12VAC30-70 Methods and Standards for Establishing Payment Rates - Inpatient Hospital Services

REGULATIONS

Vol. 25 Iss. 3 - October 13, 2008

TITLE 12. HEALTH

DEPARTMENT OF MEDICAL ASSISTANCE SERVICES

Chapter 70

Fast-Track Regulation

Titles of Regulations: 12VAC30-70. Methods and Standards for Establishing Payment Rates - Inpatient Hospital Services (amending 12VAC30-70-70, 12VAC30-70-261, 12VAC30-70-271, 12VAC30-70-500).

12VAC30-90. Methods and Standards for Establishing Payment Rates for Long-Term Care (amending 12VAC30-90-264).

Statutory Authority: §§32.1-324 and 32.1-325 of the Code of Virginia.

Public Hearing Information: No public hearings are scheduled.

Public Comments: Public comments may be submitted until November 12, 2008.

Effective Date: November 27, 2008.

Agency Contact: James Branham, Project Manager, Department of Medical Assistance Services, 600 East Broad Street, Richmond, VA 23219, telephone [phone], FAX [phone], or email [e-mail].

Basis: Section 32.1-325 of the Code of Virginia grants to the Board of Medical Assistance Services the authority to administer and amend the Plan for Medical Assistance. Section 32.1-324 of the Code of Virginia authorizes the Director of DMAS to administer and amend the Plan for Medical Assistance according to the board's requirements. The Medicaid authority as established by § 1902 (a) of the Social Security Act (42 USC §1396a) provides governing authority for payments for services.

Purpose: The purpose of the regulation is to simplify hospital and specialized care nursing facility reimbursement either by eliminating unnecessary hospital and specialized care nursing facility requirements or by making the specialized care nursing facility reimbursement similar to the regular nursing facility reimbursement. Both proposals are budget neutral and the reimbursement impact on providers would be negligible. Both proposals would reduce DMAS and provider administrative costs associated with reporting and recordkeeping activities.

Rationale for Using Fast-Track Process: DMAS consulted with the Virginia Hospital and Healthcare Association and the Association (VHHA) representative indicated that the VHHA would not object to eliminating recapture of hospital depreciation. Medicare has already eliminated hospital depreciation recapture. Sometimes hospital depreciation recapture benefits DMAS and other times it benefits the provider. However, in either case the funds involved are not material and it is necessary for DMAS and the provider to review cost reports related to the original hospital depreciation, which may be many years old. Neither party considers the recordkeeping a good use of resources. The VHHA also agrees that it is not necessary to have the hospital outlier methodology illustration in regulation. DMAS intends to put an outlier calculation spreadsheet on its website.

DMAS consulted with the Virginia Health Care Association and providers receiving specialized care reimbursement under the current system. DMAS presented information regarding how the proposed simplification would have effected reimbursement if the simplification had been in place. Providers agreed that simplification would reduce administrative reporting requirements and make it easier for providers to estimate reimbursement.

Substance:

Eliminate Recapture of Hospital Depreciation

Under current policy, DMAS must “recapture” depreciation when a hospital is sold. DMAS reimburses hospitals for depreciation based on standard depreciation schedules. When a hospital is sold, the seller may experience a windfall if the sale price exceeds the reimbursed depreciation or the seller may experience a loss if the sale price is less than the reimbursed depreciation. If the seller experiences a windfall, DMAS will recapture hospital depreciation; if the seller experiences a loss, DMAS will cover the loss. When a sale occurs, therefore, the seller and DMAS have to calculate the windfall or loss based on the original records. Hospital sales are relatively infrequent, the windfall or loss is usually not large and the net payments/recoveries for DMAS are close to zero. In many cases, this is the only reason for storing older cost reports since Medicare eliminated recapture of hospital depreciation a number of years ago. DMAS and the hospital association agree that there is little cost/benefit in continuing the recapture of hospital depreciation and therefore this regulation would eliminate it.

Eliminate Hospital Outlier Illustration

12VAC30-70-261 are the regulations for the hospital outlier methodology. The subsection to be eliminated is only an illustration that is now more than 10 years out of date. DMAS intends to publish annual hospital outlier calculation worksheets on the DMAS website and therefore it makes more sense to eliminate this subsection than to revise it.

Simplify Reimbursement of Specialized Care Nursing Facility Services

The goals of the planned regulatory action are to reduce unnecessary complexity and reduce administrative burden associated with the method used to determine nursing facility payment rates for adult and pediatric specialized care.

The current specialized care payment rate calculation method uses the Resource Utilization Group System (RUGS III) nursing only index to calculate each facility’s average normalized case mix index (NCMI), which is the measure of each facility’s average patient severity level normalized by the average of all specialized care patients in the state. Ceilings and payment rates are adjusted by the NCMI, in order to avoid overpayments to facilities with a less severe patient population and to ensure adequate payments to facilities that have a more severe patient population, relative to the state average. When this reimbursement methodology was developed there were approximately 40 adult specialized care providers serving recipients with ventilator, rehabilitation and complex care needs. Since 2003, however, adult specialized care serves only ventilator patients. As a result, there are less than 10 adult specialized care providers with a much more homogenous patient population. Pediatric specialized care still covers all categories, but the patients in the two pediatric specialized care facilities have very similar resource needs. In both the adult and pediatric specialized care facilities, specialized care facility NCMI scores are very close to 1.0 (the same as the state average) and application of the NCMI adjustment has a negligible effect on payment rates and is unnecessary.

Based on the provider and patient changes, there is no longer a compelling reason to continue adjusting rates and ceilings by the NCMI, especially given the extra work this requires and other disadvantages. DMAS uses the services of an outside accounting firm to calculate specialized care NCMI scores and rate adjustments. Specialized care facilities are required to send in additional MDS data on a monthly basis and the calculations cannot be completed until all facilities have sent in this data. Providers have indicated to DMAS that the additional work is a burden and the lack of timeliness in finalizing rates is frustrating.

Along with eliminating the NCMI, DMAS is proposing two additional changes to further simplify the methodology by conforming the inflation adjustment and occupancy requirements to the methodology used in regular nursing facility reimbursement.

The current inflation methodology for specialized care reimbursement was also used for regular nursing facility reimbursement until July 1, 2002. This methodology involves a combination of historical and anticipated inflation, annual revisions and quarterly inflation updates. The new, simpler inflation methodology adopted effective July 1, 2002, for regular nursing facility reimbursement updates inflation annually using a single inflation factor. The inflation methodology used for specialized care reimbursement, however, was not changed. This regulation would require that the specialized care reimbursement use the simpler inflation methodology utilized for regular nursing facility reimbursement.

Additionally, this regulatory action will require adult specialized care reimbursement to use the same 90% occupancy requirement used in the regular nursing facility reimbursement. Under current regulations the occupancy requirement only applies to regular nursing facilities not to adult specialized care even though occupancy is already calculated by using total facility paid days, including specialized care days, as a percentage of total available days. DMAS does not anticipate that capital reimbursement for specialized care facilities would be frequently affected by this change, but, in any event, the special consideration is not justified. The lower 70% occupancy requirement for pediatric specialized care would not change.

Issues: The advantage to both the hospital and nursing facility providers of this change is the reduction of paperwork that is required by the policies being changed by this action. The advantage to DMAS with this change will be the simplification of both the inpatient hospital and nursing facility cost settlement process. There are no disadvantages to the Commonwealth for this action. The changes do not have a fiscal impact and they eliminate unnecessary administrative burdens on both DMAS and providers.

The Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The proposed regulations will simplify Medicaid hospital and specialized care reimbursement methodologies.

Result of Analysis. The benefits likely exceed the costs for all proposed changes.

Estimated Economic Impact. Department of Medical Assistance Services (DMAS) proposes to simplify Medicaid hospital and specialized care reimbursement methodologies.

The specialized care nursing facility reimbursement will be simplified by eliminating the case mix adjustment and using the same inflation method used in the regular nursing facility reimbursement methodology. The reason for eliminating case mix adjustment is the fact that these facilities currently cover only ventilator dependent patients leading to very homogeneous mix of cases. In the past, the patient mix was heterogeneous because complex health and comprehensive services were covered by adult specialized care facilities.

Also, the specialized care nursing facility inflation methodology is much more complex than the inflation methodology for regular nursing facilities. The proposed changes will adopt the simpler regular nursing facility inflation methodology for specialized care nursing facilities.

Furthermore, DMAS proposes a new statewide ceiling so as to maintain the budget neutrality after the proposed changes. So, there is no net significant fiscal effect is expected as a result of the proposed changes. However, simplified reimbursement methodology is expected to reduce administrative costs and staff time at DMAS. Providers are expected to experience similar benefits.

Another change proposed will eliminate recapture of hospital depreciation when a provider hospital is sold. DMAS currently reimburses hospitals for depreciation. Any loss or gain that may accrue to the seller when a hospital is sold is paid or recovered by DMAS. It is reported that hospital sales are rare, the seller losses or gains are insignificant, and net payments or recoveries by DMAS are close to zero. Thus, no large fiscal effect is expected from eliminating the recapture of hospital depreciation as proposed. However, this proposed change will remove the sole reason that many hospitals and DMAS have been storing older cost reports and provide some savings.

The fiscal savings in administrative expenses and staff time at DMAS are estimated to be about $50,000. Similar savings are likely to accrue to the providers as well.

Finally, DMAS is proposing to remove an example contained in the regulations. DMAS intends to provide access to a similar example on its website. Thus, while providers will likely still have access to the same information through the website, DMAS will not be required to update its regulations every time when assumptions in the example changes.

Businesses and Entities Affected. These regulations apply to 8 providers of specialized care and approximately 95 hospitals.

Localities Particularly Affected. The proposed regulations apply throughout the commonwealth.

Projected Impact on Employment. The proposed simplified methodologies and reduced recordkeeping requirements are expected to reduce demand for labor.

Effects on the Use and Value of Private Property. No significant effect on the use and value of private property is expected.

Small Businesses: Costs and Other Effects. None of the effected entities are believed to be small businesses.

Small Businesses: Alternative Method that Minimizes Adverse Impact. The proposed changes are not estimated to have an adverse impact on small businesses.

Real Estate Development Costs. No significant effect on the real estate development costs is expected.

Legal Mandate. The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Administrative Process Act and Executive Order Number 36 (06). Section 2.2-4007.04 requires that such economic impact analyses include, but need not be limited to, the projected number of businesses or other entities to whom the regulation would apply, the identity of any localities and types of businesses or other entities particularly affected, the projected number of persons and employment positions to be affected, the projected costs to affected businesses or entities to implement or comply with the regulation, and the impact on the use and value of private property. Further, if the proposed regulation has adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include (i) an identification and estimate of the number of small businesses subject to the regulation; (ii) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the regulation, including the type of professional skills necessary for preparing required reports and other documents; (iii) a statement of the probable effect of the regulation on affected small businesses; and (iv) a description of any less intrusive or less costly alternative methods of achieving the purpose of the regulation. The analysis presented above represents DPB’s best estimate of these economic impacts.

Agency's Response to the Department of Planning and Budget's Economic Impact Analysis: The agency concurs with the economic impact analysis prepared by the Department of Planning and Budget regarding the regulations concerning Simplify Hospital and Specialized Care Reimbursement (12VAC30-70-70, 12VAC30-70-261, 12VAC30-70-271, 12VAC30-70-500 and 12VAC30-90-264).

Summary:

The amendments accomplish several reimbursement methodology changes designed to simplify provider reimbursement. The first is to simplify hospital reimbursement by eliminating recapture of hospital depreciation when a hospital is sold; this also eliminates the associated recordkeeping. The amendments also eliminate the hospital outlier illustration, which is outdated.

The regulation simplifies reimbursement for specialized care nursing facilities by (i) eliminating the case mix adjustment and (ii) using the same inflation method and capital rate calculation used in the regular nursing facility reimbursement methodology. After recent changes to the covered groups, there is no longer a justification for the case mix adjustment and the associated reporting. The changes are budget neutral.

12VAC30-70-70. Revaluation of assets.

A. Effective October 1, 1984 July 1, 2008, the valuation of an asset of a hospital or long-term care facility which has undergone a change of ownership on or after July 18, 1984, shall be the lesser of the seller's allowable acquisition depreciated historical cost to (net book value) as determined for Medicaid reimbursement of the owner of record as of July 18, 1984, or the acquisition cost to the new owner.

B. In the case of an asset not in existence as of July 18, 1984, the valuation of an asset of a hospital or long-term care facility shall be the lesser of the seller's allowable depreciated historical cost (net book value) as determined for Medicaid reimbursement of the first owner of record, or the acquisition cost to the new owner.

C. In establishing appropriate allowance for depreciation, interest on capital indebtedness, and return on equity (if applicable prior to July 1, 1986) the base to be used for such computations shall be limited to subsection A or B above of this section.

D. Costs (including legal fees, accounting and administrative costs, travel costs, and feasibility studies) attributable to the negotiation or settlement of the sale or purchase of any capital asset (by acquisition or merger) shall be reimbursable only to the extent that they have not been previously reimbursed by Medicaid.

E. The recapture of depreciation up to the full value of the asset is required.

F. E. Rental charges in sale and leaseback agreements shall be restricted to the depreciation, mortgage interest and (if applicable prior to July 1, 1986) return on equity based on cost of ownership as determined in accordance with subsections A. and B. above of this section.

12VAC30-70-261. Outlier operating payment.

A. An outlier operating payment shall be made for outlier cases. This payment shall be added to the operating payments determined in 12VAC30-70-231 and 12VAC30-70-251. Eligibility for the outlier operating payment and the amount of the outlier operating payment shall be determined as follows:

1. The hospital's adjusted operating cost for the case shall be estimated. This shall be equal to the hospital's total charges for the case times the hospital's operating cost-to-charge ratio, as defined in subsection C of 12VAC30-70-221, times the adjustment factor specified in 12VAC30-70-331 B.

2. The adjusted outlier operating fixed loss threshold shall be calculated as follows:

a. The outlier operating fixed loss threshold shall be multiplied by the statewide average labor portion of operating costs, yielding the labor portion of the outlier operating fixed loss threshold. Hence, the nonlabor portion of the outlier operating fixed loss threshold shall constitute one minus the statewide average labor portion of operating costs times the outlier operating fixed loss threshold.

b. The labor portion of the outlier operating fixed loss threshold shall be multiplied by the hospital's Medicare wage index, yielding the wage adjusted labor portion of the outlier operating fixed loss threshold.

c. The wage adjusted labor portion of the outlier operating fixed loss threshold shall be added to the nonlabor portion of the outlier operating fixed loss threshold, yielding the wage adjusted outlier operating fixed loss threshold.

3. The hospital's outlier operating threshold for the case shall be calculated. This shall be equal to the wage adjusted outlier operating fixed loss threshold times the adjustment factor specified in 12VAC30-70-331 B plus the hospital's operating payment for the case, as determined in 12VAC30-70-231 or 12VAC30-70-251.

4. The hospital's outlier operating payment for the case shall be calculated. This shall be equal to the hospital's adjusted operating cost for the case minus the hospital's outlier operating threshold for the case. If the difference is less than or equal to zero, then no outlier operating payment shall be made. If the difference is greater than zero, then the outlier operating payment shall be equal to the difference times the outlier adjustment factor.

B. An illustration of the above methodology is found in 12VAC30-70-500.

C. B. The outlier operating fixed loss threshold shall be recalculated using base year data when the DRG payment system is recalibrated and rebased. The threshold shall be calculated so as to result in an expenditure for outlier operating payments equal to 5.1% of total operating payments, including outlier operating payments, for DRG cases. The methodology described in subsection A of this section shall be applied to all base year DRG cases on an aggregate basis, and the amount of the outlier operating fixed loss threshold shall be calculated so as to exhaust the available pool for outlier operating payments.

12VAC30-70-271. Payment for capital costs.

A. Inpatient capital costs shall be determined on an allowable cost basis and settled at the hospital's fiscal year end. Allowable cost shall be determined following the methodology described in Supplement 3 (12VAC30-70-10 through 12VAC30-70-130). Inpatient capital costs of Type One hospitals shall continue to be settled at 100% of allowable cost. For services beginning July 1, 2003, inpatient capital costs of Type Two hospitals shall be settled at 80% of allowable cost. For hospitals with fiscal years that do not begin on July 1, 2003, inpatient capital costs for the fiscal year in progress on that date shall be apportioned between the time period before and the time period after that date based on the number of calendar months before and after that date. Capital costs apportioned before that date shall be settled at 100% of allowable cost, and those after at 80% of allowable cost.

B. The exception to the policy in subsection A of this section is that the hospital specific rate per day for services in freestanding psychiatric facilities licensed as hospitals, as determined in 12VAC30-70-321 B, shall be an all-inclusive payment for operating and capital costs.

C. Until prospective payment for capital costs is implemented, the provisions of 12VAC30-70-70 regarding recapture of depreciation shall remain in effect.

12VAC30-70-500. Outlier methodology illustration. (Repealed.)

OUTLIER METHODOLOGY ILLUSTRATION (dollar amounts and other values are for illustration purposes only)
	Assume the Following:
	Medicare: Fixed Loss Cost Outlier Threshold for Fiscal Year 1996		$15,150.00
	Medicare: Marginal Cost Factor for Cost Outliers for Fiscal Year 1996		0.8000
	Hospital X Operating Cost-to-Charge Ratio		0.7200
	Hospital X Capital Cost-to-Charge Ratio		0.0600
	Medicare Wage Index for Hospital X		0.9413
	Statewide Average Labor Portion of Operating Costs		0.5977
	Hospital X Billed Charges for Case Y		$100,000.00
	Total Adjusted Costs per Case for Hospital X		$3,115.00
	Relative Weight for Case Y		3.1790
	Adjustment Factor for DRG Cases		0.6197
Step 1	Calculate Hospital X Operating Costs for Case Y:
	Hospital X Billed Charges for Case Y		$100,000.00
	Hospital X Operating Cost-to-Charge Ratio	x	.7200
	Hospital X Operating Costs for Case Y		$72,000.00
Step 2	Calculate Hospital X DRG Operating Amount for Case Y:
	Total Adjusted Operating Costs per Case for Hospital X		$3,115.00
	Relative Weight for Case Y	x	3.1790
	Hospital X DRG Operating Amount for Case Y		$9,902.59
Step 3	Calculate Hospital X Cost Outlier Threshold for Case Y:
	Fixed Loss Cost Outlier Threshold		$15,150.00
	Statewide Average Labor Portion of Operating Costs	x	0.5977
	Labor Portion of Fixed Loss Cost Outlier Threshold		$9,055.16
	Wage Index for Hospital X	x	0.9413
	Wage Adjusted Labor Portion of Fixed Loss Cost Outlier Threshold		$8,523.62
	Non-Labor Portion of Fixed Loss Cost Outlier Threshold	+	$6,094.85
	Wage Adjusted Fixed Loss Cost Outlier Threshold		$14,618.46
	Hospital X DRG Operating Amount for Case Y	+	$9,902.59
	Hospital X Cost Outlier Threshold for Case Y		$24,521.05
Step 4	Calculate Hospital X Operating Outlier Amount for Case Y:
	Hospital X Operating Costs for Case Y		$72,000.00
	Hospital X Cost Outlier Threshold for Case Y	-	$24,521.05
	Hospital X Operating Outlier Costs for Case Y		$47,478.95
	Marginal Cost Factor for Cost Outliers	x	0.8000
	Hospital X Operating Outlier Amount for Case Y		$37,983.16
Step 5	Calculate Hospital X Total Payment for Case Y:
	Hospital X DRG Operating Amount for Case Y		$9,902.59
	Hospital X Operating Outlier Amount for Case Y	+	$37,983.16
	Hospital X Total Amount for Case Y		$47,885.75
	Adjustment Factor for DRG Cases	x	0.6197
	Hospital X Total Payment for Case Y		$29,674.80

Subpart XVII
Specialized Care Services

12VAC30-90-264. Specialized care services.

Specialized care services provided in conformance with 12VAC30-60-40 E and H, 12VAC30-60-320 and 12VAC30-60-340 shall be reimbursed under the following methodology. The nursing facilities that provide adult specialized care for the categories of Ventilator Dependent Care, will be placed in one group for rate determination. The nursing facilities that provide pediatric specialized care in a dedicated pediatric unit of eight beds or more will be placed in a second group for rate determination.

1. Routine operating cost. Routine operating cost shall be defined as in 12VAC30-90-271 and 12VAC30-90-272. To calculate the routine operating cost reimbursement rate, routine operating cost shall be converted to a per diem amount by dividing it by actual patient days.

2. Allowable cost identification and cost reimbursement limitations. The provisions of Article 5 (12VAC30-90-50 et seq.) of Subpart II of Part II of this chapter and of Appendix III (12VAC30-90-290) of Part III of this chapter shall apply to specialized care cost and reimbursement.

3. Routine operating cost rates. Each facility shall be reimbursed a prospective rate for routine operating costs. This rate will be the lesser of the facility-specific prospective routine operating ceiling, or the facility-specific prospective routine operating cost per day plus an efficiency incentive. This efficiency incentive shall be calculated by the same method as in 12VAC30-90-41.

4. Facility-specific prospective routine operating ceiling. Each nursing facility's prospective routine operating ceiling shall be calculated as:

a. Statewide ceiling. The statewide routine operating ceiling shall be $415 as of July 1, 2002. the weighted average (weighted by 1994 days) of specialized care rates in effect on July 1, 1996, reduced by statewide weighted average ancillary and capital cost per day amounts based on audited 1994 cost data from the 12 facilities whose 1994 FY specialized care costs were audited during 1996. This routine operating ceiling amount shall be adjusted for inflation by the percentage of change in the moving average of the Virginia specific Skilled Nursing Facility Market Basket of Routine Service Costs, as developed by DRI/McGraw-Hill, using the second quarter 1996 DRI table. The respective statewide operating ceilings will be adjusted each quarter in which the provider's most recent fiscal year ends, by adjusting the most recent interim ceiling by 100% of historical inflation and 50% of forecasted inflation to the end of the provider's next fiscal year based on 12VAC30-90-41.

b. The portion of the statewide routine operating ceiling relating to nursing salaries (as determined by the 1994 audited cost report data, or 67.22%) will be wage adjusted using a normalized wage index. The normalized wage index shall be the wage index applicable to the individual provider's geographic location under Medicare rules of reimbursement for skilled nursing facilities, divided by the statewide average of such wage indices across the state. This normalization of wage indices shall be updated January 1, after each time the Health Care Financing Administration (HCFA) publishes wage indices for skilled nursing facilities. Updated normalization shall be effective for fiscal years starting on and after the January 1 for which the normalization is calculated.

c. The percentage of the statewide routine operating ceiling relating to the nursing labor and nonlabor costs (as determined by the 1994 audited cost report data or 71.05%) will be adjusted by the nursing facility's specialized care average Resource Utilization Groups, Version III (RUG-III) Nursing-Only Normalized Case Mix Index (NCMI). The NCMI for each nursing facility will be based on all specialized care patient days rendered during the six-month period prior to that in which the ceiling applies (see subdivision 6 of this section).

5. Normalized case mix index (NCMI). Case mix shall be measured by RUG-III nursing-only index scores based on Minimum Data Set (MDS) data. The RUG-III nursing-only weights developed at the national level by the Health Care Financing Administration (HCFA) (see 12VAC30-90-320) shall be used to calculate a facility-specific case mix index (CMI). The facility-specific CMI, divided by the statewide CMI shall be the facility's NCMI. The steps in the calculation are as follows:

a. The facility-specific CMI for purposes of this rate calculation shall be the average of the national RUG-III Nursing-Only weights calculated across all patient days in the facility during the six months prior to the six-month period to which the NCMI shall be applied to the facility's routine operating cost and ceiling.

b. The statewide CMI for purposes of this rate calculation shall be the average of the national RUG-III Nursing-Only weights calculated across all specialized care patient days in all Specialized Care Nursing facilities in the state during the six months prior to the six-month period to which the NCMI shall be applied. A new statewide CMI shall be calculated for each six-month period for which a provider-specific rate must be set.

c. The facility-specific NCMI for purposes of this rate calculation shall be the facility-specific CMI from subdivision 5 a of this section divided by the statewide CMI from subdivision 5 b of this section.

d. Each facility's NCMI shall be updated semiannually, at the start and the midpoint of the facility's fiscal year.

e. Patient days for which the lowest RUG-III weight is imputed, as provided in subdivision 14 c of this section, shall not be included in the calculation of the NCMI.

6. 5. Facility-specific prospective routine operating base cost per day: The facility-specific routine operating cost per day to be used in the calculation of the routine operating rate and the efficiency incentive shall be the actual routine cost per day from the most recent fiscal year's cost report, adjusted (using DRI-Virginia inflation factors) by 50% of historical inflation and 50% of the forecasted inflation, and adjusted for case mix as described below: for inflation based on 12VAC30-90-41.

a. An NCMI rate adjustment shall be applied to each facility's prospective routine nursing labor and nonlabor operating base cost per day for each semiannual period of the facility's fiscal year.

b. The NCMI calculated for the second semiannual period of the previous fiscal year shall be divided by the average of that (previous) fiscal year's two semiannual NCMIs to yield an "NCMI cost rate adjustment" to the prospective nursing labor and nonlabor operating cost base rate in the first semiannual period of the subsequent fiscal year.

c. The NCMI determined in the first semiannual period of the subsequent fiscal year shall be divided by the average of the previous fiscal year's two semiannual NCMIs to determine the NCMI cost rate adjustment to the prospective nursing labor and nonlabor operating base cost per day in the second semiannual period of the subsequent fiscal year.

See 12VAC30-90-310 for an illustration of how the NCMI is used to adjust routine operating cost ceilings and semiannual NCMI adjustments to the prospective routine operating base cost rates.

7. 6. Interim rates. Interim rates, for processing claims during the year, shall be calculated from the most recent settled cost report and Minimum Data Set (MDS) data available at the time the interim rates must be set, except that failure to submit a cost and MDS data report timely may result in adjustment to interim rates as provided elsewhere.

8. 7. Ancillary costs. Specialized care ancillary costs will be paid on a pass-through basis for those Medicaid specialized care patients who do not have Medicare or any other sufficient third-party insurance coverage. Ancillary costs will be reimbursed as follows:

a. All covered ancillary services, except kinetic therapy devices, will be reimbursed for reasonable costs as defined in the current NHPS. Effective for specialized care days on or after January 15, 2007, reimbursement for reasonable costs shall be subject to a ceiling. The ceiling shall be $238.81 per day for calendar year 2004 (150% of average costs) and shall be inflated to the appropriate provider fiscal year. For cost report years beginning in each calendar year, ancillary ceilings will be inflated using the moving average for the second quarter of the year, taken from the Virginia Specific Nursing Home Input Price Index published by Global Insight or its successor for the fourth quarter of the previous year based on 12VAC30-90-41. See 12VAC30-90-290 for the cost reimbursement limitations.

b. Kinetic therapy devices will have a limit per day (based on 1994 audited cost report data inflated to the rate period). See 12VAC30-90-290 for the cost reimbursement limitations.

c. Kinetic therapy devices will be reimbursed only if a resident is being treated for wounds that meet the following wound care criteria. Residents receiving this wound care must require kinetic bed therapy (that is, low air loss mattresses, fluidized beds, and/or rotating/turning beds) and require treatment for a grade (stage) IV decubitus, a large surgical wound that cannot be closed, or second to third degree burns covering more than 10% of the body.

9. 8. Covered ancillary services are defined as follows: laboratory, X-ray, medical supplies (e.g., infusion pumps, incontinence supplies), physical therapy, occupational therapy, speech therapy, inhalation therapy, IV therapy, enteral feedings, and kinetic therapy. The following are not specialized care ancillary services and are excluded from specialized care reimbursement: physician services, psychologist services, total parenteral nutrition (TPN), and drugs. These services must be separately billed to DMAS. An interim rate for the covered ancillary services will be determined (using data from the most recent settled cost report) by dividing allowable ancillary costs by the number of patient days for the same cost reporting period. The interim rate will be retroactively cost settled based on the specialized care nursing facility cost reporting period.

10. 9. Capital costs. Effective July 1, 2001, capital cost reimbursement shall be in accordance with 12VAC30-90-35 through 12VAC30-90-37 inclusive, except that the 90% occupancy requirement shall not be separately applied to specialized care. Capital cost related to specialized care patients will be cost settled on the respective nursing facility's cost reporting period. In this cost settlement the 90% occupancy requirement shall be applied to all the nursing facility's licensed nursing facility beds inclusive of specialized care.

To apply this requirement, the following calculation shall be carried out:

a. Licensed beds, including specialized care beds, times days in the cost reporting period shall equal available days.

b. 90% of available days shall equal 90% occupancy days.

c. 90% occupancy days, minus actual resident days including specialized care days shall equal the shortfall of days if it is positive. It shall be set to zero if it is negative.

d. Actual resident days not including specialized care days, plus the shortfall of days shall equal the minimum number of days to be used to calculate the capital cost per day.

11. 10. Nurse aide training and competency evaluation programs and competency evaluation programs (NATCEP) costs. NATCEPS costs will be paid on a pass-through basis in accordance with the current NHPS.

12. 11. Pediatric routine operating cost rate. For pediatric specialized care in a distinct part pediatric specialized care unit, one routine operating cost ceiling will be developed. The routine operating cost ceiling will be computed as follows: $418 as of July 1, 2002.

a. The Complex Health Care Payment Rate effective July 1, 1996, and updated for inflation, will be reduced by (i) the weighted average capital cost per day developed from the 1994 audit data and (ii) the weighted average ancillary cost per day from the 1994 audit data updated for inflation in the same manner as described in subdivision 4 a of this subsection.

b. a. The statewide operating ceiling shall be adjusted for each nursing facility in the same manner as described in subdivisions subdivision 4 and 5 of this section.

c. b. The final routine operating cost reimbursement rate shall be computed as described for other than pediatric units in subdivision 3 of this section.

13. 12. Pediatric unit capital cost. Pediatric unit capital costs will be reimbursed in accordance with the current NHPS, except that the occupancy requirement shall be 70% rather than 90%.

14. MDS data submission. MDS data relating to specialized care patients must be submitted to the department in a submission separate from that which applies to all nursing facility patients.

a. Within 30 days of the end of each month, each specialized care nursing facility shall submit to the department, separately from its submission of MDS data for all patients, a copy of each MDS Version 2.0 which has been completed in the month for a Medicaid specialized care patient in the nursing facility. This shall include (i) the MDS required within 14 days of admission to the nursing facility (if the patient is admitted as a specialized care patient), (ii) the one required by the department upon admission to specialized care, (iii) the one required within 12 months of the most recent full assessment, and (iv) the one required whenever there is a significant change of status.

b. In addition to the monthly data submission required in subdivision 14 a of this section, the same categories of MDS data required in subdivision 14 a of this section shall be submitted for all patients receiving specialized care from January 1, 1996, through December 31, 1996, and shall be due February 28, 1997.

c. If a provider does not submit a complete MDS record for any patient within the required timeframe, the department shall assume that the RUG-III weight for that patient, for any time period for which a complete record is not provided, is the lowest RUG-III weight in use for specialized care patients. A complete MDS record is one that is complete for purposes of transmission and acceptance by the Health Care Financing Administration.

15. Case mix measures in the initial semiannual periods. In any semiannual periods for which calculations in 12VAC39-90-310 requires an NCMI from a semiannual period beginning before January 1996, the case mix used shall be the case mix applicable to the first semiannual period beginning after January 1, 1996, that is a semiannual period in the respective provider's fiscal period. For example, December year-end providers' rates applicable to the month of December 1996, would normally require (in Appendix I (12VAC30-90-270 et seq.) of Part III of this chapter) an NCMI from July to December 1995, and one from January to June 1996, to calculate a rate for July to December 1996. However, because this calculation requires an NCMI from a period before January 1996, the NCMIs that shall be used will be those applicable to the next semiannual period. The NCMI from January to June 1996, and from July to December 1996, shall be applied to December 1996, as well as to January to June 1997. Similarly, a provider with a March year end would have it's rate in December 1996, through March 1997, calculated based on an NCMI from April through September 1996, and October 1996, through March 1997.

16. Cost reports of specialized care providers are due not later than 150 days after the end of the provider's fiscal year. Except for this provision, the 13. The cost reporting requirements of 12VAC30-90-70 and 12VAC30-90-80 shall apply to specialized care providers.

VA.R. Doc. No. R09-1360; Filed September 24, 2008, 9:54 a.m.