The Texas Health and Human Service Commission (HHSC) adopts new Subchapter O, concerning Delivery System and Provider Payment Initiatives, and new §353.1305, concerning Uniform Hospital Rate Increase Program. The new rule is adopted with changes to the proposed text published in the January 20, 2017, issue of the Texas Register (42 TexReg 177). The text of the rule will be republished.

BACKGROUND AND JUSTIFICATION

This new rule 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. The rule 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 (42 C.F.R. §438.6(c)) 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 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.

HHSC has been asked if it intends to review the contracts between MCOs and hospitals; it does not. Neither the rule nor the contract language directing the rate increase are intended to modify other managed-care payment rules or impact other provisions of the contracts between the MCO and its network hospitals.

Participation in the Uniform Hospital Rate Increase Program (UHRIP) is voluntary, and sponsoring governmental entities propose the amount of IGT to transfer to HHSC to support the non-federal share of the increased rates.

This new rule is under new Subchapter O, concerning Delivery System and Provider Payment Initiatives, and is being adopted concurrently with new §353.1301, concerning General Provisions, and new §353.1303, concerning Quality Incentive Payment Program for Nursing Facilities (QIPP). Section 353.1301 describes provisions HHSC considers to be universal to the UHRIP, QIPP, and other directed payment programs that may be implemented in Texas in the future.

COMMENTS

The 30-day comment period ended February 21, 2017. During this period, HHSC received written comments regarding the new rule from thirty-two (32) entities including:

Adelanto HealthCare Ventures

Baylor Scott & White Health

Bexar County Hospital District dba University Health System

Children's Health of Dallas

Children's Hospital Association (CHAT)

Cook Children's Hospital

Covenant Health

CRISTUS Health

Driscoll Children's Hospital

Driscoll Health Plan

Ector County Hospital District

Electra Hospital District

Falls Community Hospital and Clinic (FCHC)

Hospital Corporation of America (HCA)

Memorial Hermann Health System

Midland Memorial Hospital

Nueces County Hospital District (NCHD)

Odessa Regional Medical Center

Parkland Health & Hospital System

Stonewall Memorial Hospital District

Superior HealthPlan

Teaching Hospitals of Texas (THOT)

Tenet Healthcare

Texas Association of Community Health Plans (TACHP)

Texas Children's Hospital

Texas Health Resources

Texas Hospital Association (THA)

Texas Organization of Rural and Community Hospitals (TORCH)

Texas Rural Health Association

University Medical Center Health System (UMC Lubbock)

University Medical Center of El Paso (UMC El Paso)

University of Texas Physicians (UT Physicians)

A summary of comments and HHSC’s responses follow.

Definitions

Comment: Some commenters suggested revising the definitions of the terms "children's hospital" and "outpatient services" to provide flexibility for rate increases to physicians and other providers affiliated with children's hospitals. According to the commenters, providing for rate increases for these providers would ensure that primary and specialty care services are available to Medicaid enrollees and would prioritize achieving health outcomes, which is consistent with the stated goals of this program.

Response: The revision suggested by the commenters would affect persons (physicians and other providers) who were not put on notice that the proposed rule would impact their Medicaid reimbursement. The entities that would be impacted by the proposed rule (hospitals, MCOs, and sponsoring governmental entities) were not put on notice that non-hospital providers might receive a rate increase through the program. These persons and entities would be deprived of the opportunity for meaningful input on the rule. To ensure adequate notice to all persons that would be impacted by the rule, HHSC would be required to republish the modified rule. HHSC is unwilling to re-publish the modified proposed rule because the delay caused by re-publication would make implementation of hospital rate increases on September 1, 2017, impossible.

It is also significant that the commenters' proposal is inconsistent with the description of this program provided to CMS. CMS approval of the program is a prerequisite to implementation and making this modification would set back the progress that the state has made so far in obtaining that approval.

HHSC encourages stakeholders to submit proposals for additional delivery system and provider payment initiatives under Subchapter O that may provide for enhanced rates to providers other than hospitals. However, for the reasons explained in this response, this rule action is not the appropriate vehicle for that purpose. No changes were made to the rule in response to this comment.

Comment: Multiple commenters noted that publicly-operated hospitals located in counties of fewer than 60,000 persons meet the definition of both a "non-urban public hospital," as defined in subsection (b)(4)(A) of the proposed rule, and a "rural hospital," as defined in subsection (b)(7) of the proposed rule. The commenters asked for clarity in the definitions.

Response: HHSC agrees that the proposed definitions would have allowed a hospital to fall into two classes, which was not HHSC's intent. HHSC changed the definition of "non-urban public hospital" in subsection (b)(4)(A) to exclude rural public hospitals and added a definition of "rural public hospital" in subsection (b)(8). Subsection (c)(1) was also revised to identify two separate classes of participating rural hospital: private and public.

Comment: Commenters suggested that the definition of "rural hospital" in proposed subsection (b)(7) is appropriate to determine which hospitals are classified as "rural," rather than the definition of "non-urban public hospital" in proposed (b)(4)(A). However, the commenters asked HHSC to create separate classes for "rural private" and "rural public" hospitals.

Response: HHSC agrees with this comment. There may be operational differences between publicly-operated and privately-operated rural hospitals that warrant different percentage rate increases between the two classes. Subsection (b)(7) was revised to define a "rural private hospital" as a "privately-operated hospital located in a county with 60,000 or fewer persons according to the most recent United States Census, a Medicare-designated rural referral center, a sole community hospital, or a critical access hospital." Subsection (b)(8) was added to define a "rural public hospital" as a " hospital that is owned and operated by a governmental entity and is located in a county with 60,000 or fewer persons according to the most recent United States Census, a Medicare-designated rural referral center, a sole community hospital, or a critical access hospital." Subsection (c)(1) was also revised to identify two separate classes of participating rural hospital: private and public.

Classes of participating hospitals

Comment: One commenter pointed out the possibility that a class of hospital might have only one hospital and requested confirmation that such a class would be allowable for payment distribution.

Response: HHSC agrees with the commenter that it is possible to have a one-hospital class in some SDAs. To promote consistency of treatment across several reimbursement programs, HHSC proposed classifying hospitals using definitions drawn from other programs such as the Disproportionate Share Hospital (DSH) program and the section 1115 waiver Uncompensated Care (UC) program. The result is that some classes may have only one or two hospitals within any given SDA. There is nothing in the rule or policy that would prohibit that hospital from a rate increase. However, it is unlikely that HHSC or CMS would approve a proposal for a rate increase to benefit only a single-hospital class within the SDA. HHSC expects SDAs to submit applications providing for rate increases to most if not all of the classes within the SDA, unless there is an explanation for excluding a class from the program in that SDA. No changes were made to the rule in response to this comment.

Comment: One commenter requested that HHSC remain open to additional classes in the future to provide much needed flexibility to the program. The commenter did not identify any classes that the state may wish to add.

Response: HHSC is unsure what program flexibility would result from adding additional classes, and HHSC may not wish to classify hospitals for this program in a way that would result in inconsistent treatment across reimbursement programs. However, HHSC will consider amending the rule in the future to add other classes if there is a good public policy reason to do so. No changes were made to the rule in response to this comment.

Comment: One commenter noted that teaching hospitals are not included as a class and should not be excluded from directed payments.

Response: Teaching hospitals are not proposed to be a separate class in this program, but they are not excluded from directed payments. Some are classified for this program as they are for the DSH or UC programs (e.g., state-owned or urban public); but if not, they fall within the "all other hospitals" classification. No changes were made to the rule in response to this comment.

Comment: One commenter suggested that HHSC revise the proposed list of eligible classes in subsection (c)(1) to include non-acute care hospitals, long-term-acute care hospitals, and rehabilitation hospitals.

Response: This suggestion appears to be based on the fact that Medicaid reimbursement to these hospital types uses a different methodology than is used to reimburse other hospital types. However, it appears that including these hospital types in the "all other hospitals" classification will have a minimal impact on funding for the program and does not justify the creation of additional classes in this program. HHSC will consider creating additional classes of hospital through notice-and-comment rulemaking in the future if there appears to be a good public policy reason to do so. No changes were made to the rule in response to this comment.

Comment: One commenter asked that language be included in subsection (c)(1) to make the rate-increase directive in HHSC's contract with MCOs contingent on receipt of funds through IGTs and adjustment of premiums paid to the MCO accounting for the rate increase.

Response: The requested change in the rule is unnecessary because the premium amounts will not be calculated and the rate-increase directions will not be included in the MCO contracts until after the funds are transferred to HHSC by the sponsoring governmental entities. The need to adjust premiums from the contracted amount will never be triggered. If HHSC does not have the IGT by the deadline described in the rule, the SDA will not participate in the rate-increase program during the contract period. No changes to the rule were made in response to this comment.

Comment: One commenter recommended that language be added to subsection (c)(1) to clarify that HHSC may direct payments through contracts with MCOs only in SDAs that are participating in the program described in this rule.

Response: HHSC agrees that the requested change to subsection (c)(1) would clarify the rule. The rule was revised in response to this comment.

Comment: One commenter asked HHSC to revise subsection (c)(1) to clarify that the rate increase is subject to the MCOs' established rate payment rules and that a hospital cannot claim the enhanced payment apart from the underlying claim.

Response: HHSC agrees that a hospital cannot claim the enhanced payment apart from the underlying claim, but does not think the requested change to the rule is necessary. The title and other language of the rule clearly indicate that the program allows HHSC to direct an MCO to increase its contracted rates with hospitals for providing certain Medicaid services. The rule does not otherwise intrude upon or interfere with all other applicable MCO rate payment activities. No changes were made to the rule in response to this comment.

Comment: One commenter requested clarification on whether the directed rate increase applies to payment for services based on the contract status of the hospital at the time the service was performed or the time the claim is submitted. For example, if an MCO terminates its contract with a hospital midway through the program period, would the increased rate apply to claims submitted during the program period but after the date the contract was terminated?

Response: Neither the rule nor the contract language directing the rate increase are intended to modify other managed-care payment rules or to impact other provisions of the contracts between the MCO and its network hospitals. Whatever managed-care payment rules or contract provisions that apply to the base rate apply equally to the directed rate increase. The MCO and hospital should not treat the increased portion of the contracted rate any differently than the base rate for purposes such as payment for claims submitted after the date that the MCO/hospital contract was terminated. No changes were made to the rule in response to this comment.

Eligibility

Comment: One commenter requested that HHSC revise the rate increase eligibility criteria to include an additional consideration- amount of non-federal share funding available from governmental entities. According to the commenter, HHSC must take the amount of available funding into account when determining the classes of hospitals eligible for the rate increase because HHSC has specified that funding for the non-federal share of the increase must come from sponsoring governmental entities.

Response: HHSC disagrees with the commenter that the amount of available funding should be part of the determination of class eligibility. HHSC believes that the amount of IGT the sponsoring governmental entities propose to transfer is relevant to and should be part of the determination of the percentage of rate increase that will be applicable to one or more classes of hospital. This determination is in subsection (f)(1) of the rule. For this reason, HHSC declines to revise the rule as the commenter suggests.

Comment: Some commenters noted that subsection (d) fails to clarify that access to IGT cannot be the sole basis for determining whether a hospital class is eligible to receive a rate increase, thereby violating CMS's prohibition against "pay-to-play" arrangements. They suggested adding new subparagraph (d)(2)(D) that would read: "No eligibility determination shall be made solely based on a hospital class' ability or inability to secure public funding." Otherwise, according to the commenters, the rule could permit a scenario in which select hospitals receive a rate increase solely due to their access to IGT while others classes lacking access to IGT are excluded entirely.

Response: HHSC disagrees and declines to revise the rule as the commenters suggest. The rule appropriately lays out how HHSC will determine eligibility for rate increases by service delivery area and class of hospital.

Services subject to rate increase

Comment: Commenters encouraged HHSC to revise subsection (e) to ensure that rate increases apply equally to in-network and out-of-network services. They reasoned that if rate increases are limited to in network providers and/or services, this may provide an incentive for participating MCOs to eliminate or limit in-network services to avoid having to increase rates. One of the commenters argued that, although the federal Medicaid managed care rules specify that uniform percentage rate increases apply "for network providers," this language does not preclude mandatory rate increases from applying also to non-network providers.

Response: HHSC disagrees and declines to revise the rule as the commenters suggest as HHSC does not want to encourage or reward hospitals choosing to operate in an out-of-network capacity.