HAR §17-1739.2-7. Data sources for rate calculation

(a) The department shall select the base year. The base year selected shall be the most recent state UNOFFICIAL 1739.2-10 fiscal year for which cost reports for the significant majority of providers are available. The department shall select the most recent year for which cost reports for the significant majority of providers are available but are not finally settled (i.e., the "as filed" cost reports). The department shall identify and apply an audit adjustment factor to the "as filed" cost reports. (b) Cost and census day data to be used in the development of the basic PPS rates shall be abstracted from the uniform cost report that is submitted to the Medicaid agency by each provider. If the department determines that additional data is required, then additional cost and census data shall be solicited from the provider. [Eff 09/01/03 ] (Auth: HRS §346-59; 42 U.S.C. §1396a) (Imp: 42 C.F.R. §447.252) §17-1739.2-8 Calculation of component per diem costs by reference to each provider's base year cost report. (a) Cost data shall be abstracted from the base year cost report and categorized into the following three components: (1) Direct nursing costs shall include all allowable costs involved in the direct care of the patient. Examples of such costs include the following: (A) Salaries for nurses' aides, registered nurses, and licensed practical nurses not involved in administration; (B) The portion of employee fringe benefits that are properly allocated to those salaries; (C) Physician-ordered maintenance therapy, which is not billed directly to the department. The cost of maintenance therapy services provided by persons other than nursing staff shall be limited to an amount equivalent to the cost if performed by nursing staff or a physical therapy aide; and UNOFFICIAL 1739.2-11 (D) Costs of nursing supplies and medical supplies not separately billable to patients. (2) Capital costs shall include all allowable capital related operating costs under Medicare reasonable cost principles of reimbursement, as defined in 42 CFR Chapter 413 of the long-term care facility or distinct part unit. Examples of such costs include the following: (A) Rent; (B) Interest; (C) Depreciation; (D) Equipment or lease rental; (E) Property taxes; and (F) Insurance relating to capital assets. (3) G&A costs shall include all additional allowable costs incurred in providing care to long-term care patients. Examples of such costs shall include the following: (A) Dietary; (B) Housekeeping; (C) Laundry and linen; (D) Operation of plant; (E) Medical records; (F) The costs of insuring against or paying for malpractice, including insurance premiums, attorneys' fees and settlements of claims; and (G) The costs of fringe benefits properly allocated to employees involved in general and administrative duties. (b) Costs allocated to line items on the base year cost report other than those components listed in subsection (a) or to inappropriate line items, shall be appropriately reclassified to the three components. Reclassification shall be performed by the department or its fiscal agent. If maintenance therapy is identified as a separate line item on the provider’s cost report, then the department shall include those costs in calculating the PPS rates. The department shall not, however, allow reclassification of UNOFFICIAL 1739.2-12 maintenance therapy costs from the physical or occupational therapy ancillary cost center to routine costs. (c) Costs of services specifically excluded from the basic PPS rate under section 17-1739.2-4(b) shall be deleted from the costs identified in subsection (a) for purposes of the basic PPS rate calculation. This process shall involve identifying line items from the base year cost report or other financial records of the provider pertaining to the excluded services and subtracting these costs from the appropriate component. If a provider's base year cost report does not identify the costs of excluded services, then the department shall so advise the provider and request additional financial records. If the provider does not respond with appropriate information, then the department may delete from the provider's costs an amount reasonably estimated to represent the costs of such excluded services. (d) Cost reports for facilities which began operations after the beginning of the base year are not included in calculating the statewide weighted average per diem costs or used to calculate the provider's basic PPS rate. (e) Costs attributable to new beds that are placed in service after the beginning of the base year are also not included in calculating the statewide weighted average per diem costs or used to calculate the portion of the provider's basic PPS rate that relates to the new beds. (f) Where an existing facility has partial year cost reports from more than one owner or operator, the department may either select one of the partial year cost reports or combine the cost reports from the former and current owners or operators, or both. In either case, the cost reports shall be adjusted to approximate the costs that would have been incurred for a twelve-month period. (g) Gross excise taxes paid on receipts, NF taxes, and any return on equity received by a for- profit provider shall be deleted from the costs used to calculate the basic PPS rate and shall be UNOFFICIAL 1739.2-13 reimbursed separately. (h) If a provider received a rate increase pursuant to a rate reconsideration request in the base year, and that increase is for a non-recurring cost, then the department may delete from the base year costs that are included in calculating the basic PPS rates an amount equal to the costs that were used to calculate the rate increase. (i) If a provider received supplemental payments from the state (with no federal matching funds) for special services in the base year, then the department shall adjust the provider's base year costs to remove the differential cost of those special services in calculating the provider's basic PPS rates. (j) The resulting component costs shall be standardized to remove the effects of varying fiscal year ends. Costs are inflated from the end of each provider's fiscal year to a common point in time. Therefore, facilities with fiscal years that end earlier receive a higher rate (more months) of inflation. (k) To recognize annual inflationary cost increases, these standardized component costs shall be inflated as described in section 17-1739.2-14. (l) For nursing facility providers, the portions of a provider's standardized and inflated costs (except for the costs of maintenance therapy services included in direct nursing costs and the costs of complying with OBRA 87) that are in excess of the routine cost limits (excluding the add-on to those limits for OBRA 87 costs) for long-term care facilities shall be deleted from the costs used to calculate the basic PPS rates. The department shall apply its estimate of what the federal routine cost limits would have been for urban Honolulu facilities to all nursing facilities. (m) Costs that are not otherwise specifically addressed in this chapter shall be included in base year costs if they comply with HCFA Publication No. 15 standards. (n) Legal expenses for the prosecution of claims in federal or state court against the State of Hawaii UNOFFICIAL 1739.2-14 or the department incurred after September 30, 1988, shall not be included as allowable costs in determining the PPS per diem rates. (o) A provider-specific per diem component cost shall be calculated by dividing the cost associated with each component identified in subsection (a) as adjusted in subsection (b) by the number of long-term care provider census days for each acuity level report on the cost report and segregated in accordance with the classifications in section 17-1739.2-5. (p) For providers with both acuity levels A and C residents in the base year, per diem component rates shall be established as follows: (1) Costs as reported on the base year cost report shall be used for the computation of the level A and level C per diem component rates for providers which report costs for acuity levels A and C residents separately; (2) If a provider reports combined costs for acuity levels A and C and does not segregate its direct nursing costs based upon a case mix method or study, then the department shall allocate the provider's direct nursing costs based upon the acuity ratio; (3) Costs for the general and administrative component shall be allocated equally on a per diem basis between acuity levels A and C, or at the provider's option, allocated by the provider using the same case-mix index developed for nursing costs; (4) Capital costs shall be allocated equally between Acuity levels A and C on a per diem basis; and (5) In no case shall a provider's acuity level A per diem costs exceed its acuity level C per diem costs. (q) Notwithstanding the foregoing, if a provider's base year cost report indicates that the provider had insufficient experience at a particular level of care, then its basic PPS rate for that level of care shall be computed as follows: (1) The G&A and capital cost components shall UNOFFICIAL 1739.2-15 remain the same for both levels of care; (2) The provider shall receive the substitute direct nursing component for the level of care for which it had insufficient experience; (3) If the provider allocated its costs between levels A and C, then the costs and days allocated to the level of care for which it had insufficient experience shall not be considered in calculating its basic PPS rates; (4) If the provider did not allocate its costs between levels A and C, then no part of its costs or days shall be allocated to the level of care for which it had insufficient experience in calculating its basic PPS rates; and (5) The calculation of the basic PPS rate for an acuity level in which the provider has insufficient experience shall also consider the adjustments that have been incorporated into the basic PPS rate for which sufficient experience exists. [Eff 09/01/03 ] (Auth: HRS §346-59; 42 U.S.C. §1396a) (Imp: 42 C.F.R. §447.252) §17-1739.2-9 Application of component rate ceilings. (a) Each provider's per diem cost components, as calculated in accordance with section 17-1739.2-8, shall be subject to component rate ceilings in determining a provider's basic PPS rates. (b) For each classification identified in section 17-1739.2-5, component rate ceilings shall be established as follows: (1) For each provider, multiply the provider- specific per diem component cost by the provider's total census days in the base period to determine total cost per component by provider. Any per diem component cost that is greater than two standard deviations above or below the statewide mean of the UNOFFICIAL 1739.2-16 component cost shall be excluded in calculating the component rate ceilings; (2) For each classification identified in section 17-1739.2-5, sum the providers and totals calculated in paragraph (1) to determine the total cost per component for each classification; (3) Divide the classification component costs calculated in paragraph (2) by the total census days reported in the base year cost reports for all providers in the classification to determine an average cost per component by provider classification; provided, however, that if any per diem costs are excluded because they deviate more than two standard deviations from the statewide mean, then the days associated with those per diem costs shall also be deleted in calculating the average cost per component for the peer group; and (4) Multiply the results of paragraph (3) above by the following factors to determine the cost component rate ceilings by each provider classification: (A) General and Administrative-1.1; (B) Capital-1.1; and (C) Direct Nursing-1.15. (c) Generally, each per diem cost component of a provider's basic PPS rates shall be the lesser of the provider's per diem cost component rate calculated under section 17-1739.2-8 or the per diem ceiling for that component, except as noted in section 17-1739.2-19(f). In the case of the capital component, no provider shall receive less than $1.50 a day regardless of its cost per day. (d) If a provider's rate includes a substitute direct nursing component, then all three of the component ceilings that apply to the acuity level for which the rate is being calculated shall be applied. (e) The component ceilings shall not be applied in the following circumstances: (1) To a grandfathered PPS rate; UNOFFICIAL 1739.2-17 (2) To a grandfathered capital component if a provider meets the provisions of section 17-1739.2-10; (3) To grandfathered direct nursing and G&A components; and (4) To a new provider or provider with new beds whose basic PPS rates are, in whole or in part, calculated under the special provisions defined in sections 17-1739.2-10 and 17-1739.2-11. That section defines the circumstances in which either the component ceilings or some other ceilings will be applied. (f) For the FY 98 rebasing only, the rate calculation for all providers shall include the higher of the rates calculated under the following two options: (1) Sections 17-1739.2-8 and 17-1739.2-9 and increased by the GET and ROE adjustments and capital and G&A incentives, if applicable; or (2) The grandfathered PPS rate, which excludes OBRA 1987 payments, but includes rate reconsideration; (3) If the grandfathered PPS rate is the lower of the two options, then the provider shall receive the basic PPS rate and all other appropriate adjustments that are defined in this chapter. (4) If the grandfathered PPS rate is the higher of the two options, then the provider shall also receive the following adjustments or increases to that rate: (A) For FY 98, one-half of the inflation adjustment. For all subsequent PPS years, the provider shall receive the same inflation adjustments that are received by all other providers. (B) The GET adjustment, however, shall only be applied to the incremental increase to the total PPS rates that results from the adjustments or increases noted UNOFFICIAL 1739.2-18 above. [Eff 09/01/03 ] (Auth: HRS §346-59; 42 U.S.C. §1396a) (Imp: 42 C.F.R. §447.252) §17-1739.2-10 Treatment of new providers without historical costs. (a) The following two types of providers shall have their basic PPS rates calculated, in whole or in part, under this section: (1) A provider that began operating after the base year, and therefore has no base year cost report; or (2) A provider that began operating a new facility during the base year, and therefore has no base year cost report that reflects a full twelve months of operations. (b) A provider that qualifies under one of the above criteria shall submit its projected costs to the department on forms and in the format defined by the department. (c) The qualifying provider shall receive as its basic PPS rate the lesser of: its reasonable projected allowable costs under Medicare reasonable cost principles of reimbursement (as defined in 42 C.F.R. Chapter 413 and modified by this chapter), or one hundred twenty-five per cent of the sum of the statewide weighted averages (including the inflation adjustment) for its peer group in each acuity level. (d) Commencing on January 1, 1996, the qualifying provider shall receive as its basic PPS rates the lesser of: (1) Its reasonable projected allowable costs under Medicare reasonable cost principles of reimbursement (as defined in 42 C.F.R. chapter 413 and as modified by this chapter); or (2) The sum of the component rate ceilings for its peer group in each acuity level. (3) Subsection (c) shall continue to be applied under the following circumstances: (A) Facilities that, as of December 31, 1995, qualify for and are receiving the UNOFFICIAL 1739.2-19 new provider rate; or (B) New LTC projects with certificate of need (CON) approval (if applicable) as required by the state health and development agency (SHPDA), that either: (i) have started construction as of December 31, 1995; or (ii) have not started construction but have a financial commitment as of December 31, 1995 which contains a penalty clause, in which case the department may grant a provider’s request for an exception based on a review of the provider’s financial situation. (e) In PPS rate years following the calculation of per diem rates under this section, the provider's basic PPS rates shall receive the same inflation adjustments as other providers. [Eff 09/01/03 ] (Auth: HRS §346-59; 42 U.S.C. §1396a(13)) (Imp: 42 C.F.R. §447.252) §17-1739.2-11 Treatment of new beds without historical costs. (a) A provider that has expanded beds since or during the base year, and therefore has no base year cost report reflecting a full twelve months of operation with the new beds, shall have its basic PPS rates calculated, in whole or in part, under this section. (b) Existing providers which add new beds during or after the base year shall receive basic PPS rates that "blend" the rates for the old and new beds. (c) Basic PPS rates associated with the new beds shall be calculated in accordance with sections 17-1739.2-10(c) and 17-1739.2-10(d). If applicable, the GET adjustment shall be increased to cover the higher gross excise taxes that will result. (d) The result of subsection (c) above shall be multiplied by the number of new beds. (e) The basic PPS rates calculated on the UNOFFICIAL 1739.2-20 historical costs of the existing beds as defined in sections 17-1739.2-7, 17-1739.2-8, and 17-1739.2-9 shall be multiplied by the number of existing beds. (f) The sum of subsections (d) and (e) above shall be divided by the total number of existing and new beds. (g) The rates calculated in subsection (f) above shall be the provider's basic PPS rate for all beds. (h) The computation shall be performed separately for each acuity level. [Eff 09/01/03 ] (Auth: HRS §346-59; 42 U.S.C. §1396a) (Imp: 42 C.F.R. §447.252) §17-1739.2-12 Transition of new providers and new beds into the PPS. (a) A new provider or a provider with new beds shall eventually have its basic PPS rates calculated in the same manner as other providers. The transition will begin with the first rebasing in which the new provider or provider with new beds has a base year cost report that reflects a full twelve months of operations. (b) Unless the provider is eligible for the grandfathered direct nursing and G&A components, the G&A and direct nursing components of the provider's basic PPS rates shall be calculated in the same manner as existing providers. This calculation shall include the application of the component ceilings. (c) For new providers or providers that added new beds, the capital component of the basic PPS rates subject to the capital component ceilings shall be determined as follows: (1) The new provider or provider with new beds shall receive the lesser of the following two options as the capital component of its basic PPS rates: (A) Its facility-specific capital per diem costs calculated in the same manner as existing providers (excluding the application of the capital component ceiling); or (B) Its grandfathered capital component UNOFFICIAL 1739.2-21 (excluding the application of the capital component ceiling); provided, however, that if the provider's facility-specific capital per diem amount after the application of the capital component ceiling is higher than its grandfathered capital component, then the provider shall receive the higher amount as the capital component of its basic PPS rates. (2) In order to implement the preceding section, the department shall identify the capital component of the basic PPS rates for new providers that existed immediately prior to the implementation of the FY 98 rebasing. That amount, which is the grandfathered capital component, shall be calculated as follows: (A) The department shall compare the new provider's projected per diem costs, which were used to establish its initial PPS rates, with its actual capital per diem costs as indicated on the base year cost report to determine whether the projected capital costs were reasonable. If the department concludes that the projections were unreasonable, then the department may adjust the grandfathered capital component accordingly; (B) If the new provider's projected aggregate costs in all three PPS rate components exceeded one hundred twenty five percent of the sum of the statewide weighted averages, then the grandfathered capital component shall be reduced pro rata. That reduction shall be accomplished by multiplying the projected capital per diem by the (C) capital component reduction factor; and (D) After applying the capital component UNOFFICIAL 1739.2-22 reduction factor, the new provider's initial projected capital per diem amount shall be increased by the inflation factor to remove the effects of varying fiscal year ends and to inflate the per diem to the PPS year. That amount shall be the capital component of the new provider's basic PPS rates. (3) The department shall follow the same general procedure in calculating the portion of the capital component for new beds that was used to calculate the blended capital component for providers with new beds. That process shall include the following steps: (A) Identifying the grandfathered capital component; (B) If appropriate, applying the capital component reduction factor; (C) Determining whether the facility- specific or grandfathered capital component rate is appropriate; and (D) Using the appropriate amount to calculate a "blended" capital per diem amount for the provider. (d) A provider that added new beds and meets the defined eligibility tests is entitled to have its direct nursing and general administrative components adjusted as defined below: (1) In order to be eligible for the grandfathered direct nursing and G&A components, a provider must meet the following requirements: (A) The provider must have both old and new beds; (B) The provider must have a full twelve months of historical costs for the new beds reflected in the base year cost report; (C) Immediately prior to the effective date of the FY 98 rebasing, the provider must have had in effect a "blended" UNOFFICIAL 1739.2-23 basic PPS rate that included the costs of both the old and new beds; and (D) The provider's adjusted PPS rate for FY 98 (excluding the NF and OBRA 87 adjustments) is less than its total PPS rate immediately prior to the rebasing plus one-half the FY 98 inflation adjustment. (2) A provider who meets the eligibility tests defined above shall receive the grandfathered direct nursing and G&A adjustment. As part of the calculation to determine the amount of the adjustment, one- half of the inflation adjustment for FY 98 is included. For FY 98 only, no other inflation adjustment shall be included in calculating the provider's adjusted PPS rates. Thereafter, the provider shall receive the full inflation adjustment in calculating its adjusted PPS rates. [Eff 09/01/03 ] (Auth: HRS §346-59; 42 U.S.C. §1396a) (Imp: 42 C.F.R. §447.252) §17-1739.2-13 Treatment of providers who provide acuity level D care. (a) Providers that furnish level D services after the base year shall submit costs and days to the department on forms and in the format defined by the department. (b) Payment for acuity level D services will be based on the facility’s reasonable projected allowable costs under Medicare reasonable cost principles of reimbursement (as defined in 42 C.F.R. chapter 413 and as modified by this chapter). However, if a provider has historical costs data of providing acuity level D services under a state pilot program, the rate will be based on the lesser of the pilot program or the facility’s projected costs. [Eff 09/01/03 ] (Auth: HRS §346-59) (Imp: 42 C.F.R. §447.252) UNOFFICIAL 1739.2-24 §17-1739.2-14 Application of inflation and other adjustments to establish provider-specific prospective payment rates. (a) Annual cost increases shall be recognized by applying the inflation adjustment to the provider’s historical costs or basic PPS rates, or both. This provision shall not apply to Acuity Level A and Acuity Level C facilities. The provisions of section 17-1739.2-21 shall apply to Acuity Level A and Acuity Level C facilities. (b) For years in which the department performs a rebasing, cost increases attributable to inflation that have occurred since the base year shall be recognized as follows: (1) The basic PPS rates shall be standardized to remove the effects of varying fiscal year ends; (2) The basic PPS rates shall be multiplied by one plus the cumulative inflation adjustment; (3) For the purpose of determining the inflation adjustment, the department shall use the most current and accurate data that is then available; and (4) To ensure the prospective nature of the system, the data shall not be retroactively modified or adjusted. (c) For years when the department does not perform a rebasing, cost increases due to inflation for the upcoming rate year shall be recognized as follows: (1) The department shall multiply the adjusted PPS rate (excluding any rate reconsideration increases) in effect on June 30th of the immediately preceding fiscal year by one plus the inflation adjustment for the following state fiscal year. (2) To ensure the prospective nature of the payment methodology, the inflation adjustment shall not be retroactively modified or adjusted. [Eff 09/01/03 ] (Auth: HRS §346-59; 42 U.S.C. §1396a) (Imp: 42 UNOFFICIAL 1739.2-25 C.F.R. §447.252) §17-1739.2-15 Limitations on long-term care provider reimbursement. (a) Notwithstanding any other provision of this chapter, aggregate payments to each group of facilities (i.e., nursing facilities or intermediate care facilities for the mentally retarded) may not exceed the amount that can reasonably be estimated would have been paid for those services under Medicare reasonable cost principles of reimbursement (as defined in 42 C.F.R. Chapter 413). In addition, aggregate payments to each group of state-operated providers (i.e., nursing facilities or intermediate care facilities for the mentally retarded) may not exceed the amount that can reasonably be estimated would have been paid under Medicare reasonable cost principles of reimbursement. If a formal and final determination is made that payments in the aggregate exceeded the upper limit and federal financial participation is disallowed, the department may recoup any payments made to providers in excess of the upper limit. (b) Notwithstanding any other provisions of this chapter, payment for out-of-state long-term care facility services shall be the lesser of the facility's charge, the other state's Medicaid rate, or the statewide weighted average Hawaii Medicaid rate applicable to services provided by comparable Hawaii providers. (c) Notwithstanding any other provision of this chapter, no payments shall be made for the improper admission of or care for mentally ill or mentally retarded individuals, as those terms are defined in section 4211(e)(7)(G) of OBRA 87. (d) Notwithstanding any other provisions of the chapter, should federal participation for CAH providers be disallowed, the department may recoup any such payments made to these CAH facilities. [Eff 09/01/03 ] (Auth: HRS §346-59; 42 U.S.C. §1396a(13)) (Imp: 42 C.F.R. §447.252) UNOFFICIAL 1739.2-26