Original Notice.

Preproposal statement of inquiry was filed as WSR 99-06-084.

Title of Rule: WAC 388-550-2800 Establishing inpatient payment rates, 388-550-2900 Payment limits--Inpatient hospital services, 388-550-3450 Payment method--CBCF calculation, 388-550-3500 inflation adjustments, 388-550-3900 Border area hospitals payment method, 388-550-4100 New hospitals payment method, and 388-550-4500 Payment method--RCC.

Purpose: To eliminate duplication by consolidating certain information into a single section. To update rule content to reflect current department policy. To comply with the Governor's Executive Order 97-02, which mandates that rules be reviewed for clarity, foundation in law, etc.

Statutory Authority for Adoption: RCW 74.08.090, 42 U.S.C. 1395x(v) and 1396r-4, 42 C.F.R. 447.271, 42 C.F.R. 11303, 42 C.F.R. 2652.

Statute Being Implemented: RCW 74.08.090, 42 U.S.C. 1395x(v) and 1396r-4, 42 C.F.R. 447.271, 42 C.F.R. 11303, 42 C.F.R. 2652.

Summary: These amendments consolidate in to one section those sections of information that are repeated in several places. The amendments also update the method by which the department calculates hospital rate reimbursement amounts, inflation adjustments, and the ratio of costs-to-charges.

Reasons Supporting Proposal: To simplify rule use by eliminating duplication; to codify current department policy.

Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Alan McMullen, DOS/MAA, 623 8th Avenue S.E., Olympia, WA 98501, (360) 586-6698.

Name of Proponent: Department of Social and Health Services, Medical Assistance Administration, governmental.

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

Explanation of Rule, its Purpose, and Anticipated Effects: Eliminates duplication of rule by consolidating into one section several sections where rule is repeated. Reflects updated methods that the department uses to calculate hospital rate reimbursement amounts, adjustments for inflation, and the ratio of costs-to-charges (RCC).

The purpose of the amended rules are to improve staff efficiency and customer compliance by reflecting current policy in rule, as well as clarify, consolidate, and reorganize the rules.

The anticipated effect is that the purpose stated above will be achieved.

Proposal Changes the Following Existing Rules: Amends rules listed in Title of Rule above to consolidate certain sections that are repeated in several places; updates rule to reflect current policy regarding how the department calculate rate reimbursement, inflation adjustments, and the ratio of costs-to-charges (RCC).

No small business economic impact statement has been prepared under chapter 19.85 RCW. The department has analyzed the proposed amendments and concluded that no new costs will be imposed on the small businesses affected by the rules.

RCW 34.05.328 does not apply to this rule adoption. The rules do not fit the definition of a significant legislative rule.

Hearing Location: Lacey Government Center (behind Tokyo Bento Restaurant), 1009 College Street S.E., Room 104-B, Lacey, WA 98503, on May 25, 1999, at 10:00 a.m.

Assistance for Persons with Disabilities: Contact Paige Wall by May 14, 1999, phone (360) 902-7540, TTY (360) 902-8324, e-mail pwall@dshs.wa.gov.

Submit Written Comments to: Identify WAC Numbers, Paige Wall, Rules Coordinator, Rules and Policies Assistance Unit, P.O. Box 45850, Olympia, WA 98504-5850, fax (360) 902-8292, by May 25, 1999.

Date of Intended Adoption: May 26, 1999.

April 19, 1999

Marie Myerchin-Redifer, Manager

Rules and Policies Assistance Unit

(1) MAA pays hospitals for inpatient hospital services using the rate setting methods identified in the department’s approved state plan that includes:

Method	Used ((by)) for
Negotiated conversion factor	Hospitals participating in the ((federally waivered)) Medicaid hospital selective contracting program(( (DRG method))) under waiver from the federal government
Cost-based conversion factor	Hospitals not participating in or exempt from the Medicaid hospital selective contracting program (DRG method)
Ratio of costs-to-charges	Hospitals ((and)) or services exempt from DRG payment methods
Fixed per diem rate	Acute Physical Medicine and Rehabilitation (Acute PM&R) Level B contracted facilities

(2) MAA’s ((total)) annual aggregate Medicaid payments to each hospital for inpatient hospital services provided to Medicaid clients must not exceed the hospital's customary charges to the general public for the services (42 CFR § 447.271).  MAA will recoup amounts in excess of ((total)) annual aggregate Medicaid payments ((in excess of such charges)) to hospitals.

(3) MAA’s annual aggregate payments for inpatient hospital services, including ((annual aggregate payments to)) state-operated hospitals, must not exceed estimated amounts that MAA would have ((been)) paid ((under the)) using Medicare payment principles.

(4) When hospital ownership changes, MAA’s payment to the hospital must not exceed the amount allowed under 42 U.S.C. Section ((1385x)) 1395x (v)(1)(O).

(5) Hospitals participating in the medical assistance program must annually submit to the department:

(a) A copy of the hospital’s HCFA 2552 ((uniform)) Medicare Cost Report; and

(b) A disproportionate share hospital application.

(6) Reports referred to in subsection (5) of this section must be completed according to:

(a) Medicare's cost reporting requirements;

(b) The provisions of this chapter; and

(c) Instructions issued by MAA. 

(7) ((Unless federally or state-regulated, providers must)) MAA requires hospitals to follow generally accepted accounting principles unless federally or state-regulated.

(8) Participating ((providers)) hospitals must permit MAA to conduct periodic audits of their financial and statistical records.

(9) Payments for trauma services may be enhanced per WAC ((248-976-935)) 246-976-935.

[Statutory Authority: RCW 74.08.090, 42 USC 1395 x(v), 42 CFR 447.271, 447.11303, and 447.2652.  99-06-046, § 388-550-2800, 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, § 388-550-2800, 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 99-06-046, filed 2/26/99, effective 3/29/99)

WAC 388-550-2900
Payment limits--Inpatient hospital services.

(1) The department pays covered inpatient hospital services only to:

(a) General hospitals that meet the definition in RCW 70.41.020;

(b) Inpatient psychiatric facilities and alcohol or drug treatment centers:

(i) Approved by the department; and

(ii) Not paid directly through the ((regional support networks)) RSNs.

(c) Out-of-state ((hospital providers)) hospitals, subject to conditions specified in WAC 388-550-6700.

(2) MAA does not pay for hospital care and/or services provided to ((a)) an MAA client enrolled with a ((MAA-contracted)) managed care ((carrier. An exception is when MAA specifically authorized the provision of and payment for a service not covered by the health carrier's capitation contract but covered under the client's medical assistance program)) plan, when the plan covers those services. Plans have the authority to determine the treatment regimen of coverage as long as they cover all the Medicaid services that MAA reimburses them to cover. Plans may also provide coverage of services beyond that for which Medicaid reimburses them.

(3) MAA does not pay a hospital for care or services provided to a client enrolled in the hospice program, except as provided under chapter 388-551 WAC ((388-550-2500(3))), subchapter I, Hospice services.

(4) MAA does not pay hospitals for inpatient ancillary services in addition to the ((diagnosis-related group ())DRG(())) payment.  The DRG payment includes ancillary services ((which)) that include, but are not limited to, the following:

(a) Laboratory services;

(b) Diagnostic X-ray and other imaging services, including, but not limited to, magnetic resonance imaging, magnetic resonance angiography, computerized axial tomography, and ultrasound;

(c) Drugs and pharmacy services;

(d) Respiratory therapy and related services;

(e) Physical therapy and related services;

(f) Occupational therapy;

(g) Speech therapy and related services;

(h) Durable medical equipment and medical supplies, including infusion equipment and supplies;

(i) Prosthetic devices used during the client's hospital stay or permanently implanted during the hospital stay, such as artificial heart or replacement hip joints; and

(j) Service charges for handling and processing blood or blood derivatives.

(5) Neither MAA nor the client is responsible for payment for additional days of hospitalization when:

(a) A client exceeds the professional activities study (PAS) length of stay (LOS) limitations; and

(b) The provider has not obtained MAA approval for the LOS extension, as specified in WAC 388-550-1700(4).

(6) The LOS limit for a hospitalization is the seventy-fifth percentile of the PAS length of stay for that diagnosis code or combination of codes, published in the PAS Length of Stay-Western Region edition, as periodically updated.

(7) Neither MAA nor the client is responsible for payment of elective or nonemergent inpatient services which are included in MAA’s selective contracting program and ((received)) which a client receives in a nonparticipating hospital in a selective contracting area (SCA) unless the provider received prior approval from MAA as required by WAC 388-550-1700 (2)(a).  The client, however, may be held responsible for payment of such services if ((he or she)) the client contracts in writing with the hospital at least seventy-two hours in advance of the hospital admission to be responsible for payment.  See WAC 388-550-4600, Selective contracting program.

(8) MAA may consider hospital stays of twenty-four hours or less short stays, and does not pay such stays under the DRG methodology((, except that)). The exception for stays of twenty-four hours or less involving the following situations are paid under the DRG system:

(a) Death of a client;

(b) Obstetrical delivery;

(c) Initial care of a newborn; or

(d) Transfer of a client to another acute care hospital.

(9)(a) Under the ratio of costs-to-charges (RCC) method, MAA does not pay for inpatient hospital services provided more than one day prior to the date of a scheduled or elective surgery. These services must not be charged to the client.

(b) Under the DRG method, MAA ((deems)) considers all services provided ((prior to)) the day before a scheduled or elective surgery to be included in the hospital's DRG payment for the case.

(c) MAA does not count toward the threshold for hospital outlier status:

(i) Any charges for extra days of inpatient stay prior to a scheduled or elective surgery; and

(ii) The associated services provided during those extra days.

(10) MAA applies the following rules to RCC cases and high-cost DRG outlier cases for costs ((over)) that exceed the high-cost outlier threshold:

(a) MAA covers hospital stat charges only for specific laboratory procedures determined and published by MAA as qualified stat procedures.   ((MAA does not automatically treat)) Tests generated in the emergency room ((as justifying)) do not automatically justify a stat order.

(b) MAA pays hospitals for special care charges only when:

(i) The hospital has a department of health (DOH) or Medicare-((qualified)) certified special care unit;

(ii) The special care service being billed, such as intensive care, coronary care, burn unit, psychiatric intensive care, or other special care, was provided in the special care unit;

(iii) The special care service provided is the kind of service for which the special care unit has been DOH- or Medicare-((qualified)) certified; and

(iv) The client's medical condition required the care be provided in the special care unit.

(11) MAA determines its actual payment for a hospital admission by deducting from the basic hospital ((payment)) reimbursement amount those charges which are the client's responsibility((,)) (referred to as spend-down((, or a))) and any third party(('s)) liability.

(12) MAA reduces reimbursement rates to hospitals for services provided to MI/((medical care services))GAU clients according to the ((individual)) hospital(('s)) specific ratable and/or equivalency factors, as provided in WAC 388-550-4800.

(13) MAA pays for the hospitalization of a client who is eligible for Medicare and Medicaid only when the client has exhausted ((his or her)) the Medicare part A benefits, including the nonrenewable lifetime hospitalization reserve of sixty days.

(14) MAA pays in-state and border area hospital((s’)) accommodation charges ((are paid)) by multiplying the hospital’s RCC rate to the lesser of the room rate submitted by the hospital to MAA or the accommodation charges billed on the claim.

(15) MAA pays out-of-state accommodation charges at the in-state average RCC rate times the hospital’s billed charge.

(16) With regard to room rate submittals to MAA:

(a) A hospital must submit ((to MAA)) changes on the room rate change form, DSHS 13-687;

(b) Charges must not exceed the hospital’s usual and customary charges to the public as required by 42 CFR § 447.271;

(c) New room rates take effect on the effective date stated on the room rate change form, or fourteen calendar days after MAA receives the form, whichever is later;

(d) MAA ((will)) does not make retroactive room rate changes; and

(e) MAA pays private rooms ((are paid)) at the semi-private room rate.

[Statutory Authority: RCW 74.08.090, 42 USC 1395 x(v), 42 CFR 447.271, 447.11303, and 447.2652.  99-06-046, § 388-550-2900, 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, § 388-550-2900, filed 12/18/97, effective 1/18/98.]

(1) For Medicaid accommodation costs, MAA:

(a) ((The department shall)) 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) ((The department shall divide operating, capital, and direct medical education)) Divides those costs per category by total hospital days per category to arrive at a per day accommodation cost((.)); then

(c) ((The department shall multiply)) Multiplies the per day accommodation cost for each category by the total Medicaid days to arrive at total Medicaid accommodation costs per category for the three components.

(2) For ancillary costs MAA:

(a) ((The department shall also)) 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((.)); then

(b) ((The department shall)) Divides these costs by total charges per category to arrive at a ((cost-to-charge ratio)) ratio of costs-to-charges (RCC) per ancillary category((.)); then

(c) ((The department shall multiply these cost-to-charge ratios)) Multiplies these RCCs by Medicaid charges per category, as tracked by the Medicaid Management Information System (MMIS), to arrive at total Medicaid ancillary costs per category for the three components (operating, capital, and medical education).

(3) ((The department shall combine)) MAA:

(a) Combines Medicaid accommodation and ancillary costs to derive the hospital's total costs for operating, capital, and direct medical education components for the base year((.  The department shall divide these components' combined total will be divided by the number of Medicaid cases during the base year to arrive at an average cost per DRG admission for the hospital)); then

(b) Divides the hospital’s combined total cost by the number of Medicaid cases during the base year to arrive at an average Medicaid cost per DRG admission; then

(c) Adjusts, for hospitals with a fiscal year ending different than the common fiscal year end, the Medicaid average cost by a factor determined by MAA to standardize hospital costs to the common fiscal year end. MAA adjust the hospital’s Medicaid average cost by the hospital’s specific case mix index.

(4) MAA caps the ((department shall adjust the)) Medicaid average cost per ((admission for each component to a common fiscal year end using the appropriate McGraw-Hill Data Resources, Inc., (DRI) Prospective Payment System (PPS)-Type Hospital Market Basket update.  The department shall standardize these three admission cost components by dividing the average cost by the hospital's case-mix index.

(5)(a) For hospitals with medical education programs, the department shall remove the indirect medical education costs from operating and capital costs before the peer group cost cap is set.

(b) The department shall also remove the cost of outlier cases in accordance with WAC 388-550-3350(1).

(c))) case for peer groups B and C at seventy percent of the peer group average. In calculation of the peer group cap, MAA removes the indirect medical education and outlier costs from the Medicaid average cost per admission.

(a) For hospitals in MAA peer groups B ((and)) or C, ((the department shall set)) MAA 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((.

(6) The department shall add to the lesser of)); then

(b) To whichever is less, the hospital-specific aggregate cost or the peer group cost cap determined in subsection (((5))) (4) of this section, MAA adds:

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

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

(((7)(a) The department shall))

(5) For an inflation adjustment MAA may:

(a) Multiply the sum obtained in subsection (((6))) (4) of this section by ((the DRI PPS-type hospital market basket update)) an inflation factor as determined by the legislature for the period January 1 of the year after the base year through ((September 30)) October 31 of the rebase year((.)); then

(b) ((The department shall then)) 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 ((cost-based conversion factor for July 1 of the rebase year.)) CBCF; then

(((8) The department shall))

(c) Multiply the hospital's adjusted ((cost-based conversion factor determined in subsection (7) of this section)) CBCF by the applicable DRG relative weight to calculate the DRG payment for each admission.

[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.]

(((1))) Effective on November 1 of each year, MAA may adjust((s)) all cost-based conversion factors (CBCF) ((for)) by an inflation ((for the following twelve months.

(2) MAA makes CBCF adjustments using the annual inflation factor from the PPS-type hospital market-basket index factor from the most recent McGraw-Hill Data Resources, Inc., (DRI) forecast.

(3) MAA considers adjustments to negotiated conversion factors according to the terms of the individual hospital's contract)) factor, as determined by the legislature. MAA does not automatically give an inflation increase to negotiated conversion factors for contracted hospitals participating in the hospital selective contracting program.

[Statutory Authority: RCW 74.08.090, 42 USC 1395 x(v), 42 CFR 447.271, 447.11303, and 447.2652.  99-06-046, § 388-550-3500, 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, § 388-550-3500, filed 12/18/97, effective 1/18/98.]

(1) Under the diagnosis-related group (DRG) payment method, ((the department shall calculate)):

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

(((a))) (b) For a border area hospital with ((insufficient Medicare cost report (HCFA Form 2552) data, the department shall assign a CBCF based on the peer group average final conversion factor for its Washington hospital peer group.

(b) The department shall include in this average final conversion factor all adjustments to the CBCF, including the outlier set-aside factor described in WAC 388-550-3350(3))) no HCFA 2552 for the rebasing year, MAA assigns the MAA peer group average conversion factor. This is the average of all final conversion factors of hospitals in that group.

(2) ((Under))MAA calculates:

(a) The ratio of costs-to-charges (RCC) ((payment method, the department shall calculate a border area hospital's RCC)) in accordance with WAC 388-550-4500.

(b) For a border area hospital with ((insufficient Medicare cost report ()) no HCFA ((Form)) 2552(() data, the department shall assign an RCC based on the weighted average of the RCC ratios for in-state Washington hospitals)) Medicare cost report, its RCC on the Washington in-state average RCC ratios.

[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 rate-setting purposes, ((the department shall consider)) MAA considers as ((a)) new:

(a) A hospital ((an entity)) which began services after the most recent ((base period used for calculating)) rebased cost-based conversion factors (CBCFs), or

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

(2) ((The department shall base)) MAA determines a new hospital's ((cost-based rates on the peer group average final conversion factor for its Washington hospital peer group.  The department shall include in this average final conversion factor all adjustments to the CBCF, including the outlier set aside factor described in WAC 388-550-3350(3))) CBCF as the average of the CBCF of all hospitals within the same MAA peer group.

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

(4) ((The department shall not consider)) MAA considers that a change in hospital ownership ((as constituting creation of)) does not constitute a new hospital.

[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.]

(1)(a) MAA calculates a hospital's ratio of costs-to-charges (RCC) by dividing allowable operating costs by patient revenues associated with these allowable costs.

(b) MAA bases these figures on the annual Medicare cost report data provided by the hospital.

(c) MAA updates hospitals' RCC rates annually with the submittal of new HCFA 2552 Medicare cost report data.  Prior to computing the ratio, MAA excludes increases in operating costs or total rate-setting revenue attributable to a change in ownership.

(2) MAA limits a hospital's RCC to one hundred percent of its allowable charges. MAA recoups payments made to a hospital in excess of its customary charges to the general public.

(3) MAA establishes the basic hospital payment by multiplying the hospital's assigned RCC rate by the allowed charges for medically necessary services. MAA deducts client responsibility (spend-down) or third-party liability (TPL) as identified on the billing invoice or by MAA from the basic payment to determine the actual payment due from MAA for that hospital admission.

(4) MAA uses the RCC payment method to reimburse:

(a) Peer group A hospitals;

(b) Other DRG-exempt hospitals identified in WAC 388-550-4300; and

(c) Any hospital for DRG-exempt services described in WAC 388-550-4400.

(5) MAA deems the RCC for in-state and border area hospitals lacking sufficient HCFA 2552 Medicare cost report data the weighted average of the RCC rates for in-state hospitals.

(6) MAA calculates an outpatient ratio of costs-to-charges by dividing the projected costs by the projected charge multiplied by the average RCC.

(a) In no case may the outpatient adjustment factor exceed 1.0.

(b) The outpatient adjustment factor is updated annually effective November 1.

[Statutory Authority: RCW 74.08.090, 42 USC 1395 x(v), 42 CFR 447.271, 447.11303, and 447.2652.  99-06-046, § 388-550-4500, 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.]

Reviser's note: The above section was filed as an amendatory section; however, there were no amendments made. Pursuant to the requirements of RCW 34.08.040 it is published in the same form as filed by the agency.

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