907 KAR 1:013. Payments for hospital inpatient services.

907 KAR 1:013. Payments for hospital inpatient services.

RELATES TO: KRS 205.565, 205.637, 205.639, 205.640, 205.641, 216.380, 42 C.F.R. Parts 412, 413, 440.10, 440.140, 447.250-447.280, 42 U.S.C. 1395f(l), x(mm), 1396a, 1396b, 1396d, 1396r-4

STATUTORY AUTHORITY: KRS 194A.030(2), 194A.050(1), 205.520(3), 205.560(2), 205.637(3), 205.640(1), 205.641(2), 216.380(12), 42 C.F.R. 447.252, 447.253, 42 U.S.C. 1396a, 1396r-4, EO 2004-726

NECESSITY, FUNCTION, AND CONFORMITY: EO 2004-726, effective July 9, 2004, reorganized the Cabinet for Health Services and placed the Department for Medicaid Services and the Medicaid Program under the Cabinet for Health and Family Services. The Cabinet for Health and Family Services, Department for Medicaid Services has responsibility to administer the Medicaid Program. KRS 205.520(3) authorizes the cabinet, by administrative regulation, to comply with a requirement that may be imposed, or opportunity presented by federal law for the provision of medical assistance to Kentucky's indigent citizenry. This administrative regulation establishes the method for determining the amount payable by the Medicaid Program for a hospital inpatient service.

Section 1. Definitions. (1) "Acute care hospital" is defined by KRS 205.639(1).

(2) "Arithmetic mean" means the sum of all values in a set of values divided by the number of values.

(3) "Base rate" means the per discharge rate for operating and capital-related components for an acute care hospital.

(4) "Base year" means the cost reporting period upon which a rate is based.

(5) "Budget neutrality" means that reimbursements resulting from rates paid to providers under a per discharge or per diem methodology do not exceed payments in the prior year adjusted for inflation based on the CMS Input Price Index, changes in patient utilization.

(6) "Budget neutrality factor" means a factor that is applied to a relative weight per diem rate or the direct graduate medical educational payment so that budget neutrality is achieved.

(7) "Capital costs" means capital related expenses including insurance, taxes, interest, and depreciation related to plant and equipment.

(8) "CMS" means Centers for Medicare and Medicaid Services.

(9) "CMS Input Price Index" means the wage index published by CMS in the Federal Register.

(10) "Cost basis" means the allowable Medicaid inpatient costs incurred by a provider in a base year, which are the sum of routine Medicaid costs determined by applying each hospital’s routine per diem amount to the allowed patient days in the base year and ancillary Medicaid costs determined by applying ancillary costs-to-charge ratios derived from base year cost reports to ancillary charges for that hospital’s Medicaid claims with dates of service in the base year.

(11) "Cost outlier" means a claim which has an operating cost which is $29,000 greater than a Medicare DRG’s outlier threshold.

(12) "Countable resource" means cash or an asset readily convertible to cash including a checking account, savings account, stock, bond, mutual fund, certificate of deposit, money market account, or similar financial instrument.

(13) "Critical access hospital" or "CAH" means a hospital meeting the licensure requirements established in 906 KAR 1:110.

(14) "Department" means the Department for Medicaid Services or its designated agent.

(15) "Diagnostic related group" or "DRG" means a clinically-similar grouping of services that can be expected to consume similar amounts of hospital resources.

(16) "Disproportionate share hospital" or "DSH" means a hospital that:

(a) Has an inpatient Medicaid utilization rate of one (1) percent or higher; and

(b) Meets the criteria established in 42 U.S.C. 1396r-4(d).

(17) "Distinct part unit" means a separate unit within an acute care hospital that meets the qualifications established in 42 C.F.R. 412.25. (18) "DRI" means Data Resources, Incorporated.

(19) "Federal Register" means the official daily publication for rules, proposed rules, and notices of federal agencies and organizations, as well as executive orders and other presidential documents.

(20) "Fixed loss cost threshold" means the amount combined with the full DRG payment for each DRG to determine the outlier threshold.

(21) "Government entity" means an entity that qualifies as a unit of government for the purposes of 42 U.S.C. 1396b(w)(6)(A).

(22) "Indexing factor" means the percentage that the cost of providing a service is expected to increase during the universal rate year.

(23) "Indigent care" means the unreimbursed cost to a hospital of providing a service on an inpatient or outpatient basis:

(a) To an individual who is:

1. Determined to be indigent in accordance with KRS 205.640; and

2. Not a Medicaid recipient; and

(b) For which an individual shall not be billed by the hospital.

(24) "Indigent care eligibility criteria" means the criteria as specified in Section 25 of this administrative regulation used by a hospital to determine if an individual is eligible for indigent care.

(25) "Inflation factor" means the percentage that the cost of providing a service has increased, or is expected to increase, for a specific period of time.

(26) "Intrahospital transfer" means a transfer within the same acute care hospital resulting in a discharge from and a new admission to a licensed and certified acute care bed, psychiatric distinct part unit, or rehabilitation distinct part unit.

(27) "Level II neonatal center" means a facility that provides specialty care for infants which includes monitoring for apnea spells, incubator or other assistance to maintain the infant’s body temperature, and feeding assistance.

(28) "Level III neonatal center" means a facility which provides specialty care of infants which includes ventilator or other respiratory assistance for infants who cannot breathe adequately on their own, special intravenous catheter to monitor and assist blood pressure and heart function, observation and monitoring of conditions that are unstable or may change suddenly, and postoperative care.

(29) "Long-term acute care hospital" or "LTAC" means a hospital that meets the requirements established in 42 C.F.R. 412.23(e).

(30) "Medicaid shortfall" means the difference between a provider’s cost of providing services to Medicaid recipients and the amount received in accordance with the payment provisions in Sections 3, 11, and 23 of this administrative regulation.

(31) "Medical education costs" means direct costs that are:

(a) Associated with an approved intern and resident program; and

(b) Subject to limits established by Medicare.

(32) "Medically necessary" or "medical necessity" means that a covered benefit shall be provided in accordance with 907 KAR 3:130.

(33) "Operating costs" means allowable routine, ancillary service and special care unit costs related to inpatient hospital services.

(34) "Outlier threshold" means the sum of the operating payment amount, capital-related payment amount, and the fixed loss cost threshold.

(35) "Pediatric teaching hospital" is defined in KRS 205.565(1).

(36) "Per diem rate" means the per diem rate effective April 1, 2003, for rehabilitation hospitals, long-term acute care hospitals, critical access hospitals, psychiatric hospitals, and psychiatric services provided in an acute care hospital.

(37) "Price level increase" means the percentage that the cost of providing a service has increased, or is expected to increase, for a specific period of time.

(38) "Professional component cost" means a physician compensation cost paid by the provider for a psychiatric service to a patient in a psychiatric hospital.

(39) "Psychiatric access hospital" means an acute care hospital which:

(a) Is not located in a Metropolitan Statistical Area as determined by the U.S. Census Bureau;

(b) Provides at least 65,000 days of inpatient care in a fiscal year;

(d) Provides at least 5,000 days of inpatient psychiatric care to Medicaid recipients in a fiscal year.

(40) "Psychiatric hospital" means a hospital which meets the licensure requirements as established in 902 KAR 20:180.

(41) "Quality improvement organization" or "QIO" means an organization that complies with 42 C.F.R. 475.101.

(42) "Rebase" means to redetermine base rates, per diem rates, and other applicable components of the payment rates using more recent data.

(43) "Rehabilitation hospital" means a hospital meeting the licensure requirements as established in 902 KAR 20:240.

(44) "Relative weight" means the factor assigned to each Medicare DRG classification that represents the average resources required for a Medicare DRG classification relative to the average resources required for all relevant discharges in the state.

(45) "Resident" means an individual living in Kentucky who is not receiving public assistance in another state.

(46) "State university teaching hospital" means:

(a) A hospital that is owned or operated by a Kentucky state-supported university with a medical school; or

(b) A hospital:

1. In which three (3) or more departments or major divisions of the University of Kentucky or University of Louisville medical school are physically located and which are used as the primary (greater than fifty (50) percent) medical teaching facility for the medical students at the University of Kentucky or the University of Louisville; and

2. That does not possess only a residency program or rotation agreement.

(47) "Third-party payor" means a payor of a third party pursuant to KRS 205.510(16).

(48) "Trending factor" means the inflation factor as applied to that period of time between a facility’s base fiscal year end and the beginning of the universal rate year.

(49) "Type I hospital" means an in-state disproportionate share hospital with 100 beds or less that participates in the Medicaid Program.

(50) "Type II hospital" means an in-state disproportionate share hospital with 101 beds or more that participates in the Medicaid Program, except for a hospital that meets the criteria established in this administrative regulation for a Type III or Type IV hospital.

(51) "Type III hospital" means an in-state disproportionate share state university teaching hospital, owned or operated by either the University of Kentucky or the University of Louisville Medical School.

(52) "Type IV hospital" means an in-state disproportionate share hospital participating in the Medicaid Program that is a state-owned psychiatric hospital.

(53) "Universal rate year" means the twelve (12) month period under the prospective payment system, beginning July of each year, for which a payment rate is established for a hospital regardless of the hospital’s fiscal year end.

(54) "Upper payment limit" means the maximum amount the Medicaid Program shall pay for an inpatient day of care with the maximum varying based on the following:

(a) Utilization;

(b) Peer grouping; and

(55) "Urban trauma center hospital" means an acute care hospital that:

(a) Is designated as a Level I Trauma Center by the American College of Surgeons;

(b) Has a Medicaid utilization rate greater than twenty-five (25) percent; and

(56) "Weighted median" means the cost per diem associated with the median point of cumulative inpatient days calculated by arraying cost per diems within a specified peer group from lowest to highest.

Section 2. Reimbursement for an Inpatient Hospital Service. The department shall reimburse for an inpatient hospital service provided to an eligible Medicaid recipient through the use of a rate that meets the requirements of 42 U.S.C. 1396a(a)(13).

Section 3. Payment for an Inpatient Acute Care Service in an Acute Care Hospital. (1) An acute care hospital shall be paid for an inpatient acute care service on a fully-prospective per discharge basis for the universal rate year beginning on or after April 1, 2003.

(2) For an inpatient acute care service in an acute care hospital, the total per discharge payment shall be the sum of:

(a) An operating payment amount;

(b) A capital-related payment amount; and

(3) An operating payment amount shall be based on a patient’s DRG classification, as assigned by the Medicare DRG classification system, subject to the modification described in subsection (6) of this section. The operating payment amount shall be calculated for each discharge by multiplying a hospital’s operating base rate by the Medicaid-specific DRG relative weight.

(4) The operating base rate for each hospital shall be the Medicare national standardized amount as adjusted by Medicare for each hospital using the Medicare wage index and Medicare indirect medical education operating adjustment factor.

(a) The Medicare DSH operating adjustment factor shall be excluded from the calculation of the operating base rate for each hospital.

(b) The adjusted Medicare national standardized amount shall be calculated based on the Medicare rate data published in the Federal Register for Medicare payments effective on October 1 of the year immediately preceding the universal rate year.

(c) Data not specifically available in the Federal Register shall be obtained from each hospital’s Medicare fiscal intermediary.

(5) A capital-related payment amount shall be based on a patient’s DRG classification, as assigned by the Medicare DRG classification system, subject to the modification described in subsection (6) of this section. The capital payment amount shall be calculated for each discharge by multiplying a hospital’s capital-related base rate by the Medicaid-specific DRG relative weight.

(6) The capital-related base rate for each hospital shall be the Medicare federal capital rate, as adjusted by Medicare for each hospital using the Medicare large urban-area adjustment factor if applicable, the Medicare geographic adjustment factor, and the Medicare indirect medical education capital adjustment factor published in the Federal Register.

(a) The Medicare DSH capital adjustment factor shall be excluded from the calculation of the capital-related base rate for each hospital.

(b) For each universal rate year beginning July 1, 2004, the adjusted Medicare federal capital rate shall be calculated based on the Medicare rate data published in the Federal Register for Medicare payments effective on October 1 of the year immediately preceding the universal rate year.

(c) Data not specifically available in the Federal Register shall be obtained from each hospital’s Medicare fiscal intermediary.

(7) An additional cost outlier payment shall be made for an approved discharge meeting the Medicaid criteria for a cost outlier for each Medicare DRG. A cost outlier shall be subject to QIO review and approval.

(a) A discharge shall qualify for an additional cost outlier payment if its estimated cost exceeds the DRG’s outlier threshold.

(b) The estimated cost of each discharge, for purposes of comparing the estimated cost of each discharge to the outlier threshold, shall be calculated by multiplying the sum of the hospital-specific Medicare operating and capital-related cost-to-charge ratios by the discharge-allowed charges.

(c) The Medicare operating and capital-related cost-to-charge ratios shall be those used by Medicare published in the Federal Register for outlier payment calculations as of October 1 of the year immediately preceding the start of the universal rate year.

(d) An outlier threshold shall be calculated as the sum of the discharge’s operating payment amount, capital-related payment amount and the fixed loss cost threshold.

(e) Payment for a cost outlier shall be eighty (80) percent of the amount that estimated costs exceed the discharge’s outlier threshold.

(8) Kentucky Medicaid-specific DRG relative weights shall be calculated using all applicable Medicaid discharges from the hospital’s base year claims data and determined as follows:

(a) Medicaid claims from the base year claims data shall be assigned Medicare DRG classifications using the Medicare DRG classification system.

(b) Claims data for discharges that are reimbursed on a per diem basis shall be removed, including:

1. Psychiatric claims from all hospitals, identified as those claims from acute care hospitals with psychiatric diagnoses;

2. All claims from psychiatric hospitals;

3. All claims from rehabilitation hospitals;

4. All claims from critical access hospitals; and

5. All claims from long-term acute care hospitals.

(d) Claims for patients discharged from out-of-state hospitals shall be removed.

(e) Allowed days for the remaining discharges shall be identified.

(f) A unique set of DRGs and relative weights shall be established for a facility identified by the department as qualifying as a Level III neonatal center.

1. A claim classified into DRGs 385 through 390 for a qualifying hospital where care is provided in a neonatal intensive care unit bed shall be identified and reassigned to DRGs 685 through 690, respectively.

2. Only a qualifying hospital shall be eligible for payment using DRGs 685 through 690.

(g) A statewide Medicaid arithmetic mean length-of-stay per discharge shall be determined for each DRG classification.

(h) Relative weights shall be calculated for each DRG by multiplying the Medicare relative weight by the ratio of the Medicaid arithmetic mean length-of-stay to the Medicare arithmetic mean length-of-stay, multiplied by the budget neutrality factor.

(i) For purposes of calculating the DRG relative weights in paragraph (h) of this subsection, Medicare DRG relative weights and arithmetic mean length-of-stay shall be those published in the Federal Register effective on October 1 of the year immediately preceding the universal rate year.

(9) An indirect medical education adjustment factor shall be the same indirect medical education factor used by Medicare for Medicare rates effective on October 1 of the year immediately preceding the universal rate year.

(a) An indirect medical education operating adjustment factor shall be the same used by Medicare, based on the published Medicare formula. The ratio of intern and residents to available beds used in the Medicare formula shall be obtained from each hospital’s Medicare fiscal intermediary.

(b) An indirect medical education capital adjustment factor shall be the same used by Medicare, based on the published Medicare formula. The ratio of intern and residents to average daily census used in the Medicare formula shall be obtained from each hospital’s Medicare fiscal intermediary.

(10) If a patient is transferred to or from another hospital, the department shall make a transfer payment to the transferring hospital if the initial admission and the transfer are determined to be medically necessary.

(a) For a service reimbursed on a prospective discharge basis, the transfer payment amount shall be calculated based on the average daily rate of the transferring hospital’s payment for each covered day the patient remains in that hospital, plus one (1) day, up to 100 percent of the allowable per discharge reimbursement amount.

1. An average daily rate shall be calculated by dividing the allowable per discharge reimbursement amount, based on a patient’s DRG classification, by the statewide Medicaid average length-of-stay for a patient’s DRG classification.

2. An allowable per discharge reimbursement amount, based on a patient’s DRG classification, shall be the sum of the operating payment amount and the capital-related payment amount.

3. Total reimbursement to the transferring hospital shall be the transfer payment amount and, if applicable, a cost outlier payment amount.

(b) For a hospital receiving a transferred patient, reimbursement shall be the allowable per discharge reimbursement amount, based on the patient’s DRG classification, and, if applicable, a cost outlier payment amount.

(11) A transfer from an acute care hospital to a qualifying postacute care facility for selected DRGs in accordance with paragraph (b) of this subsection will be treated as a postacute care transfer.

(a) The following shall qualify as a postacute care setting:

1. A psychiatric, rehabilitation, children’s, long-term, or cancer hospital;

2. A skilled nursing facility; or

3. A home health agency.

(b) The following DRGs shall be eligible for the postacute care transfer payment:

1. DRG 14, Specific cerebrovascular disorders except transient ischemic attack;

2. DRG 113, Amputation for circulatory system disorders except upper limb and toe;

3. DRG 209, Major joint limb reattachment procedures of lower extremity;

4. DRG 210, Hip and femur procedures except major joint procedures age > seventeen (17) with CC;

5. DRG 211, Hip and femur procedures except major joint procedures age > seventeen (17) without CC;

6. DRG 236, Fractures of hip and pelvis;

7. DRG 263, Skin graft and debridement for skin ulcer or cellulitis with CC;

8. DRG 264, Skin graft and debridement for skin ulcer or cellulitis without CC;

9. DRG 429, Organic disturbances and mental retardation; and

10. DRG 483, Tracheostomy except for face, mouth and neck diagnoses.

1. A payments shall exceed the full DRG payment not that would have been made if the patient had been discharged without being transferred.

2. DRGs 209, 210, and 211 shall receive fifty (50) percent of the full DRG payment plus the per diem for the first day of the stay and fifty (50) percent of the per diem for the remaining days of the stay, up to the full DRG payment.

3. The remaining DRGs as referenced in paragraph (a) of this subsection shall receive twice the per diem rate the first day and the per diem rate for each following day of the stay prior to the transfer.

(d) The per diem amount shall be the full DRG payment allowed divided by the statewide Medicaid average length of stay for that DRG.

(12) Effective February 1, 2004, an intrahospital transfer to or from an acute care bed to or from a rehabilitation or psychiatric distinct part unit shall be reimbursed:

(a) The full DRG payment allowed; and

(b) The facility-specific distinct part unit per diem rate for each day the patient remains in the distinct part unit.

(13) A kidney, cornea, pancreas, or kidney and pancreas transplant shall be reimbursed on a prospective per discharge method according to the patient’s DRG classification. All other transplants shall be reimbursed in accordance with 907 KAR 1:350.

(14) Payment for a federally-defined hospital swing bed shall be made in accordance with 907 KAR 1:065.

Section 4. Preadmission Services for an Inpatient Acute Care Service. A preadmission service provided within three (3) calendar days immediately preceding an inpatient admission reimbursable under the prospective per discharge reimbursement methodology shall:

(1) Be included with the related inpatient billing and shall not be billed separately as an outpatient service.

(2) Exclude a service furnished by a home health agency, a skilled nursing facility or hospice, unless it is a diagnostic service related to an inpatient admission or an outpatient maintenance dialysis service.

Section 5. Payment for Direct Graduate Medical Education Costs at Hospitals with Medicare-approved Graduate Medical Education Programs. (1) The department shall reimburse for the direct costs of a graduate medical education program approved by Medicare.

(2) A payment shall be made separately from the per discharge and per diem payment methodologies and shall be made on an annual basis.

(3) An annual payment amount shall be determined for each hospital as follows:

(a) The hospital-specific and national average Medicare per intern and resident amount effective for Medicare payments on October 1 immediately preceding the universal rate year are obtained from each approved hospital’s Medicare fiscal intermediary.

(b) The higher of the average of the Medicare hospital-specific per intern and resident amount or the Medicare national average amount shall be selected.

(c) The selected per intern and resident amount shall be multiplied by the hospital’s number of interns and residents used in the calculation of the indirect medical education operating adjustment factor. The resulting amount is an estimate of total approved direct graduate medical education costs.

(d) The estimated total approved direct graduate medical education costs shall be divided by the number of total inpatient days as reported in the hospital’s most recently finalized Medicaid cost report on Worksheet D, Part 1, to determine an average approved graduate medical education cost per day amount.

(e) The average graduate medical education cost per day amount shall be multiplied by the number of total covered days for the hospital reported in the base year claims data to determine the total graduate medical education costs related to the Medicaid Program.

(f) Medicaid Program graduate medical education costs shall then be multiplied by the budget neutrality factor.

Section 6. Payment for Rehabilitation Services in an Acute Care Hospital. (1) Effective February 1, 2004, a rehabilitation service in an acute care hospital that has a Medicare-designated rehabilitation distinct part unit shall be reimbursed on a per diem basis.

(2) A rehabilitation per diem rate shall be a facility-specific rate based on the most recently received cost report and in accordance with Section 14 of this administrative regulation.

(3) A rehabilitation service provided in a hospital that does not have a Medicare-designated distinct part unit shall be reimbursed the median of rehabilitation services provided in all acute care hospitals.

Section 7. Payment for an Inpatient Psychiatric Service in an Acute Care Hospital. (1) Effective February 1, 2004, an inpatient psychiatric service provided in an acute care hospital that has a Medicare-designated psychiatric distinct part unit shall be reimbursed on a per diem basis.

(2) Reimbursement for an inpatient psychiatric service shall be determined by multiplying a hospital’s psychiatric per diem rate by the number of allowed patient days.

(3) A psychiatric per diem rate shall be the sum of a psychiatric operating per diem rate and a psychiatric capital per diem rate.

(a) The psychiatric operating cost-per-day amounts used to determine the psychiatric operating per diem rate shall be calculated for each hospital by dividing its Medicaid psychiatric cost basis, excluding capital costs and medical education costs, by the number of Medicaid psychiatric patient days in the base year.

(b) The Medicaid psychiatric cost basis and patient days shall be based on Medicaid claims for patients with a psychiatric diagnosis with dates of service in the base year. The psychiatric operating per diem rate shall be adjusted for:

1. The price level increase from the midpoint of the base year to the midpoint of the universal rate year using the CMS Input Price Index; and

2. The change in the Medicare published wage index from the base year to the universal rate year.

(4) A psychiatric capital per diem rate shall be facility-specific and shall be calculated for each hospital by dividing its Medicaid psychiatric capital cost basis by the number of Medicaid psychiatric patient days in the base year. The Medicaid psychiatric capital cost basis and patient days shall be based on Medicaid claims for patients with psychiatric diagnoses with dates of service in the base year. The psychiatric capital per diem rate shall be adjusted as described in Section 10 of this administrative regulation.

(5) For psychiatric services in an acute care hospital that does not have a Medicare designated distinct part unit, the psychiatric per diem rate shall be the median rate for all psychiatric services in an acute care hospital.

(6) Payment for an inpatient service provided to a child under age six (6) years shall be in accordance with Section 11(6) of this administrative regulation.

Section 8. Hospital’s Wage Index and Wage Area. (1) A hospital’s wage index, used to adjust per diem reimbursement rates established pursuant to Section 7 of this administrative regulation, shall be the wage index published by CMS in the Federal Register on October 1 immediately preceding the universal base rate year.

(2) For the purpose of applying a wage index, the department shall assign a hospital to:

(a) The wage area in which it is physically located as originally classified by CMS for the Medicare Program for the base year; or

(b) The wage area to which a hospital has been reclassified by the Medicare Geographic Classification Review Board for the base year.

(3) The department shall not consider reclassification of a hospital to a new wage area except during a rebase period.

Section 9. Budget Neutrality Factors. (1) When rates are rebased, estimated projected reimbursement in the universal rate year for hospitals as described in Sections 3 and 11 of this administrative regulation shall not exceed payments for the same services in the prior year adjusted for inflation using the CMS Input Price Index, and adjusted for changes in patient utilization.

(2) The estimated total payments for each facility under the reimbursement methodology in effect in the year prior to the universal rate year shall be estimated for base year claims. Amounts shall be adjusted for changes in inflation using the CMS Input Price Index and patient utilization.

(3) The estimated total payments for each facility under the reimbursement methodology in effect in the universal rate year shall be estimated for base year claims.

(4) If the sum of all the acute care hospitals’ estimated payments under the methodology used in the universal rate year exceeds the sum of all the acute care hospitals’ adjusted estimated payments under the prior year’s reimbursement methodology, the following universal rate year reimbursement components shall be adjusted and shall result in estimated payments that are budget neutral:

(a) DRG relative weights; and

(b) Periodic direct graduate medical education payment amounts.

Section 10. Reimbursement Updating Procedures. (1) The department shall rebase per discharge base rates, per diem rates, DRG relative weights, and the following applicable components of the payment rates no less frequently than every three (3) years using the most recent audited cost report and Medicare rate data available to the department:

(a) Operating rates;

(b) Capital-related rates;

(d) Cost-to-charge ratios;

(e) DRG relative weights; and

(f) Outlier thresholds.

(2) Beginning July 1, 2004, the department shall adjust rates annually on July 1 using the Medicare DRG base rate in effect October 1 of the preceding year as published in the Federal Register and confirmed with each hospital’s fiscal intermediary.

(3) The department shall adjust per diem rates annually according to the following:

(a) An operating per diem rate shall be inflated from the midpoint of the previous universal rate year to the midpoint of the current universal rate year using the CMS Input Price Index; and

(b) A capital cost per diem rate shall not be adjusted.

(4) Except for an appeal in accordance with Section 29 of this administrative regulation, other adjustments shall not be made.

Section 11. Payment for Rehabilitation Hospital, Long-term Acute Care Hospital, and Psychiatric Hospitals. (1) Effective April 1, 2003, an inpatient service provided to an eligible Medicaid recipient in a rehabilitation hospital, LTAC hospital, or psychiatric hospital shall continue to be reimbursed at the per diem rate based on the 1999 cost report which was in effect for the rate year beginning July 1, 2002.

(2) Effective November 1, 2003, an inpatient service provided to an eligible Medicaid recipient in a psychiatric hospital previously designated as a primary referral and service resource for a child in the custody of the Cabinet for Families and Children shall be reimbursed at the per diem rate of $489.75.

(3) An inpatient service provided to an eligible Medicaid recipient shall be reimbursed by multiplying the hospital’s per diem rate by the number of patient days.

(4) A newly-participating rehabilitation hospital or LTAC shall be paid in accordance with Section 12 of this administrative regulation.

(5) A psychiatric hospital shall:

(a) Except as provided in paragraph (b) of this subsection, have an upper payment limit established on allowable Medicaid costs (except Medicaid capital costs and professional component costs) at the weighted median per diem cost for a hospital in its array; or

(b) If the hospital has Medicaid utilization of thirty-five (35) percent or higher, have an upper limit set at 115 percent of the weighted median per diem cost for a hospital in its array.

(6) For a child under age six (6) years in a disproportionate share hospital or a child under age one (1) in a nondisproportionate share hospital, the following shall apply:

(a) For the first thirty (30) days of inpatient service reimbursed on a per diem basis, payment shall be in accordance with Sections 3, 7, 13, and 21 of this administrative regulation; and

(b) After thirty (30) days, an amount equal to 110 percent of the hospital’s per diem rate shall be paid, and the payment shall apply:

1. To an inpatient service determined by the department to be medically necessary:

a. Thirty (30) days after the date of admission of a child; or

b. For a newborn, thirty (30) days from the date of discharge of the mother; and

2. Without regard to length of stay or number of admissions.

Section 12. Payment to a Newly-participating Rehabilitation Hospital or LTAC. (1) A newly-participating rehabilitation hospital or LTAC shall submit an operating budget and projected number of patient days within thirty (30) days of receiving Medicaid certification.

(2) A prospective rate shall be set based on the data referenced in subsection (1) of this section, not to exceed the upper limit for the class.

(3) A prospective rate shall be tentative and subject to settlement at the time the first audited fiscal year end cost report is available to the department.

(4) When a cost report is received and reviewed, a rate shall be set for the rehabilitation hospital or LTAC which shall be adjusted back by DRI to 1997 cost report data and trended forward for two (2) years for inflation by a rate of three (3) percent for the first year and two and eight-tenths (2.8) percent for the second year.

Section 13. Critical Access Hospital. (1) The department shall pay for an inpatient service provided by an in-state critical access hospital to an eligible Medicaid recipient through an interim per diem rate as established by CMS for the Medicare Program.

(2) The effective date of a rate shall be the same as used by the Medicare Program.

(3) A hospital’s final reimbursement shall reflect any adjustment made by CMS.

(4) The provisions of Sections 3 through 11 of this administrative regulation shall not apply to a critical access hospital, except:

(a) A hospital shall be required to submit an annual Medicare/Medicaid cost report;

(b) The cost report submitted by a hospital shall be subject to audit and review; and

(c) Total payments made to a hospital under this section shall be subject to the payment limitation in 42 C.F.R. 447.271.

(5) An out-of-state critical access hospital shall be paid the median per diem rate of in-state critical access hospitals.

(6) Payment for a federally defined swing bed in a critical access hospital shall be made in accordance with 907 KAR 1:065.

Section 14. Cost Basis. (1) A hospital per diem rate shall be established relating to allowable Medicaid costs and Medicaid inpatient days.

(2) An allowable Medicaid cost shall:

(a) Be a cost allowed after a Medicaid or Medicare audit;

(b) Be in accordance with 42 C.F.R. Parts 412 and 413;

(d) Not include costs listed in Section 15 of the Medicaid Reimbursement Manual for Hospital Inpatient Services.

(3) The most recent Medicaid cost report for rehabilitation hospitals, LTAC hospitals, critical access hospitals, psychiatric services in acute care hospitals, and psychiatric hospitals available as of May 1 preceding the current universal rate year shall:

(a) Be the basis of a prospective payment; and

(b) Establish the base year.

(4) A prospective rate shall include both routine and ancillary costs.

(5) A prospective rate shall not be subject to retroactive adjustment, except for:

(a) A critical access hospital; or

(b) A facility with a rate based on unaudited data.

(6) A facility listed in subsection (5)(a) or (b) of this section shall have its rate revised by the department for the universal rate year when the audited cost report for the base year becomes available to the department.

(7) Total Medicaid payments to a hospital shall be consistent with the requirements of 42 C.F.R. 447.271.

(8) An overpayment shall be recouped by the department as follows:

(a) A provider owing an overpayment shall submit the amount of the overpayment to the department; or

(b) The department shall withhold the overpayment amount from a future Medicaid payment due the provider.

Section 15. Use of a Universal Rate Year. (1) Except for the first year of the DRG per discharge system, a universal rate year shall be established as July 1 through June 30 of the following year to coincide with the state fiscal year.

(2) In the first year of the DRG per discharge system, the universal rate year shall be the fifteen (15) month period from April 1, 2003 through June 30, 2004.

(3) A hospital shall not be required to change its fiscal year to conform with a universal rate year.

Section 16. Trending of a Cost Report. (1) An allowable Medicaid cost, excluding a capital cost, as shown in a cost report on file in the department, both audited and unaudited, shall be trended to the beginning of the universal rate year to update a hospital’s Medicaid cost.

(2) The trending factor to be used shall be the inflation factor prepared by DRI for the period being trended.

Section 17. Indexing for Inflation. (1) After an allowable Medicaid cost has been trended to the beginning of a universal rate year, an indexing factor shall be applied to project inflationary cost in the universal rate year.

(2) The indexing factor to be applied shall be the inflation factor prepared by DRI for the universal rate year.

Section 18. Minimum Occupancy Factor. (1) If a hospital’s minimum occupancy is not met, allowable Medicaid capital costs shall be reduced by:

(a) Artificially increasing the occupancy factor to the minimum factor; and

(b) Calculating the capital costs using the calculated minimum occupancy factor.

(2) The following minimum occupancy factors shall apply:

(a) A sixty (60) percent minimum occupancy factor shall apply to a hospital with 100 or fewer beds;

(b) A seventy-five (75) percent minimum occupancy factor shall apply to a hospital with 101 or more beds; and

(c) A newly-constructed hospital shall be allowed one (1) full universal rate year before a minimum occupancy factor shall be applied.

Section 19. Reduced Depreciation Allowance. (1) The allowable amount for depreciation on a hospital building and fixtures, excluding major movable equipment, shall be sixty-five (65) percent of the reported depreciation amount as shown in the hospital's cost reports.

(2) The use of a reduced depreciation allowance shall not be applicable to a psychiatric hospital.

Section 20. Readmission. (1) An inpatient admission within fourteen (14) calendar days of discharge for the same diagnosis shall be considered a readmission and reviewed by the QIO.

(2) Reimbursement for a readmission with the same diagnosis shall be included in an initial admission payment and shall not be billed separately.

Section 21. Reimbursement for Out-of-state Hospitals. (1) An acute care out-of-state hospital shall be reimbursed for an inpatient acute care service on a fully-prospective per discharge basis for the universal rate year beginning on or after April 1, 2003. The total per discharge reimbursement shall be the sum of an operating payment amount, a capital-related payment amount, and, if applicable, a cost outlier payment amount.

(a) The operating payment amount shall be based on the patient’s Medicare DRG classification. An operating payment amount shall be calculated for each discharge by multiplying a hospital’s operating base rate by the Kentucky-specific DRG relative weight. A hospital’s operating base rate shall be the Medicare national standardized amount, as adjusted by Medicare for each hospital using the Medicare wage index. An operating payment amount for an out-of-state provider shall exclude:

1. The Medicare DSH operating adjustment factor; and

2. The Medicare indirect medical education operating adjustment factor.

(b) The capital-related payment amount shall be made on a per discharge basis. A per discharge payment amount shall be calculated for each discharge by multiplying a hospital’s capital-related base rate by the Kentucky-specific DRG relative weight. A hospital’s capital-related base rate shall be the Medicare federal capital rate, as adjusted by Medicare for each hospital using the Medicare large urban-area adjustment factor when applicable and the Medicare geographic adjustment factor as published in the Federal Register. A capital-related payment amount for an out-of-state provider shall exclude:

1. The Medicare DSH capital adjustment factor; and

2. The Medicare indirect medical education capital adjustment factor.

(c) A cost outlier payment shall be made for an approved discharge meeting Medicaid criteria for a cost outlier for each Medicare DRG. A cost outlier shall be subject to QIO review and approval.

1. The cost outlier threshold for an out-of-state claim shall be determined using the same method used to determine the cost outlier threshold for an in-state claim.

2. The estimated cost of each discharge, for purposes of comparing the estimated cost of each discharge to the outlier threshold, shall be calculated by multiplying the sum of the hospital-specific operating and capital-related mean cost-to-charge ratios by the discharge-allowed charges.

3. The outlier payment amount shall be eighty (80) percent of the amount that estimated costs exceed the discharge’s outlier threshold.

(2) An acute care out-of-state hospital shall be reimbursed for an inpatient psychiatric service on a fully-prospective per diem basis for the universal rate year beginning on or after April 1, 2003.

(a) Reimbursement for an inpatient psychiatric service shall be determined by multiplying a hospital’s psychiatric per diem rate by the number of allowed patient days.

(b) A psychiatric per diem rate shall be the sum of a psychiatric operating per diem rate and a psychiatric capital per diem rate.

1. The psychiatric operating per diem rate shall be the median operating cost, excluding graduate medical education, per day for all in-state acute care hospitals that have licensed psychiatric beds according to 902 KAR 20:180.

2. The psychiatric capital per diem rate shall be the median psychiatric capital per diem rate for all in-state acute care hospitals that have licensed psychiatric beds according to 902 KAR 20:180.

(3) Reimbursement for a service in an out-of-state rehabilitation hospital shall be determined by multiplying a hospital’s rehabilitation per diem rate by the number of allowed patient days.

(4) A rehabilitation per diem rate shall be the median rehabilitation per diem rate for all in-state rehabilitation hospitals.

(5) Reimbursement for a service in an out-of-state psychiatric hospital shall be determined by multiplying a hospital’s psychiatric per diem rate by the number of allowed patient days.

(6) The department shall apply the requirements of 42 C.F.R. 447.271 on a claim-specific basis to payments made under this section.

Section 22. Supplemental Payments. (1) In addition to a payment based on a rate developed under Section 3 of this administrative regulation, the department shall make quarterly supplemental payments to:

(a) A hospital that qualifies as a nonstate pediatric teaching hospital in an amount:

1. Equal to the sum of the hospital’s Medicaid shortfall for Medicaid recipients under the age of eighteen (18) plus an additional $250,000 ($1,000,000 annually); and

2. Prospectively determined by the department with an end of the year settlement based on actual patient days of Medicaid recipients under the age of eighteen (18);

(b) A hospital that qualifies as a pediatric teaching hospital and additionally meets the criteria of a Type III hospital in an amount:

1. Equal to the difference between payments made in accordance with Sections 3, 4, 5, and 7 of this administrative regulation and the amount allowable under 42 C.F.R. 447.272, not to exceed the payment limit as specified in 42 C.F.R. 447.271;

2. That is prospectively determined with no end of the year settlement; and

3. Based on the state matching contribution made available for this purpose by a facility that qualifies under this paragraph;

1. Based on the state matching contribution made available for this purpose by a government entity on behalf of a facility that qualifies under this paragraph;

2. Based upon a hospital’s proportion of Medicaid patient days to total Medicaid patient days for all hospitals that qualify under this paragraph;

3. That is prospectively determined with an end of the year settlement; and

4. That is consistent with the requirements of 42 C.F.R. 447.271;

(d) A hospital that qualifies as a psychiatric access hospital in an amount:

1. Equal to a hospital’s uncompensated costs of providing services to Medicaid recipients and individuals not covered by a third-party payor, not to exceed $6 million annually; and

2. That is consistent with the requirements of 42 C.F.R. 447.271;

(e) A nonstate government-owned hospital as defined in 42 C.F.R. 447.272(a)(2) that has entered into an intergovernmental transfer agreement with the Commonwealth in an amount equal to the lessor of:

1. The difference between the payments made in accordance with Section 3 of this administrative regulation and the maximum amount allowable under 42 C.F.R. 447.272; or

2. The difference between the payments made in accordance with Section 3 of this administrative regulation and an amount consistent with the requirements of 42 C.F.R. 447.271; and

(f) A private, nongovernment owned or operated hospital in an amount:

1. Proportional to its Medicaid cost as compared to the total Medicaid costs of all hospitals qualifying under this paragraph;

2. Not to exceed its Medicaid shortfall; and

3. Subject to available funds in accordance with an intergovernmental transfer agreement under paragraph (e) of this subsection and Section 3 of 907 KAR 1:015. Available funds shall be:

a. An amount equal to fifty (50) percent of the payments received by hospitals under paragraph (e) of this subsection after deducting the nonfederal share of the funds, less the total Medicaid shortfall of hospitals participating under paragraph (e) of this subsection; and

b. Matched with federal funds.

(2) An overpayment made to a facility under this section shall be recovered by subtracting the overpayment amount from a succeeding year’s payment to be made to the facility.

(3) For the purpose of this section of this administrative regulation, Medicaid patient days shall not include days for a Medicaid recipient eligible to participate in the state’s Section 1115 waiver as described in 907 KAR 1:705.

(4) A payment made under this section of this administrative regulation shall not duplicate a payment made under Section 23 of this administrative regulation.

(5) A payment made in accordance with subsection (1)(d) and (e) of this section shall be for a service provided on or after April 2, 2001.

(6) A payment made in accordance with subsection (1)(f) of this section shall be for a service provided on or after November 5, 2001.

(7) A payment made in accordance with this section of this administrative regulation shall be in compliance with the limitations in 42 C.F.R. 447.272.

(8) A supplemental payment for DRGs 385 through 390 shall be made to a hospital with a Level II neonatal center that:

(a) Is licensed for a minimum of twenty-four (24) neonatal level II beds;

(b) Has a minimum of 1,500 Medicaid neonatal level II patient days per year;

(d) Has a full-time perinatologist on staff.

Section 23. Disproportionate Share Hospital Payment. (1) A disproportionate share hospital payment shall be made to a qualified hospital based upon available funds in accordance with KRS 205.640.

(2) For DSH calculation purposes, a per diem used shall be the per diem in effect March 31, 2003.

(3) A payment to a Type I hospital or a Type II hospital shall:

(a) Be a prospective amount;

(b) Be distributed based upon a hospital’s proportion of indigent care; and

(4) The cost of indigent care for the purpose of making a payment to a Type I hospital or Type II hospital shall be determined by:

(a) Calculating the costs of inpatient indigent care by multiplying each day of indigent care provided by the facility by its Medicaid per diem rate on file March 31, 2003; and

(b) Multiplying each facility’s indigent outpatient charges by the most recent cost-to-charge ratio used by the Department of Labor in accordance with 803 KAR 25:091.

(5) Distributions to a Type III hospital shall:

(a) Be based on a facility’s historical proportion of the costs of services to Medicaid recipients, minus the amount paid by Medicaid under Sections 3, 4 and 18 of this administrative regulation, plus the costs of services to indigent and uninsured patients minus any payments made on behalf of indigent and uninsured patients;

(b) Be a prospective amount and shall not be subject to settlement or revision based on a change in utilization during the year to which it applies;

(d) Be contingent upon a facility providing up to 100 percent of matching funds to receive federal financial participation for payment under this subsection.

(6) Distributions to a Type IV hospital shall:

(a) Be equal to the costs of services provided to indigent patients minus any payments made on behalf of an indigent individual;

(b) Be proportionally reduced by the department if the cost exceeds available funds; and

(7) For dates of service beginning December 2, 2003, a supplemental Medicaid shortfall DSH payment shall be added per paid claim for inpatient hospital services reimbursed in accordance with Section 3 of this administrative regulation.

(a) The supplemental payment shall be in effect until whichever of the following events occurs first:

1. The maximum total amount paid in accordance with this subsection reaches $20 million; or

2. The date of June 30, 2004.

(b) The supplemental payment shall not apply to:

1. A claim that is paid at a rate of zero dollars;

2. A claim for a psychiatric service; or

3. A claim for a transplant.

Section 24. Indigent Care Eligibility. (1) Prior to billing a patient and prior to submitting the cost of a hospital service to the department as uncompensated, a hospital shall use the indigent care eligibility form, Application for Disproportionate Share Hospital Program (DSH-001), to assess a patient’s financial situation to determine if:

(a) Medicaid or Kentucky Children’s Health Insurance Program (KCHIP) may cover hospital expenses; or

(b) A patient meets the indigent care eligibility criteria.

(2) An individual referred to Medicaid or KCHIP by a hospital shall apply for the referred assistance (Medicaid or KCHIP) within thirty (30) days of completing the DSH-001 form at the hospital.

Section 25. Indigent Care Eligibility Criteria. (1) A hospital shall receive funding for an inpatient or outpatient medical service provided to an indigent patient under the provisions of Sections 23 and 24 of this administrative regulation if the following apply:

(a) The patient is a resident of Kentucky;

(b) The patient is not eligible for Medicaid or KCHIP;

(d) The patient is not in the custody of a unit of government that is responsible for coverage of the acute care needs of the individual;

(e) The hospital shall consider all income and countable resources of the patient’s family unit and the family unit shall include:

1. The patient;

2. The patient’s spouse;

3. The minor’s parent or parents living in the home; and

4. Any minor living in the home;

(f) A household member who does not fall in one (1) of the groups listed in paragraph (e) of this subsection shall be considered a separate family unit;

(g) Countable resources of a family unit shall not exceed:

1. $2,000 for an individual;

2. $4,000 for a family unit size of two (2); and

3. Fifty (50) dollars for each additional family unit member;

(h) Countable resources shall be reduced by unpaid medical expenses of the family unit to establish eligibility; and

(i) The patient or family unit’s gross income shall not exceed the federal poverty limits published annually in the Federal Register and in accordance with KRS 205.640.

(2) Except as provided in subsection (3) of this section, total annual gross income shall be the lessor of:

(a) Income received during the twelve (12) months preceding the month of receiving a service; or

(b) The amount determined by multiplying the patient’s or family unit’s income, as applicable, for the three (3) months preceding the date the service was provided by four (4).

(3) A work expense for a self-employed patient shall be deducted from gross income if:

(a) The work expense is directly related to producing a good or service; and

(b) Without it the good or service could not be produced.

(4) A hospital shall notify the patient or responsible party of his eligibility for indigent care.

(5) If indigent care eligibility is established for a patient, the patient shall remain eligible for a period not to exceed six (6) months without another determination.

Section 26. Indigent Care Eligibility Determination Fair Hearing Process. (1) If a hospital determines that a patient does not meet indigent care eligibility criteria as established in Section 25 of this administrative regulation, the patient or responsible party may request a fair hearing regarding the determination within thirty (30) days of receiving the determination.

(2) If a hospital receives a request for a fair hearing regarding an indigent care eligibility determination, impartial hospital staff not involved in the initial determination shall conduct the hearing within thirty (30) days of receiving the hearing request.

(3) A fair hearing regarding a patient’s indigent care eligibility determination shall allow the individual to:

(a) Review evidence regarding the indigent care eligibility determination;

(b) Cross-examine witnesses regarding the indigent care eligibility determination;

(d) Be represented by counsel.

(4) A hospital shall render a fair hearing decision within fourteen (14) days of the hearing and shall provide a copy of its decision to:

(a) The patient or responsible party who requested the fair hearing; and

(b) The department.

(5) A fair hearing process shall be terminated if a hospital reverses its earlier decision and notifies, prior to the hearing, the patient or responsible party who requested the hearing.

(6) A patient or responsible party may appeal a fair hearing decision to a court of competent jurisdiction in accordance with KRS 13B.140.

Section 27. Indigent Care Reporting Requirements. (1) On a quarterly basis, a hospital shall collect and report to the department indigent care patient and cost data.

(2) If a patient meeting hospital indigent care eligibility criteria is later determined to be Medicaid or KCHIP eligible or has other third-party payor coverage, a hospital shall adjust its indigent care report previously submitted to the department in a future reporting period.

Section 28. Retrospective Review. (1) A claim paid in accordance with Section 3 of this administrative regulation shall be subject to retrospective review by the QIO.

(2) An amount paid that is found to be paid in error shall be recouped by the department in the next payment cycle.

(3) A payment that has been recouped by the department shall not be subject to administrative review.

Section 30. Incorporation by Reference. (1) The "Medicaid Reimbursement Manual for Hospital Inpatient Services, November 2003 Edition", is incorporated by reference.

(2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Department for Medicaid Services, 275 East Main Street, Frankfort, Kentucky 40621, Monday through Friday, 8 a.m. to 4:30 p.m. (Recodified from 904 KAR 1:013, 8-13-86; Am. 13 Ky.R. 1503; eff. 3-6-87; 14 Ky.R. 2116; eff. 6-22-88; 15 Ky.R. 671; 1171; eff. 11-16-88; 1966; eff. 3-15-89; 16 Ky.R. 261; 558; eff. 10-18-89; 2586; eff. 6-27-90; 17 Ky.R. 554; 1520; eff. 12-7-90; 3560; eff. 7-17-91; 18 Ky.R. 911; eff