(a) Introduction. This section implements the provisions of Senate Bill 79, 73rd Texas Legislature, 1993, mandating selective contracting for non-emergency inpatient hospital services.
(b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.
  (1) Market area--A geographic subdivision of the State of Texas defined as a group of geographically contiguous counties in which the Texas Department of Health (department) determines that health care providers will be invited to apply for selective contracting agreements. In general, each Metropolitan Statistical Area (MSA) in the State will be considered for designation as a market area. Where warranted by historical patient migration patterns, the department may designate certain non-MSA counties that are geographically contiguous to an MSA to be included with MSA counties within a market area.
  (2) Effective service area--For each health care provider in a market area, the geographic area, as defined on a zip code basis, in which the health care provider has historically provided inpatient hospital services to Medicaid patients. For purposes of subsections (f) and (g) of this section, the effective service area will be determined based on historical Medicaid inpatient claims data.
  (3) Executive Oversight Committee--The executive committee established by the department to direct the selective contracting initiative.
  (4) Hospital capacity to provide specialized service offerings--
    (A) For the LoneSTAR Select Contracting Program I, the presence or absence of specific acute care hospital services, including, but not limited to, trauma centers, burn units, neonatal intensive care unit services, and psychiatric services, that are required to be available in the market to ensure adequate access to quality care.
    (B) For the LoneSTAR Select Contracting Program II, the presence or absence of specific inpatient psychiatric services, including, but not limited to, separate units for young children and adolescents, separate psychiatric and substance abuse treatment services, closed and open units, and distinct programs (e.g., dual diagnosis, eating disorder) that may be required to be available in the market to ensure adequate access to quality.
  (5) New facility--A health care provider facility substantially constructed after the time the department determined the network of health care providers that would be contracted under selective provider agreements. Such term shall not include facilities that were built and operational at the time the department determined the network of selective providers for the affected market area; regardless of whether the facility's corporate structure and/or name have changed due to merger, acquisition, or other corporate reorganization.
  (6) Potential network--Any combination of applicant health care providers (whether the result of a joint proposal or determined by the department) that offer a:
    (A) combined effective service area that provides geographic coverage of the market area to the same extent that coverage is provided under current practice;
    (B) combined service capacity equal to at least:
      (i) 115% of the most recently available historic service volume experience for the market area for the LoneSTAR Select Contracting Program I; or
      (ii) 125% of the most recently available historic service volume experience for the market area for the LoneSTAR Select Contracting Program II; and
    (C) combination of specialized services available within the market area that is at least as broad as the range of specialized services presently available to Medicaid recipients in that market area.
  (7) Selective contracting--A method of contracting, granted through waivers of certain provisions of the Social Security Act, that allows the department to contract selectively with health care providers for non-emergency inpatient services, thereby improving its ability to act as a prudent purchaser of services and to manage the Medical Assistance Program in a more effective and efficient manner, as required by Senate Bill 79.
  (8) Selective provider agreement--An agreement which includes an amendment to a health care provider's existing provider agreement with the department and involves selective contracting.
  (9) Disproportionate share hospital--A health care provider participating in the Medicaid program that, according to state Medicaid criteria, meets the conditions of participation and serves a disproportionate share of indigent patients. Additional requirements for disproportionate share hospitals are specified in §29.609 of this title (relating to Additional Reimbursement to Disproportionate Share Hospitals) and §29.610 of this title (relating to Disproportionate Share Hospital Reimbursement Methodology for State-Owned Teaching Hospitals).
  (10) Health care provider--
    (A) any acute care hospital that is eligible to provide inpatient hospital services to Medicaid recipients; or
    (B) any inpatient mental health facility, as defined within this section.
  (11) Optional volume management activities--Those activities that acute care hospitals may propose to furnish to Medicaid recipients in a market area to expand access to primary care services and ensure more appropriate use of acute care hospital facilities. Such activities may include, but not be limited to, furnishing ambulatory primary care clinic services to Medicaid recipients, and furnishing nurse hotlines which Medicaid recipients may call to receive professional advice about the most appropriate means to obtain medical care.
  (12) Hardship exemption procedure--A method for non-contracted health care providers to obtain prior authorization from the department to provide non-emergency inpatient services to Medicaid recipients who would experience an unreasonable travel burden under the LoneSTAR Select Contracting Program(s).
  (13) Emergency inpatient services--An admission into a health care provider with a diagnosis meeting the definition of a medical emergency.
  (14) Non-emergency inpatient services--An admission into a health care provider with a diagnosis not meeting the definition of a medical emergency.
  (15) LoneSTAR Select Contracting Program I--The selective contracting program designed and implemented for acute care hospitals.
  (16) LoneSTAR Select Contracting Program II--The selective contracting program designed and implemented for inpatient mental health facilities as defined in the Health and Safety Code, §571.003.
  (17) Inpatient mental health facility--A mental health facility that can provide 24-hour residential and acute inpatient psychiatric services that is:
    (A) a facility operated by the Texas Department of Mental Health and Mental Retardation;
    (B) a private mental hospital licensed by the department;
    (C) a community center;
    (D) a facility operated by a community center or other entity the Texas Department of Mental Health and Mental Retardation designates to provide mental health services;
    (E) an identifiable part of a general hospital in which diagnosis, treatment, and care for persons with mental illness is provided and that is licensed by the department; or
    (F) a hospital operated by a federal agency.
(c) General design. The department shall select that subset of market areas that appears to indicate the most effective competition for selective provider agreements to serve Medicaid patients. The market areas shall be divided into one or more groups of solicitations that will avoid an overlap of contract evaluation and negotiation of solicitations.
  (1) The department shall implement selective contracting by executing amendments to each health care provider's existing provider agreement with the department. Health care providers that were not parties to provider agreements before implementation of the department's selective contracting are eligible to apply; however, they must enter into a provider agreement that ensures they are subject to all terms and conditions of the Medical Assistance Program. The amendments to the provider agreements, and the process by which the department solicited, evaluated, negotiated, and executed the amended agreements with health care providers under selective contracting are not subject to the laws and regulations governing acquisition of goods and services by state agencies.
  (2) Health care providers shall be required to apply for selective provider agreements on an individual basis. Proposals by combinations of health care providers under common ownership in a market area shall be considered as individual proposals if the health care providers elect to apply on that basis. Proposals by combinations of health care providers in a market area that are not under common ownership will also be considered, provided that each health care provider that is a party to a joint application in a market area also submits an independent application for a selective contracting agreement in that market area; and each such health Cont'd...