Original Notice.

     Preproposal statement of inquiry was filed as WSR 05-17-136.

     Title of Rule and Other Identifying Information: Part 1 of 2; amending WAC 388-550-3300 Hospital peer groups and cost caps, 388-550-4300 Hospitals and units exempt from the DRG payment method, 388-550-4600 Hospital selective contracting program, 388-550-4650 "Full cost" public hospital certified public expenditure (CPE) payment program, 388-550-4900 disproportionate share payments and 388-550-5000 Payment method -- LIDSH; and repealing WAC 388-550-6800 Proportionate share payments for inpatient hospital services.

     Hearing Location(s): Blake Office Park East, Rose Room, 4500 10th Avenue S.E., Lacey, WA 98503 (one block north of the intersection of Pacific Avenue S.E. and Alhadeff Lane behind Goodyear Tire. A map or directions are available at http://www1.dshs.wa.gov/msa/rpau/docket.html or by calling (360) 664-6097), on March 21, 2006, at 10:00 a.m.

     Date of Intended Adoption: Not earlier than March 22, 2006.

     Submit Written Comments to: DSHS Rules Coordinator, P.O. Box 45850, Olympia, WA 98504, delivery 4500 10th Avenue S.E., Lacey, WA 98503, e-mail fernaax@dshs.wa.gov, fax (360) 664-6185, by 5:00 p.m., March 21, 2006.

     Assistance for Persons with Disabilities: Contact Stephanie Schiller, DSHS Rules Consultant, by March 17, 2006, TTY (360) 664-6178 or (360) 664-6097 or by e-mail at schilse@dshs.wa.gov.

     Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The rules add language to clarify, update, and ensure clear and consistent policies for the certified public expenditure (CPE) program, the disproportionate share hospital (DSH) program, and the trauma program; add an additional requirement that peer group E hospitals are not eligible for certain DSH programs; add a new section that identifies the criteria for considering a hospital's eligibility for the psychiatric indigent inpatient disproportionate share hospital (PIIDSH) payment and that PIIDSH payments are determined using a prospective payment method; replace "medical assistance administration" and "MAA" with "the department"; add language that requires hospitals to annually submit a copy of their charity and bad debt policy; repeal WAC 388-550-6800 and provide updated language in new section, WAC 388-550-5425 regarding the upper payment limit (UPL) for inpatient hospital services; and delete language that allows payment through the ratio of costs-to-charges (RCC) payment method when the department determines that the psychiatric services provided to a client eligible under a state-only administered program qualify for a special exemption.

     Reasons Supporting Proposal: See Purpose above.

     Statutory Authority for Adoption: RCW 74.08.090, 74.09.500.

     Statute Being Implemented: RCW 74.08.090, 74.09.500.

     Rule is not necessitated by federal law, federal or state court decision.

     Name of Proponent: Department of social and health services, governmental.

     Name of Agency Personnel Responsible for Drafting: Kathy Sayre, P.O. Box 45533, Olympia, WA 98504-5533, (360) 725-1342; Implementation and Enforcement: Ayuni Wimpee, P.O. Box 45510, Olympia, WA 98504-5510, (360) 725-1835.

     No small business economic impact statement has been prepared under chapter 19.85 RCW. The department has analyzed the proposed rule and concluded that no new costs will be imposed on businesses affected by them. The preparation of a comprehensive small business economic impact statement is not required.

     A cost-benefit analysis is required under RCW 34.05.328. A preliminary cost-benefit analysis may be obtained by contacting Ayuni Wimpee, P.O. Box 45510, Health and Recovery Services Administration, Olympia, WA 98504-5510, phone (360) 725-1835, fax (360) 753-9152, e-mail wimpeah@dshs.wa.gov.

February 9, 2006

Andy Fernando, Manager

Rules and Policies Assistance Unit

     (2) The six ((medical assistance administration (MAA))) hospital peer groups are:

     (a) Group A, rural hospitals;

     (b) Group B, urban hospitals without medical education programs;

     (c) Group C, urban hospitals with medical education program;

     (d) Group D, specialty hospitals or other hospitals not easily assignable to the other five groups;

     (e) Group E, public hospitals participating in the "full cost" public hospital certified public expenditure (CPE) program; and

     (f) Group F, critical access hospitals.

     (3) ((MAA)) The department uses a cost cap at the seventieth percentile for hospitals in peer groups B and C. All other peer groups are exempt from the cost cap((.))s for the following reasons:

     (a) ((MAA exempts)) Peer group A hospitals ((from the cost cap)) because they are paid under the ratio of costs-to-charges (RCC) methodology for Medicaid claims.

     (b) ((MAA exempts)) Peer group D hospitals ((from the cost cap)) because they are specialty hospitals without a common peer group on which to base comparisons.

     (c) ((MAA exempts)) Peer group E hospitals ((from the cost cap)) because they are paid under the ((ratio of costs-to-charges ())RCC(())) methodology for ((Medicaid and GAU)) inpatient claims.

     (d) ((MAA exempts)) Peer group F hospitals ((from the cost cap)) because they are paid under the departmental weighted costs-to-charges (DWCC) methodology for Medicaid claims.

     (4) ((MAA)) The department calculates ((a peer group's)) cost caps for peer groups B and C based on the hospitals' base period costs after subtracting:

     (a) Indirect medical education costs, in accordance with WAC 388-550-3250(2), from the aggregate operating and capital costs of each hospital in the peer group; and

     (b) The cost of outlier cases from the aggregate costs in accordance with WAC 388-550-3350(1).

     (5) ((MAA)) The department uses the lesser of each individual hospital's calculated aggregate cost or the peer group's seventieth percentile cost cap as the base amount in calculating the individual hospital's adjusted cost-based conversion factor. After the peer group cost cap is calculated, ((MAA)) the department adds back to the individual hospital's base amount its indirect medical education costs and appropriate outlier costs, as determined in WAC 388-550-3350(2).

     (6) In cases where corrections or changes in an individual hospital's base-year cost or peer group assignment occur after peer group cost caps are calculated, ((MAA)) the department updates the peer group cost caps involved only if the change in the individual hospital's base-year costs or peer group assignment will result in a five percent or greater change in the seventieth percentile of costs calculated for either its previous peer group category, its new peer group category, or both.

[Statutory Authority: RCW 74.04.050, 74.08.090. 05-12-132, § 388-550-3300, filed 6/1/05, effective 7/1/05. Statutory Authority: RCW 74.08.090 and 42 U.S.C. 1395x(v), 42 C.F.R. 447.271, .11303, and .2652. 01-16-142, § 388-550-3300, filed 7/31/01, effective 8/31/01. Statutory Authority: RCW 74.08.090, 74.09.730, 74.04.050, 70.01.010, 74.09.200, [74.09.]500, [74.09.]530 and 43.20B.020. 98-01-124, § 388-550-3300, filed 12/18/97, effective 1/18/98.]

     (2) Subject to the restrictions and limitations listed in this section, the department exempts the following hospitals and units from the DRG payment method for inpatient services provided to Medicaid-eligible clients:

     (a) Peer group A hospitals, as described in WAC 388-550-3300(2). Exception: Inpatient services provided to clients eligible under the following programs are reimbursed through the DRG payment method:

     (i) General assistance programs; and

     (ii) Other state-only administered programs.

     (b) Peer group E hospitals, as described in WAC 388-550-3300(2). See WAC 388-550-4650 for how the department calculates payment to Peer group E hospitals.

     (c) Peer group F hospitals (critical access hospitals).

     (d) Rehabilitation units when the services are provided in ((medical assistance administration (MAA))) department-approved acute physical medicine and rehabilitation (acute PM&R) hospitals and designated distinct rehabilitation units in acute care hospitals.

     ((MAA)) The department uses the same criteria as the Medicare program to identify exempt rehabilitation hospitals and designated distinct rehabilitation units. Exception: Inpatient rehabilitation services provided to clients eligible under the following programs are covered and reimbursed through the DRG payment method:

     (i) General assistance programs; and

     (ii) Other state-only administered programs.

     (e) Out-of-state hospitals excluding hospitals located in designated bordering cities as described in WAC 388-501-0175. Inpatient services provided in out-of-state hospitals to clients eligible under the following programs are not covered or reimbursed by the department:

     (i) General assistance programs; and

     (ii) Other state-only administered programs.

     (f) Military hospitals when no other specific arrangements have been made with the department. Military hospitals may individually elect or arrange for one of the following payment methods in lieu of the RCC payment method:

     (i) A negotiated per diem rate; or

     (ii) DRG.

     (g) Nonstate-owned specifically identified psychiatric hospitals and designated hospitals with Medicare certified distinct psychiatric units. The department uses the same criteria as the Medicare program to identify exempt psychiatric hospitals and distinct psychiatric units of hospitals.

     (i) Inpatient psychiatric services provided to clients eligible under the following programs are reimbursed through the DRG payment method:

     (A) General assistance programs; and

     (B) Other state-only administered programs.

     (ii) ((If the department determines that the psychiatric services provided to a client eligible under a program listed in subsection (2)(g)(i) of this section qualify for a special exemption, the services may be reimbursed by using the ratio of costs-to-charges (RCC) payment method.

     (iii))) Regional support networks (RSNs) that arrange to reimburse nonstate-owned psychiatric hospitals and designated distinct psychiatric units of hospitals directly, may use the department's payment methods or contract with the hospitals to reimburse using different methods. Claims not paid directly through an RSN are paid through the department's ((MMIS)) payment system.

     (3) The department limits inpatient hospital stays that are exempt from the DRG payment method and identified in subsection (2) of this section to the number of days established at the seventy-fifth percentile in the current edition of the publication, "Length of Stay by Diagnosis and Operation, Western Region," unless the stay is:

     (a) Approved for a specific number of days by the department, or for psychiatric inpatient stays, by the regional support network (RSN);

     (b) For chemical dependency treatment which is subject to WAC 388-550-1100; or

     (c) For detoxification of acute alcohol or other drug intoxication.

     (4) If subsection (3)(c) of this section applies to an eligible client, the department will:

     (a) Pay for three-day detoxification services for an acute alcoholic condition; or

     (b) Pay for five-day detoxification services for acute drug addiction when the services are directly related to detoxification; and

     (c) Extend the three- and five-day limitations for up to six additional days if either of the following is invoked on a client under care in a hospital:

     (i) Petition for commitment to chemical dependency treatment; or

     (ii) Temporary order for chemical dependency treatment.

[Statutory Authority: RCW 74.04.050, 74.08.090. 05-12-132, § 388-550-4300, filed 6/1/05, effective 7/1/05. Statutory Authority: RCW 74.08.090 and 42 U.S.C. 1395x(v), 42 C.F.R. 447.271, .11303, and .2652. 01-16-142, § 388-550-4300, filed 7/31/01, effective 8/31/01. Statutory Authority: RCW 74.08.090, 74.09.730, 74.04.050, 70.01.010, 74.09.200, [74.09.]500, [74.09.]530 and 43.20B.020. 98-01-124, § 388-550-4300, filed 12/18/97, effective 1/18/98.]

     (2) The department requires Medicaid clients in a selective contracting area obtain their elective (nonemergent) inpatient hospital services from participating or exempt hospitals in the SCA. Elective (nonemergent) inpatient hospital services provided by nonparticipating hospitals in an SCA shall not be reimbursed by the department, except as provided in WAC 388-550-4700.

     (3) The department exempts from the selective contracting program those hospitals that are:

     (a) In an SCA but designated by the department as remote. The department designates hospitals as remote((, hospitals meeting)) when they meet the following criteria:

     (i) Located more than ten miles from the nearest hospital in the SCA;

     (ii) Having fewer than seventy-five beds; and

     (iii) Having fewer than five hundred Medicaid admissions in a two-year period.

     (b) Owned by health maintenance organizations (HMOs) and providing inpatient services to HMO enrollees only;

     (c) Children's hospitals;

     (d) State psychiatric hospitals or separate (freestanding) psychiatric facilities;

     (e) Out-of-state hospitals located in nonbordering cities, and out-of-state hospitals in bordering cities not designated as selective contracting areas;

     (f) Peer group E hospitals; and

     (g) Peer group F hospitals (critical access hospitals).

     (4) ((MAA)) The department:

     (a) Negotiates with selectively contracted hospitals a negotiated conversion factor (NCF) for inpatient hospital services provided to Medicaid clients.

     (b) Calculates its maximum financial obligation for a Medicaid client under the hospital selective contract in the same manner as DRG payments using cost-based conversion factors (CBCFs).

     (c) Applies NCFs to Medicaid clients only. (((MAA)) The department uses CBCFs in calculating payments for medical care services clients.)

[Statutory Authority: RCW 74.04.050, 74.08.090. 05-12-132, § 388-550-4600, filed 6/1/05, effective 7/1/05. Statutory Authority: RCW 74.08.090, 74.09.730, 74.04.050, 70.01.010, 74.09.200, [74.09.]500, [74.09.]530 and 43.20B.020. 98-01-124, § 388-550-4600, filed 12/18/97, effective 1/18/98.]

     (2) Only the following facilities are reimbursed through the "full cost" public hospital CPE payment program:

     (a) Public hospitals located in the state of Washington that are:

     (i) Owned by public hospital districts; and

     (ii) Not certified by the department of health (DOH) as a critical access hospital;

     (b) Harborview Medical Center; and

     (c) University of Washington Medical Center.

     (3) Payments made under the CPE payment program are limited to medically necessary services provided to medical assistance clients eligible for inpatient hospital services ((provided to clients eligible under the Medicaid and general assistance-unemployable (GA-U) fee-for-service programs)).

     (4) Each hospital described in subsection (2) of this section is responsible to provide certified public expenditures as the required state match for claiming federal Medicaid funds. ((Certified public expenditures cannot include federal funds or money used to match federal funds.))

     (5) ((Payments made by MAA)) The department determines the actual payment for inpatient hospital services under the CPE payment program ((equal)) by:

     (a) Multiplying the hospital's Medicaid RCC rate ((times allowable charges times)) by the covered charges (to determine allowable costs), then;

     (b) Subtracting the client's responsibility and any third party liability (TPL) from the amount derived in (a) of this subsection, then;

     (c) Multiplying the state's ((Medicaid)) federal ((match percentage)) matching assistance percentage (FMAP) by the amount derived in (b) of this subsection.

     (((6) Client responsibility and third party liability as identified on the hospital claim or by MAA are deducted from the basic payment to determine MAA's actual payment for that admission.))

[Statutory Authority: RCW 74.04.050, 74.08.090. 05-12-132, § 388-550-4650, filed 6/1/05, effective 7/1/05.]

     (1) To qualify for a DSH payment for each state fiscal year (SFY), an instate or bordering city hospital provider must submit to ((MAA)) the department, the hospital's completed and final DSH application by the due date specified in that year's application letter. ((The application due date will not be less than sixty days after MAA makes the application available.))

     (2) A hospital is a disproportionate share hospital eligible for the low-income disproportionate share hospital (LIDSH) program for a specific SFY if the hospital submits a DSH application for that specific year in compliance with subsection (1) and if both the following apply:

     (a) The hospital's Medicaid inpatient utilization rate (MIPUR) is at least one standard deviation above the mean Medicaid inpatient utilization rate for hospitals receiving Medicaid payments in the state, or ((its)) the hospital's low-income utilization rate (LIUR) exceeds twenty-five percent; and

     (b) At least two obstetricians who have staff privileges at the hospital have agreed to provide obstetric services to eligible individuals at the hospital. For the purpose of establishing DSH eligibility, "obstetric services" is defined as routine nonemergency delivery of babies. This requirement for two obstetricians with staff privileges does not apply to a hospital:

     (i) That provides inpatient services predominantly to individuals under eighteen years of age; or

     (ii) That did not offer nonemergency obstetric services to the general public as of December 22, 1987, when section 1923 of the Social Security Act was enacted.

     (3) For hospitals located in rural areas, "obstetrician" means any physician with staff privileges at the hospital to perform nonemergency obstetric procedures.

     (4) ((MAA)) The department may consider a hospital a disproportionate share hospital for programs other than the LIDSH program if the hospital submits a DSH application for the specific year and meets the following criteria for the year specified in the application:

     (a) The hospital has a MIPUR of not less than one percent; and

     (b) The hospital meets the requirement of subsection (2)(b) of this section.

     (5) ((MAA)) To determine a hospital's eligibility for any DSH program, the department uses the criteria in this section and the information derived from the DSH application submitted by the hospital, subject to the following:

     (a) Charity care. If the hospital's DSH application and audited financial statement for the relevant fiscal year do not agree on the amount for charity care, the department uses the lower amount claimed.

     (b) Bad debt. If the hospital's DSH application does not allocate bad debt between insured and uninsured patients, the department assigns the entire amount of bad debt to insured patients.

     (c) Total inpatient hospital days. If the hospital's DSH application lists a total number of inpatient hospital days that is lower than the total number in the hospital's Medicare cost report, the department uses the higher number to determine the hospital's MIPUR. The department may use the lower number to determine the hospital's MIPUR if, within ten business days of the department's written notification to the hospital of the discrepancy, the hospital submits documentation that supports the lower number of inpatient hospital days listed on the DSH application. Acceptable documentation includes, but is not limited to, a revised cost report submitted to Medicare that shows the correct data.

     (6) Hospitals must submit annually to the department a copy of the hospital's charity and bad debt policy as part of the individual hospital's DSH application.

     (7) The department administers the low-income disproportionate share hospital (LIDSH) program and may administer any of the following DSH programs:

     (a) General assistance-unemployable disproportionate share hospital (GAUDSH);

     (b) Small rural hospital assistance program disproportionate share hospital (SRHAPDSH);

     (c) Small rural hospital indigent ((adult)) assistance program disproportionate share hospital (((SRHIAAPDSH))) (SRHIAPDSH);

     (d) Nonrural hospital indigent ((adult)) assistance program disproportionate share hospital (((NRHIAAPDSH))) (NRHIAPDSH); ((and))

     (e) Public hospital disproportionate share hospital (PHDSH); and

     (f) Psychiatric indigent inpatient disproportionate share hospital (PIIDSH).

     (((6) MAA)) (8) The department allows a hospital to receive any one or all of the DSH payment adjustments discussed in subsection (((5))) (7) of this section when the hospital:

     (a) Meets the requirements in subsection (4) of this section; and

     (b) Meets the eligibility requirements for the particular DSH payment program, as discussed in WAC 388-550-5000 through 388-550-5400.

     (((7) MAA)) (9) The department ensures each hospital's total DSH payments do not exceed the individual hospital's DSH limit, defined as:

     (a) The cost to the hospital of providing services to Medicaid clients, including clients served under Medicaid managed care programs;

     (b) Less the amount paid by the state under the non-DSH payment provision of the state plan;

     (c) Plus the cost to the hospital of providing services to uninsured patients;

     (d) Less any cash payments made by uninsured clients; and

     (e) Plus any adjustments required and/or authorized by federal regulation.

     (((8) MAA's)) (10) The department's total annual DSH payments ((must not)) cannot exceed the state's DSH allotment for the federal fiscal year.

     If the ((MAA)) department's statewide allotment is exceeded, ((MAA)) the department may adjust future DSH payments to each hospital to compensate for the amount overpaid. Adjustments will be made in the following program order:

     (a) PHDSH;

     (b) SRHAPDSH;

     (((b) NRHIAAPDSH)) (c) NRHIAPDSH;

     (((c) SRHIAAPDSH)) (d) SRHIAPDSH;

     (((d))) (e) GAUDSH;

     (f) PIIDSH; and

     (((e))) (g) LIDSH((; and

     (f) PHDSH)).

[Statutory Authority: RCW 74.04.050, 74.08.090. 05-12-132, § 388-550-4900, filed 6/1/05, effective 7/1/05. Statutory Authority: RCW 74.08.090, 74.04.050, and 2003 1st sp.s. c 25. 04-12-044, § 388-550-4900, filed 5/28/04, effective 7/1/04. Statutory Authority: RCW 74.08.090, 74.09.500, 74.09.035(1), and 43.88.290. 03-13-055, § 388-550-4900, filed 6/12/03, effective 7/13/03. Statutory Authority: RCW 74.08.090, 74.09.730 and 42 U.S.C. 1396r-4. 99-14-040, § 388-550-4900, filed 6/30/99, effective 7/1/99. Statutory Authority: RCW 74.08.090, 74.09.730, 74.04.050, 70.01.010, 74.09.200, [74.09.]500, [74.09.]530 and 43.20B.020. 98-01-124, § 388-550-4900, filed 12/18/97, effective 1/18/98.]

     (2)((The medical assistance administration (MAA) pays)) Hospitals considered eligible under the criteria in subsection (1) of this section receive LIDSH payments. The total LIDSH payment amounts equal the funding set by the state's appropriations act for LIDSH. The amount that the state appropriates for LIDSH may vary from year to year.

     (3) ((MAA)) The department distributes LIDSH payments to ((individual)) each LIDSH eligible hospital((s)) using ((the)) a prospective payment method ((for each LIDSH-eligible hospital)). ((MAA)) The department determines the standardized Medicaid inpatient utilization rate (MIPUR) by:

     (a) Dividing the hospital's MIPUR by the average MIPUR of all LIDSH-eligible hospitals; then

     (b) Multiplying the hospital's standardized MIPUR by the hospital's most recent DRG payment method rebased case mix index, and then by the hospital's most recent fiscal year Title XIX admissions; then

     (c) Multiplying the product by an initial random base amount; and then

     (d) Comparing the sum of all annual LIDSH payments to the appropriated amount. If the amounts differ, ((MAA)) the department progressively selects a new base amount by successive approximation until the sum of the LIDSH payments to hospitals equals the legislatively appropriated amount.

     (4) After each applicable state fiscal year, ((MAA)) the department will not make changes to the LIDSH payment distribution that has resulted from calculations identified in subsection (3)(((c))) of this section. However, hospitals may still submit corrected DSH application data to ((MAA)) the department after June 15 and prior to July 1 of the applicable state fiscal year to correct calculation of the MIPUR or low income utilization rate (LIUR) for historical record keeping. See WAC 388-550-5550 for rules regarding public notice for changes in Medicaid payment rates for hospital services.

[Statutory Authority: RCW 74.08.090, 74.09.500, 74.09.035(1), and 43.88.290. 03-13-055, § 388-550-5000, filed 6/12/03, effective 7/13/03. Statutory Authority: RCW 74.08.090, 74.09.730 and 42 U.S.C. 1396r-4. 99-14-040, § 388-550-5000, filed 6/30/99, effective 7/1/99. Statutory Authority: RCW 74.08.090, 74.09.730, 74.04.050, 70.01.010, 74.09.200, [74.09.]500, [74.09.]530 and 43.20B.020. 98-01-124, § 388-550-5000, filed 12/18/97, effective 1/18/98.]

     The following section of the Washington Administrative Code is repealed:

WAC 388-550-6800

Proportionate share payments for inpatient hospital services.