The Texas Health and Human Services Commission (HHSC) adopts an amendment to §355.101, and new §355.312, without changes to the proposed text published in the September 28, 2001 issue of the Texas Register (26 TexReg 7374). These sections will not be republished. Amendments to §355.105 and §355.308 are adopted with changes to the proposed text published in the September 28, 2001 issue of the Texas Register (26 TexReg 7374).

Justification for the amendments is the creation of separate payment rates for nursing facilities such that facilities with acceptable liability insurance will receive higher payment rates. The option to mitigate staffing recoupments with spending will make the accountability standards more equitable in light of differentials in wages and staff availability across the state and make participation in the enhancement program viable for a greater number of facilities. Increasing the spending requirement to 90% will further expand the accountability of spending on direct care staff. Mitigation of spending recoupments for facilities with high quality index scores will recognize facilities that provide high quality of care at a lower cost than average. Redistributing recouped funds to facilities that staffed above their required staffing levels will reward facilities with high levels of direct care staff. The modification in the private pay staffing requirement recognizes that in some cases facilities may have a high average case mix for their Medicaid recipients and a lower average case mix for their private pay residents. The proposal allows respiratory therapists to be included as direct care staff for the determination of staffing requirements when the facility is receiving the supplemental payment for serving ventilator dependent recipients. The changes in the reporting requirements for the Staffing and Compensation Reports are intended to reduce paperwork, allow the full year for providers to meet their staffing requirement, and improve the quality of the staffing and compensation reports submitted by providers. The proposal clarifies how managed care days of service and revenue are handled in the calculation of required spending levels, how swing beds in rural hospitals will be paid, and that swing beds are not subject to the spending requirements. The proposal allows HHSC to delay or cancel the open enrollment if warranted which will give HHSC the flexibility necessary to successfully administer the enhancement program.

Justification for the new section is to comply with House Bill 154 of the 77th Legislature, which directed HHSC to ensure that the "rates paid for nursing home services provide for the rate component derived from reported liability insurance costs to be paid only to those homes that purchase liability insurance acceptable to the commission." The purpose of the new section is to comply with House Bill 154 by creating separate payment rates for nursing facilities such that facilities with acceptable liability insurance will receive higher payment rates that include a separate payment rate component for professional liability insurance and a separate payment rate component for general liability insurance paid to the provider as appropriate.

The department received written comments from the Texas Association of Homes and Services for the Aging, the Texas Health Care Association, and three nursing facility provider representatives, as well as oral comments from a public hearing held on October 11, 2001. A summary of the comments and the department's responses follows.

Comment: Concerning §355.101, we request that the department use even-year cost reports and not odd-year cost reports to determine reimbursement amounts. We also believe that the odd-year cost reports would not be available in time to develop the legislative appropriation request, which is the basis for actual legislative appropriations.

Response: The odd-year cost reports are used in the revision of the legislative appropriations request before the appropriations are finalized and will also be used to determine the payment rates for the biennium. HHSC is adopting this section without change.

Comment: Concerning §355.308(f)(3), we suggest adding language stating that providers will have their participation status restored and the differential in reimbursement refunded upon submission of an acceptable report to the agency.

Response: This paragraph currently states that the provider will be made a nonparticipant retroactive to the first day of the reporting period in question "until" they submit an acceptable compensation report. Upon receipt of an acceptable compensation report HHSC will determine if the provider met its staffing requirements as per §355.308(n) and its spending requirements as per §355.308(o). These rule subsections will determine the participation status of the provider and the amount of reimbursement that should have been paid to the provider for the time period that they were designated a nonparticipant. No additional language is necessary to clarify this paragraph. HHSC is adopting this paragraph without change.

Comment: Concerning §355.308(m)(2)(B)(i), the rule language in this clause should be modified to base the managed care revenue on what the provider actually received from the state and/or the Health Maintenance Organizations in the managed care payment system, and not on what HHSC projects that providers received.

Response: The references to managed care revenue have been removed from §355.308(m)(2)(B)(i) and §355.308(m)(2)(B)(iii) and from §355.308(o)(1). In addition, language was added to §355.308(o)(2) to clarify that the expenses used in the determination of the spending requirement are fee-for-service expenses.

Comment: Concerning §355.308(m)(2)(B)(ii) and §355.308(o)(1), we object to raising the spending requirement from 85% to 90% without also revising the reimbursement methodology to expand the mitigation to include other costs that could be mitigated. We also object to increasing the maximum amount of mitigation to $6.00 per day from the current $4.00 per day. Two others commenting supported raising the spending requirement from 85% to 90%.

Response: The intent of this proposal is to increase the level of spending on direct care staff. To increase the mitigation above what is already offered to nursing facilities would diminish the goal of increasing the spending on direct care staff. HHSC is adopting this clause and paragraph without change.

Comment: Concerning §355.308(n). we request that this subsection be modified to allow mitigation of dietary and facility expenses calculated under subsection (p) first be applied against any staffing requirement recoupment determined under subsection (n), with any remaining mitigation amounts to be applied against any spending requirement recoupment determined under subsection §355.308(o).

Response: The proposed rule did not propose any changes regarding the application of the dietary and facility mitigation. It is the intent of these rule subsections to apply the dietary and facility mitigation only to the spending requirements and not to the staffing requirements. Expansion of the application of the dietary and facility mitigation to the staffing requirements would not achieve the goal of requiring participants to increase direct care staffing and spending to the levels at which they were granted. Rather, any expansion would potentially reduce the amount that a provider would increase staffing and spending on direct care staff. HHSC is adopting this subsection without change.

Comment: Concerning §355.308(n), the proposed rules roll back providers to the staffing level they actually achieved and do not take into account the direct care spending level the facility achieved.

Response: Language has been changed in subsection §355.308(n) to reflect that adjusted LVN-equivalent minutes are used in the determination of staffing accountability. Adjusted LVN-equivalent minutes take into account a facility's direct care spending.

Comment: Concerning §355.308(p)(2)(B), we request that the amount of recoupment eligible for Performance-based Mitigation be calculated based on the facility's participation status in the enhancement program.

Response: It is the intent of this rule proposal to apply performance-based mitigation only to the revenue that would have been received if the provider had been a nonparticipant. The revenue that a provider receives as a result of participation in the rate enhancement is requested by the provider with the expectation that the spending and staffing requirements of this request will be met. To allow mitigation of the enhanced revenue would not achieve the goal of requiring participants to increase direct care staffing and spending to the levels at which they were granted. HHSC is adopting this subsection without change.

Comment: Concerning §355.308(p)(2), we disagree with the use of the potential advantage and potential disadvantage scores in a system to mitigate recouped funds for the failure to meet the spending requirement. We questioned whether these scores always correlate with quality of care.

Response: Provider representatives requested the addition of a method to mitigate the spending recoupment to be repaid to DHS if the provider demonstrated quality of care. Quality of care is difficult to measure; however, the Texas Department of Human Services, with input from providers and provider associations, developed a system which combines these scores along with regulatory compliance data to determine provider performance. This system is the best system in existence to measure quality of care in Texas nursing facilities. HHSC is adopting this paragraph without change.

Comment: Concerning §355.308(p)(2)(E), we request that language be added that allows performance-based mitigation to be applied on a facility-specific basis, independent of the facility's decision to have its spending requirement calculated in the aggregate.

Response: When the determination of meeting the spending requirement is calculated in the aggregate for a group of related facilities of the provider, the determination of the performance-based mitigation index must also be based across all the facilities in the aggregation. Allowing providers to have their spending requirement determined on the aggregate of all their facilities gives the provider the opportunity to shift direct care spending to lower performing facilities that have low performance-based mitigation index scores in an effort to raise those scores. The provider may choose not to have its facilities' spending requirement and performance-based mitigation index determined in the aggregate, and instead have its spending requirement and performance-based mitigation index applied on a facility-specific basis. HHSC is adopting this subparagraph without change.

Comment: Concerning §355.308(bb), we request that this subsection be reworded so that swing bed hospitals are held to the same staffing, spending, and reimbursement standards as free-standing nursing facilities.

Response: The rule proposal limits the payment rates that swing beds receive to the minimum level of participation unlike other free-standing facilities that can request increased levels of payment rates. Swing beds in rural hospitals have never been required to submit cost reports or accountability reports, which would be necessary for the rural hospital to receive increased levels of payment rates. HHSC is adopting this subsection without change.

Comment: Concerning §355.308(cc), we request that the statement in this subsection be changed to read "HHSC will reinvest recouped funds in the enhanced direct care staff rate program." We further request that subparagraph §355.308(cc)(1)(B) of this subsection be removed to allow the reinvested funds to be allocated to any facility that achieved a higher level of enhancement than it was awarded.

Response: The rule language in this subsection has been revised to state that HHSC will reinvest recouped funds to the extent that there are enough qualifying facilities. Subparagraph §355.308(cc)(1)(B) was removed to allow the reinvested funds to be allocated to any facility that achieved a higher level of enhancement than it was awarded. In addition, language was added to subsection §355.308(cc)(3) to clarify that the mitigation provisions in subsection §355.308(p) do not apply to reinvested funds.

Comment: Concerning §355.308(cc), we request that the reinvested revenue be paid to facilities in a proportionate manner to their level achieved above the limit that was funded.

Response: The reinvestment rule seeks to reward achievement of staffing and spending requirements of participants in a manner to fully reward the lowest levels first and then to reward successive levels until all funds are exhausted. To make the rewards proportionate would not fully fund the lower levels of achievement. HHSC is adopting this subsection without change.

Additional comments were received that did not apply to the rule proposal.

In addition to the changes detailed above, the commission has made the following changes:

The commission has revised §355.105(b)(5) to clarify that providers may elect to use the state of Texas fiscal year for reporting costs on their cost report period beginning September 1, 2001.

The commission has modified §355.308(f)(3) to clarify determination of the due date in cases where a contract changes ownership or is terminated.

The commission has modified §355.308(p)(2)(F) to clarify that if the performance-based mitigation index (PMI) is missing from any facility in a group of facilities that requested to have their spending requirements determined in the aggregate, the facility with the missing PMI will be removed from the aggregate spending determination and will have its spending determined on a facility-specific basis.

The commission has modified §355.308(i) and §355.308(o)(1) to revise citations to the appropriate citations

The commission has added a word to §355.308(p)(2)(B) for clarity.

The amendments are adopted under the Government Code, §531.033, which authorizes the commissioner of the Health and Human Services Commission to adopt rules necessary to carry out the commission's duties, and §531.021(b), which establishes the commission as the agency responsible for adopting reasonable rules governing the determination of fees, charges, and rates for medical assistance payments under Chapter 32, Human Resources Code.

The amendments implement the Government Code, §§531.033 and 531.021(b).