(a) The Health and Human Services Commission (HHSC) determines IMD reimbursement biennially. A statewide prospective reimbursement will be available to all eligible IMD providers for reimbursable IMD services. This reimbursement is inclusive of all costs allowable under Medicare payment principles.
(b) Initial reimbursement period. The initial reimbursement period is defined as November 16, 1994-April 30, 1996. The reimbursement for this period is determined from Medicare cost reports for state-operated hospitals, which provided IMD services between September 1, 1993, and August 31, 1994. The Medicare cost reports are reviewed by HHSC to assure that the costs used for calculating each hospital's average per diem cost for IMD services are allowable under Medicare payment principles and are only those costs incurred by the hospital for care and treatment provided to persons 65 years and older and occupying a Medicare-certified bed. Using these Medicare cost reports, each hospital's average per diem cost for IMD services is calculated. HHSC adjusts each hospital's average per diem cost for IMD services to the initial reimbursement period by applying a cost-of-living index. The cost-of-living index used is the Centers for Medicare and Medicaid Services (CMS) Market Basket Forecast Excluded Hospital Input Price Index (as reported in the Dallas Regional Medical Services Letter Number 95-015). Due to the length of the initial reimbursement period, the percentages by which the average per diem costs are adjusted are prorated by taking 1/12 of the forecast for calendar year 1994 plus 2/12 of the forecast for calendar year 1995 plus 4/12 of the forecast for calendar year 1996. After adjusting the average per diem cost for each hospital, the average per diem costs for all of the hospitals are arrayed from high to low. The median (50th percentile) average per diem cost is selected as the prospective reimbursement for the initial reimbursement period. If the 50th percentile falls between IMD providers, then the immediately higher average per diem cost will be selected as the reimbursement.
(c) The reimbursement period begins on September 1 and ends on August 31 of the following year.
  (1) Annually, each IMD provider is required to submit to HHSC a copy of its Medicare cost report for its most recent fiscal year ending prior to September 1. Cost reports must be received by HHSC no later than 90 days following the end of the IMD provider's fiscal year. Each IMD provider is required to identify in its cost report as a subunit (IMD unit) those Medicare-certified units on which reimbursable IMD services were provided. The Medicare cost reports are reviewed by HHSC to assure that the costs to be used for calculating each IMD provider's average per diem cost for IMD services are allowable under Medicare payment principles and are only those costs incurred for care and treatment provided to persons 65 years of age and older and occupying a Medicare-certified bed.
  (2) Upon completion of the reviews of cost reports, and prior to calculating average per diem costs for each IMD provider, cost reports and prior payment histories are reviewed. To ensure the integrity of the data and avoid bias in the resulting reimbursement due to low volume and other inefficiencies, cost reports of IMD providers will be eliminated from the database for any one of the following reasons:
    (A) being in operation fewer than 90 calendar days during the previous cost reporting period;
    (B) having an occupancy rate on its IMD units of less than 90% for 50% or more of the days covered during the previous cost reporting period; or
    (C) individually accounting for fewer than 5.0% of the total days of care reimbursed by Medicaid as IMD services during the previous cost reporting period.
  (3) Using the Medicare cost reports in the database, HHSC calculates for each IMD provider an average per diem cost for IMD services. Each IMD provider's average per diem cost is adjusted to the future reimbursement period by applying a cost-of-living index. The cost-of-living index used is the Centers for Medicare and Medicaid Services (CMS) Market Basket Forecast Excluded Hospital Input Price Index (as reported to the States in the Dallas Regional Medical Services Letter for the federal fiscal quarter ending in December of the year preceding the next reimbursement period). The percentage used for adjustments to each IMD provider's average per diem cost is prorated, using 1/3 of the forecast for the calendar year in which the reimbursement period begins (September through December) plus 2/3 of the forecast for the next calendar year (January through August).
  (4) After adjusting the average per diem cost for each IMD provider, the average per diem costs of all IMD providers remaining in the database are arrayed from high to low. The median (50th percentile) average per diem cost is selected as the prospective reimbursement for the future reimbursement period. If the 50th percentile falls between IMD providers, then the immediately higher average per diem cost will be selected as the reimbursement. The prospective reimbursement rate is compared to the Support, Maintenance and Treatment (SMT) rate. All IMD providers will be paid the lower of the prospective rate or SMT rate for each day during the next reimbursement period that IMD services are provided to an eligible individual.
(d) Financial Audits. Financial audits are performed periodically on all IMD providers. IMD providers have the right to appeal exclusions and adjustments to cost reports according to TDMHMR's informal reviews and administrative hearings process.

Source Note: The provisions of this §355.761 adopted to be effective October 13, 1995, 20 TexReg 7990; transferred effective September 1, 1997, as published in the Texas Register December 26, 1997, 22 TexReg 12748; amended to be effective March 1, 2001, 26 TexReg 1696; amended to be effective September 1, 2004, 29 TexReg 6255