(a) Prospective Payment System Methodology. Rural health clinics (RHCs) employing the Prospective Payment System (PPS) methodology, in accordance with section 1902(bb) of the Social Security Act as amended by the Benefits Improvement and Protection Act (BIPA) of 2000 (42 U.S.C. §1396a(bb)), will be reimbursed a prospective rate for Medicaid covered services. The Alternative Prospective Payment System (APPS) methodology is an option through August 31, 2010. Starting September 1, 2010, all RHCs will be reimbursed using the PPS methodology as described in this section. RHCs are reimbursed a prospective per visit encounter rate for a visit that meets the requirements of subsections (m) and (n) of this section.
(b) The final base rate for both hospital-based and freestanding RHCs existing in 2000 was calculated based on one hundred percent (100%) of the average of the RHC's reasonable costs for providing Medicaid covered services as determined from audited cost reports for the RHC's 1999 and 2000 fiscal years. The final base rates were calculated by adding the total audited reimbursable costs as determined from the 1999 and 2000 cost reports and dividing by the total audited visits for these same two periods. In the event an audited cost report was not received from the Medicare Intermediary, the final base rate for both hospital-based and freestanding RHCs was calculated based on one hundred percent (100%) of the average of the RHC's reasonable costs for providing Medicaid covered services as determined from audited or unaudited cost reports for the RHC's 1999 and 2000 fiscal years.
(c) For hospital-based RHCs existing in 2000, an interim base rate for each RHC was calculated from the latest finalized cost report settlement, adjusted as provided for in subsection (l) of this section. For freestanding RHCs existing in 2000, the interim base rate for each RHC was based upon the per-visit rate in the Medicaid payment system as of December 31, 2000, adjusted as provided for in subsection (l) of this section. When the Texas Health and Human Services Commission (HHSC) determined a final base rate, interim payments were reconciled back to January 1, 2001. For RHCs that agreed to the APPS methodology prior to August 31, 2010, adjustments were made to the RHCs' interim rates only if the interim payments were less than what would have occurred under the final base rate. Subsection (k) of this section contains the interim and final base rate methodology for new RHCs.
(d) Reasonable costs, as used in setting the interim or final base rate, or any subsequent effective rate, are defined as those costs that are allowable under Medicare Cost Principles as outlined in 42 CFR Part 413. The cost limits that were in place on December 31, 2000, shall be maintained in determining reasonable costs. Reasonable costs do not include unallowable costs.
(e) Unallowable costs are expenses that are incurred by an RHC and that are not directly or indirectly related to the provision of covered services, according to applicable laws, rules, and standards. An RHC may expend funds on unallowable cost items, but those costs must not be included in the cost report/survey, and they are not used in calculating an interim or final base rate determination. Unallowable costs include, but are not necessarily limited to, the following:
  (1) compensation in the form of salaries, benefits, or any form of compensation given to individuals who are not directly or indirectly related to the provision of covered services;
  (2) personal expenses not directly related to the provision of covered services;
  (3) management fees or indirect costs that are not derived from the actual cost of materials, supplies, or services necessary for the delivery of covered services, unless the operational need and cost-effectiveness can be demonstrated;
  (4) advertising expenses other than those for advertising in the telephone directory yellow pages, for employee or contract labor recruitment, and for meeting any statutory or regulatory requirement;
  (5) business expenses not directly related to the provision of covered services. For example, expenses associated with the sale or purchase of a business or expenses associated with the sale or purchase of investments;
  (6) political contributions;
  (7) depreciation and amortization of unallowable costs, including amounts in excess of those resulting from the straight-line depreciation method; capitalized lease expenses, less any maintenance expenses, in excess of the actual lease payment; and goodwill or any excess above the actual value of the physical assets at the time of purchase. Regarding the purchase of a business, the depreciable basis will be the lesser of the historical but not depreciated cost to the previous owner or the purchase price of the assets. Any depreciation in excess of this amount is unallowable;
  (8) trade discounts and allowances of all types, including returns, allowances, and refunds received on purchases of goods or services. These are reductions of costs to which they relate and thus, by reference, are unallowable;
  (9) donated facilities, materials, supplies, and services including the values assigned to the services of unpaid workers and volunteers whether directly or indirectly related to covered services, except as permitted in 42 CFR Part 413;
  (10) dues to all types of political and social organizations and to professional associations whose functions and purpose are not reasonably related to the development and operation of patient care facilities and programs or the rendering of patient care services;
  (11) entertainment expenses except those incurred for entertainment provided to the staff of the RHC as an employee benefit. An example of entertainment expenses is lunch during the provision of continuing medical education on-site;
  (12) board of directors' fees, including travel costs and meals, provided for these directors;
  (13) fines and penalties for violations of statutes, regulations, and ordinances of all types;
  (14) fund-raising and promotional expenses, except as noted in paragraph (4) of this subsection;
  (15) interest expenses on loans pertaining to unallowable items, such as investments. Also, the interest expense on that portion of interest paid that is reduced or offset by interest income;
  (16) insurance premiums pertaining to items of unallowable cost;
  (17) any accrued expenses that are not a legal obligation of the provider or are not clearly enumerated as to dollar amount;
  (18) mileage expense exceeding the current reimbursement rate set by the federal government for its employee travel;
  (19) cost for goods or services that are purchased from a related party and which exceed the original cost to the related party;
  (20) out-of-state travel expenses not related to the provision of covered services, except out-of-state travel expenses for training courses that increase the quality of medical care and/or the operating efficiency of the RHC; and
  (21) over-funding contributions to self-insurance funds that do not represent payments based on current liabilities.
(f) Increases in an RHC's final base rate or the effective rate shall be the rate of change in the Medicare Economic Index (MEI) for Primary Care.
(g) The effective rate is the rate paid to the RHC for the RHC's fiscal year. The effective rate equals the final base rate plus the MEI for each of the RHC's fiscal years since the setting of its final base rate. The effective rate shall be calculated at the start of each RHC's fiscal year and shall be applied prospectively for that fiscal year.
(h) Final Base Rate Reimbursement and adjustments.
  (1) Reimbursement. It is the intent of the state to ensure each RHC is reimbursed at one hundred percent (100%) of its reasonable costs.
  (2) Adjustments.
    (A) A rate adjustment shall be made to the effective rate if the RHC can show that an increase is due to a change in scope as defined in subsection (i)(1) - (6) of this section.
    (B) An RHC may request an adjustment of the effective rate equal to one hundred percent (100%) of reasonable costs by submitting a cost report to HHSC and including the necessary documentation to support a claim that the RHC has undergone a change in scope.
      (i) A cost report filed to request an adjustment in the effective rate may be filed at any time during an RHC's fiscal year but no later than five (5) calendar months after the end of the RHC's fiscal year.
      (ii) All requests for adjustment in the RHC's effective rate must include at least 6 months of financial data.
      (iii) Any effective rate adjustment granted as a result of such a filing must be completed within sixty (60) days of receipt of a workable cost report and documentation supporting the RHC's claim that it has undergone a change in scope.
Cont'd...