Title of Regulation: 12VAC30-80. Methods and Standards for Establishing Payment Rates; Other Types of Care (amending 12VAC30-80-200; adding 12VAC30-80-35).

Statutory Authority: §§ 32.1-324 and 32.1-325 of the Code of Virginia.

Public Hearing Information: No public hearings are scheduled.

Public Comments: Public comments may be submitted until 5 p.m. on September 4, 2009.

Agency Contact: Brian McCormick, Regulatory Supervisor, Department of Medical Assistance Services, 600 E. Broad Street, Suite 1300, Richmond, VA 23219, telephone (804) 371-8856, FAX (804) 786-1680, or email brian.mccormick@dmas.virginia.gov.

Basis: Section 32.1-325 of the Code of Virginia grants to the Board of Medical Assistance Services the authority to administer and amend the Plan for Medical Assistance. Section 32.1-324 of the Code of Virginia authorizes the Director of DMAS to administer and amend the Plan for Medical Assistance according to the board's requirements. The Medicaid authority as established by § 1902 (a) of the Social Security Act (42 USC § 1396a) provides governing authority for payments for services.

Purpose: Ambulatory Surgery Centers. This proposed regulation is not essential to protect the health, safety, or welfare of citizens. However, it is necessary to have a reimbursement methodology for DMAS to pay ambulatory surgery centers (ASCs) that furnish services to Medicaid recipients. As a result of Medicare modifying its reimbursement methodology for ASCs, it no longer produces the data that DMAS has relied on for its current methodology. In the absence of this data, DMAS can no longer maintain its current methodology and, therefore, must develop a new methodology.

Outpatient Rehabilitation Facility Reimbursement. This proposed regulation is also not essential to protect the health, safety, or welfare of citizens. This proposed action modifies the methodology for reimbursing outpatient rehabilitation agencies. This new methodology is similar to the methodology used by Medicare and commercial insurers including Medicaid MCOs.

There are no expected environmental benefits from these changes.

Substance: Ambulatory Surgery Centers. Medicaid currently reimburses ASCs using the Medicare methodology in effect prior to January 1, 2007, by assigning procedure codes to nine ASC groups. The rate for each group in the previous ASC grouper methodology was intended to compensate the ASC for all services performed solely based on the procedure code.

The new APG methodology defines Ambulatory Patient Groups (APGs) as allowed outpatient procedures and ancillary services that reflect similar patient characteristics and resource utilization performed by ASCs. Each group is assigned an APG-relative weight that reflects the relative average cost for each APG compared to the relative cost for all other APGs. The base rate for ASC visits are determined by dividing total reimbursement for ASC services by the total number of visits for ASC services. The total allowable operating rate per visit is determined by multiplying the base rate times the APG relative weight.

To maintain budget neutral expenditures for ASC services and to reduce payment errors, as compared to the current Medicare-based methodology, the base rate is to be adjusted by a budget neutrality factor (BNF) determined every three years. The APG relative weights to be implemented will be the weights determined and published periodically by DMAS. The weights will be updated at least every three years in concert with calculation of the BNF for ASCs. New outpatient procedures and new relative weights are to be added as necessary between the scheduled weight and rate updates. The affected entities will be notified of these changes, as they occur, via agency guidance documents.

Outpatient Rehabilitation Facility Reimbursement. 12VAC30-80-200 is being amended to implement a prospective statewide fee schedule methodology for outpatient rehabilitation agencies based on CPT codes. Rehabilitation services furnished by community services boards and state agencies will continue to be reimbursed on a cost basis. The fee schedule will be developed to achieve savings totaling $185,900 general fund dollars as required in the Governor's budget.

Issues: Ambulatory Surgery Centers. Implementation of APGs will align the DMAS ASC methodology more closely with other ambulatory payment methodologies. This change will increase the efficiency and effectiveness of payments made by DMAS to ASC providers and reduce payment errors.

Outpatient Rehabilitation Facility Reimbursement. Currently, the Virginia Administrative Code contains a cost-based methodology for computing reimbursement for outpatient rehabilitation services that is subject to a ceiling (12VAC30-80-200). For rehabilitation services, Medicare and most commercial insurers use a fee schedule. As a result, outpatient rehabilitation agencies bill differently and submit a cost report only for Medicaid. Implementation of a fee schedule methodology will align the DMAS reimbursement methodology for outpatient rehabilitation services more closely to the Medicare methodology and other reimbursement methodologies used by commercial insurers, including Medicaid's enrolled Managed Care Organizations (MCOs). Providers will no longer have to submit cost reports and DMAS will no longer have to settle the cost reports. Discontinuing both of these activities will result in administrative savings to both rehab providers and the Commonwealth.

There are no disadvantages to the citizens of the Commonwealth for these changes as they are not expected to have an impact on the delivery of these services. The advantage to the citizens of the Commonwealth is the reduction in providers' and agency's costs associated with these changes.

The Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. Department of Medical Assistance Services proposes to amend Medicaid reimbursement methodologies for ambulatory surgery centers and outpatient rehabilitation facilities.

Result of Analysis. The benefits likely exceed the costs for all proposed changes.

Estimated Economic Impact. Department of Medical Assistance Services proposes to amend Medicaid reimbursement methodologies for ambulatory surgery centers and outpatient rehabilitation facilities.

The need to amend the Medicaid reimbursement methodology for Ambulatory Surgery Centers (ASC) is prompted by the change in Medicare's reimbursement methodology for the same services. Currently, Medicaid reimbursement methodology depends on the Medicare ASC procedure codes. These codes have no longer been used by Medicare since it changed its methodology on January 1, 2007. Since then Medicare has been producing the procedure codes for Medicaid so it could continue to reimburse these centers until it adopts a new methodology.

The proposed changes will establish a new ASC reimbursement methodology that will no longer depend on the old Medicare procedure codes. The proposed methodology is similar to the new Medicare methodology in that both use Ambulatory Patient Groups (APG) to determine reimbursement, but the Medicaid reimbursement methodology will no longer depend on the Medicare methodology.

According to Department of Medical Assistance Services (DMAS), the new APG methodology defines APGs for outpatient procedures and ancillary services that reflect similar patient characteristics and resource utilization. Each group is assigned an APG relative weight that reflects the relative average cost for each APG compared to the relative cost for all other APGs. The base rate for ASC visits is determined by dividing total reimbursement for ASC services by the total number of visits for ASC services. The total allowable operating rate per visit is determined by multiplying the base rate times the APG relative weight.

This methodology change will be accomplished in a budget neutral manner. To maintain budget neutrality, the base rate will be adjusted by a "budget neutrality factor" that will be recalibrated every three years. Also, the weights will be updated at least every three years to incorporate any changes that may have occurred in relative average costs.

Since this change will be accomplished in a budget neutral manner, there should be no change in the total reimbursements for the ASC services. In Fiscal Year 2008, Medicaid's total reimbursement for ASCs was about $1.6 million. However, it is possible for providers to experience a slight increase or decrease in their reimbursement amounts as a result of the change in methodology.

In addition, while there is likely to be some administrative costs on DMAS to modify its information technology to incorporate this methodology, it will be accomplished by the use of its current funding. Also, the software that facilitates the implementation of new methodology, grouper, is provided to DMAS at no charge. Since the claim reporting requirements stay the same, little or no administrative costs on providers is expected. However, those who may be interested in utilizing the grouper for cash flow management purposes will likely have to purchase it out of pocket.

DMAS also proposes to change its reimbursement methodology for outpatient rehabilitation facilities.¹ According to DMAS, current Medicaid methodology is more than several decades old and is cost based. According to the proposed methodology, DMAS will establish prospective fee schedules based on CPT codes. The proposed methodology is not only superior since its prospective, but also is similar to the methodology used by Medicare and commercial insurers including Medicaid managed care organizations.

The fee schedule will be developed to achieve savings of $371,800 in total funds as required in the Governor's budget. In fiscal year 2008, total reimbursement to outpatient rehabilitation facilities were approximately $5.6 million. Additionally, approximately $48,500 are expected to be realized in administrative cost savings as DMAS will no longer be auditing and settling cost reports. Similar to the other change in methodology, while there is likely to be some administrative costs on DMAS to modify its information technology to incorporate this methodology, it will be accomplished by the use of its current funding.

The main economic impact of this particular change on providers is the loss of $371,800 at the aggregate and the contractionary economic effects associated with reduced spending in the Commonwealth. However, this amount may not be distributed equally over all the providers. Under the proposed methodology, facilities whose costs were higher relative to others stand to see a decrease in their reimbursements and facilities whose costs were lower relative to others stand to see an increase in their reimbursements. Since costs are no longer reimbursed, a significant improvement in production efficiency is expected throughout most if not all facilities. Finally, each of the 100 providers is expected to save approximately $2,000 per year since they will no longer have to prepare cost reports.

Businesses and Entities Affected. The proposed regulations apply to approximately 80 ambulatory surgery centers and 100 outpatient rehabilitation facilities.

Localities Particularly Affected. The proposed regulations apply throughout the Commonwealth.

Projected Impact on Employment. The reduction in reimbursement for outpatient rehab services may decrease labor demand for rehab personnel by the providers. Also, no longer needing cost reports may reduce labor demand for administrative services. However, the net effect on the labor demand will depend on what is done with the savings in rehabilitation reimbursements and administrative savings.

Effects on the Use and Value of Private Property. Reduced reimbursement on outpatient rehab services is somewhat balanced with the savings in administrative costs. The net impact is about $171,000 reduction in lost revenue which could reduce the asset value of the facilities through negative impact on profitability.

Small Businesses: Costs and Other Effects. There is no available information to estimate how many of the 86 centers and 100 facilities may be considered as a small business. If any of them are small businesses however, the costs and other effects on them would be similar to those discussed above.

Small Businesses: Alternative Method that Minimizes Adverse Impact. There is no known alternative that would minimize the adverse impact on the providers.

Real Estate Development Costs. The proposed regulations are not anticipated to have any effect on real estate development costs.

Legal Mandate. The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Administrative Process Act and Executive Order Number 36 (06). Section 2.2-4007.04 requires that such economic impact analyses include, but need not be limited to, the projected number of businesses or other entities to whom the regulation would apply, the identity of any localities and types of businesses or other entities particularly affected, the projected number of persons and employment positions to be affected, the projected costs to affected businesses or entities to implement or comply with the regulation, and the impact on the use and value of private property. Further, if the proposed regulation has adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include (i) an identification and estimate of the number of small businesses subject to the regulation; (ii) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the regulation, including the type of professional skills necessary for preparing required reports and other documents; (iii) a statement of the probable effect of the regulation on affected small businesses; and (iv) a description of any less intrusive or less costly alternative methods of achieving the purpose of the regulation. The analysis presented above represents DPB's best estimate of these economic impacts.

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¹ Rehabilitation services furnished by community services boards and state agencies will continue to be reimbursed on a cost basis.

Agency's Response to the Department of Planning and Budget's Economic Impact Analysis: The agency concurs with the economic impact analysis prepared by the Department of Planning and Budget regarding the regulations concerning Ambulatory Surgery Center and Outpatient Rehabilitation Facility Reimbursement (12VAC30-80-35 and 12VAC30-80-200).

Summary:

The amendments are intended to implement reimbursement changes for ambulatory surgery centers. This action will also implement reimbursement changes for outpatient rehabilitation facilities that are currently reimbursed on a cost basis.

12VAC30-80-35. Fee for service: ambulatory surgery centers.

A. Definitions: The following words and terms when used in this part shall have the following meaning unless the context clearly indicates otherwise:

"Ambulatory Patient Group (APG)" means a defined group of outpatient procedures, encounters, or ancillary services that incorporates International Classification of Disease (ICD) diagnosis codes, Current Procedural Terminology (CPT) codes, and Healthcare Common Procedure Coding System (HCPCS) codes.

"APG relative weight" means the relative expected average costs for each APG divided by the relative expected average costs for visits assigned to all APGs.

B. Effective July 1, 2010, the prospective Ambulatory Patient Group (APG)-based payment system described as follows shall apply to Ambulatory Surgery Center (ASC) services:

1. The operating payments for ASC visits shall be determined on the basis of a base rate per visit times the relative weight of the APG to which the visit is assigned.

2. The APG relative weights shall be the weights determined and published periodically by DMAS. The weights shall be updated at least every three years.

3. The base rate shall be adjusted by the budget neutrality factor (BNF) to ensure that no increase in expenditures occurs as a result of updates to the relative weights. The base period used to adjust the base rate shall be a recent 12-month period prior to the fiscal year that the new base rates will be effective.

4. The operating payment shall represent total allowable amount for a visit including ancillary services.

C. The Ambulatory Patient Group (APG) grouper used in the ASC payment system for ASCs shall be determined by DMAS. Providers or provider representatives shall be given notice prior to implementing a new grouper.

12VAC30-80-200. Prospective reimbursement for rehabilitation agencies.

A. Effective for dates of service on and after July 1, 2003 2009, rehabilitation agencies, excluding those operated by community services boards and state agencies, shall be reimbursed a prospective rate equal to the lesser of the agency's cost per visit for each type of rehabilitation service (physical therapy, occupational therapy, and speech therapy) or a statewide ceiling established for each type of service. The prospective ceiling for each type of service shall be equal to 112% of the median cost per visit, for such services, of rehabilitation agencies. The median shall be calculated using a base year to be determined by the department fee schedule amount or billed charges per procedure. The agency shall develop a statewide fee schedule based on CPT codes to reimburse providers what the agency estimates they would have been paid in FY 2010 minus $371,800. Effective July 1, 2003, the median calculated and the resulting ceiling shall be applicable to all services beginning on and after July 1, 2003, and all services in provider fiscal years beginning in SFY2004.

B. In each provider fiscal year, each provider's prospective rate shall be determined based on the cost report from the previous year and the ceiling, calculated by DMAS, that is applicable to the state fiscal year in which the provider fiscal year begins.

C. B. For providers with fiscal years that do not begin on July 1, 2003, 2009, services on or before June 30, 2009, for the fiscal year in progress on that date shall be apportioned between the time period before and the time period after that date based on the number of calendar months before and after that date. Costs apportioned before that date shall be settled based on allowable costs, and those after shall be settled based on the prospective methodology the previous prospective rate methodology and the ceilings in effect for that fiscal year as of June 30, 2009. Providers may choose not to submit a cost report for a partial year. In that case, interim payments for services furnished for dates of service prior to July 2009 shall be considered final.

C. Rehabilitation services furnished by community service boards or state agencies shall be reimbursed costs based on annual cost reporting methodology and procedures.

D. Beginning with state fiscal years beginning on and or after July 1, 2004 2010, the ceiling and the provider specific cost per visit rates shall be adjusted annually for inflation, from the previous year to the prospective year, using the nursing facility inflation factor published for Virginia by DRI, applicable to the calendar year in progress at the start of the state fiscal year using the Virginia-specific nursing home input price index contracted for by the agency. The agency shall use the percent moving average for the quarter ending at the midpoint of the rate year from the most recently available index prior to the beginning of the rate year.