SECTION 355.8066. State Payment Cap and Hospital-Specific Limit Methodology

(a) Introduction. The Texas Health and Human Services Commission (HHSC) uses the methodology described in this section to calculate a hospital-specific limit for each Medicaid hospital participating in either the Disproportionate Share Hospital (DSH) program, described in §355.8065 of this division (relating to Disproportionate Share Hospital Reimbursement Methodology), or in the Texas Healthcare Transformation and Quality Improvement Program (the waiver), described in §355.8201 of this subchapter (relating to Waiver Payments to Hospitals for Uncompensated Care) and §355.8212 of this subchapter (relating to Waiver Payments to Hospitals for Uncompensated Charity Care).

(b) Definitions.

(1) Adjudicated claim--A hospital claim for payment for a covered Medicaid service that is paid or adjusted by HHSC or another payor.

(2) Centers for Medicare and Medicaid Services (CMS)--The federal agency within the United States Department of Health and Human Services responsible for overseeing and directing Medicare and Medicaid, or its successor.

(3) Data year--A 12-month period that is two years before the program year from which HHSC will compile data to determine DSH or uncompensated-care waiver program qualification and payment.

(4) Demonstration Year--The time period described in the definition for "Demonstration year" in §355.8212 of this subchapter.

(5) Disproportionate share hospital (DSH)--A hospital identified by HHSC that meets the DSH program conditions of participation and that serves a disproportionate share of Medicaid or indigent patients.

(6) DSH and Uncompensated Care (UC) Application--The HHSC data collection tool completed by each hospital applying for participation in DSH or UC and used by HHSC to calculate the state payment cap and hospital-specific limit, as described in this section, and to estimate the hospital's DSH and UC payments for the program year, as described in §355.8065 of this division (relating to Disproportionate Share Hospital Reimbursement Methodology) and §355.8212 of this subchapter. A hospital may be required to complete multiple applications due to different data requirements between the state payment cap and hospital-specific limit calculations.

(7) DSH and UC Application Request Form--An online survey sent to hospitals or its representatives to request a DSH and UC application and to collect information necessary to prepopulate the DSH and UC application.

(8) Dually eligible patient--A patient who is simultaneously enrolled in Medicare and Medicaid.

(9) Federal Fiscal Year (FFY)--The 12-month period beginning October 1 and ending September 30. The period also corresponds to the waiver demonstration year.

(10) Full-Offset Payment Ceiling--The maximum payment cap derived using the full-offset methodology as described in subsection (c)(1) of this section.

(11) HHSC--The Texas Health and Human Services Commission or its designee.

(12) Hospital-specific limit--The maximum payment amount authorized by Section 1923(g) of the Social Security Act that a hospital may receive in reimbursement for the cost of providing Medicaid-allowable services to individuals who are Medicaid-eligible or uninsured for payments made during a prior program year. The amount is calculated as described in subsection (d) of this section using actual cost and payment data from that period. The term does not apply to payment for costs of providing services to non-Medicaid-eligible individuals who have third-party coverage; and costs associated with pharmacies, clinics, and physicians. The calculation of the hospital-specific limit must be consistent with federal law.

(13) Inflation update factor--Cost of living index based on the annual CMS Prospective Payment System Hospital Market Basket Index.

(14) Institution for mental diseases (IMD)--A hospital that is primarily engaged in providing psychiatric diagnosis, treatment, or care of individuals with mental illness, defined in §1905(i) of the Social Security Act. IMD hospitals are reimbursed as freestanding psychiatric facilities under §355.8060 of this division (relating to Reimbursement Methodology for Freestanding Psychiatric Facilities) and §355.761 of this chapter (relating to Reimbursement Methodology for Institutions for Mental Diseases (IMD)).

(15) Medicaid contractor--Fiscal agents and managed care organizations with which HHSC contracts to process data related to the Medicaid program.

(16) Medicaid cost-to-charge ratio (inpatient and outpatient)--A Medicaid cost report-derived cost center ratio calculated for each ancillary cost center that covers all applicable hospital costs and charges relating to inpatient and outpatient care for that cost center. This ratio is used in calculating the hospital-specific limit and does not distinguish between payor types such as Medicare, Medicaid, or private pay.

(17) Medicaid cost report--Hospital and Hospital Health Care Complex Cost Report (Form CMS 2552), also known as the Medicare cost report.

(18) Medicaid hospital--A hospital meeting the qualifications set forth in §354.1077 of this title (relating to Provider Participation Requirements) to participate in the Texas Medicaid program.

(19) Medicaid payor type--The categories of payors on Medicaid claims. These are categorized in the DSH and UC application as Medicaid, where Medicaid is the sole payor, Medicare, for claims associated with the care of dually eligible patients, and other insurance, for claims for which the hospital received payment from a third-party payor for a Medicaid-enrolled patient.

(20) Outpatient charges--Amount of gross outpatient charges related to the applicable data year and used in the calculation of a payment limit or cap.

(21) Program year--The 12-month period beginning October 1 and ending September 30. The period corresponds to the waiver demonstration year.

(22) Recoupment Prevention Payment Ceiling--The maximum payment cap derived using the methodology described in subsection (c)(2) of this section that considers Medicaid only costs and payments in the methodology.

(23) State payment cap--The maximum payment amount, as applied to interim payments that will be made for the program year, that a hospital may receive in reimbursement for the cost of providing Medicaid-allowable services to individuals who are Medicaid-eligible or uninsured. The amount is calculated as described in subsection (c) of this section using interim cost and payment data from the data year. The term does not apply to payment for costs of providing services to non-Medicaid-eligible individuals who have third-party coverage or costs associated with pharmacies, clinics, and physicians.

(24) The waiver--The Texas Healthcare Transformation and Quality Improvement Program, a Medicaid demonstration waiver under §1115 of the Social Security Act that was approved by CMS. Pertinent to this section, the waiver establishes a funding pool to assist hospitals with uncompensated-care costs.

(25) Third-party coverage--Creditable insurance coverage consistent with the definitions in 45 Code of Federal Regulations (CFR) Parts 144 and 146, or coverage based on a legally liable third-party payor.

(26) Total state and local subsidies--Total state and local subsidies is defined in §355.8065 of this division.

(27) Uncompensated Care Hospital--A hospital identified by HHSC that meets the UC program eligibility criteria to receive a payment as defined in §355.8212 of this subchapter.

(28) Uncompensated-care waiver payments--Payments to hospitals participating in the waiver that are intended to defray the uncompensated costs of eligible services provided to eligible individuals.

(29) Uninsured cost--The cost to a hospital of providing inpatient and outpatient hospital services to uninsured patients as defined by CMS.

(c) Calculating a state payment cap. Using information from each hospital's DSH and UC Application, Medicaid cost reports and from HHSC's Medicaid contractors, HHSC will determine the hospital's state payment cap in compliance with paragraphs (1), (2), (3), and (4) of this subsection. The state payment cap will be used for both DSH and uncompensated care waiver interim payment determinations.

(1) Calculation of uninsured and Medicaid costs and payments.

(A) Uninsured charges and payments.

(i) Each hospital will report in its application its inpatient and outpatient charges for services that would be covered by Medicaid that were provided to uninsured patients discharged during the data year. In addition to the charges in the previous sentence, for DSH calculation purposes only, an IMD may report charges for Medicaid-allowable services that were provided during the data year to Medicaid-eligible and uninsured patients ages 21 through 64.

(ii) Each hospital will report in its application all payments received during the data year, regardless of when the service was provided, for services that would be covered by Medicaid and were provided to uninsured patients.

(I) For purposes of this paragraph, a payment received is any payment from an uninsured patient or from a third party (other than an insurer) on the patient's behalf, including payments received for emergency health services furnished to undocumented aliens under §1011 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 108-173, except as described in subclause (II) of this clause.

(II) State and local subsidies to hospitals for indigent care are not included as payments made by or on behalf of uninsured patients.

(B) Medicaid charges and payments.

(i) HHSC will request from its Medicaid contractors the inpatient and outpatient charge and payment data for claims for services provided to Medicaid-enrolled individuals that are adjudicated during the data year.

(I) The requested data will include, but is not limited to, charges and payments for:

(-a-) claims associated with the care of dually eligible patients, including Medicare charges and payments;

(-b-) claims or portions of claims that were not paid because they exceeded the spell-of-illness limitation;

(-c-) outpatient claims associated with the Women's Health Program; and

(-d-) claims for which the hospital received payment from a third-party payor for a Medicaid-enrolled patient.

(II) HHSC will exclude charges and payments for:

(-a-) claims for services that do not meet the definition of "medical assistance" contained in §1905(a) of the Social Security Act. Examples include:

(-1-) claims for the Children's Health Insurance Program; and

(-2-) inpatient claims associated with the Women's Health Program or any successor program; and

(-b-) claims submitted after the 95-day filing deadline.

(ii) HHSC will request from its Medicaid contractors the inpatient and outpatient Medicaid cost settlement payment or recoupment amounts attributable to the cost report period determined in subparagraph (C)(i) of this paragraph.

(iii) HHSC will notify hospitals following HHSC's receipt of the requested data from the Medicaid contractors. A hospital's right to request a review of data it believes is incorrect or incomplete is addressed in subsection (e) of this section.

(iv) Each hospital will report on the application the inpatient and outpatient Medicaid days, charges and payment data for out-of-state claims adjudicated during the data year.

(v) HHSC may apply an adjustment factor to Medicaid payment data to more accurately approximate Medicaid payments, including for directed payments, following a rebasing or other change in reimbursement rates under other sections of this division.

(C) Calculation of in-state and out-of-state Medicaid and uninsured total costs for the data year.

(i) Cost report period for data used to calculate cost-per-day amounts and cost-to-charge ratios. HHSC will use information from the Medicaid cost report for the hospital's fiscal year that ends during the calendar year that falls two years before the end of the program year for the calculations described in clauses (ii)(I) and (iii)(I) of this subparagraph. For example, for program year 2013, the cost report year is the provider's fiscal year that ends between January 1, 2011, and December 31, 2011.

(I) For hospitals that do not have a full year cost report that meets this criteria, a partial year cost report for the hospital's fiscal year that ends during the calendar year that falls two years before the end of the program year will be used if the cost report covers a period greater than or equal to six months in length.

(II) The partial year cost report will not be prorated. If the provider's cost report that ends during this time period is less than six months in length, the most recent full year cost report will be used.

(ii) Determining inpatient routine costs.

(I) Medicaid inpatient cost per day for routine cost centers. Using data from the Medicaid cost report, HHSC will divide the allowable inpatient costs by the inpatient days for each routine cost center to determine a Medicaid inpatient cost per day for each routine cost center.

(II) Inpatient routine cost center cost. For each Medicaid payor type and the uninsured, HHSC will multiply the Medicaid inpatient cost per day for each routine cost center from subclause (I) of this clause times the number of inpatient days for each routine cost center from the data year to determine the inpatient routine cost for each cost center.

(III) Total inpatient routine cost. For each Medicaid payor type and the uninsured, HHSC will sum the inpatient routine costs for the various routine cost centers from subclause (II) of this clause to determine the total inpatient routine cost.

(iii) Determining inpatient and outpatient ancillary costs.

(I) Inpatient and outpatient Medicaid cost-to-charge ratio for ancillary cost centers. Using data from the Medicaid cost report, HHSC will divide the allowable ancillary cost by the sum of the inpatient and outpatient charges for each ancillary cost center to determine a Medicaid cost-to-charge ratio for each ancillary cost center.

(II) Inpatient and outpatient ancillary cost center cost. For each Medicaid payor type and the uninsured, HHSC will multiply the cost-to-charge ratio for each ancillary cost center from subclause (I) of this clause by the ancillary charges for inpatient claims and the ancillary charges for outpatient claims from the data year to determine the inpatient and outpatient ancillary cost for each cost center.

(III) Total inpatient and outpatient ancillary cost. For each Medicaid payor type and the uninsured, HHSC will sum the ancillary inpatient and outpatient costs for the various ancillary cost centers from subclause (II) of this clause to determine the total ancillary cost.

(iv) Determining total Medicaid and uninsured cost. For each Medicaid payor type and the uninsured, HHSC will sum the result of clause (ii)(III) of this subparagraph and the result of clause (iii)(III) of this subparagraph plus organ acquisition costs to determine the total cost.

(2) Calculation of the full-offset payment ceiling.

(A) Total hospital cost. HHSC will sum the total cost for all Medicaid payor types and the uninsured from paragraph (1)(C)(iv) of this section to determine the total hospital cost for Medicaid and the uninsured.

(B) Total hospital payments. HHSC will reduce the total hospital cost under subparagraph (A) of this paragraph by total payments from all payor sources, including graduate medical services and out-of-state payments. HHSC shall reduce the total hospital cost by supplemental payments or uncompensated-care waiver payments (excluding payments associated with pharmacies, clinics, and physicians) attributed to the hospital for the program year to prevent total interim payments to a hospital for the program year from exceeding the state payment cap for that program year.

(C) Inflation adjustment. HHSC will trend each hospital's full-offset payment ceiling using the inflation update factor. HHSC will trend each hospital's state payment cap from the midpoint of the data year to the midpoint of the program year.

(3) Calculation of the Recoupment Prevention Payment Ceiling.

(A) Total hospital cost. HHSC will calculate total cost in accordance with Section 1923(g) of the Social Security Act. For example, starting with the program period beginning October 1, 2022, HHSC will sum the total cost from paragraph (1)(C)(iv) for the Medicaid primary payor type and the uninsured only.

(B) Total hospital payments. HHSC will reduce the total hospital cost under subparagraph (A) of this paragraph by total payments in accordance with Section 1923(g) of the Social Security Act. For example, starting with the program period beginning October 1, 2022, HHSC will reduce the total hospital cost under subparagraph (A) of this paragraph by the total payments from Medicaid and the uninsured, including graduate medical services and out-of-state payments. HHSC shall reduce the total hospital cost by supplemental payments or uncompensated-care waiver payments (excluding payments associated with pharmacies, clinics, and physicians) attributed to the hospital for the program year to prevent total interim payments to a hospital for the program year from exceeding the state payment cap for that program year.

(C) Inflation adjustment. HHSC will trend each hospital's recoupment prevention payment ceiling using the inflation update factor. HHSC will trend each hospital's state payment cap from the midpoint of the data year to the midpoint of the program year.

(D) A hospital that believes that it qualifies for an exception authorized by Section 1923(g) of the Social Security Act to the calculation described in this paragraph may request that HHSC calculate the recoupment prevention payment ceiling in accordance with the exception authorized by federal law. HHSC will adhere to CMS' determination on eligibility for exception authorized by Section 1923(g) of the Social Security Act whenever available. The hospital must submit the request in accordance with subsection (f) of this section.

(4) State Payment Cap.

(A) For program periods beginning October 1, 2022, HHSC will determine the lesser of between the two payment ceilings described in paragraphs (2) and (3) of this subsection. The lesser of the two payment ceilings will constitute the State Payment Cap for the DSH program described in §355.8065 of this division and in the UC program described in §355.8212 of this subchapter.

(B) For program periods beginning on or after October 1, 2019 and ending on or before September 30, 2022, the state payment cap is described in paragraph (2) of this subsection.

(C) For program periods beginning on or after October 1, 2017 and ending on or before September 30, 2019, the state payment cap uses the costs in paragraph (2)(A) of this subsection and the payments for inpatient and outpatient claims under Title XIX of the Social Security Act, including graduate medical services and out-of-state payments, and payments on behalf of the uninsured.

(D) For program periods beginning on or after October 1, 2013 and ending on or before September 30, 2017, the state payment cap uses the costs in paragraph (2)(A) of this subsection and the payments from all payor sources, including graduate medical services and out-of-state payments, excluding third-party commercial insurance payors for inpatient and outpatient claims.

(d) Hospital-Specific Limit.

(1) HHSC will calculate the individual components of a hospital's hospital-specific limit using the calculation set out in subsection (c)(3) of this section, except that HHSC will:

(A) use information from the hospital's Medicaid cost report(s) that cover the program year and from cost settlement payment or recoupment amounts attributable to the program year for the calculations described in subsection (c)(1) of this section. If a hospital has two or more Medicaid cost reports that cover the program year, the data from each cost report will be pro-rated based on the number of months from each cost report period that fall within the program year;

(B) include supplemental payments (including upper payment limit payments) and uncompensated-care waiver payments (excluding payments associated with pharmacies, clinics, and physicians) attributable to the hospital for the program year when calculating the total payments to be subtracted from total costs as described in subsection (c)(3)(A) of this section;

(C) use the hospital's actual charges and payments for services described in subsection (c)(1)(A) and (c)(1)(B) of this section provided to Medicaid-eligible and uninsured patients during the program year; and

(D) include charges and payments for claims submitted after the 95-day filing deadline for Medicaid-allowable services provided during the program year unless such claims were submitted after the Medicare filing deadline.

(2) For payments to a hospital under the DSH program, the hospital-specific limit will be calculated at the time of the independent audit conducted under §355.8065(o) of this division.

(3) Federally authorized exceptions to the Hospital-specific limit (HSL) calculation. A hospital that believes that it qualifies for an exception authorized by Section 1923(g) of the Social Security Act to the calculation described in paragraph (f)(3) of this section may request that HHSC or its contractors calculate the HSL in accordance with the exception authorized by federal law. HHSC will adhere to CMS' determination on eligibility for exception authorized by Section 1923(g) of the Social Security Act whenever available. The following conditions and procedures will apply to all such requests received by HHSC or its contractors.

(A) The hospital must submit its request in writing to HHSC within 90 days of the end of the federal fiscal year, and the request must include any and all necessary data and justification necessary for the determination of the eligibility of the hospital to receive the exception.

(B) If HHSC approves the request, HHSC or its contractors will calculate the HSL using the methodology authorized under federal law.

(C) HHSC will notify the hospital of the results of the HSL calculation in writing.

(e) Due date for DSH and UC Application.

(1) HHSC Provider Finance Department must receive a hospital's completed application no later than 30 calendar days from the date of HHSC's written request to the hospital for the completion of the application, unless an extension is granted as described in paragraph (2) of this subsection.

(2) HHSC Provider Finance Department will extend this deadline provided that HHSC receives a written request for the extension by email no later than 30 calendar days from the date of the request for the completion of the application.

(3) The extension gives the requester a total of 45 calendar days from the date of the written request for completion of the application.

(4) If a deadline described in paragraph (1) or (3) of this subsection is a weekend day, national holiday, or state holiday, then the deadline for submission of the completed application is the next business day.

(5) HHSC will not accept an application or request for an extension that is not received by the stated deadline. A hospital whose application or request for extension is not received by the stated deadline will be ineligible for DSH or uncompensated-care waiver payments for that program year.

(f) Verification and right to request a review of data. This subsection applies to calculations under this section beginning with calculations for program year 2014.

(1) Claim adjudication. Medicaid participating hospitals are responsible for resolving disputes regarding adjudication of Medicaid claims directly with the appropriate Medicaid contractors as claims are adjudicated. The review of data described under paragraph (2) of this subsection is not the appropriate venue for resolving disputes regarding adjudication of claims.

(2) Request for review of data.

(A) HHSC will pre-populate certain fields in the DSH and UC Application, including data from its Medicaid contractors.

(i) A hospital may request that HHSC review any data in the hospital's DSH and UC Application that is pre-populated by HHSC.

(ii) A hospital may not request that HHSC review self-reported data included in the DSH and UC Application by the hospital.

(B) A hospital must submit via email a written request for review and all supporting documentation to HHSC Hospital Rate Analysis within 30 days following the distribution of the pre-populated DSH and UC Application to the hospital by HHSC. The request must allege the specific data omissions or errors that, if corrected, would result in a more accurate HSL.

(3) HHSC's review.

(A) HHSC will review the data that is the subject of a hospital's request. The review is:

(i) limited to the hospital's allegations that data is incomplete or incorrect;

(ii) supported by documentation submitted by the hospital or by the Medicaid contractor;

(iii) solely a data review; and

(iv) not an adversarial hearing.

(B) HHSC will notify the hospital of the results of the review.

(i) If changes to the Medicaid data are made as a result of the review process, HHSC will use the corrected data for the HSL calculations described in this section and for other purposes described in §355.8065 and §355.8212 of this subchapter.

(ii) If no changes are made, HHSC will use the Medicaid data from the Medicaid contractors.

(C) HHSC will not consider requests for review submitted after the deadline specified in paragraph (2)(B) of this subsection.

(D) HHSC will not consider requests for review of the following calculations that rely on the Medicaid data and other information described in this subsection:

(i) the state payment cap or hospital-specific limit calculated as described in this section, unless it is related to exceptions permitted by Section 1923(g) of the Social Security Act;

(ii) DSH program qualification or payment amounts calculated as described in §355.8065 of this title; or

(iii) uncompensated-care payment amounts calculated as described in §355.8201 or §355.8212 of this subchapter.

Source Note: The provisions of this §355.8066 adopted to be effective July 1, 2012, 37 TexReg 4577; amended to be effective October 6, 2013, 38 TexReg 6581; amended to be effective April 23, 2014, 39 TexReg 3221; amended to be effective June 25, 2019, 44 TexReg 3091; amended to be effective February 1, 2020, 45 TexReg 525; amended to be effective June 20, 2023, 48 TexReg 3187