The Texas Health and Human Services Commission (HHSC) proposes new Subchapter O, Delivery System and Provider Payment Initiatives, §353.1305, concerning Regional Uniform Rate Increases for Hospital Services.

Elsewhere in this issue, related §353.1301 of this title (relating to General Provisions), is proposed concurrent with this section and describes general provisions that apply to this and other sections under this new Subchapter O.

BACKGROUND AND JUSTIFICATION

The proposed new section describes the circumstances under which HHSC will direct a Medicaid managed care organization (MCO) to provide a uniform percentage rate increase to hospitals in the MCO's network in a participating service delivery area (SDA) for the provision of inpatient services, outpatient services, or both. This section also describes the methodology used by HHSC to determine the percentage rate increase.

Currently, Texas' Medicaid hospital payments, made through either the fee-for-service (FFS) or managed care models, do not fully cover Medicaid allowable costs for hospital services. A portion of the Medicaid shortfall is reimbursed through supplemental payment programs such as the disproportionate share hospital (DSH) program and the uncompensated care (UC) pool under the 1115 waiver known as the Texas Healthcare Transformation and Quality Improvement Program. These supplemental payments are paid outside of the managed care capitation apparatus and, for payments to non-state-owned providers, rely on intergovernmental transfers (IGTs) from non-state governmental entities or other state agencies for the non-federal share of the payments.

Healthcare policy experts posit that reimbursing provider costs more fully through managed care payments would enhance care coordination. Flowing additional funds for hospital services prospectively through managed care entities, rather than retrospectively reimbursing hospitals for services provided but not fully reimbursed through Medicaid, would increase the ability of the state and its managed care contractors to pursue approaches to provider reimbursement that prioritize achieving health outcomes versus the delivery of services.

In May, 2016, the Centers for Medicare & Medicaid Services (CMS) finalized a rule that allows a state to direct expenditures under its contracts with MCOs under certain limited circumstances. Under the new federal rule, a state may direct an MCO to raise rates for a class of providers of a particular service by a uniform dollar amount or percentage, subject to approval of the contract arrangements by CMS. To obtain approval, the arrangements must be based on the utilization and delivery of services; direct expenditures equally for a class of providers of a particular service; advance at least one of the goals and objectives of the state's quality strategy and have an evaluation plan to measure the effectiveness of the arrangements at doing so; not condition provider participation on an IGT; and not be automatically renewed.

In light of the recent federal regulation and with the goal of enhancing care coordination and achieving better health outcomes, this proposed rule authorizes HHSC to use IGTs from non-state governmental entities or from other state agencies to support capitation payment increases in one or more SDAs. Each MCO within the SDA would then be contractually required by the state to increase hospital payment rates by a uniform percentage for one or more classes of hospital that provide services within the SDA.

Eligibility

HHSC determines eligibility for rate increases by SDA and class of hospital. The SDA must have at least one governmental entity willing to provide IGT to support the rate increase. Also, to be eligible for the rate increase, a hospital must be within a class designated by HHSC to receive the increase.

HHSC proposes classifying hospitals into seven groups: state-owned hospitals, children's hospitals, non-urban public hospitals, rural hospitals, urban public hospitals, institutions for mental diseases, and all other hospitals. The classifications allow HHSC to direct rate increases where they are most needed to bring reimbursement closer to cost for all hospitals in the participating SDA. The percentage rate increase will be uniform for all hospitals within each class; but if HHSC directs rate increases to more than one class within an SDA, the percentage rate increase may vary between classes.

Services subject to rate increase

HHSC may direct rate increases for all or a subset of inpatient hospital services; all or a subset of outpatient hospital services; or all or a subset of both types of services, based on advancing the goals and objectives of HHSC's quality strategy.

Determination of rate increase

HHSC will consider several factors in determining the percentage rate increase that will be directed for one or more classes of hospital within an SDA, including the amount of available funding; the class or classes of hospital eligible to receive the increase; the type of service subject to the rate increase; the actuarial soundness of the capitation payment needed to support the rate increase; available budget neutrality room under any applicable federal waiver programs; and other HHSC goals and priorities.

Reconciliation and recoupment

HHSC will follow the methodology described in §353.1301 of this subchapter (proposed concurrent with this §353.1305) to reconcile the amount of non-federal funds expended under this section and to authorize recoupments of overpayment or disallowance amounts.

SECTION-BY-SECTION SUMMARY

Proposed new §353.1305(a) describes the circumstances under which HHSC will direct a uniform percentage rate increase.

Proposed new §353.1305(b) defines key terms used in the section.

Proposed new §353.1305(c) describes the classes of hospital eligible for rate increases.

Proposed new §353.1305(d) describes the eligibility criteria for receiving the rate increase.

Proposed new §353.1305(e) describes the basis for identifying hospital services subject to the rate increase.

Proposed new §353.1305(f) describes the methodology for determining the percentage of rate increase.

Proposed new §353.1305(g) describes when sponsoring governmental entities must transfer funds to HHSC to support the rate increases and the amount of funds that must be transferred.

Proposed new §353.1305(h) describes the effective date of rate increases.

Proposed new §353.1305(i) refers to §353.1301(g) for the description of the reconciliation process.

Proposed new §353.1305(j) refers to §353.1301(k) for the description of the recoupment authority.

FISCAL NOTE

Greta Rymal, Deputy Executive Commissioner for Financial Services, has determined that for each year of the first five years the proposed rule is in effect, there may be a fiscal impact to state government for rate increases to state-owned hospitals, but there is insufficient information to provide an estimate at this time because HHSC does not know what state-owned hospitals or state agencies will choose to sponsor rate increases under this section or at what level of funding. There will be no fiscal impact to state government for rate increases to non-state-owned hospitals because the non-federal share of the increase in capitation payments will be funded with IGTs from non-state governmental entities. There may be a fiscal impact to local governments, but there is insufficient information to provide an estimate because HHSC does not know which non-state governmental entities will choose to sponsor rate increases under this section or at what level of funding.

SMALL BUSINESS AND MICRO-BUSINESS IMPACT ANALYSIS

HHSC has determined that there will be no adverse economic effect on small businesses or micro-businesses to comply with the proposed rule. Hospitals eligible for the rate increases will not be required to alter their business practices and will receive higher reimbursement for providing the same services.

PUBLIC BENEFIT AND COST

Pam McDonald, Director of Rate Analysis, has determined that for each year of the first five years the rule is in effect, the public will benefit from the adoption of the rule. The anticipated public benefit will be enhanced care coordination and better health outcomes as a result of flowing funding through the managed care organizations.

Ms. McDonald has also determined that there are no probable economic costs to persons who are required to comply with the proposed rule.

HHSC has determined that the proposed rule will not affect a local economy. There is no anticipated negative impact on local employment.

REGULATORY ANALYSIS

HHSC has determined that this proposal is not a "major environmental rule" as defined by §2001.0225 of the Texas Government Code. A "major environmental rule" is defined to mean a rule the specific intent of which is to protect the environment or reduce risk to human health from environmental exposure and that may adversely affect, in a material way, the economy, a sector of the economy, productivity, competition, jobs, the environment, or the public health and safety of a state or a sector of the state. This proposal is not specifically intended to protect the environment or reduce risks to human health from environmental exposure.

TAKINGS IMPACT ASSESSMENT

HHSC has determined that this proposal does not restrict or limit an owner’s right to his or her property that would otherwise exist in the absence of government action and, therefore, does not constitute a taking under §2007.043 of the Government Code.

PUBLIC COMMENT

Written comments on the proposal may be submitted to Monica Leo, Staff Counsel, Brown Heatly Building, MC: 1100, 4900 North Lamar Blvd, Austin, TX 78714-9030; by fax to (512) 424-6586; or by e-mail to Monica.Leo@hhsc.state.tx.us within 30 days of publication of this proposal in the Texas Register.

PUBLIC HEARING

A public hearing is scheduled for February 1, 2017, from 2:00 p.m. to 3:00 p.m. (Central Time) in the Public Hearing Room, Brown Heatly Building, 4900 North Lamar Blvd, Austin, TX 78714-9030. Persons requiring further information, special assistance, or accommodations should contact Amy Chandler at (512) 487-3419.

STATUTORY AUTHORITY

The new rule is proposed under Texas Government Code §531.033, which provides the Executive Commissioner of HHSC with broad rulemaking authority, and Texas Human Resources Code §32.021 and Texas Government Code §531.021(a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas; and with Texas Government Code §533.002, which authorizes HHSC to implement the Medicaid managed care program.

The proposed rule implements Texas Human Resources Code, Chapter 32; Texas Government Code, Chapter 531; and Texas Government Code Chapter 533.