(a) Reimbursement ceiling determination. When the Texas Health and Human Services Commission (HHSC) does not require a cost report, HHSC may adjust the rate ceiling as appropriate, based on cost data collected through the budget worksheets or other appropriate cost data related to the program in accordance with §355.105(h) of this title (relating to General Reporting and Documentation Requirements, Methods, and Procedures). For the purposes of this section, HHSC means the Texas Health and Human Services Commission or its designee.
(b) Reimbursement ceiling determination based on a cost-reporting process. If HHSC deems it appropriate to require cost reporting, cost reports will be governed by the information in this subsection. HHSC applies the general principles of cost determination as specified in §355.101 of this title (relating to Introduction). The cost-reporting process is as follows:
  (1) Documentation requirements. Provider agencies must follow the cost-reporting guidelines specified in §355.105 of this title.
  (2) Excused from submission of cost reports. If required by HHSC, a contracted provider agency must submit a cost report unless the agency meets one or more of the conditions in §355.105(b)(4)(D) of this title.
  (3) Exclusion of cost reports.
    (A) Provider agencies are responsible for reporting only allowable costs on the cost report, except where cost report instructions indicate that other costs are to be reported in specific lines or sections. Only allowable cost information is used to determine recommended reimbursement. HHSC excludes from reimbursement determination any unallowable expenses included in the cost report and makes the appropriate adjustments to expenses and other information reported by provider agencies. The purpose is to ensure that the database reflects costs and other information that are necessary for the provision of services and are consistent with federal and state regulations.
    (B) Individual cost reports may not be included in the database used for reimbursement determination if:
      (i) there is reasonable doubt as to the accuracy or allowability of a significant part of the information reported; or
      (ii) an auditor determines that reported costs are not verifiable.
  (4) Allowable and unallowable costs. Provider agencies must follow the guidelines in determining whether a cost is allowable or unallowable as specified in §355.102 of this title (relating to General Principles of Allowable and Unallowable Costs). Provider agencies must follow the guidelines for allowable and unallowable costs as specified in §355.103 of this title (relating to Specifications for Allowable and Unallowable Costs).
  (5) Revenue. Revenue must be reported on the cost report according to §355.104 of this title (relating to Revenues).
  (6) Review of cost reports. HHSC staff perform either desk reviews or field audits on all contracted provider agencies. The frequency and nature of the field audits are determined by HHSC to ensure the fiscal integrity of the program. Desk reviews and field audits will be conducted in accordance with §355.106 of this title (relating to Basic Objectives and Criteria for Audit and Desk Review of Cost Reports), and provider agencies will be notified of the results of a desk review or a field audit in accordance with §355.107 of this title (relating to Notification of Exclusions and Adjustments). Provider agencies may request an informal and, if necessary, an administrative hearing to dispute an action taken by HHSC under §355.110 of this title (relating to Informal Reviews and Formal Appeals).
(c) Reimbursement ceiling. This subsection applies when a cost report is required. HHSC staff determine the recommended reimbursement ceiling as follows.
  (1) HHSC staff allocate payroll taxes and employee benefits to each salary line item on the cost report on a pro rata basis based on the portion of that salary line item to the amount of total salary expense. The employee benefits for administrative staff are allocated directly to the corresponding salaries for those positions. The allocated payroll taxes are Federal Insurance Contributions Act (FICA) or social security, Workers' Compensation Insurance (WCI), Federal Unemployment Tax Act (FUTA), and Texas Unemployment Compensation Act (TUCA).
  (2) HHSC staff project allowable expenses, excluding depreciation and mortgage interest, from each provider agency's reporting period to the next ensuing reimbursement period. HHSC determines reasonable and appropriate economic adjusters as described in §355.108 of this title (relating to Determination of Inflation Indices) to calculate the projected expenses. HHSC staff also adjust reimbursement if new legislation, regulations, or economic factors affect costs as specified in §355.109 of this title (relating to Adjusting Reimbursement When New Legislation, Regulations, or Economic Factors Affect Costs).
  (3) HHSC staff combine allowable reported costs into four cost areas.
    (A) The administrative cost area includes administrative salaries, wages, and other administrative expenses.
    (B) The facility cost area includes building and equipment expenses, and operation and maintenance expenses.
    (C) The food preparation cost area includes raw food costs, salaries and wages of food service staff, and subcontracted costs when food preparation is purchased.
    (D) The meal delivery cost area includes meal delivery expenses, including mileage paid; meal container expenses; and vehicle rental, lease, use, and/or depreciation costs.
  (4) A contracted provider agency's projected expenses in each cost area are divided by its total units of service for the reporting period to determine the projected cost per unit of service.
  (5) The contracted provider agency's projected costs per unit of service are ranked from low to high in each cost area.
  (6) The 80th percentile cost is determined for each cost area. The recommended reimbursement ceiling is the sum of the 80th percentile costs of the four cost areas.
(d) Reimbursement determination authority. The reimbursement determination authority for this reimbursement ceiling is specified in §355.101 of this title.
(e) Contract-specific reimbursement. DADS determines the actual reimbursement for each contract through negotiations between DADS staff and the provider agency. In no instance may the negotiated unit reimbursement exceed the unit reimbursement ceiling.

Source Note: The provisions of this §355.511 adopted to be effective March 1, 2004, 29 TexReg 1672; transferred effective September 1, 2004, as published in the Texas Register September 17, 2004, 29 TexReg 9013; amended to be effective December 13, 2010, 35 TexReg 10944; amended to be effective November 25, 2012, 37 TexReg 9086