Section 51536 - Hospital Inpatient Services Reimbursement(a) Reimbursement for hospital inpatient services provided to Medi-Cal program beneficiaries shall be the lesser of the following for each hospital: (2) Allowable costs determined in accordance with applicable Medicare standards and principles of reimbursement.(3) All-inclusive rate per discharge.(b) The following definitions are applicable to this section: (1) Base year means the most recent hospital accounting year ending before the effective date of this regulation.(2) Prior year means the hospital accounting year immediately preceding the year for which final settlement is being concluded.(3) Final settlement year means the hospital accounting year for which final settlement is being concluded.(4) Allowable cost means the hospital's allowable Medi-Cal cost permitted by applicable Medicare standards and principles of reimbursement, 42 CFR, Part 405 and HIM-15.(5) Reimbursable cost means the lesser of each hospital's customary charges, allowable cost, or all-inclusive rate per discharge multiplied by the number of Medi-Cal discharges.(6) Rate per discharge means the hospital specific, all-inclusive rate per Medi-Cal discharge which, when multiplied by the number of Medi-Cal discharges, including deaths but excluding newborns, in the hospital's accounting year, determines the total dollar limit on reimbursable cost for that accounting year. The Department shall adjust the base year cost per discharge from the midpoint of the hospital's fiscal year to the implementation date of these regulations to ensure uniform application of the reimbursement system. This rate shall become the rate per discharge for the base year.(7) Pass-through categories means those hospital cost categories which, for purposes of final settlement, are not subject to the hospital cost index. Pass-through categories are limited to: (D) Property taxes and license fees.(E) Electricity, natural gas and water.(F) Hospital malpractice insurance.(G) Medicare allowable return on equity capital for proprietary facilities.(8) Service intensity means the necessary changes in the character of the services provided to each patient, including changes in applicable technology, qualitative changes in personnel, quantitative changes in personnel, qualitative changes in supplies, drugs, and other materials, and quantitative changes in supplies, drugs, and other materials. Service intensity does not include changes in the types of patients and illnesses treated.(9) Tentative Settlement means the Department's determination of liabilities owed, resulting from an all-inclusive rate per discharge calculation using data which has not been audited by the Department provided by a hospital for the hospital's accounting year.(10) Final Settlement means a Department determination of liabilities owed resulting from an all-inclusive rate per discharge calculation based upon data audited and edited by the Department and/or upon data provided by the Office of Statewide Health Planning and Development as being true and correct for the final settlement year.(c) The methods of payment for inpatient hospital services shall include the following: (1) An all-inclusive rate per discharge that shall be retrospectively established for each hospital's tentative and final settlement. The rate per discharge shall:(A) Apply to all covered services provided by the hospital during its final settlement year.(B) Be updated annually to reflect reimbursable changes in factor input prices, service intensity, patient volume, and other items allowed through the administrative adjustment process and the appeals process.(2) An interim payment based upon a cost to charge ratio, as set forth in federal regulations.(d) Interim rate adjustments and the recovery of overpayments to hospitals shall be made at tentative or final settlement based upon the application of this section. Such overpayments shall be collected and such interim rates shall be adjusted whether or not appeals of any audit or examination for the current or any prior fiscal year have been filed by the hospital. This subsection shall apply: (1) to overpayments determined and interim rate adjustments made as a result of tentative or final settlements for cost reporting periods for services provided on or after April 13, 1990, except for the period commencing on September 10, 1990 until October 15, 1990.(2) to overpayments determined and interim rate adjustments made as a result of any final settlement performed for which an administrative appeal has not been filed and the time for filing such filing such appeal has expired.(e) For overpayments determined as a result of tentative or final settlements (except final settlements referred to in (d)(2)) issued after April 13, 1990 (except for the period commencing on September 10, 1990, until October 15, 1990) which are for cost reporting periods for services provided prior to April 13, 1990, the following provisions shall apply:(1) Pending the exhaustion of the Department's appeal rights in Fountain Valley Community Hospital v. State Department of Health Services, the Department shall not recoup overpayments made to hospitals and owed by hospitals to the Department.(2) If a Federal Court of Appeals or the United States Supreme Court finds that subsection (d) may be applied to the overpayments identified but not collected in this subsection, the Department shall recoup such overpayments, including interest.(f) A hospital cost index shall be established for each hospital. This index shall consist of an input price index and an allowance for changes in service intensity. (1) The hospital cost index shall be calculated to account for actual changes in the input price index after the close of each hospital's accounting year.(2) The hospital cost index shall be applied on a cumulative basis to the hospital's rate per discharge for the base year to determine its rate per discharge for the final settlement year.(g) An input price index shall be established to compute the reimbursable change in the prices of goods and services purchased by hospitals. The input price index shall consist of a market basket classification of goods and services purchased by hospitals, a corresponding set of market basket weights derived from each hospital's own mix of purchased goods and services, and a related series of price indicators. (1) Weights corresponding to market basket categories shall be derived and annually updated for each hospital. These weights shall be computed using the latest available information from each hospital's Medi-Cal cost report, financial disclosure report, or other direct report of expenses. If information from these sources is not sufficient to establish a hospital specific weight for a particular market basket category, the Department shall assign a representative weight based on information from the United States National Hospital Input Price Index published by the Department of Health and Human Services, or other available sources.(2) The input price index shall be calculated after the close of each hospital's accounting year, to account for actual changes in the:(A) Hospital specific wage and benefit rates and market basket weights.(B) Price indicators and market basket weights for other nonpass-through categories.(C) Allowable cost for pass-through categories.(3) The market basket categories and price indicators to be used in developing each hospital's input price index are shown in the following table. MARKET BASKET CLASSIFICATION |
MARKET BASKET CATEGORIES | PRICE INDICATORS |
| VARIABLE | SOURCE |
| (1) | Professional Fees: |
| (a) | Physicians' Salaries, Wages, Fees and Benefits | Physicians' service component | Consumer Price Index, Urban Consumers |
| (b) | Other Professional Fees | Hourly earnings, production or nonsupervisory, private nonagricultural employees | U.S. Department of Labor, Bureau of Labor Statistics |
MARKET BASKET CATEGORIES | PRICE INDICATORS |
| VARIABLE | SOURCE |
| (2) | Food | Average of processed foods and feeds component of PPI | Producer Price Index |
| and food and beverages component of CPI | Consumer Price Index, All Urban Consumers |
| (3) | Drugs | Pharmaceuticals and ethicals component | Producer Price Index |
| (4) | Other Costs: |
| (a) | Chemicals | Chemicals and allied products component | Producer Price Index |
| (b) | Medical Instruments and Appliances | Special industry machinery and equipment component | Producer Price Index |
| (c) | Rubber and Plastics | Rubber and plastics component | Producer Price Index |
| (d) | Travel | Transportation component | Consumer Price Index, All Urban Consumers |
| (e) | Apparel and Textiles | Textile products and apparel component | Producer Price Index |
| (f) | Business Services | Services component | Consumer Price Index, All Urban Consumers |
| (g) | All Other | All items | Consumer Price Index, All Urban Consumers |
(h) An annual service intensity allowance of one percent for reimbursable increase in service intensity shall be added to each hospital's input price index. This allowance shall be in addition to reimbursement for pass-through categories and approved administrative adjustments and appeals.(i) A volume adjustment shall be made to the hospital's rate per discharge for the final settlement year if the number of total hospital discharges in the hospital's final settlement year differs from the number of discharges in its prior year.(1) The volume adjustment shall be calculated using the following formula, which adjusts the rate per discharge for estimated changes in average costs resulting from changes in volume. VOLUME ADJUSTMENT FORMULA
Click here to view image
Where:
ACR = Allowable change in the rate per discharge after volume adjustment, expressed as a proportion of the prior year rate per discharge.
HCI = Hospital Cost Index before any volume adjustments, expressed as a proportion of the prior year rate.
DISP = Total hospital discharges in the prior year.
VC = Variable cost as a proportion of total cost.
DISF = Total hospital discharges in the final settlement year.
(2) Each hospital's total cost shall be divided into the fixed and variable components shown in the following table. Data from the hospital's financial disclosure report or other direct report of expenses shall be used to estimate the percentage of a hospital's cost which varies with volume. A fixed to variable cost ratio of 50:50 shall be used when sufficient data from the hospital are not available.(3) A hospital may submit additional data on the classification of fixed and variable costs for review by the Department. If these classifications and data are accepted by the Department, the hospital shall continue to:(A) Utilize these accepted classifications of fixed and variable costs in subsequent years, unless a significant change in operations occurs.(B) Submit any required data on fixed and variable costs to the Department in subsequent years, unless a significant change in operations occurs.(j) A hospital may request an administrative adjustment to the all-inclusive reimbursement rates established for that hospital if the hospital's allowable cost exceeds or is expected to exceed reimbursement based on those rates.(1) The following items are not subject to an administrative adjustment under the procedures in section 51536(h)(3): (A) The use of Medicare standards and principles of reimbursement.(B) The method for determining the input price index.(C) The use of all-inclusive reimbursement rates.(D) The use of a volume adjustment formula.(2) Issues involving the following items may be resolved through an administrative adjustment under the procedures in section 51536(h)(3): (A) The addition of new and necessary services.(C) Inappropriate calculation of fixed and variable costs.(D) The use of incorrect data or an error in calculations.(E) Other items affecting hospital costs.(3) The procedures for requesting an administrative adjustment of an all-inclusive rate shall be as follows:(A) A request for an administrative adjustment of the all-inclusive rate per discharge shall be submitted within 60 days after notification of that rate.(B) The request for an administrative adjustment shall be submitted in writing to the Department and shall specifically and clearly identify the issue and the total dollar amounts involved, separately for services provided prior to April 13, 1990, and for services provided on or after April 13, 1990. Failure to comply fully with this subsection shall result in the denial of the request for an administrative adjustment. The hospital shall demonstrate at least one of the following: CLASSIFICATION OF FIXED AND VARIABLE COSTS |
| FIXED COST | VARIABLE COSTS |
| _________________________________________________________________ |
| SALARIES AND WAGES | SALARIES AND WAGES |
| Management and supervision | Registered nurses |
| Technician and specialist | Licensed vocational nurses |
| Clerical and other administrative | Aides and orderlies |
| Physicians | Environmental and food services |
| Nonphysician medical practitioners | Other salaries and wages |
| EMPLOYEE BENEFITS--Distributed | EMPLOYEE BENEFITS--Distributed |
| proportionately according to salaries and wages | proportionately according to salaries and wages |
| FICA | FICA |
| Unemployment insurance | Unemployment insurance |
| Vacation, holiday, and sick leave | Vacation, holiday, and sick leave |
| Group insurance | Group insurance |
| Pension and retirement | Pension and retirement |
| Workers' compensation | Workers' compensation |
| Other employee benefits | Other employee benefits |
| OTHER DIRECT EXPENSES | PROFESSIONAL FEES |
| Depreciation and amortization | Medical |
| Utilities | Consulting and management |
| Insurance | Legal |
| Licenses and taxes (other than income) | Audit Other professional fees |
| Other direct expenses |
| SUPPLIES |
| Food |
| Surgical supplies |
| Pharmaceuticals |
| Medical care materials |
| Minor equipment |
| Nonmedical supplies |
1. Costs for which additional reimbursement is being requested are necessary, proper, and consistent with efficient and economical delivery of covered patient care services.2. Incorrect data were used.3. An error was made in the rate calculation.4. More appropriate data are available.(C) The hospital shall be notified of the Department's decision in writing within 45 days of receipt of the hospital's written request administrative adjustment, or within 45 days of receipt of any additional documentation or clarification which may be required, whichever is later. The request for an administrative adjustment shall be deemed denied if no decision is issued.(D) Administrative adjustments for changes in case mix shall be resolved in the following manner:1. The case mix adjustment allowance shall be determined using the following steps: a. Calculate the summation of the Medi-Cal cost per day in the prior year times the percentage of Medi-Cal days in the final settlement year for each routine, nursery, and special care unit.b. Calculate the summation of the Medi-Cal cost per day in the prior year times the percentage of Medi-Cal days in the prior year routine, nursery, and special care unit.c. Divide the result in a. above by the result in b. above.d. Subtract 1.0 from the quotient determined in c. above.2. Each hospital's cost index, before volume adjustment, shall be multiplied by the case mix adjustment allowance.3. The Medi-Cal days and costs per day shall be applied to routine services, nursery services and special care services, as specified Medi-Cal cost report.4. A hospital may submit additional data on routine, nursery or special care costs and days for review by the Department. If these data are accepted by the Department for case mix calculations, the hospital shall continue to submit those data to the Department in subsequent years, unless a significant operations occurs.(k) A hospital may appeal the Department's decision on the administrative adjustment. The appeal shall be filed in accordance with the applicable procedural requirements of article 1.5. (1) The appeal shall be submitted within 60 days after notification of the Department's decision on the administrative adjustment.(2) Items that are not subject to an administrative adjustment, as specified in section 51536(h)(1), shall not be subject to appeal.(3) The hospital shall be paid at the reimbursable cost initially determined by the Department pending determination of an appeal.(4) Any underpayments, identified in the appeal decision, shall be paid to the hospital, together with interest computed at the legal rate of seven percent per annum beginning 60 days after issuance of the audit or examination findings.(l) New hospitals shall be exempt from the provisions of this section relating to the use of all-inclusive rates per discharge. A new hospital is one that has operated under present and previous ownership for less than three years. A new hospital shall be reimbursed in accordance with applicable Medicare and principles of reimbursement.(m) Each hospital shall be notified of the rate per discharge at the time of tentative and final settlement.(n) A change in reimbursable costs shall result in a redetermination of all-inclusive rates per discharge.(o) Payment for skilled nursing facility services shall be made in accordance with section 51511.(o) For hospital fiscal periods beginning on or after the effective date of Sections 51545 through 51557, reimbursement for hospital inpatient services shall be in accordance with Sections 51545 through 51557. Section 51536 will cease to be effective for fiscal periods subject to Sections 51545 through 51557.(p) Payment for intermediate care facility services shall be made in accordance with section 51510.Cal. Code Regs. Tit. 22, § 51536
1. New section filed 5-30-80; designated effective 7-1-80 (Register 80, No. 29).
2. Amendment adding paragraphs 9 and 10 to subsection (b), amending subsection (c), adopt new subsection (d) and relettering (d)-(n) to (e)-(o) filed 4-13-90 as an emergency; operative 4-13-90 (Register 90, No. 35). A Certificate of Compliance must be transmitted to OAL by 8-13-90 or emergency language will be repealed by operation of law on the following day.
3. Amendment of subsections (b) and (c), new subsection (d), and relettering of subsections (d)-(n) to subsections (e)-(o) filed 10-15-90 as an emergency; operative 10-15-90 (Register 90, No. 47). A Certificate of Compliance must be transmitted to OAL by 2-13-91 or emergency language will be repealed by operation of law on the following day.
4. Editorial correction of HISTORY 2, new HISTORY 3, and renumber former HISTORY 3 to HISTORY 4 (Register 91, No. 12).
5. Certificate of Compliance as to 4-13-90 order transmitted to OAL 8-9-90 and disapproved by OAL 9-10-90 (Register 91, No. 12).
6. Amendment of subsections (b), (c) and (d), new subsection (e), and relettering of subsections (e)-(o) to (f)-(p) filed 2-15-91 as an emergency; operative 2-15-91 (Register 91, No. 12). A Certificate of Compliance must be transmitted to OAL by 6-17-91 or emergency language will be repealed by operation of law on the following day.
7. Certificate of Compliance including amendments transmitted to OAL 6-12-91 and filed 7-12-91 (Register 91, No. 43).
8. New article heading filed 4-23-92; operative 5-25-92 (Register 92, No. 20).
9. New subsection (o) filed 4-23-92; operative 5-25-92 (Register 92, No. 20).
10. Editorial correction of subsection (j)(3)(B) (Register 98, No. 22). Note: Authority cited: Sections 14100.1, 14105 and 14106, Welfare and Institutions Code. Reference: Sections 14105, 14105.15 and 14106, Welfare and Institutions Code.
1. New section filed 5-30-80; designated effective 7-1-80 (Register 80, No. 29).
2. Amendment adding paragraphs 9 and 10 to subsection (b), amending subsection (c), adopt new subsection (d) and relettering (d)-(n) to (e)-(o) filed 4-13-90 as an emergency; operative 4-13-90 (Register 90, No. 35). A Certificate of Compliance must be transmitted to OAL by 8-13-90 or emergency language will be repealed by operation of law on the following day.
3. Amendment of subsections (b) and (c), new subsection (d), and relettering of subsections (d)-(n) to subsections (e)-(o) filed 10-15-90 as an emergency; operative 10-15-90 (Register 90, No. 47). A Certificate of Compliance must be transmitted to OAL by 2-13-91 or emergency language will be repealed by operation of law on the following day.
4. Editorial correction of HISTORY 2, new HISTORY 3, and renumber former HISTORY 3 to HISTORY 4 (Register 91, No. 12).
5. Certificate of Compliance as to 4-13-90 order transmitted to OAL 8-9-90 and disapproved by OAL 9-10-90 (Register 91, No. 12).
6. Amendment of subsections (b), (c) and (d), new subsection (e), and relettering of subsections (e)-(o) to (f)-(p) filed 2-15-91 as an emergency; operative 2-15-91 (Register 91, No. 12). A Certificate of Compliance must be transmitted to OAL by 6-17-91 or emergency language will be repealed by operation of law on the following day.
7. Certificate of Compliance including amendments transmitted to OAL 6-12- 91 and filed 7-12-91 (Register 91, No. 43).
8. New article heading filed 4-23-92; operative 5-25-92 (Register 92, No. 20).
9. New subsection (o) filed 4-23-92; operative 5-25-92 (Register 92, No. 20).
10. Editorial correction of subsection (j)(3)(B) (Register 98, No. 22).