Title 7 . Health and Social Services

Chapter 43 . Hearings

Section 685. Methodology and criteria for approval or modification of a payment rate

7 AAC 43.685. Methodology and criteria for approval or modification of a payment rate

(a) The department will use the following methodology and criteria in reviewing and establishing prospective payment rates for the Medicaid program:

(1) the department will consider the following with the relative importance of each criterion being a matter of department discretion:

(A) whether the costs are related to patient care and are attributable to the Medicaid program;

(B) whether the payment rate is reasonably related to costs;

(2) repealed 1/1/2004;

(3) the department will set annual rates established for the facility's fiscal year;

(4) repealed 1/1/2004;

(5) base years may be changed to more current years and may be subject to audit; the department may determine the timing for a re-basing under this paragraph and whether and when to conduct an audit;

(6) for all facilities, except facilities with rate agreements established under 7 AAC 43.689, the department

(A) will perform a re-basing for the first fiscal year beginning after notification to the facilities that a re-basing will be done; and

(B) will perform a re-basing no less than every four years; and

(C) may perform a re-basing sooner than every four years.

(b) The department will express the inpatient hospital payment rate for acute care, specialty, and psychiatric hospitals as a per-day rate. The per-day inpatient hospital payment rate will be based on allowable costs calculated from the appropriate base year adjusted Medicare cost report as follows:

(1) the non-capital routine portion of the prospective per-day rate is the base year's facility-specific Medicaid non-capital routine average cost, calculated as follows, and updated to the prospective year based on adjustment factors identified in 7 AAC 43.683:

(A) the Medicaid cost of each reimbursable routine cost center is determined by dividing the total non-capital costs in each reimbursable routine cost center by the total patient days in that cost center and multiplying that quotient by the allowable paid Medicaid patient days in that cost center;

(B) the sum of the Medicaid costs for each reimbursable routine cost center is divided by the sum of the allowable paid Medicaid patient days, resulting in the base year's facility-specific Medicaid non-capital routine average cost;

(2) the routine capital portion of the prospective per-day rate is the base year's facility-specific Medicaid inpatient routine average capital cost, calculated as follows, and updated to the prospective year based on adjustment factors identified in 7 AAC 43.683:

(A) the Medicaid cost of each reimbursable capital cost center is determined by dividing the total capital costs in each reimbursable routine capital cost center by the total patient days in that cost center and multiplying that quotient by the allowable paid Medicaid patient days in that cost center;

(B) the sum of the Medicaid costs for each reimbursable routine capital cost center is divided by the sum of the allowable paid Medicaid patient days, resulting in the base year's facility-specific Medicaid routine average capital cost;

(3) the ancillary capital portion of the prospective per-day payment rate is determined by calculating the percentage of capital cost for each ancillary cost center, multiplying the percentage by the related Medicaid patient ancillary costs from the base year adjusted Medicare cost report, by cost center, and totaling the calculated capital costs from all cost centers; the resulting total is divided by the sum of the Medicaid patient days from the base year and updated to the prospective year based on adjustment factors identified in 7 AAC 43.683;

(4) the non-capital ancillary portion of the prospective per-day rate is the sum of Medicaid inpatient non-capital ancillary costs from the base year divided by the facility's Medicaid patient days from the base year; the resulting per-day inpatient non-capital ancillary cost is updated to the prospective year based on adjustment factors identified in 7 AAC 43.683; total Medicaid inpatient ancillary costs less the capital portion of the Medicaid inpatient ancillary costs as determined in (3) of this subsection equals the total non-capital Medicaid inpatient ancillary costs to be used for this portion of the rate;

(5) for purposes of this subsection, nursery days constitute patient days and swing-bed days do not constitute patient days;

(6) for purposes of this subsection, the costs associated with swing-bed services, determined by multiplying the number of swing-bed days by the swing-bed rate in effect in the base year, are removed before calculating the acute care per-day rate;

(7) for purposes of this subsection, Medicaid patient days are

(A) the covered days from the MR-0-14 report for routine non-capital and routine capital costs; and

(B) facility-reported Medicaid patient days for ancillary non-capital and ancillary capital costs; after re-basing, the department may use either facility-reported Medicaid patient days or covered days from the MR-0-14 report for ancillary non-capital and capital costs;

(8) for purposes of this subsection, and except for critical access hospitals designated under 7 AAC 12.190, costs are the lower of

(A) Medicaid inpatient costs; the department will calculate those costs as the sum of

(i) Medicaid inpatient routine costs, obtained by dividing the number of Medicaid inpatient days by the total number of hospital inpatient days, as those numbers are given in the Medicaid cost report and adjusted in accordance with 7 AAC 43.686 and 7 AAC 43.693, and by multiplying the resulting quotient by the total hospital inpatient routine costs, as given in the adjusted Medicare cost report; and

(ii) Medicaid inpatient ancillary costs, obtained by multiplying for each cost center the total Medicaid charges, as given in the adjusted Medicare cost report, by the cost-to-charge ratio for that cost center, and by totaling the resulting products for the aggregate amount of inpatient ancillary costs; or

(B) 100 percent of charges in the aggregate to the general public; the department will calculate those charges as the sum of the

(i) inpatient routine charges to Medicaid patients, as reported in the MR-0-14 report; and

(ii) inpatient charges for ancillary services to Medicaid patients, as those charges are determined from the adjusted Medicare cost report;

(9) repealed 1/1/2004;

(10) for purposes of this subsection, if the department determines that a provision in 7 AAC 43.670 - 7 AAC 43.709 became effective after the last adjustment under 7 AAC 43.683 and the provision may change the per-day rate by a material amount, the department will apply the provision when the per-day rate is updated to the prospective year by the adjustment factors in 7 AAC 43.683.

(c) The department will express outpatient acute care hospital payment rates as a percentage of charges calculated as follows:

(1) each outpatient cost-to-charge ratio by cost center from the adjusted Medicare cost report is multiplied by the corresponding Medicaid outpatient charges to calculate the Medicaid outpatient costs by cost center;

(2) the sum of Medicaid outpatient costs by cost center is divided by the sum of Medicaid outpatient charges by cost center to obtain the percentage rate;

(3) the applicable outpatient cost-to-charge percentage may not exceed 100 percent;

(4) for purposes of this subsection, charges for the first payment rates beginning from January 1, 2001 through December 31, 2001 are the facility-reported outpatient charges;

(5) under this subsection, the laboratory cost center is not included in the cost centers;

(6) repealed 1/1/2004;

(7) for purposes of this subsection, if the department determines that a provision in 7 AAC 43.670 - 7 AAC 43.709 became effective after the last adjustment under 7 AAC 43.683 and the provision may change the outpatient rate by a material amount, the department will apply the provision when the per-day rate established under (b) of this section is updated to the prospective year by the adjustment factors in 7 AAC 43.683.

(d) The department will determine a rate of payment for a hospital outpatient laboratory service based on reasonable costs as determined under 42 C.F.R. 405.515, as revised as of July 1, 2000 and adopted by reference.

(e) The department will express rates for long-term care facilities as a per-day rate calculated as follows:

(1) the long-term care non-capital routine portion of the prospective per-day rate is determined by adding together the long-term care non-capital routine costs from the base year adjusted Medicare cost report; the resulting total is divided by the sum of the facility's long-term care patient days from the base year; the resulting per-day non-capital routine cost is updated to the prospective year based on adjustment factors identified in 7 AAC 43.683;

(2) the routine capital portion of the prospective per-day rate is the long-term care routine capital costs from the facility's base year adjusted Medicare cost report divided by the facility's total long-term care patient days from the base year; for purposes of this paragraph, the long-term care patient days are the greater of

(A) the total actual patient days; or

(B) 85 percent of licensed capacity days;

(3) repealed 1/1/2004;

(4) repealed 1/1/2004;

(5) the ancillary capital portion of the prospective per-day payment rate is determined by calculating the percentage of capital cost for each ancillary cost center and multiplying the percentage by the related Medicaid long-term care ancillary costs from the base year, by cost center, and totaling the calculated capital costs from all cost centers; the resulting total is divided by the sum of the Medicaid long-term care patient days from the base year;

(6) the non-capital ancillary portion of the prospective per-day rate is the Medicaid long-term care non-capital ancillary costs from the base year divided by the sum of the facility's Medicaid long-term care patient days from the base year; the resulting per-day non-capital long-term care ancillary cost is updated to the prospective year based on adjustment factors identified in 7 AAC 43.683; the total Medicaid long-term care ancillary costs less the capital portion of the Medicaid long-term care ancillary costs as determined in (5) of this subsection equals the total non-capital Medicaid long-term care ancillary costs to be used for this portion of the rate;

(7) for purposes of this subsection, Medicaid long-term care patient days are the covered days from the MR-0-14 report;

(8) for purposes of this subsection, if the department determines that a provision in 7 AAC 43.670 - 7 AAC 43.709 became effective after the last adjustment under 7 AAC 43.683 and the provision may change the per-day rate by a material amount, the department will apply the provision when the per-day rate is updated to the prospective year by the adjustment factors in 7 AAC 43.683.

(f) If the facility is granted a certificate of need under AS 18.07 to make an expenditure of at least $5,000,000, the department will allow a change in the per-day rates calculated under this section for certificate of need capital costs as follows:

(1) the department will change the per-day rate when the assets that have a certificate of need are placed in service by the facility after the base year;

(2) for facilities that provide both a long-term care component and an acute care hospital component, budgeted capital will be allocated to each component based upon anticipated capital use for each component as determined by the department from the appropriate certificate of need documents and supporting documentation;

(3) if a facility is granted a certificate of need to make an expenditure of at least $5,000,000 to construct additional beds, additional capital payment add-on amounts to the per-day rate include the base year's patient days plus additional patient days associated with the additional beds; the additional days are calculated as the facility's base year occupancy percentage multiplied by 80 percent and multiplied by the additional beds approved in the certificate of need; the resulting figure is further multiplied by 365;

(4) the capital component of the rates will be adjusted to reflect appropriate capital costs for the prospective rate year based on certificate of need documentation, assets retired in conjunction with the certificate of need, and Medicare cost reporting requirements.

(g) If a new facility or a new psychiatric unit in an acute care hospital is licensed or certified, the rates for the facility will be calculated as follows:

(1) for acute care and specialty hospitals, the inpatient per-day rate and the outpatient payment percentage will be established at the statewide weighted average of inpatient per-day rates and outpatient payment percentages of acute care and specialty hospitals in accordance with this section for the most recent 12 months of permanent rates; patient rates are the statewide weighed average using the base year's patient days and the outpatient percentages are the statewide weighed average using the base year's outpatient charges;

(2) for a psychiatric hospital, or a separately licensed or certified psychiatric unit in an acute care hospital, the inpatient per-day rate will be established at the statewide weighted average of inpatient per-day rates of psychiatric hospitals for the most recent 12 months of permanent rates; rates are the statewide weighted average using the base year's patient days;

(3) for long-term care facilities, the rate is the sum of the

(A) swing-bed rate in effect at the start of the facility's rate year, less the average capital costs contained in the swing-bed rate; and

(B) capital costs identified by the new facility, subject to the limitations described in 7 AAC 43.686, using the greater of occupancy rates approved in the certificate of need or 80 percent of licensed beds;

(4) rates for a new facility or a new separately licensed or certified psychiatric unit in an acute care hospital will be established under (b) - (f) of this section after two full fiscal years of cost data is reported.

(h) Repealed 7/11/2002.

(i) The department will determine a rate of payment for outpatient surgical clinics based on the Medicare ambulatory surgical center payment rates for federal fiscal year 2000 as set out in 65 Fed. Reg. 6380-6383 (February 9, 2000) and adopted by reference, and as adjusted annually by the adjustment factors in 7 AAC 43.683.

(j) The department will determine a rate of payment for swing-bed services in accordance with 42 C.F.R. 447.280, as revised as of July 1, 2000 and adopted by reference.

(k) Prospective payment rates for facilities that are calculated and paid on a per-day rate basis will be set at a level no greater than the per-day rates proposed in the certificate of need application and other information the applicant provided as a basis for approval of the certificate of need for the first year. The limitation set out in this subsection applies for the first year and for the two years immediately following the first year that at least one of the following events occurs:

(1) opening of the new or modified health care facility;

(2) alteration of the bed capacity;

(3) the implementation date of a change in offered categories of health service or bed capacity.

( l ) The per-day rates calculated under this section may not exceed corresponding charges rendered to the general public.

(m) Repealed 9/1/2002.

History: Eff. 8/9/86, Register 99; am 7/4/87, Register 102; am 5/8/88, Register 106; am 6/19/88, Register 106; am 11/1/88, Register 108; am 2/3/89, Register 109; am 3/25/89, Register 109; am 6/18/89, Register 110; am 9/21/90, Register 116; am 8/28/91, Register 119; am 8/6/92, Register 123; am/readopt 8/7/96, Register 139; am 12/27/96, Register 140; readopt 5/31/98, Register 146; am 12/30/2000, Register 156; am 7/11/2002, Register 163; am 9/1/2002, Register 163; am 1/1/2004, Register 168; am 7/1/2004, Register 170; am 3/18/2006, Register 177

Authority: AS 47.05.010

AS 47.07.010

AS 47.07.070

Editor's note: The commissioner readopted 7 AAC 43.685 in its entirety without change to affirm the validity of the provisions following statutory amendments made in ch. 95, SLA 1997.