be greater than both the fixed outlier threshold of fifty thousand dollars and one hundred seventy-five percent of the applicable per diem base allowed amount for payment.

     For Children's Hospital Regional Medical Center, Mary Bridge Children's Hospital and Health Center, and claims grouped to neonatal and pediatric DRGs under medical, surgical, burn, and neonatal services categories, the department identifies high outlier claims based on the claim's estimated costs. To qualify as a high outlier claim, the claim's estimated cost amount must be greater than both the fixed outlier threshold of fifty thousand dollars and one hundred fifty percent of the applicable per diem base allowed amount for payment.

     The department performs retrospective prepay utilization review on all per diem outlier claims that exceed the department determined DRG average length of stay (LOS). If the department determines the entire LOS or part of the LOS is not medically necessary, the claim will be denied or the payment will be adjusted.

     (16) For dates of admission on and after August 1, 2007, the term "unstable" is used generically to describe an AP-DRG classification that has fewer than ten occurrences (low volume), or that is unstable based on the statistical stability test indicated in this subsection, and to describe such claims in the major service categories of per diem paid claims identified in this section. 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 population's estimated standard deviation.

     Specifically, this 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

     If the actual number of claims within an AP-DRG classification is less than the calculated N size for that classification during relative weight recalibration, the department designates that DRG classification as unstable for purposes of calculating relative weights. And as previously stated, for relative weight recalibration, the department also designates any DRG classification having less than ten claims in total in the claims sample used to recalibrate the relative weights, as low volume and unstable.

     The DRG classification assigned to the per diem payment method, that are in one of the following major services categories in subsection (16)(a) through (d) of this section, qualify for determination to ascertain if a high outlier payment is appropriate. The department specifies those DRG classifications to be paid the per diem payment method because the DRG classification has low volume and/or unstable claims data for determination of a AP-DRG relative weight. A claim in a DRB classification that falls into one of the following major services categories that the department designates for per diem payment, may receive a per diem high outlier payment when the claim meets the high outlier criteria as described in subsection (15) of this section:

     (a) Neonatal claims, based on assignment to medical diagnostic category (MDC) 15;

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

     (c) AP-DRG groups that include primarily medical procedures, excluding any neonatal or burn per diem classifications identified in (a) and (b) of this subsection; and

     (d) AP-DRG groups that include primarily surgical procedures, excluding any neonatal or burn per diem classifications identified in (a) and (b) of this subsection.

     (17) For dates of admission on and after August 1, 2007, the high outlier claim payment processes for the general assistance-unemployable (GA-U) program are the same as those for the medicaid or SCHIP DRG paid and per diem paid claims, except that the DRG rates and per diem rates are reduced, and the percent of outlier adjustment factor applied to the payment may be reduced. The high outlier claim payment process for medicaid or SCHIP DRG paid and per diem paid claims is as follows:

     (a) The department determines the claim estimated cost amount that is used in the determination of the high outlier claim qualification and the high outlier threshold for the calculation of outlier adjustment amount. The claim estimated cost is equal to the total submitted charges, minus the noncovered charges reported on the claim, multiplied by the hospital's inpatient ratio of costs-to-charges (RCC) related to the admission.

     (b) The high outlier threshold when calculating the high outlier adjustment portion of the total payment allowed amount on the claim is:

     (i) For DRG paid claims grouped to non-neonatal or non-pediatric DRG classifications, and for DRG paid claims that are not from Children's Hospital Regional Medical Center or Mary Bridge Children's Hospital and Health Center, the high outlier threshold is one hundred seventy-five percent of the base DRG payment allowed amount;

     (ii) For DRG paid claims grouped to neonatal or pediatric DRG classifications, and for DRG paid claims that are from Children's Hospital Regional Medical Center or Mary Bridge Children's Hospital and Health Center, the high outlier threshold is one hundred fifty percent of the base DRG payment allowed amount;

     (iii) For non-specialty service category per diem paid claims grouped to non-neonatal and non-pediatric DRG classifications, and for non-specialty service category per diem paid claims that are not from Children's Hospital Regional Medical Center or Mary Bridge Children's Hospital and Health Center, the high outlier threshold is one hundred seventy-five percent of the base per diem payment allowed amount; and

     (iv) For non-specialty service category per diem paid claims grouped to neonatal and pediatric DRG classifications, and for all non-specialty service category per diem paid claims from Children's Hospital Regional Medical Center and Mary Bridge Children's Hospital and Health Center, the high outlier threshold is one hundred fifty percent of the base per diem payment allowed amount;

     (c) The high outlier payment allowed amount is equal to the difference between the department's estimated cost of services associated with the claim, and the high outlier threshold for payment indicated in (b)(i) through (iv) of this subsection, respectively, the resulting amount being multiplied by a percent of outlier adjustment factor. The percent of outlier adjustment factor is:

     (i) Ninety-five percent for outlier claims that fall into one of the neonatal or pediatric AP-DRG classifications. Hospitals paid with the payment method used for out-of-state hospitals are paid using the percent of outlier adjustment factor identified in (c)(iii) of this subsection. All high outlier claims at Children's Hospital Regional Medical Center and Mary Bridge Children's Hospital and Health Center receive a ninety-five percent of outlier adjustment factor, regardless of AP-DRG classification assignment;

     (ii) Ninety percent for outlier claims that fall into burn-related AP-DRG classifications;

     (iii) Eighty-five percent for all other AP-DRG classifications; and

     (iv) Used as indicated in WAC 388-550-4800 to calculate payment for state-administered programs' claims that are eligible for a high outlier payment.

     (d) The high outlier payment allowed amount is added to the calculated allowed amount for the base DRG or base per diem payment, respectively, to determine the total payment allowed amount for the claim.

DRG high outlier
Three examples for medicaid or SCHIP DRG high outlier claim qualification and payment calculation (admission dates are on or after August 1, 2007). Example dollar amounts are approximated and not based on real claims data.
Total Submitted Charges minus Noncovered Charges	Base DRG Payment Allowed Amount1	175% of Base DRG Payment Allowed Amount	Department Determined Estimated Costs Are Greater Than $50,000?2	Department Determined Estimated Costs Are Greater Than 175% of Base DRG Payment Allowed Amount?	Total DRG High Outlier Claim Payment Allowed Amount3,4	Hospital's Individual RCC Rate
$95,600	$28,837	$50,465	Yes	Yes	$38,761	65%
$64,500	$28,837	$50,465	No	Yes	$28,837	65%
$77,000	$28,837	$50,465	Yes	No	$28,837	65%

     All examples represent a claim that is a non-psychiatric claim and a claim that isn't from Children's Hospital Regional Medical Center or Mary Bridge Children's Hospital and Health Center.

     Example one: The claim meets high cost outlier criteria. Example dollar amounts are approximated and not based on real claims data:

     ¹DRG conversion factor times DRG relative weight= Base DRG allowed amount

     $6,300 x 4.5773 = $28,837 = Base DRG allowed amount

     ²Total submitted charges minus total noncovered charges times RCC rate = Department determined estimated costs

     $95,600 x 65% = $62,140 = Department determined estimated costs

     ³If department determined estimated costs are greater than the outlier qualifying criteria (in this example $50,000), then (department determined estimated costs minus 175% of base DRG payment allowed amount (high outlier payment threshold)) times claim's percent of outlier adjustment factor (see subsection (17)(c)(i), (ii) and (iii)) = High outlier portion allowed amount, if greater than $0, otherwise $0.

     $62,140 - $50,465 = $11,675 x 85% = $9,924 = High outlier portion allowed amount

     ⁴Base DRG payment allowed amount plus high outlier portion allowed amount = Total DRG high outlier claim payment amount

     $28,837 + $9,924 = $38,761

     Example two: The claim does not meet high cost outlier criteria due to department-determined estimated cost being less than $50,000. Example dollar amounts are approximated and not based on real claims data:

     ¹DRG conversion factor times DRG relative weight = Base DRG allowed amount

     $6,300 x 4.5773 = $28,837 = Base DRG allowed amount

     ²Total submitted charges minus total noncovered charges times RCC rate = Department determined estimated costs

     $64,500 x 65% = $41,925 = Department determined estimated costs

     ³If department determined estimated costs are greater than the outlier qualifying criteria, then (department determined estimated costs minus 175% of base DRG payment allowed amount (high outlier payment threshold)) times claim's percent of outlier adjustment factor (see subsection (17)(c)(i), (ii) and (iii)) = High outlier portion allowed amount, if greater than $0, otherwise $0.

     ($41,925 - $50,465 = ($8,540)) x 85% = ($7,259), which is converted to $0. Also, $41,925 is not greater than $50,000, so the claim does not meet the high outlier qualifying criteria. Therefore, the high outlier portion allowed amount is $0.

     ⁴Base DRG payment allowed amount plus high outlier portion allowed amount = Total DRG high outlier claim payment allowed amount

     $28,837 + $0 = $28,837

     Example three: The claim does not meet high outlier criteria due to high DRG allowed amount. Example dollar amounts are approximated and not based on real claims data:

     ¹DRG conversion factor times DRG relative weight = Base DRG allowed amount

     $6,300 x 4.5773 = $28,837 = Base DRG allowed amount

     ²Total submitted charges minus total noncovered charges times RCC rate = Department determined estimated costs

     $77,000 x 65% = $50,050 = Department determined estimated costs

     ³If department determined estimated costs are greater than the outlier qualifying criteria, then (department determined estimated costs minus 175% of base DRG payment allowed amount (high outlier payment threshold)) times claim's percent of outlier adjustment factor (see subsection (17)(c)(i), (ii) and (iii)) = high outlier portion allowed amount, if greater than $0, otherwise $0.

     ($50,050 - $50,465 = ($415)) x 85% = ($353), which is converted to $0. Also, $50,050 is greater than $50,000, but not greater than $50,465, so the claim does not meet the high outlier qualifying criteria. Therefore, the high outlier portion allowed amount is $0.

     ⁴Base DRG payment allowed amount plus high outlier portion allowed amount = Total DRG high outlier claim payment allowed amount

     $28,837 + $0 = $28,837

Per Diem High Outlier
Three examples for medicaid and SCHIP per diem high outlier claim qualification and payment calculation (admission dates are on or after August 1, 2007). Example dollar amounts are approximated and not based on real claims data.
Total Submitted Charges Less Total Noncovered Charges	Base Per Diem Payment Allowed Amount1	175% of Base Per Diem Payment Allowed Amount	Department Determined Estimated Costs Are Greater Than $50,000?2	Department Determined Estimated Costs Are Greater Than 175% of Base Per Diem Payment Allowed Amount?	Total Per Diem High Outlier Claim's Payment Allowed Amount3,4	Hospital's Individual RCC Rate
$100,000	$25,000	$43,750	Yes	Yes	$47,313	70%
$64,000	$25,000	$43,750	No	Yes	$25,000	70%
$75,000	$35,000	$61,250	Yes	No	$35,000	70%

     All examples represent a claim that is a non-psychiatric claim and a claim that isn't from Children's Hospital Regional Medical Center or Mary Bridge Children's Hospital and Health Center.

     Example one: The claim meets high cost outlier criteria. Example dollar amounts are approximated and not based on real claims data:

     ¹Per diem rate times client's department recognized length of stay for eligible days = Base per diem allowed amount

     $1,000 (rate) x 25 (days) = $25,000 = Base per diem allowed amount

     ²Total submitted charges minus total noncovered charges times RCC rate = Department determined estimated costs

     $100,000 x 70% = $70,000 = Department determined estimated costs

     ³If department determined estimated costs are greater than the outlier qualifying criteria, then (department determined estimated costs minus 175% of base per diem payment allowed amount (high outlier payment threshold)) times claim's percent of outlier adjustment factor (see subsection (17)(c)(i), (ii) and (iii)) = High outlier portion allowed amount, if greater than $0, otherwise $0.

     ($70,000 - $43,750 = $26,250) x 85% = $22,313 = High outlier portion allowed amount

     ⁴Base per diem payment allowed amount plus high outlier portion allowed amount = Total per diem high outlier claim payment allowed amount

     $25,000 + $22,313 = $47,313

     Example two: The claim does not meet high cost outlier criteria due to department-determined estimated cost being less than $50,000. Example dollar amounts are approximated and not based on real claims data:

     ¹Per diem rate times client's department recognized length of stay for eligible days = Base per diem allowed amount

     $1,000 x 25= $25,000 = Base per diem allowed amount

     ²Total submitted charges minus total noncovered charges times RCC rate = Department determined estimated costs

     $64,500 x 70% = $45,150 = Department determined estimated costs

     ³If department determined estimated costs are greater than the outlier qualifying criteria, then (department determined estimated costs minus 175% of base per diem payment allowed amount (high outlier payment threshold)) times claim's percent of outlier adjustment factor (see subsection (17)(c)(i), (ii) and (iii)) = High outlier portion allowed amount, if greater than $0, otherwise $0.

     ($45,150 - $43,750 = $1,400), but $45,150 is not greater than $50,000, so the claim does not meet the high outlier qualifying criteria. Therefore, the high outlier portion allowed amount is $0.

     ⁴Base per diem payment allowed amount plus high outlier portion allowed amount = Total per diem high outlier claim payment allowed amount

     $25,000 + $0 = $25,000

     Example three: (The claim does not meet high outlier criteria due to high DRG allowed amount. Example dollar amounts are approximated and not based on real claims data):

     ¹Per diem rate times client's department recognized length of stay for eligible days = Base per diem allowed amount

     $1,000 x 35= $35,000 = Base per diem allowed amount

     ²Total submitted charges minus total noncovered charges times RCC rate = Department determined estimated costs

     $75,000 x 70% = $52,500 = Department determined estimated costs

     ³If department determined estimated costs are greater than the outlier qualifying criteria, then (department determined estimated costs minus 175% of base DRG payment allowed amount (high outlier payment threshold)) times claim's percent of outlier adjustment factor (see subsection (17)(c)(i), (ii) and (iii)) = High outlier portion allowed amount, if greater tan $0, otherwise $0.

     ($52,500 - $61,250 = (8,750)) x 85% = ($7,438), which is converted to $0. Also, $52,500 is greater than $50,000, but not greater than $61,250, so the claim does not meet the high outlier qualifying criteria. Therefore, the high outlier portion allowed amount is $0.

     ⁴Base per diem payment allowed amount plus high outlier portion allowed amount = Total per diem high outlier claim payment allowed amount

     $35,000 + $0 = $35,000

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

[Statutory Authority: RCW 74.08.090, 74.09.500. 03-13-053, § 388-550-3700, filed 6/12/03, effective 7/13/03. Statutory Authority: RCW 74.08.090 and 42 U.S.C. 1395x(v), 42 C.F.R. 447.271, .11303, and .2652. 01-16-142, § 388-550-3700, filed 7/31/01, effective 8/31/01. Statutory Authority: RCW 74.08.090, 42 USC 1395 x(v), 42 CFR 447.271, 447.11303 and 447.2652. 99-06-046, § 388-550-3700, 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, § 388-550-3700, filed 12/18/97, effective 1/18/98.]

     (2) Subject to the restrictions and limitations in this section, for dates of admission before August 1, 2007, the department exempts the following services for medicaid clients from the DRG payment method:

     (a) Neonatal services for DRGs 602-619, 621-628, 630, 635, and 637-641.

     (b) Acquired immunodeficiency syndrome (AIDS)-related inpatient services for those cases with a reported diagnosis of AIDS-related complex and other human immunodeficiency virus infections. These services are also exempt from the DRG payment method when funded by the department through the general assistance programs and any other state((-only)) administered program.

     (c) Alcohol or other drug detoxification services when provided in a hospital having a detoxification provider agreement with the department to perform these services. These services are also exempt from the DRG payment method when funded by the department through the general assistance programs and any other state((-only)) administered program.

     (d) Hospital-based intensive inpatient detoxification, medical stabilization, and drug treatment services provided to chemically dependent pregnant women (CUP program) by a certified hospital. These are medicaid program services and are not funded by the department ((through)) for the general assistance programs or any other state((-only)) administered program.

     (e) Acute physical medicine and rehabilitation services provided in ((MAA)) department-approved rehabilitation hospitals and hospital distinct units, and services for physical medicine and rehabilitation patients. See WAC 388-550-4300 (2)(d). Rehabilitation services provided to clients under the general assistance programs and any other state-only administered program are also reimbursed through the RCC payment method.

     (f) Psychiatric services provided in nonstate-owned psychiatric hospitals and designated distinct psychiatric units of hospitals. Inpatient psychiatric services provided to clients eligible under the following programs are reimbursed through the DRG payment method:

     (i) General assistance programs; and

     (ii) Other state administered programs.

     (g) Chronic pain management treatment provided in department-approved pain treatment facilities.

     (h) Administrative day services. The department ((reimburses)) pays administrative days based on the statewide average medicaid nursing facility per diem rate, which is adjusted annually each November 1. The department applies this rate to patient days identified as administrative days on the hospital's notice of rates. Hospitals must request an administrative day designation on a case-by-case basis.

     (i) Inpatient services recorded on a claim that is grouped by ((MAA)) the department to a DRG for which ((MAA)) the department has not published an all patient DRG relative weight, except that claims grouped to DRGs 469 and 470 will be denied payment. This policy also applies to covered services paid through the general assistance programs and any other state((-only)) administered program.

     (j) Organ transplants that involve the heart, kidney, liver, lung, allogeneic bone marrow, pancreas, autologous bone marrow, or simultaneous kidney/pancreas. These services are also exempt from the DRG payment method when funded by ((MAA)) the department through the general assistance programs and any other state((-only)) administered program.

     (k) Bariatric surgery performed in hospitals that meet the criteria in WAC 388-550-2301. ((MAA)) The department pays hospitals for bariatric surgery on a ((single)) per case rate basis. See WAC 388-550-3470.

     (3) Inpatient services provided through a managed care plan contract are ((reimbursed)) paid by the managed care plan.

     (4) Subject to the restrictions and limitations in this section, for dates of admission on and after August 1, 2007, the department exempts the following services for medicaid and SCHIP clients from the DRG payment method. This policy also applies to covered services paid through the general assistance programs and any other state-administered program, except when otherwise indicated in this section. The exempt services are:

     (a) Alcohol or other drug detoxification services when provided in a hospital having a detoxification provider agreement with the department to perform these services.

     (b) Hospital-based intensive inpatient detoxification, medical stabilization, and drug treatment services provided to chemically-using pregnant (CUP) women program by a certified hospital. These are medicaid program services and are not covered or funded by the department through the general assistance programs or any other state-administered program.

     (c) Acute physical medicine and rehabilitation (acute PM&R) services.

     (d) Psychiatric services. A mental health division (MHD) designee that arranges to pay a hospital directly for psychiatric services, may use the department's payment methods or contract with the hospital to pay using different methods. Claims not paid directly through a MHD designee are paid through the department's payment system.

     (e) Chronic pain management treatment provided in a hospital approved by the department to provide that service.

     (f) Administrative day services. The department pays administrative days based on the statewide average medicaid nursing facility per diem rate, which is adjusted annually. The department applies this rate to patient days identified as administrative days on the hospital's notice of rates. A hospital must request an administrative day designation on a case-by-case basis. The department may designate part of a client's stay to be paid an administrative day rate upon review of the claim and/or client's medical record.

     (g) Inpatient services recorded on a claim that is grouped by the department to a DRG for which the department has not published an all patient DRG (AP DRG) relative weight. Claims grouped to DRG 469 or DRG 470 will be denied payment.

     (h) Organ transplants that involve heart, kidney, liver, lung, allogeneic bone marrow, autologous bone marrow, pancreas, or simultaneous kidney/pancreas. The department pays hospitals for these organ transplants using the ratio of costs-to-charges (RCC) payment method.

     (i) Bariatric surgery performed in hospitals that meet the criteria in WAC 388-550-2301. The department pays hospitals for bariatric surgery on a per case rate basis. See WAC 388-550-3020 and 388-550-3470.

     (j) Services provided by a critical access hospital (CAH).

     (k) Services provided by a hospital participating in the certified public expenditure (CPE) payment program. The CPE "hold harmless" provision allows a reconciliation that is described in WAC 388-550-4670.

     (l) Services provided by a long term acute care (LTAC) hospital.

[Statutory Authority: RCW 74.08.090, 74.09.520. 05-12-022, § 388-550-4400, filed 5/20/05, effective 6/20/05. Statutory Authority: RCW 74.08.090 and 42 U.S.C. 1395x(v), 42 C.F.R. 447.271, .11303, and .2652. 01-16-142, § 388-550-4400, filed 7/31/01, effective 8/31/01. 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, § 388-550-4400, filed 12/18/97, effective 1/18/98.]

     (a) The ((medical assistance administration (MAA))) department calculates a hospital's RCC rate by dividing allowable ((operating)) costs by patient-related revenues associated with these allowable costs. The department determines the allowable costs and associated revenues.

     (b) ((MAA)) The department bases ((these figures)) the RCC rate calculation on data from the hospital's "as filed" annual medicare cost report (Form 2552-96) and applicable patient revenue reconciliation data provided by the hospital.

     (c) ((MAA)) The department updates a hospital's inpatient RCC rate annually ((with)) after the ((submittal of new CMS 2552)) hospital sends its "as filed" hospital fiscal year medicare cost report ((data)) to the centers for medicare and medicaid services (CMS) and to the department.

     (i) In situations where a delay in submission of the CMS medicare cost report to the medicare fiscal intermediary is granted by medicare, the department may adjust the RCC rate based on a department-determined method.

     (ii) Prior to ((computing the ratio, MAA)) calculating the RCC rate, the department excludes ((increases in operating)) department nonallowed costs ((or total rate-setting revenue)) and nonallowable revenues. Costs and revenues attributable to a change in ownership are one example of what the department does not allow in the calculation process.

     (2) The department limits a hospital's RCC payment to one hundred percent of its ((allowable)) allowed covered charges.

     (3) The department establishes the basic inpatient hospital RCC ((payment)) allowed amount by multiplying the hospital's assigned RCC rate by the allowed covered charges for medically necessary services. ((MAA)) The department deducts client responsibility (((spend-down))) and third-party liability (TPL) ((from)), and makes other applicable payment program adjustments to the basic ((payment)) allowed amount to determine the actual payment due.

     (4) For dates of admission:

     (a) Before August 1, 2007, the department uses the RCC payment method to ((reimburse)) pay:

     (((a))) (i) DRG-exempt hospitals ((as provided)) identified in WAC 388-550-4300; and

     (((b))) (ii) Any hospital for DRG-exempt services ((described)) identified in WAC 388-550-4400. See the services identified in WAC 388-550-4400 (2)(g), (h), and (k) for an exception to this policy.

     (b) For dates of admission on and after August 1, 2007, the department uses the RCC payment method to pay:

     (i) Transplant services identified in WAC 388-550-4400;

     (ii) DRG and per diem payment method high outlier payments;

     (iii) Long term acute care (LTAC) hospital services not covered under the LTAC per diem rate; and

     (iv) Other services specified by the department.

     (5) ((In-state and border area)) For dates of admission before August 1, 2007, the department pays instate and bordering city hospitals that lack sufficient ((CMS 2552)) medicare cost report data to establish a hospital specific RCC ((are reimbursed)), using the weighted average in-state:

     (a) RCC rate for applicable inpatient services ((as provided)) identified in WAC 388-550-4300 and 388-550-4400; and

     (b) Outpatient rate as provided in WAC 388-550-6000.

     (6) The department pays out-of-state hospitals ((are also reimbursed for the respective)) for covered services ((using the weighted average in-state:

     (a) RCC rate for inpatient services as provided in WAC 388-550-4300 and 388-550-4400; and

     (b) Outpatient rate for outpatient hospital services as provided in WAC 388-550-6000)) as described in WAC 388-550-4000.

     (7) ((MAA)) The department identifies all in-state hospitals that have hospital specific RCC rates, and calculates the weighted average in-state RCC rate annually by dividing the department-determined total allowable ((operating)) costs of these hospitals by the department-determined total ((respective)) patient-related revenues associated with those costs.

     (8) The department ((pays)) allows hospitals an all-inclusive administrative day rate for those days of hospital stay in which a client ((no longer needs an)) does not meet criteria for acute inpatient level of care, but is not discharged because an appropriate placement outside the hospital is not available.

     (a) ((MAA sets payment for administrative days at the statewide average Medicaid nursing facility per diem rate. The administrative day rate is adjusted annually)) Upon request, the department's nursing facility rate-setting staff provides the department's hospital rate-setting staff with the statewide weighted average nursing facility medicaid payment rate each year to update the all-inclusive administrative day rate on November 1.

     (b) The department does not pay for ancillary services provided during administrative days ((are not reimbursed)).

     (c) The department identifies administrative days ((for a DRG exempt case)) during the length of stay review process after the client's discharge from the hospital.

     (d) The department pays the hospital ((at)) the administrative day rate starting with the date of hospital admission if the admission is solely for a stay until an appropriate sub-acute placement can be made.

     (9) ((MAA)) The department calculates the weighted average in-state hospital outpatient rate annually by multiplying the weighted average in-state RCC rate by the outpatient adjustment factor.

     (10) For hospitals that have their own hospital specific inpatient RCC rate, ((MAA)) the department calculates the hospital's specific hospital outpatient rate by multiplying the hospital's inpatient RCC rate by the outpatient adjustment factor.

     (11) The outpatient adjustment factor:

     (a) Must not exceed 1.0; and

     (b) Is updated annually. ((This update causes an additional update of)) At the time the outpatient adjustment factor is updated, the hospital outpatient rate for ((each)) the hospital is adjusted.

     (12) ((MAA)) The department establishes the basic hospital outpatient ((payment)) allowed amount for a claim as provided in WAC 388-550-6000 and 388-550-7200. ((MAA)) The department deducts any client responsibility (((spend-down))) and any third-party liability (TPL) ((from)), and makes any other applicable payment program adjustments to the ((basic payment)) allowed amount to determine the actual payment due.

     (13) The department allows hospitals a swing bed day rate for those days when a client is receiving department-approved nursing service level of care in a swing bed. The department's aging and disability services administration (ADSA) determines the swing bed day rate.

     (a) The department does not allow payment for acute inpatient level of care for swing bed days when a client is receiving department-approved nursing service level of care in a swing bed.

     (b) The department's allowed amount for those ancillary services not covered under the swing bed day rate is based on the payment methods provided in WAC 388-550-6000 and 388-550-7200, and may be billed by the hospital on an outpatient hospital claim, except for pharmacy services and pharmaceuticals.

     (c) The department allows pharmacy services and pharmaceuticals not covered under the swing bed day rate, that are provided to a client receiving department-approved nursing service level of care, to be billed directly by a pharmacy through the point of sale system. The department does not allow those pharmacy services and pharmaceuticals to be paid to the hospital through submission of a hospital outpatient claim.

[Statutory Authority: RCW 74.08.090, 74.09.500, 74.09.035(1), and 43.88.290. 03-13-055, § 388-550-4500, filed 6/12/03, effective 7/13/03. Statutory Authority: RCW 74.08.090 and 42 U.S.C. 1395x(v), 42 C.F.R. 447.271, .11303, and .2652. 01-16-142, § 388-550-4500, filed 7/31/01, effective 8/31/01. Statutory Authority: RCW 74.08.090, 42 USC 1395x(v), 42 CFR 447.271, 447.11303, and 447.2652. 99-06-046, § 388-550-4500, 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, § 388-550-4500, filed 12/18/97, effective 1/18/98.]

     (a) For dates of admission before August 1, 2007 for only emergency care for an eligible medicaid and SCHIP client who goes to another state, except specified border cities, specifically for the purpose of obtaining medical care that is available in the state of Washington. See WAC 388-501-0175 for a list of border cities.

     (b) For dates of admission on and after August 1, 2007, for both emergency and nonemergency out-of-state hospital services, including those provided in bordering city hospitals and critical border hospitals, for eligible medicaid and SCHIP clients based on the medical necessity and utilization review standards and limits established by the department.

     (i) Prior authorization by the department is required for the nonemergency out-of-state hospital medical care provided to medicaid and SCHIP clients.

     (ii) Bordering city hospitals are considered the same:

     (A) As instate hospitals for coverage of hospital services; and

     (B) As out-of-state hospitals for payment methodology. Department designated critical border hospitals are paid as instate hospitals. See WAC 388-550-3900 and 388-550-4000.

     (c) For out-of-state voluntary psychiatric inpatient hospital services for eligible medicaid and SCHIP clients based on authorization by a mental health division designee.

     (d) Based on the department's limitations on hospital coverage under WAC 388-550-1100 and 388-550-1200 and other applicable rules.

     (2) The department ((shall)) authorizes and ((provide)) pays for comparable ((medical care)) hospital services ((to)) for a medicaid and SCHIP client who is temporarily outside the state to the same extent that such ((medical care)) services are furnished to an eligible medicaid client in the state, subject to the exceptions and limitations in this section. See WAC 388-550-3900 and 388-550-4000.

     (3) The department ((shall not authorize payment for out-of-state medical care furnished to state-funded clients (medically indigent/medical care services), but may authorize medical services in designated bordering cities)) limits out-of-state hospital coverage for clients eligible under state-administered programs as follows:

     (a) For a client eligible under the psychiatric indigent inpatient (PII) program or who receives services under the Involuntary Treatment Act (ITA), the department does not pay for hospital services provided in any hospital outside the state of Washington (including bordering city and critical border hospitals).

     (b) For a client eligible under a department's general assistance program, the department pays only for hospital services covered under the client's medical care services' program scope of care that are provided in a bordering city hospital or a critical border hospital. The department does not pay for hospital services provided to clients eligible under a general assistance program in other hospitals located outside the state of Washington. The department or its designee may require prior authorization for hospital services provided in a bordering city hospital or a critical border hospital. See WAC 388-550-1200.

     (4) The department ((shall)) covers hospital care provided to medicaid or SCHIP clients in areas of Canada as described in WAC 388-501-0180, and based on the limitations described in the state plan.

     (5) The department ((shall)) may review all cases involving out-of-state ((medical care)) hospital services, including those provided in bordering city hospitals and critical border hospitals, to determine whether the services are within the scope of the client's medical assistance program.

     (6)(((a))) If the client can claim deductible or coinsurance portions of medicare, the provider ((shall)) must submit the claim to the intermediary or carrier in the provider's own state on the appropriate medicare billing form.

     (((b))) If the state of Washington is checked on the form as the party responsible for medical bills, the intermediary or carrier may bill on behalf of the provider or may return the claim to the provider for submission to the state of Washington.

     (7) For ((reimbursement)) payment for out-of-state inpatient hospital services, see WAC 388-550-3900 and 388-550-4000.

     (8) ((The department shall reimburse out-of-state outpatient hospital services billed under the physician's current procedural terminology codes at an amount that is the lower of:

     (a) The billed amount; or

     (b) The rate paid by the Washington state Title XIX Medicaid program.

     (9))) Out-of-state providers ((shall)), including bordering city hospitals and critical border hospitals, must present final charges to ((MAA)) the department within three hundred sixty-five days of the ((date of service)) "statement covers period from date" shown on the claim. ((In no case shall)) The state of Washington ((be)) is not liable for payment of charges received beyond ((one year)) three hundred sixty-five days from the ((date services were rendered)) "statement covers period from date" shown on the claim.

[Statutory Authority: RCW 74.08.090. 01-02-075, § 388-550-6700, filed 12/29/00, effective 1/29/01. 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, § 388-550-6700, filed 12/18/97, effective 1/18/98.]

     (1) Except as provided in subsection (2) of this section, the ((medical assistance administration (MAA))) department uses the ratio of costs-to-charges (RCC) and diagnosis-related group (DRG) payment methods described in this section to ((reimburse)) pay hospitals at reduced rates for covered services provided to a client who is not eligible under ((any)) a medicaid program, the SCHIP program, or alien emergency medical (AEM) program and:

     (a) Who qualifies for the general assistance unemployable (GAU) program; or

     (b) Is involuntarily detained under the Involuntary Treatment Act (ITA).

     (2) ((MAA)) The department exempts the following services from the state-administered programs' payment methods and/or reduced rates:

     (a) Detoxification services when the services are provided under ((an MAA)) a department-assigned provider number starting with "thirty-six." (((MAA reimburses)) The department pays these services using the Title XIX medicaid RCC payment method.)

     (b) Program services provided by ((MAA)) department-approved critical access hospitals (CAHs) to clients eligible under state-administered programs. (((MAA reimburses)) The department pays these services through cost settlement as described in WAC 388-550-2598.)

     (c) Program services provided by Peer group E hospitals to clients eligible under the GAU program. (((MAA reimburses)) The department these services through the "full cost" public hospital certified public expenditure (CPE) payment program (see WAC 388-550-4650)).

     (3) ((MAA)) The department determines:

     (a) A state-administered program RCC payment by reducing a hospital's Title XIX medicaid RCC rate using the hospital's ratable.

     (b) A state-administered program DRG payment by reducing a hospital's Title XIX medicaid DRG cost based conversion factor (CBCF) using the hospital's ratable and equivalency factor (EF).

     (4) ((MAA)) The department determines:

     (a) The RCC rate for the state-administered programs mathematically as follows:

     State-administered programs' RCC rate = current Title XIX medicaid RCC rate x (one minus the current hospital ratable)

     (b) The DRG conversion factor (CF) for the state-administered programs mathematically as follows:

     State-administered programs' DRG CF = current Title XIX medicaid DRG CBCF x (one minus the current hospital ratable) x EF

     (5) ((MAA)) The department determines payments to hospitals for covered services provided to clients eligible under the state-administered programs mathematically as follows:

     (a) Under the RCC payment method:

     State-administered programs' RCC payment = state-administered programs' RCC Rate x allowed charges

     (b) Under the DRG payment method:

     State-administered programs' DRG payment = state-administered programs' DRG CF x all patient DRG relative weight (See subsection (6) of this section for how ((MAA)) the department determines payment for state-administered program claims that qualify as DRG high-cost outliers.)

     (6) For state-administered program claims that qualify as DRG high-cost outliers, ((MAA)) the department determines:

     (a) In-state children's hospital payments for state-administered program claims that qualify as DRG high-cost outliers mathematically as follows:

     Eighty-five percent of the allowed charges above the outlier threshold x the specific hospital's RCC rate x (one minus the current hospital ratable) plus the DRG allowed amount

     (b) Psychiatric DRG high-cost outlier payments for DRGs 424 through 432 mathematically as follows:

     One hundred percent of the allowed charges above the outlier threshold x the specific hospital's RCC rate x (one minus the current hospital ratable) plus the applicable DRG allowed amount

     (c) Payments for all other claims that qualify as DRG high-cost outliers as follows:

     Sixty percent x the specific hospital's RCC rate x (one minus the current hospital ratable) plus the applicable DRG allowed amount

High-cost Outlier Calculations for Qualifying Claims State-administered Programs (for admission dates January 1, 2001 and after)

In-state Children's Hospitals Allowed charges

(-)

> of $33000 or 3 x DRG

(=)

Charges > threshold

(x)

RCC

(x)

1 (-) Ratable

(x)

85%

(=)

Outlier Add-on Amount

(+)

*DRG Allowed Amount

Psychiatric DRGs 424-432 Allowed charges

(-)

> of $33000 or 3 x DRG

(=)

Charges > threshold

(x)

RCC

(x)

1 (-) Ratable

(x)

100%

(=)

Outlier Add-on Amount

(+)

* DRG Allowed Amount

All other qualifying claims Allowed charges

(-)

> of $33000 or 3 x DRG

(=)

Charges > threshold

(x)

RCC

(x)

1 (-) Ratable

(x)

60%

(=)

Outlier Add-on Amount

(+)

* DRG Allowed Amount

*Basic DRG allowed amount calculation: DRG relative weight x conversion factor = DRG allowed amount

     (7) See WAC 388-550-3700(5) for how claims qualify as low-cost outliers.

     (8) ((MAA)) The department determines payments for claims that qualify as DRG low-cost outliers mathematically as follows:

     Allowed charges for the claim x the specific hospital's RCC rate x (one minus the current hospital ratable)

     (9) To calculate a hospital's ratable that is applied to both the Title XIX medicaid RCC rate and the Title XIX medicaid DRG CBCF used to determine the respective state-administered program's reduced rates, ((MAA)) the department:

     (a) Adds the hospital's medicaid revenue (medicaid revenue as reported by department of health (DOH) includes all medicaid revenue and all other medical assistance revenue) and medicare revenue to the value of the hospital's charity care and bad debts, all of which is taken from the most recent complete calendar year data available from DOH at the time of the ratable calculation; then

     (b) Deducts the hospital's low-income disproportionate share hospital (LIDSH) revenue from the amount derived in (a) of this subsection to arrive at the hospital's community care dollars; then

     (c) Subtracts the hospital-based physicians revenue that is reported in the hospital's most recent HCFA-2552 medicare cost report received by ((MAA)) the department at the time of the ratable calculation, from the total hospital revenue reported by DOH from the same source as discussed in (a) of this subsection, to arrive at the net hospital revenue; then

     (d) Divides the amount derived in (b) of this subsection by the amount derived in (c) of this subsection to obtain the ratio of community care dollars to net hospital revenue (also called the preliminary ratable factor); then

     (e) Subtracts the amount derived in (d) of this subsection from 1.0 to obtain the hospital's preliminary ratable; then

     (f) Determines a neutrality factor by:

     (i) Multiplying hospital-specific medicaid revenue that is reported by DOH from the same source as discussed in (a) of this subsection by the preliminary ratable factor; then

     (ii) Multiplying that same hospital-specific medicaid revenue by the prior year's final ratable factor; then

     (iii) Summing all hospital-medicaid revenue from the hospital-specific calculations that used the preliminary ratable factor discussed in (f)(i) of this subsection; then

     (iv) Summing all hospital revenue from the hospital-specific calculations that used the prior year's final ratable factor discussed in (f)(ii) of this subsection; then

     (v) Comparing the two totals; and

     (vi) Setting the neutrality factor at 1.0 if the total using the preliminary ratable factor is less than the total using the prior year's final ratable factor; or

     (vii) Establishing a neutrality factor that is less than 1.0 that will reduce the total using the preliminary ratable factor to the level of the total using the prior year's final ratable factor, if the total using the preliminary ratable factor is greater than the total using the prior year's ratable factor; then

     (g) Multiplies, for each specific hospital, the preliminary ratable by the neutrality factor to establish hospital-specific final ratables for the year; then

     (h) Subtracts each hospital-specific final ratable from 1.0 to determine hospital-specific final ratable factors for the year; then

     (i) Calculates an instate-average ratable and an instate-average ratable factor used for new hospitals with no prior year history.

     (10) ((MAA)) The department updates each hospital's ratable annually on August 1.

     (11) ((MAA)) The department:

     (a) Uses the equivalency factor (EF) to hold the hospital specific state-administered programs' DRG CF at the same level prior to rebasing, adjusted for inflation; and

     (b) Calculates a hospital's EF as follows:

     EF = State-administered programs' prior DRG CF divided by current Title XIX Medicaid DRG CBCF x (one minus the prior ratable)

     (12) For dates of admission on and after August 1, 2007, the department pays for services provided to a client eligible for a state administered program based on state-administered program rates. The state administered program rates are established independently from the process used in setting the medicaid payment rates. The state administered program rates may not be changed unless the legislature authorizes the changes. The department uses the ratable factor and equivalency factor to keep the state administered program payment rates at the same level they were at before the state medicaid rates are rebased.

     (13) The table in this subsection shows a comparison of the payment policy for the department's inpatient payment system for dates of admission before August 1, 2007, and the inpatient payment system effective for dates of admission on and after August 1, 2007. Under this inpatient payment system effective August 1, 2007, the per diem rates are used to pay for many services previously paid using the RCC payment method.

     The following table indicates differences in policy for the two inpatient payment systems:

	Inpatient payment system for dates of admission before August 1, 2007	Inpatient payment system for dates of admission on and after August 1, 2007
Stable DRGs	DRG Grouper v 14.1	DRG grouper v 23.0
Unstable/Medical DRGs	RCC	Per diem
Unstable Surgical DRGs Unstable Neonate DRGs	RCC RCC	Per diem Per diem
Psych	RCC	Per diem
Rehab	RCC	Per diem
Detox	RCC	Per diem
Transplant	RCC	RCC
Military hospitals	RCC	RCC
HIV Chronic pain management	RCC Per diem	Not separately defined Per diem
Bariatric surgery	Per case rate	Per case rate
CUP	Not separately defined	Per diem
Burns	Not separately defined	Per diem

     See specific sections in the chapter 388-550 WAC to determine how the department pays hospitals participating in the critical access hospital (CAH) program, the long term acute care (LTAC) program, and the certified public expenditure (CPE) payment program.

     (14) Due to changes in payment methodologies established for the inpatient payment system effective August 1, 2007, the department has established the following state administered program rates used for dates of admission on and after August 1, 2007:

     (a) State administered program DRG conversion factor for claims grouped under stable DRG classifications services.

     (b) State administered program per diem rates for claims grouped under the following specialty service categories:

     (i) CUP;

     (ii) Detoxification; and

     (iii) Physical medicine and rehabilitation.

     (c) State administered program per diem rates for the claims grouped to unstable DRG classifications under the following non-specialty service categories:

     (i) Surgical;

     (ii) Medical;

     (iii) Burns; and

     (iv) Neonate and pediatric.

     (d) State administered program per diem rates for claims grouped under psychiatric services.

     (e) State administered program per case rate for claims grouped under bariatric services.

     (f) State administered program RCC rates for claims grouped under transplant services.

     (15) This subsection describes the state administered program (DRG) conversion factor and payment calculation processes used by the department to pay claims paid using the DRG payment method. The department pays for services grouped to a stable DRG classification that are provided to clients eligible for a state administered program based on use of a DRG conversion factor and a DRG relative weight. This process is similar to the payment method used to pay for medicaid and SCHIP services that are grouped to a stable DRG classification.

     (a) The department's state administered program DRG conversion factor calculation process is as follows:

     (i) For instate and critical border hospitals, the hospital's specific DRG conversion factor that is used to calculate payment for a state administered program claim, is based on the medicaid conversion factor adjusted by the most available ratable factor and the applicable equivalency factor. Mathematically the calculation is:

     State administered program DRG CF =

     ((Medicaid DRG CF x applicable Equivalency Factor) x most available ratable factor)

     (ii) For instate and critical border hospitals that do not have a current state administered program DRG conversion factor, the state administered program conversion factor is the hospital's specific proposed medicaid conversion factor multiplied by the average applicable equivalent factor and average applicable ratable.

     (iii) For bordering city hospitals that are not critical border hospitals, and for other out-of-state hospitals that are not critical border hospitals, the state administered program DRG conversion factor is the lowest instate medicaid DRG conversion factor multiplied by the average ratable and equivalency factor.

     (b) The department's state administered program DRG equivalency factor calculation process is as follows:

     (i) The equivalency factor is a factor used to hold the hospital's specific state administered program DRG conversion factor or rates at the same level before and after the medicaid DRG rate is rebased. Mathematically the calculation is:

     Equivalency factor = (State administered program DRG CF/(Medicaid DRG CF x ratable))

     (ii) The department may make an adjustment to the equivalency factor to address the differences in the relative weight values of the two DRG grouper versions due to the recalibration of the weights.

     (iii) Refer to the ratable and ratable factor definition and calculation for the ratable factor determination.

     (c) The department's DRG payment calculation process for DRG classifications grouped to stable DRG relative weights is as follows:

     (i) The department determines the allowed amount for the inlier portion of the state-administered program DRG payment calculation. Mathematically the calculation is:

     State administered program DRG inlier portion allowed amount of the payment = (State administered program DRG CF x DRG relative weight)

     (ii) The department determines the high outlier claim calculation for the state administered program DRG payment. See WAC 388-550-3700 for more information about high outlier qualification and calculation processes. Mathematically the calculation is:

     State-administered program DRG inlier and outlier portion allowed amount of the payment = (State-administered program DRG CF x DRG relative weight) + outlier adjustment

     (iii) The outlier payment adjustment calculation for a state administered program claim is different than the outlier payment calculation for a medicaid claim. The outlier adjustment for a state administered program claim is adjusted by the ratable factor.

     (iv) The outlier threshold amount for claims that are eligible for a high outlier payment and are grouped to non-neonatal DRGs and non-pediatric DRGs, equals one hundred seventy-five percent of the DRG inlier allowed amount calculation. This same outlier threshold is used for claims that are eligible for a high outlier payment in hospitals other than Children's Hospital Regional Medical Center and Mary Bridge Children's Hospital and Health Center.

     (v) The outlier threshold amount for claims that are eligible for a high outlier payment and are grouped to neonatal DRGs, pediatric DRGs, equals one hundred fifty percent of the DRG inlier allowed amount calculation. This same outlier threshold is used for claims that are eligible for a high outlier payment when the claim is from Children's Hospital Regional Medical Center or Mary Bridge Children's Hospital and Health Center.

     (vi) The outlier transfer provision is applied for the calculation of services paid under the state administered program DRG payments.

     (vii) Refer to the medicaid percent of outlier adjustment factor described in WAC 388-550-3700 and (d) of this subsection for how the percent of outlier adjustment factor is reduced by a ratable to determine the outlier portion allowed amount for the claim.

     (d) The department determines the outlier portion allowed amount calculation for the state-administered program high outlier claim DRG payment as follows. Mathematically the calculation is:

     State administered program outlier portion allowed amount of claim = ((Covered charges x RCC) - outlier threshold) x (Percent of outlier adjustment factor x ratable factor)

     (i) A claim is an outlier claim when the claim cost (covered charges x RCC) is greater than both the fixed loss amount of fifty thousand dollars and one hundred seventy-five percent(one hundred fifty percent for neonatal, pediatric DRGs, Children's Hospital Regional Medical Center or Mary Bridge Children's Hospital and Health Center) of the DRG inlier allowed amount for payment.

     (ii) The outlier threshold used in calculation of the outlier payment adjustment will always be one hundred seventy-five percent (one hundred fifty percent for neonatal, pediatric DRGs, Children's Hospital Regional Medical Center or Mary Bridge Children's Hospital and Health Center) of the DRG inlier allowed amount for payment.

     (iii) Refer to the ratable and ratable factor definition and calculation for the ratable factor determination.

     (16) This subsection describes the state-administered program per diem rate and payment calculation for the following specialty service categories and unstable DRG non-specialty service categories.

     (a) The per diem rate is separately established for each of the following services:

     (i) CUP;

     (ii) Detoxification;

     (iii) Physical medicine and rehabilitation;

     (iv) Surgical;

     (v) Medical;

     (vi) Burns; and

     (v) Neonate and pediatric.

     (b) The per diem rate calculation process for CUP, detoxification, physical medicine and rehabilitation, surgical, medical, burns, and neonate and pediatric services is, for instate and critical border hospitals, the hospital's specific state administered program per diem rate is based on the Title XIX medicaid rates multiplied by the most available ratable factor and the equivalency factor. Mathematically the calculation is:

     State administered program per diem rate =

     ((Hospital's specific medicaid per diem x ratable factor) x Equivalency factor)

     (c) The per diem equivalency factor calculation process is as follows:

     (i) The per diem equivalency factor is a factor used to hold the aggregate payment for all non-medicaid claims grouped under per diem payment method at the same level before and after the per diem medicaid rate is rebased. The equivalency factor is the calculated based on the estimate non-medicaid per diem, the medicaid per diem, and the hospital's specific ratable factor. Mathematically the calculation is:

     Equivalency factor =

     (Estimated state administered program per diem rate/(Medicaid per diem rate x ratable))

     (ii) For bordering city hospitals that are not critical border hospitals, and for other out-of-state hospitals that are not critical border hospitals, the state administered program per diem rate is the lowest instate medicaid per diem rate multiplied by the average ratable and equivalency factor.

     (iii) The state administered program per diem rate is an estimate based on the actual payment per day. The actual payment per day equals the aggregate payment amount (inflated from the base year to the implementation year) divided by the number of days associated with the aggregate costs.

     (iv) For a hospital with more than twenty state administered program claims that grouped in the base year data to DRG classifications that are paid using the per diem payment method, a hospital's specific equivalency factor is established based on the hospital's data.

     (v) For a hospital with less than twenty state administered program claims that grouped in the base year data to DRG classifications are paid using the per diem payment method, an average equivalency factor is established based on the hospital database of all hospitals.

     (d) The state administered program per diem allowed amount of payment calculation process for CUP, detoxification, and physical medicine and rehabilitation services is as follows. Mathematically the calculation is:

     Per diem payment =

     Hospital's state administered program per diem rate x patient stay LOS recognized by the department for payment

     The high outlier and transfer policy is not applied to payment calculations for CUP, detoxification, and physical medicine and rehabilitation services.

     (e) The state administered program per diem allowed amount of payment calculation process for surgical, medical, burns, and neonate services is as follows. Mathematically the calculation is:

     Per diem payment =

     Hospital's state administered program per diem rate x patient stay LOS recognized by the department for payment

     (i) The outlier policy is applied to payment calculations for a claim grouped to an unstable DRG classification when the claim is for surgical, medical, burns, neonate and pediatric services (see WAC 388-550-3700). Refer to the state administered program outlier DRG adjustment payment calculation for the outlier calculation.

     (ii) The transfer policy is not applied to payment calculations for a claim grouped to an unstable DRG classification when the claim is for surgical, medical, burns, neonate and pediatric services.

     (17) The state administered program per diem rate and payment calculation for psychiatric services is as follows:

     (a) The department uses a payment method similar to the method used to pay for medicaid psychiatric services, for state administered program psychiatric services provided to clients eligible for those services. Psychiatric services provided to state administered program clients are paid using a psychiatric per diem rate. The per diem rate calculation process for state administered program psychiatric services is as follows:

     (i) For instate hospitals, the hospital's specific state administered program psychiatric per diem rate used to calculate the allowed amount for payment is based on the Title XIX medicaid rate adjusted by a ratable factor specified by the legislature to reduce the medicaid psychiatric per diem to a state program per diem. Mathematically the calculation is:

     State administered program psychiatric per diem rate =

     Medicaid psychiatric per diem x a ratable factor specified by the legislature to reduce the medicaid psychiatric per diem to a state program per diem.

     (ii) For hospitals located outside the state of Washington, including bordering city hospitals, critical border hospitals, and other out-of-state hospitals, psychiatric services and involuntary treatment act (ITA) services are not covered or paid by the department.

     (b) The per diem payment calculation process for state-administered program psychiatric services is as follows. Mathematically the calculation is:

     Psychiatric payment =

     State administered program hospital's specific per diem rate x patient stay LOS recognized by the department's MHD designee for payment

     (i) Outlier payment and transfer policies are not applied to state administered program psychiatric claims.

     (ii) The ratable factor was provided to the department by the legislature.

     (18) This subsection describes the state administered program per case rate and payment processes for bariatric surgery services.

     (a) The department limits provision of bariatric surgery services to medical assistance clients to hospitals that are approved by the department to provide those services. Bariatric surgery services provided to a medical assistance client by an approved hospital must also be prior authorized by the department for the hospital to receive payment from the department for those services. Effective August 1, 2007, the department approved bariatric surgery services programs at the Sacred Heart Medical Center, the University of Washington Medical Center, and the Oregon Health Science University. The department may approve other programs based on department discretion.

     (b) The department calculates the state administered program per case rate for bariatric surgery services by multiplying the hospital's specific medicaid per case rate for bariatric surgery services by the hospital's specific ratable factor and DRG-equivalency factor. Mathematically the calculation is:

     State administered program per case rate =

     Medicaid per case rate x hospital's specific ratable factor x DRG equivalency factor

     The per case payment rate for bariatric surgery services is an all-inclusive rate. No outlier provision is applied to the per case rate.

     (19) This subsection describes the state administered program RCC rates and payment calculation processes for transplant services and other RCC paid services. Transplant services provided to a client eligible for those services through a state administered program are paid using the RCC payment method. There are some other services that may be paid using the RCC payment method, e.g., services provided by military hospitals when no other payment method is agreed upon by the department and the hospital. The state administered program RCC rate is calculated by multiplying the medicaid RCC rate by the ratable factor. Mathematically the calculation is:

     State administered program RCC rate = medicaid RCC x ratable factor

     (20) The department may pay for authorized psychiatric indigent inpatient claims submitted by an instate community hospital designated as an institution for mental diseases (IMD) using state funds when such funds are provided by the state legislature specifically for this purpose.

     (21) The department's policy for payment on state-administered program claims that involve third party liability (TPL) and/or client responsibility payments is the same policy indicated in the table in WAC 388-550-2800, except that when the department determines the payment on the claim, it applies state-administered program rates, not medicaid or SCHIP rates, when comparing the lesser of billed charges or the allowed amount on the claim.

[Statutory Authority: RCW 74.04.050, 74.08.090. 05-12-132, § 388-550-4800, filed 6/1/05, effective 7/1/05. Statutory Authority: RCW 74.08.090 and 74.09.500. 04-19-113, § 388-550-4800, filed 9/21/04, effective 10/22/04. Statutory Authority: RCW 74.08.090, 74.09.500, 74.09.035(1), and 43.88.290. 02-21-019, § 388-550-4800, filed 10/8/02, effective 11/8/02. Statutory Authority: RCW 74.08.090 and 42 U.S.C. 1395x(v), 42 C.F.R. 447.271, .11303, and .2652. 01-16-142, § 388-550-4800, filed 7/31/01, effective 8/31/01. Statutory Authority: RCW 74.09.080, 74.09.730, 42 U.S.C. 1395x(v) and 1396r-4, 42 C.F.R. 447.271 and 2652. 99-14-026, § 388-550-4800, filed 6/28/99, effective 7/1/99. Statutory Authority: RCW 74.08.090, 42 USC 1395 x(v), 42 CFR 447.271, 447.11303, and 447.2652. 99-06-046, § 388-550-4800, 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, § 388-550-4800, 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.

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