DEPARTMENT OF HEALTH AND SOCIAL SERVICES

Division of Medicaid and Medical Assistance

Statutory Authority: 31 Delaware Code, Section 512 (31 Del.C. §512)

FINAL

ORDER

Title XIX Medicaid State Plan Inpatient Hospital Sevices

Nature of the Proceedings

Delaware Health and Social Services (“Department”)/Division of Medicaid & Medical Assistance initiated proceedings to amend the Title XIX Medicaid State Plan regarding the payment methodology for inpatient hospital services. The Department’s proceedings to amend its regulations were initiated pursuant to 29 Delaware Code Section 10114 and its authority as prescribed by 31 Delaware Code Section 512.

The Department published its notice of proposed regulation changes pursuant to 29 Delaware Code Section 10115 in the September 2005 Delaware Register of Regulations, requiring written materials and suggestions from the public concerning the proposed regulations to be produced by September 30, 2005 at which time the Department would receive information, factual evidence and public comment to the said proposed changes to the regulations.

Summary of Proposed Changes

Title of Regulation

Methods and Standards for Establishing Payment Rates – Inpatient Hospital Care

Statutory Authority

42 CFR Part 447, Subpart C – Payment for Inpatient Hospital and Long-Term Care Facility Services

Amending the Following State Plan Pages

Attachment 4.19-A, Pages 1 and 3

Summary of Proposal

This regulatory action proposes to amend the reimbursement methodology for inpatient hospitals with two (2) changes regarding the: 1) reimbursement cycle and, 2) interim outlier payment methodology.

Reimbursement Cycle

Effective July 1, 2006, the proposed amendment would revise state plan language changing the reimbursement cycle for hospital payments from a twelve (12) month period to a fifteen (15) month period.

Interim Outlier Payment Methodology

Effective January 1, 2006, the proposed amendment revises the methodology for determining payment for high cost outliers. An interim payment will be made for that inpatient stay when the client’s charges have reached twenty-five (25) times the general discharge rate of that facility, or when the client’s stay is greater than sixty (60) days. Additional interim payments will be made when either of the outlier conditions for an interim payment is met again.

Summary of Comments Received With Agency Response

The Delaware Developmental Disabilities Council (DDDC) and the State Council for Persons with Disabilities (SCPD) offered the following summarized observations. DMMA has considered each comment and responds as follows:

First, DMMA includes the following “incomplete” standard on rates: The implementation year rates will be updated in FY96 using published TEFRA inflation indices. Rates will be rebased using fiscal year 1994 claims and cost report data for implementation in State FY97, and every three years thereafter. Literally, this revised standard does not address post FY97 rates and is therefore ostensibly incomplete. Perhaps, DMMA inadvertently omitted a provision indicating that a rate adjustment would be made on July 1, 2006 and every 15-month period thereafter. Second, the interim reimbursement standards for “high-cost outliers” are apparently more favorable to hospitals authorizing interim payments for patients who either have a stay longer than 60 days or have charges 25 times the general discharge rate of the facility. We endorse the concept of the regulations subject to DMMA review of the “incomplete” provision.

Agency Response: In response to the written comments, the inflationary adjustment period would be effective July 1, 2006 for a 15-month period and every 15 months thereafter. This is the only change that is being proposed that is inconsistent with the current rate calculation process. Your comment is correct that the “high-cost outliers” will be able to be reimbursed during the hospital stay as long as the qualifying conditions are met. No change to the state plan amendment will be made because of this comment. DMMA appreciates their endorsement.

DHA

While the regulation proposes to amend the hospital reimbursement cycle and the interim outlier payment methodology, our concerns focuses on the proposal to change the “…reimbursement cycle from a twelve (12) month period to a fifteen (15) month period”…which would become effective on July 1, 2006.

One issue that requires clarification is which patient population is covered under this proposal. The language is unclear whether this change is intended to impact payments to hospitals for services provided to Medicaid recipients covered under the Medicaid fee-for-service program or those covered under the State’s Medicaid managed care programs, or both. Although, this question was raised at the September 14th meeting of the Medical Care Advisory Committee, we have never received a clarification on this issue.

Our understanding of this provision is that the Medicaid program is proposing to amend the State Plan “to move to a fifteen (15) month reimbursement cycle…”. However, it appears this practice was actually implemented more than three years ago. This conclusion is based on our review of the hospital rate letters that have been sent to acute care hospitals for the past three years. When questions were raised by hospitals about the payment update delay, the response from personnel in the Medicaid Office was that the delay is “due to the State’s fiscal restraints”.

Based on this information, it appears that the State has passed on another portion of its financial shortfalls to all non-profit acute care hospitals for the past three fiscal years and is seeking to continue this practice in the years ahead.

Therefore, we strongly oppose this section of the proposed regulation, and suggest that the annual acute care hospital payment updates return to a twelve (12) month update cycle in order to comply with the current language in the State Plan. The twelve (12) month payment update cycle should be effective as of July 1, 2006, and should remain in place in the years ahead.

Agency Response: DMMA acknowledges and has considered the commenter’s concerns but declines the suggestion. The Department plans to proceed with the amendment, as these changes are necessary. No change to the state plan amendment will be made because of this comment.

Findings of Fact

The Department finds that the proposed changes as set forth in the September 2005 Register of Regulations should be adopted.

THEREFORE, IT IS ORDERED, that the proposed regulation to amend the Title XIX Medicaid State Plan regarding the payment methodology for inpatient hospital services is adopted and shall be final effective November 10, 2005.

Vincent P. Meconi, Secretary, DHSS, October 13, 2005

DMMA FINAL ORDER REGULATION #05-62

REVISIONS:

Attachment 4.19-A

Page 1

STATE PLAN UNDER TITLE XIX OF THE SOCIAL SECURITY ACT

STATE OF DELAWARE

METHODS AND STANDARDS FOR ESTABLISHING PAYMENT RATES – INPATIENT HOSPITAL CARE

Reimbursement Principle

Effective for discharges on or after July 1, 1994, the Delaware Medicaid Program will reimburse all acute care hospitals at prospective per discharge rates.

The prospective rates are set by accommodation type. Reimbursement rates have been set for two accommodation types: general services and nursery services. For each of these accommodation types, there are three components to the payment: operating payment per discharge, capital payment per discharge and medical education payment per discharge.

Rate Setting Method – Operating Payment

The base year is the Delaware hospitals’ 1992 fiscal year. The operating payment per discharge for the base year was calculated by applying a cost-to-charge ratio to allowed charges from the Medicaid claims data. This allowed cost value was then divided by the total charges to obtain the operating payment per discharge.

The cost-to-charge ratio was identified from FY92 hospital cost reports; the categories of cost included in the cost-to-charge ratio are those related to routine services (including hospital-based physicians’ costs and malpractice costs) and ancillary services.

The allowed charge data was taken from the FY92 Medicaid claims data for Delaware hospitals. Medicaid allowable hospital-specific charges associated with inpatient revenue codes appropriate to the accommodation type were identified. The hospital-specific cost-to-charge ratio was applied to the allowed charges to obtain hospital-specific allowed costs for the accommodation type.

Effective July 1, 2006, the fiscal year/period for the reimbursement of Medicaid hospital services will be based on a fifteen month period. A rate adjustment will be made on July 1, 2006 and for every fifteen month period thereafter.

The total hospital-specific allowed costs for the accommodation type were then divided by the total number of discharges on the claims date for the accommodation type to obtain the hospital-specific operating payment per discharge in the base year.

(Break In Continuity of Sections)

Attachment 4.19-A

Page 3

METHODS AND STANDARDS FOR ESTABLISHING PAYMENT RATES – INPATIENT HOSPITAL CARE (Continued)

Rate Setting Methods - Development of Implementation Year Operating Rates, Updates and Rebasing (Continued)

The implementation year rates will be updated in FY96 using published TEFRA inflation indices. Rates will be rebased using fiscal year 1994 claims and cost report data for implementation in State FY97, and every three years thereafter.

Other Related Inpatient Reimbursement Policies

Outliers - High cost outliers will be identified when the cost of the discharge exceeds the threshold of three times the hospital operating rate per discharge. Outlier cases will be reimbursed at the discharge rate plus 79 percent of the difference between the outlier threshold and the total cost of the case. Costs of the case will be determined by applying the hospital-specific cost to charge ratio to the allowed charges reported on the claim for discharge.

For certain high cost cases, providers may request an interim payment, that is, a payment prior to the discharge of the patient when the discharge is not likely to occur in the near future. Cases that are approved by the State for reimbursement on an interim payment basis must meet all of the following conditions: (1) length of stay over one year, and (2) over one million dollars in costs as determined in the paragraph above, and (3) attempts to find non-acute care placements have proven unsuccessful and are documented to the State's satisfaction. Interim payment cases will be subject to the same outlier payment calculations as described in the paragraph above and reimbursed at the outlier amount less a 5% discount. Interim payments that are renewed must meet all of the following conditions: (1) an additional length of stay over one year (2) an additional one million dollars in costs as determined in the paragraph above and (3) continued attempts to find non-acute care placements have proven unsuccessful and are documented to the State's satisfaction. Any interim payment cases that are renewed will also be subject to the same outlier payment calculations as described in the paragraph above and reimbursed at the outlier amount less a 5% discount.

Effective January 1, 2006, any provider with a high cost client case (outlier) will receive an interim payment; that is, a payment prior to the discharge of that patient when the charge amount reaches the designated level. An interim payment will be made for that inpatient stay when the client’s charges have reached twenty-five (25) times the general discharge rate of that facility, or when the client’s stay is greater than sixty (60) days. Additional interim payments will be made when either of the outlier conditions for an interim payment is met again. The interim payment amount is based on the current reimbursement methodology used to pay outliers. Upon the discharge of the client, the facility will receive the balance of the payment that would have been paid if the case were paid in full at the time of discharge.

9 DE Reg. 783 (11/01/05) (Final)