(a) Purpose. In conducting reviews for adjustments to reimbursement, the Texas Health and Human Services Commission (HHSC) adjusts allowable costs to account for inflation between the reporting period and the prospective reimbursement period. HHSC retains the discretion to measure and apply inflation adjustments on a program-by-program basis using the options set forth in this section.
(b) Contracting for inflation index development. HHSC may contract with a reputable and experienced independent firm to develop an appropriate inflation index. If HHSC obtains such an index under contract, the agency retains the option, on a program-by-program basis, to use this index and those described in subsection (c) of this section, either separately or in combination, for reimbursement determination purposes.
(c) Inflation indices. Allowable costs are inflated using the general inflation index defined in paragraph (1) of this subsection unless otherwise specified in paragraph (2) of this subsection.
  (1) General inflation index. HHSC uses the Personal Consumption Expenditures (PCE) chain-type price index, published by the Bureau of Economic Analysis of the U.S. Department of Commerce, as the index for general inflation.
  (2) Item-specific and program-specific inflation indices. HHSC may use a specific inflation index in place of the general inflation index defined in paragraph (1) of this subsection when an item- or program-specific inflation index is developed using data from HHSC cost reports or other surveys or data made available from another source, and HHSC has determined that this specific index is derived from information that adequately represents the program or cost to which the specific index is to be applied. Program-specific inflation indices may be designated in program-specific reimbursement methodology rules. Item-specific inflation indices that HHSC may use include those listed in the subparagraphs of this paragraph.
    (A) HHSC uses the employment cost index of wages and salaries for private industry workers in nursing and residential care facilities to measure the inflation of wages and salaries of licensed vocational nurses and nurse aides. This index is published by the U.S. Bureau of Labor Statistics. Periodic reviews of the chosen inflation index are performed based on comparisons to cumulative HHSC cost report data on nursing wages and salaries; HHSC may modify the chosen inflation index and its application based on these periodic reviews.
    (B) To adjust costs associated with fixed capital assets, HHSC uses one of two options. HHSC may follow program-specific reimbursement methodology rules to calculate a fixed capital asset component of the overall reimbursement in the form of a use fee. As an alternative to calculating the fixed capital asset use fee, HHSC may use one-half of the percentage increase in the Consumer Price Index for All Urban Consumers (CPI-U) to measure the inflation of lease expenses and to adjust the base of allowable depreciation for assets that have undergone an ownership change.
    (C) Professional and paraprofessional wage and benefit inflation rates for state employees are based on state employee wage and salary increases determined by the Texas Legislature.
(d) Inflation adjustment calculations. When adjusting costs for inflation, HHSC considers economic conditions and regulatory changes that may be reasonably anticipated for the prospective reimbursement period as specified in §355.109 of this subchapter (relating to Adjusting Reimbursement When New Legislation, Regulations, or Economic Factors Affect Costs). For each inflation index specified in subsection (c) of this section:
  (1) the inflation index is forecasted using a nationally recognized source available to HHSC at the time proposed payment rates are prepared for public dissemination and comment; and
  (2) a rate of inflation over a specific period of time is calculated and applied to the allowable costs appropriate to that index as follows:
    (A) costs reported in HHSC cost reports or other surveys are multiplied by the result of the inflation rate at the midpoint of the prospective reimbursement period divided by the inflation rate at the midpoint of the provider's reporting period; or
    (B) costs are multiplied by the result of the average inflation rate during the entire prospective reimbursement period divided by the average inflation rate during the entire base period.

Source Note: The provisions of this §355.108 adopted to be effective September 1, 1996, 21 TexReg 7866; duplicated effective September 1, 1997, as published in the Texas Register October 17, 1997, 22 TexReg 10311; amended to be effective November 22, 1998, 23 TexReg 11631; amended to be effective October 1, 2000, 25 TexReg 9924; amended to be effective August 31, 2004, 29 TexReg 8093; amended to be effective February 27, 2022, 47 TexReg 768