Titles of Regulations: 12VAC30-70. Methods and Standards for Establishing Payment Rates - Inpatient Hospital Services (amending 12VAC30-70-291, 12VAC30-70-301, 12VAC30-70-425).

12VAC30-80. Methods and Standards for Establishing Payment Rates; Other Types of Care (amending 12VAC30-80-20).

Statutory Authority: § 32.1-325 of the Code of Virginia; 42 USC § 1396 et seq.

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: February 19, 2020.

Effective Date: March 5, 2020.

Agency Contact: Emily McClellan, Regulatory Supervisor, Policy Division, Department of Medical Assistance Services, 600 East Broad Street, Suite 1300, Richmond, VA 23219, telephone (804) 371-4300, FAX (804) 786-1680, or email emily.mcclellan@dmas.virginia.gov.

Basis: Section 32.1-325 of the Code of Virginia authorizes the Board of Medical Assistance Services to administer and amend the State Plan for Medical Assistance and to promulgate regulations. Section 32.1-324 of the Code of Virginia authorizes the Director of the Department of Medical Assistance Services (DMAS) to administer and amend the State Plan for Medical Assistance and to promulgate regulations 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: The amendments are required to conform regulation to items of the 2018 state budget. This action is necessary for the public health, safety, and welfare in that it ensures appropriate funding for Medicaid services provided by hospitals and thereby ensures that hospitals can continue to provide services to Medicaid members.

Rationale for Using Fast-Track Rulemaking Process: The proposed amendments at 12VAC30-70-291 and 12VAC30-70-301 are required by Item 303 SSS of Chapter 2 of the 2018 Acts of Assembly, Special Session I. The proposed amendment at 12VAC30-70-425 and 12VAC30-80-20 are required by Item 303 XX 7 of Chapter 2 of the 2018 Acts of Assembly, Special Session I. DMAS attained the approval from the Centers for Medicare and Medicaid Services that was required prior to implementation of the new reimbursement rates as of October 25, 2018.

Substance: The proposed amendment to 12VAC30-70-291 updates the section to indicate an additional indirect medical education (IME) payment for freestanding children's hospitals in the District of Columbia. The proposed amendment to 12VAC30-70-301 eliminates disproportionate share hospital (DSH) payments to out-of-state children's hospitals, to include freestanding children's hospitals in the District of Columbia. The proposed amendments to 12VAC30-70-425 and 12VAC30-80-20 update existing regulations to allow additional supplemental payments to be issued to each non-state-government-owned acute care hospital for inpatient services provided to Medicaid patients.

Currently, DSH payments are being made to out-of-state children's hospitals to include freestanding children's hospitals located in the District of Columbia. The proposed regulations eliminate these DSH payments in 12VAC30-70-301 and increase the IME payments to freestanding children's hospitals in the District of Columbia by the amount of DSH payments that the hospital was eligible for in state fiscal year (SFY) 2018 in 12VAC30-70-291. The total Type Two hospital DSH allocation is reduced by the total amount paid to freestanding children's hospitals in the District of Columbia in SFY 2018. All changes to these two sections are effective as of July 1, 2018.

Unreimbursed Medicaid cost payments are currently made to non-state-government-owned hospitals as certified through provider cost reports and meeting other criteria as outlined in regulation. Beginning July 1, 2018, additional supplemental payments shall be made to non-state-government-owned acute care hospitals for inpatient and outpatient services. The supplemental payments will be made quarterly for inpatient and outpatient services that were provided in the prior quarter. The quarterly payments shall begin with the first quarter in SFY 2019 and will be calculated by multiplying the Medicaid inpatient and outpatient hospital payments paid in that quarter by the inpatient and outpatient upper payment level (UPL) gap percentages for each hospital. UPL gap percentages are calculated annually for hospitals using the most recent year in which the data is available and inflated to the SFY in which the payments are being made. These updates are being made in 12VAC30-70-425 and 12VAC30-80-20.

Issues: The primary advantages to the Commonwealth and the public from these regulatory changes are the provision of additional reimbursement for certain hospitals. There are no disadvantages to the Commonwealth or the public as a result of this regulatory action.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The Board of Medical Assistance Services (Board) proposes to revise the current regulations to (1) reclassify certain payments made to a freestanding children's hospital in the District of Columbia and (2) allow additional supplemental payments to be issued to non-state-government-owned² acute care hospitals in order to increase the reimbursement for inpatient services provided to Medicaid patients; the supplemental payments are related to another regulatory action currently underway.

The 2018 Appropriation Act contained budget language in two items that directed DMAS to amend the State Plan for Medical Assistance (state plan). The first Item, 303 SSS, authorized the Department of Medical Assistance Services (DMAS) to amend the state plan such that Disproportionate Share Hospital (DSH) payments for the Children's National Medical Center (CNMC) are discontinued and replaced with an indirect medical education (IME) payment. DSH payments take into account the financial situation of hospitals that serve a disproportionate number of low income patients with special needs. IME payments recognize the higher operating costs at hospitals with teaching programs (the increased diagnostic and treatment costs related to their educational mission).³

Specifically, the proposed amendment would: (i) make CNMC no longer eligible to receive DSH payments, (ii) increase the annual IME payments made to CNMC by the amount of DSH the hospital was eligible for in state fiscal year 2018 (12VAC30-70-291), and (iii) reduce the Type 2 DSH allocation by the same amount (12VAC30-70-301). The Act authorized DMAS to implement these changes effective July 1, 2018, prior to the completion of any regulatory action to effect this change. The rationale provided for this budget amendment states that the hospital was at their federal cap, thereby preventing the hospital from being able to accept DSH funding from the Commonwealth. Because the hospital recently met the state threshold to receive IME payments from the Commonwealth, the budget was amended to allow the continuation of such payments in lieu of any future DSH payments.⁴

The second Item, 303.XX.7, directs DMAS to make supplemental payments to Chesapeake Regional Hospital, which is operated by the Chesapeake Hospital Authority.⁵ DMAS is implementing this by amending 12VAC30-70-425, which involves non-state-government-owned hospitals such as Chesapeake Regional. This item is related to two separate items in the same Act (3-5.15 and 3-5.16) that affect private acute care hospitals and instruct DMAS to levy a provider coverage assessment and a provider payment rate assessment, in addition to implementing a statewide supplemental payment. These items are being addressed through a different regulatory action that is currently in place as an emergency regulation (Action number 5100).⁶ The proposed amendment in this Action regarding the calculation of this supplemental payment is identical to the language pertaining to supplemental payments in the emergency regulation. Item 303.XX.7 required that DMAS secure approval from the Centers for Medicare and Medicaid Services prior to implementation; this approval was obtained as of October 25, 2018.

Estimated Benefits and Costs. CNMC would benefit by qualifying to receive IME payments from the state, thereby allowing them to continue receiving funds amount despite having met the federal cap for DSH payments. Because the amount being paid to CNMC would be staying the same, it is unlikely that any other benefits or costs would accrue.

Chesapeake Regional would benefit from receiving any supplemental payments, which should be substantially less than the cost incurred by the hospital to receive them. As described by the budget amendment for this Item, the hospital will make an intergovernmental transfer to DMAS to be used as the state share for the supplemental Medicaid payments to the hospital. In exchange, the hospital will receive a substantially larger amount of federal funds, and the general fund will not be impacted.

Businesses and Other Entities Affected. No other entities are likely to be affected, besides CNMC and Chesapeake Regional as described above.

Localities⁷ Affected.⁸ The proposed amendment does not introduce new costs for local governments. Chesapeake Regional is located in Chesapeake; hence the locality may be affected depending on the overall impact of the supplemental payments on the hospital and the number of Medicaid-insured individuals it serves.

Projected Impact on Employment. The proposed amendments do not appear to affect total employment.

Effects on the Use and Value of Private Property. The proposed amendment has no effect on the use and value of private property, nor does it affect real estate development costs.

Adverse Effect on Small Businesses.⁹ The proposed amendment does not adversely affect small businesses.

______________________

²A non-state-government-owned hospital is owned or operated by a unit of government other than a state.

³http://sfc.virginia.gov/pdf/health/2010%20Session/062110%20DMAS%20-%20Crawford.pdf

⁴https://budget.lis.virginia.gov/amendment/2018/2/HB5002/Introduced/SE/303/3s/

⁵https://law.lis.virginia.gov/authorities/chesapeake-hospital-authority/

⁶http://townhall.virginia.gov/L/ViewAction.cfm?actionid=5100 The proposed stage of this action is currently at the Office of the Attorney General.

⁷"Locality" can refer to either local governments or the locations in the Commonwealth where the activities relevant to the regulatory change are most likely to occur.

⁸§ 2.2-4007.04 defines "particularly affected" as bearing disproportionate material impact.

⁹Pursuant to § 2.2-4007.04 of the Code of Virginia, small business is defined as "a business entity, including its affiliates, that (i) is independently owned and operated and (ii) employs fewer than 500 full-time employees or has gross annual sales of less than $6 million. "

Agency's Response to Economic Impact Analysis: The agency has reviewed the economic impact analysis prepared by the Department of Planning and raises no issues with this analysis.

Summary:

The amendments contain three provider reimbursement updates as required by Chapter 2 of the 2018 Acts of Assembly, Special Session I. The amendments (i) add an indirect medical education payment for freestanding children's hospitals in the District of Columbia; (ii) eliminate disproportionate share hospital payments to out-of-state children's hospitals, to include freestanding children's hospitals in the District of Columbia; and (iii) allow additional supplemental payments to be issued to each non-state-government-owned acute care hospital for inpatient services provided to Medicaid patients. 

12VAC30-70-291. Payment for indirect medical education costs.

A. Hospitals shall be eligible to receive payments for indirect medical education (IME). Out-of-state cost reporting hospitals are eligible for this payment only if they have Virginia Medicaid utilization in the base year of at least 12% of total Medicaid days. These payments recognize the increased use of ancillary services associated with the educational process and the higher case-mix intensity of teaching hospitals. The payments for indirect medical education shall be made in estimated quarterly lump sum amounts and settled at the hospital's fiscal year end.

B. Final payment for IME shall be determined as follows:

1. Type One hospitals shall receive an IME payment equal to the hospital's Medicaid operating reimbursement times an IME percentage determined as follows (this formula also applies to Children's Hospital of the King's Daughters effective July 1, 2013):

IME Percentage for Type One Hospitals = [1.89 X ((1 + r)^0.405-1)] X (IME Factor)

An IME factor shall be calculated for each Type One hospital and shall equal a factor that, when used in the calculation of the IME percentage, shall cause the resulting IME payments to equal what the IME payments would be with an IME factor of one, plus an amount equal to the difference between operating payments using the adjustment factor specified in subdivision B 1 of 12VAC30-70-331 and operating payments using an adjustment factor of one in place of the adjustment factor specified in subdivision B 1 of 12VAC30-70-331.

2. Type Two hospitals shall receive an IME payment equal to the hospital's Medicaid operating reimbursement times an IME percentage determined as follows (excluding Children's Hospital of the King's Daughters):

IME Percentage for Type Two Hospitals = [1.89 X ((1 + r)^0.405-1)] X 0.5695

In both equations, r is the ratio of full-time equivalent residents to staffed beds, excluding nursery beds. The IME payment shall be calculated each year using the most recent reliable data regarding the number of full-time equivalent residents and the number of staffed beds, excluding nursery beds.

C. An additional IME payment shall be made for inpatient hospital services provided to Medicaid patients but reimbursed by capitated managed care providers.

1. For Type Two hospitals, this payment shall be equal to the hospital's hospital specific operating rate per case, as determined in 12VAC30-70-311, times the hospital's HMO paid discharges times the hospital's IME percentage, as determined in subsection B of this section.

2. For Type One hospitals, this payment shall be equal to the hospital's hospital-specific operating rate per case, as determined in 12VAC30-70-311, times the hospital's HMO paid discharges times the hospital's IME percentage, as determined in subsection B of this section. Effective April 1, 2012, the operating rate per case used in the formula shall be revised to reflect an adjustment factor of one and case-mix adjusted by multiplying the operating rate per case in this subsection by the weight per case for FFS discharges that is determined during rebasing. This formula applies to Children's Hospital of the King's Daughters effective July 1, 2017.

D. An additional IME payment not to exceed $200,000 in total shall be apportioned among Type Two hospitals, excluding freestanding children's hospitals, with Medicaid NICU utilization in excess of 50% as reported to the Department of Medical Assistance Services as of March 1, 2004. These payments shall be apportioned based on each eligible hospital's percentage of Medicaid NICU patient days relative to the total of these days among eligible hospitals as reported by March 1, 2004.

E. An additional IME payment not to exceed $500,000 in total shall be apportioned among Type Two hospitals, excluding freestanding children's hospitals, with Medicaid NICU days in excess of 4,500 as reported to the Department of Medical Assistance Services as of March 1, 2005, that do not otherwise receive an additional IME payment under subsection D of this section. These payments shall be apportioned based on each eligible hospital's percentage of Medicaid NICU patient days relative to the total of these days among eligible hospitals as reported by March 1, 2003.

F. Effective July 1, 2013, total payments for IME in combination with other payments for freestanding children's hospitals with greater than 50% Medicaid utilization in 2009 shall not exceed the federal uncompensated care cost limit to which disproportionate share hospital payments are subject. Effective July 1, 2017, IME payments cannot exceed the federal uncompensated care cost limit to which disproportionate share hospital payments are subject, excluding third-party reimbursement for Medicaid eligible patients.

G. Effective July 1, 2018, an additional $362,360 IME payment shall be added to the IME payment calculated in subdivision B 2 of this section for freestanding children's hospitals located in the District of Columbia.

12VAC30-70-301. Payment to disproportionate share hospitals.

A. Payments to disproportionate share hospitals (DSH) shall be prospectively determined in advance of the state fiscal year to which they apply. The payments shall be made on a quarterly basis and shall be final subject to subsections E and K of this section.

B. Effective July 1, 2014, in order to qualify for DSH payments, DSH eligible hospitals shall have a total Medicaid inpatient utilization rate equal to 14% or higher in the base year using Medicaid days eligible for Medicare DSH defined in 42 USC § 1396r-4(b)(2) or a low income utilization rate defined in 42 USC § 1396r-4(b)(3) in excess of 25%. Eligibility for out-of-state cost reporting hospitals shall be based on total Medicaid utilization or on total Medicaid neonatal intensive care unit (NICU) utilization equal to 14% or higher. Effective July 1, 2018, freestanding children's hospitals located in the District of Columbia shall not be eligible for DSH payments.

C. Effective July 1, 2014, the DSH reimbursement methodology for all hospitals except Type One hospitals is the following:

1. Each hospital's DSH payment shall be equal to the DSH per diem multiplied by each hospital's eligible DSH days in a base year. Days reported in provider fiscal years in state fiscal year (FY) 2011 (available from the Medicaid cost report through the Hospital Cost Report Information System (HCRIS) as of July 30, 2013) will be the base year for FY 2015 prospective DSH payments. DSH shall be recalculated annually with an updated base year. Future base year data shall be extracted from Medicare cost report summary statistics available through HCRIS as of October 1 prior to next year's effective date.

2. Eligible DSH days are the sum of all Medicaid inpatient acute, psychiatric, and rehabilitation days above 14% for each DSH hospital subject to special rules for out-of-state cost reporting hospitals. Eligible DSH days for out-of-state cost reporting hospitals shall be the higher of the number of eligible days based on the calculation in the first sentence of this subdivision times Virginia Medicaid utilization (Virginia Medicaid days as a percent of total Medicaid days) or the Medicaid NICU days above 14% times Virginia NICU Medicaid utilization (Virginia NICU Medicaid days as a percent of total NICU Medicaid days). Eligible DSH days for out-of-state cost reporting hospitals that qualify for DSH but that have less than 12% Virginia Medicaid utilization shall be 50% of the days that would have otherwise been eligible DSH days.

3. Additional eligible DSH days are days that exceed 28% Medicaid utilization for Virginia Type Two hospitals, excluding Children's Hospital of the Kings Daughters (CHKD).

4. The DSH per diem shall be calculated in the following manner:

a. The DSH per diem for Type Two hospitals is calculated by dividing the total Type Two DSH allocation by the sum of eligible DSH days for all Type Two DSH hospitals. For purposes of DSH, Type Two hospitals do not include CHKD or any hospital whose reimbursement exceeds its federal uncompensated care cost limit. The Type Two hospital DSH allocation shall equal the amount of DSH paid to Type Two hospitals in state FY 2014 increased annually by the percent change in the federal allotment, including any reductions as a result of the Patient Protection and Affordable Care Act (Affordable Care Act), P.L. Public Law 111-148, adjusted for the state fiscal year. Effective July 1, 2018, the Type Two hospital DSH allocation shall be reduced by the amount of DSH allocated to freestanding children's hospitals located in the District of Columbia.

b. The DSH per diem for state inpatient psychiatric hospitals is calculated by dividing the total state inpatient psychiatric hospital DSH allocation by the sum of eligible DSH days. The state inpatient psychiatric hospital DSH allocation shall equal the amount of DSH paid in state FY 2013 increased annually by the percent change in the federal allotment, including any reductions as a result of the Affordable Care Act, adjusted for the state fiscal year.

c. Effective July 1, 2017, the annual DSH payment shall be calculated separately for each eligible hospital by multiplying each year's state inpatient psychiatric hospital DSH allocation described in subdivision C 4 b of this section by the ratio of each hospital's uncompensated care cost for the most recent DSH audited year completed prior to the DSH payment year to the uncompensated care cost of all state inpatient psychiatric hospitals for the same audited year.

d. The DSH per diem for CHKD shall be three times the DSH per diem for Type Two hospitals.

5. Each year, the department shall determine how much Type Two DSH has been reduced as a result of the Affordable Care Act and adjust the percent of cost reimbursed for outpatient hospital reimbursement.

D. Effective July 1, 2014, the DSH reimbursement methodology for Type One hospitals shall be to pay its uncompensated care costs up to the available allotment. Interim payments shall be made based on estimates of the uncompensated care costs and allotment. Payments shall be settled at cost report settlement and at the conclusion of the DSH audit.

E. Prior to July 1, 2014, hospitals qualifying under the 14% inpatient Medicaid utilization percentage shall receive a DSH payment based on the hospital's type and the hospital's Medicaid utilization percentage.

1. Type One hospitals shall receive a DSH payment equal to:

a. The sum of (i) the hospital's Medicaid utilization percentage in excess of 10.5%, times 17, times the hospital's Medicaid operating reimbursement, times 1.4433 and (ii) the hospital's Medicaid utilization percentage in excess of 21%, times 17, times the hospital's Medicaid operating reimbursement, times 1.4433.

b. Multiplied by the Type One hospital DSH Factor factor. The Type One hospital DSH factor shall equal a percentage that when applied to the DSH payment calculation yields a DSH payment equal to the total calculated using the methodology outlined in subdivision 1 a of this subsection using an adjustment factor of one in the calculation of operating payments rather than the adjustment factor specified in subdivision B 1 of 12VAC30-70-331.

2. Type Two hospitals shall receive a DSH payment equal to the sum of (i) the hospital's Medicaid utilization percentage in excess of 10.5%, times the hospital's Medicaid operating reimbursement, times 1.2074 and (ii) the hospital's Medicaid utilization percentage in excess of 21%, times the hospital's Medicaid operating reimbursement, times 1.2074. Out-of-state cost reporting hospitals with Virginia utilization in the base year of less than 12% of total Medicaid days shall receive 50% of the payment described in this subsection.

F. Hospitals qualifying under the 25% low-income patient utilization rate shall receive a DSH payment based on the hospital's type and the hospital's low-income utilization rate.

1. Type One hospitals shall receive a DSH payment equal to the product of the hospital's low-income utilization in excess of 25%, times 17, times the hospital's Medicaid operating reimbursement.

2. Type Two hospitals shall receive a DSH payment equal to the product of the hospital's low-income utilization in excess of 25%, times the hospital's Medicaid operating reimbursement.

3. Calculation of a hospital's low-income patient utilization percentage is defined in 42 USC § 1396r-4(b)(3).

G. Each hospital's eligibility for DSH payment and the amount of the DSH payment shall be calculated at the time of each rebasing using the most recent reliable utilization data and projected operating reimbursement data available. The utilization data used to determine eligibility for DSH payment and the amount of the DSH payment shall include days for Medicaid recipients enrolled in capitated managed care programs. In years when DSH payments are not rebased in the way described in this section, the previous year's amounts shall be adjusted for inflation.

For freestanding psychiatric facilities licensed as hospitals, DSH payment shall be based on the most recently settled Medicare cost report available before the beginning of the state fiscal year for which a payment is being calculated.

H. Effective July 1, 2010, DSH payments shall be rebased for all hospitals with the final calculation reduced by a uniform percentage such that the expenditures in FY 2011 do not exceed expenditures in FY 2010 separately for Type One and Type Two hospitals. The reduction shall be calculated after determination of eligibility. Payments determined in FY 2011 shall not be adjusted for inflation in FY 2012.

I. Effective July 1, 2013, DSH payments shall not be rebased for all hospitals in FY 2014 and shall be frozen at the payment levels for FY 2013 eligible providers.

J. To be eligible for DSH, a hospital shall also meet the requirements in 42 USC § 1396r-4(d). No DSH payment shall exceed any applicable limitations upon such payment established by 42 USC § 1396r-4(g).

K. If making the DSH payments prescribed in this chapter would exceed the DSH allotment, DMAS shall adjust DSH payments to Type One hospitals. Any DSH payment not made as prescribed in the State Plan as a result of the DSH allotment shall be made upon a determination that an available allotment exists.

12VAC30-70-425. Certified public expenditures Supplemental payments for nonstate non-state-government-owned hospitals for inpatient services.

A. In addition to payments made elsewhere, effective July 1, 2005, DMAS shall draw down federal funds to cover unreimbursed Medicaid costs for inpatient services provided by nonstate non-state-government-owned hospitals as certified by the provider through cost reports.

B. A nonstate non-state-government-owned hospital is owned or operated by a unit of government other than a state.

C. Effective July 1, 2018, additional supplemental payments will be issued to each non-state-government-owned acute care hospital for inpatient services provided to Medicaid patients.

1. The supplemental payment shall equal inpatient hospital clam payments times the upper payment limit (UPL) gap percentage.

a. The annual UPL gap percentage is the percentage calculated where the numerator is the difference for each non-state-government-owned acute care hospital between a reasonable estimate of the amount that would be paid under Medicare payment principles for inpatient hospital services provided to Medicaid patients, as calculated in accordance with 42 CFR 447.272, and what Medicaid paid for such services, and the denominator is Medicaid claim payments to each hospital for inpatient hospital services provided to Medicaid patients in the same years used in the numerator.

b. The UPL gap percentage will be calculated annually for each hospital using data for the most recent year for which comprehensive annual data are available and inflated to the state fiscal year for which payments are to be made.

c. Maximum aggregate payments to all qualifying hospitals shall not exceed the available upper payment limit. If inpatient payments for non-state-government-owned hospitals would exceed the upper payment limit, the numerator in the calculation of the UPL gap percentage shall be reduced proportionately.

2. After the close of each quarter, beginning with the July 1, 2018, to September 30, 2018, quarter, each qualifying hospital shall receive supplemental payments for the inpatient services paid during the prior quarter. The supplemental payments for each qualifying hospital for each quarter shall be calculated by multiplying the Medicaid inpatient hospital payments paid in that quarter by the annual UPL gap percentage for each hospital.

12VAC30-80-20. Services that are reimbursed on a cost basis.

A. Payments for services listed in this section shall be on the basis of reasonable cost following the standards and principles applicable to the Title XVIII Program with the exception provided for in subdivision D 1 e of this section. The upper limit for reimbursement shall be no higher than payments for Medicare patients in accordance with 42 CFR 447.321. In no instance, however, shall charges for beneficiaries of the program be in excess of charges for private patients receiving services from the provider. The professional component for emergency room physicians shall continue to be uncovered as a component of the payment to the facility.

B. Reasonable costs will be determined from the filing of a uniform Centers for Medicare and Medicaid Services-approved cost report by participating providers. The cost reports are due not later than 150 days after the provider's fiscal year end. If a complete cost report is not received within 150 days after the end of the provider's fiscal year, DMAS or its designee shall take action in accordance with its policies to assure that an overpayment is not being made. All cost reports shall be reviewed and reconciled to final costs within 180 days of the receipt of a completed cost report. The cost report will be judged complete when DMAS has all of the following:

1. Completed cost reporting form provided by DMAS, with signed certification;

2. The provider's trial balance showing adjusted journal entries;

3. The provider's financial statements including a balance sheet, a statement of income and expenses, a statement of retained earnings (or fund balance), and a statement of changes in financial position;

4. Schedules that reconcile financial statements and trial balance to expenses claimed in the cost report;

5. Depreciation schedule or summary;

6. Home office cost report, if applicable; and

7. Such other analytical information or supporting documents requested by DMAS when the cost reporting forms are sent to the provider.

C. Item 398 D of the 1987 Appropriation Act (as amended), effective April 8, 1987, eliminated reimbursement of return on equity capital to proprietary providers.

D. The services that are cost reimbursed are:

1. For dates of service prior to January 1, 2014, outpatient hospital services, including rehabilitation hospital outpatient services and excluding laboratory services.

a. Definitions. The following words and terms when used in this section shall have the following meanings when applied to emergency services unless the context clearly indicates otherwise:

"All-inclusive" means all emergency department and ancillary service charges claimed in association with the emergency room visit, with the exception of laboratory services.

"DMAS" means the Department of Medical Assistance Services consistent with Chapter 10 (§ 32.1-323 et seq.) of Title 32.1 of the Code of Virginia.

"Emergency hospital services" means services that are necessary to prevent the death or serious impairment of the health of the recipient. The threat to the life or health of the recipient necessitates the use of the most accessible hospital available that is equipped to furnish the services.

"Recent injury" means an injury that has occurred less than 72 hours prior to the emergency department visit.

b. Scope. DMAS shall differentiate, as determined by the attending physician's diagnosis, the kinds of care routinely rendered in emergency departments and reimburse for nonemergency care rendered in emergency departments at a reduced rate.

(1) With the exception of laboratory services, DMAS shall reimburse at a reduced and all-inclusive reimbursement rate for all services rendered in emergency departments that DMAS determines were nonemergency care.

(2) Services determined by the attending physician to be emergencies shall be reimbursed under the existing methodologies and at the existing rates.

(3) Services performed by the attending physician that may be emergencies shall be manually reviewed. If such services meet certain criteria, they shall be paid under the methodology for subdivision 1 b (2) of this subsection. Services not meeting certain criteria shall be paid under the methodology of subdivision 1 b (1) of this subsection. Such criteria shall include:

(a) The initial treatment following a recent obvious injury.

(b) Treatment related to an injury sustained more than 72 hours prior to the visit with the deterioration of the symptoms to the point of requiring medical treatment for stabilization.

(c) The initial treatment for medical emergencies including indications of severe chest pain, dyspnea, gastrointestinal hemorrhage, spontaneous abortion, loss of consciousness, status epilepticus, or other conditions considered life threatening.

(d) A visit in which the recipient's condition requires immediate hospital admission or the transfer to another facility for further treatment or a visit in which the recipient dies.

(e) Services provided for acute vital sign changes as specified in the provider manual.

(f) Services provided for severe pain when combined with one or more of the other guidelines.

(4) Payment shall be determined based on ICD diagnosis codes and necessary supporting documentation. As used here, the term "ICD" is defined in 12VAC30-95-5.

(5) DMAS shall review on an ongoing basis the effectiveness of this program in achieving its objectives and for its effect on recipients, physicians, and hospitals. Program components may be revised subject to achieving program intent, the accuracy and effectiveness of the ICD code designations, and the impact on recipients and providers. As used here, the term "ICD" is defined in 12VAC30-95-5.

c. Limitation of allowable cost. Effective for services on and after July 1, 2003, reimbursement of Type Two hospitals for outpatient services shall be at various percentages as noted in subdivisions 1 c (1) and 1 c (2) of this subsection of allowable cost, with cost to be determined as provided in subsections A, B, and C of this section. For hospitals with fiscal years that do not begin on July 1, outpatient costs, both operating and capital, 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 in the cost reporting period, falling before and after that date.

(1) Type One hospitals.

(a) Effective July 1, 2003, through June 30, 2010, hospital outpatient operating reimbursement shall be at 94.2% of allowable cost and capital reimbursement shall be at 90% of allowable cost.

(b) Effective July 1, 2010, through September 30, 2010, hospital outpatient operating reimbursement shall be at 91.2% of allowable cost and capital reimbursement shall be at 87% of allowable cost.

(c) Effective October 1, 2010, through June 30, 2011, hospital outpatient operating reimbursement shall be at 94.2% of allowable cost and capital reimbursement shall be at 90% of allowable cost.

(d) Effective July 1, 2011, hospital outpatient operating reimbursement shall be at 90.2% of allowable cost and capital reimbursement shall be at 86% of allowable cost.

(2) Type Two hospitals.

(a) Effective July 1, 2003, through June 30, 2010, hospital outpatient operating and capital reimbursement shall be 80% of allowable cost.

(b) Effective July 1, 2010, through September 30, 2010, hospital outpatient operating and capital reimbursement shall be 77% of allowable cost.

(c) Effective October 1, 2010, through June 30, 2011, hospital outpatient operating and capital reimbursement shall be 80% of allowable cost.

(d) Effective July 1, 2011, hospital outpatient operating and capital reimbursement shall be 76% of allowable cost.

d. The last cost report with a fiscal year end on or after December 31, 2013, shall be used for reimbursement for dates of service through December 31, 2013, based on this section. Reimbursement shall be based on charges reported for dates of service prior to January 1, 2014. Settlement will be based on four months of runout from the end of the provider's fiscal year. Claims for services paid after the cost report runout period will not be settled.

e. Payment for direct medical education costs of nursing schools, paramedical programs, and graduate medical education for interns and residents.

(1) Direct medical education costs of nursing schools and paramedical programs shall continue to be paid on an allowable cost basis.

(2) Effective with cost reporting periods beginning on or after July 1, 2002, direct graduate medical education (GME) costs for interns and residents shall be reimbursed on a per-resident prospective basis. See 12VAC30-70-281 for prospective payment methodology for graduate medical education for interns and residents.

2. Rehabilitation agencies or comprehensive outpatient rehabilitation.

a. Effective July 1, 2009, rehabilitation agencies or comprehensive outpatient rehabilitation facilities that are operated by community services boards or state agencies shall be reimbursed their costs. For reimbursement methodology applicable to all other rehabilitation agencies, see 12VAC30-80-200.

b. Effective October 1, 2009, rehabilitation agencies or comprehensive outpatient rehabilitation facilities operated by state agencies shall be reimbursed their costs. For reimbursement methodology applicable to all other rehabilitation agencies, see 12VAC30-80-200.

3. Supplement payments to Type One hospitals for outpatient services.

a. In addition to payments for services set forth elsewhere in the State Plan, DMAS makes supplemental payments to qualifying state government owned or operated hospitals for outpatient services furnished to Medicare members on or after July 1, 2010. To qualify for a supplement payment, the hospital must be part of the state academic health system or part of an academic health system that operates under a state authority.

b. The amount of the supplemental payment made to each qualifying hospital shall be equal to the difference between the total allowable cost and the amount otherwise actually paid for the services by the Medicaid program based on cost settlement.

c. Payment for furnished services under this section shall be paid at settlement of the cost report.

4. Supplemental payments for private hospital partners of Type One hospitals. Effective for dates of service on or after October 25, 2011, quarterly supplemental payments shall be issued to qualifying private hospitals for outpatient services rendered during the quarter. These quarterly supplemental payments will cease for dates of service on or after the effective date of State Plan amendments authorizing increased payments to qualifying hospitals from the Health Care Provider Rate Assessment Fund established pursuant to § 32.1-331.02 of the Code of Virginia and approved by the Centers for Medicare and Medicaid Services.

a. In order to qualify for the supplemental payment, the hospital shall be enrolled currently as a Virginia Medicaid provider and shall be owned or operated by a private entity in which a Type One hospital has a nonmajority interest.

b. Reimbursement methodology.

(1) Hospitals notparticipating in the Medicaid disproportionate share hospital (DSH) program shall receive quarterly supplemental payments for the outpatient services rendered during the quarter. Each quarterly payment distribution shall occur not more than two years after the year in which the qualifying hospital's entitlement arises. The annual supplemental payments in a fiscal year shall be the lesser of:

(a) The difference between each qualifying hospital's outpatient Medicaid billed charges and Medicaid payments the hospital receives for services processed for fee-for-service Medicaid individuals during the fiscal year; or

(b) $1,894 per Medicaid outpatient visit for state plan rate year 2012. For future state plan rate years, this number shall be adjusted by inflation based on the Virginia moving average values as compiled and published by Global Insight (or its successor) under contract with the department.

(2) Hospitals participating in the DSH program shall receive quarterly supplemental payments for the outpatient services rendered during the quarter. Each quarterly payment distribution shall occur not more than two years after the year in which the qualifying hospital's entitlement arises. The annual supplemental payments in a fiscal year shall be the lesser of:

(a) The difference between each qualifying hospital's outpatient Medicaid billed charges and Medicaid payments the hospital receives for services processed for fee-for-service Medicaid individuals during the fiscal year;

(b) $1,894 per Medicaid outpatient visit for state plan rate year 2012. For future state plan rate years, this number shall be adjusted by inflation based on the Virginia moving average values as compiled and published by Global Insight (or its successor) under contract with the department; or

(c) The difference between the limit calculated under § 1923(g) of the Social Security Act and the hospital's DSH payments for the applicable payment period.

c. Limit. Maximum aggregate payments to all qualifying hospitals in this group shall not exceed the available upper payment limit per state fiscal year.

5. Supplemental outpatient payments for non-state-government-owned hospitals. Effective July 1, 2018, supplemental payments will be issued to qualifying non-state-government-owned hospitals for outpatient services provided to Medicaid patients.

a. Qualifying hospitals are all non-state-government-owned acute care hospitals.

b. The supplemental payment shall equal outpatient hospital claim payments times the upper payment limit (UPL) gap percentage.

(1) The annual UPL gap percentage is the percentage calculated where the numerator is the difference for each qualifying hospital between a reasonable estimate of the amount that would be paid under Medicare payment principles for outpatient hospital services provided to Medicaid patients, as calculated in accordance with 42 CFR 447.321, and what Medicaid paid for such services, and the denominator is Medicaid claim payments to all qualifying hospitals for outpatient hospital services provided to Medicaid patients in the same year used in the numerator.

(2) The annual UPL gap percentage will be calculated annually for each hospital using the most recent year for which comprehensive annual data are available and inflated to the state fiscal year for which payments are to be made.

6. Quarterly payments. After the close of each quarter, beginning with the July 1, 2018, to September 30, 2018, quarter, each qualifying hospital shall receive supplemental payments for the outpatient services paid during the prior quarter. The supplemental payments for each qualifying hospital for each quarter shall be calculated by multiplying the Medicaid outpatient hospital payments paid in that quarter by the annual UPL gap percentage for each hospital.