Titles of Regulations: 12VAC30-70. Methods and Standards for Establishing Payment Rates; In-Patient Hospital Care (adding 12VAC30-70-411, 12VAC30-70-429).

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

12VAC30-160. Hospital Assessment (adding 12VAC30-160-10).

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

Public Hearing Information: No public hearing is currently scheduled.

Public Comment Deadline: June 11, 2021.

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 grants to the Board of Medical Assistance Services the authority to administer and amend the State Plan for Medical Assistance and to promulgate regulations. Section 32.1-324 of the Code of Virginia grants the Director of the Department of Medical Assistance Services (DMAS) the authority of the board when it is not in session.

Items 3-5.15 and 3-5.16 of the 2018 and 2019 Appropriation Acts instruct DMAS to levy a provider coverage assessment and a provider payment rate assessment beginning on or after October 1, 2018. In addition, the 2018 and 2019 Acts of Assembly, Item 303 XX 6 c states that supplemental payments for certain teaching hospitals shall sunset after the effective date of a statewide supplemental payment for private acute care hospitals authorized in Item 3-5.16.

Purpose: Each of the three items included in this regulatory package is required to fund new Medicaid coverage for adults as well as new Medicaid hospital supplemental payments. The provider coverage assessment will fund the nonfederal share of Medicaid coverage for newly-eligible adults while the provider payment rate assessment will fund the nonfederal share of an increase in inpatient and outpatient supplemental payments to qualifying private acute care hospitals. The private acute care hospitals required to pay the assessment will benefit from the new coverage as well as new supplemental hospital payments. These regulations establish these new supplemental payments and sunset ones that were previously authorized.

The new Medicaid coverage for adults is essential to protect, the health, safety, and welfare of citizens; to date, health care coverage has been expanded to more than 300,000 Virginians who did not have medical insurance (i.e., did not qualify for health insurance subsidies under the Affordable Care Act). The assessments also fund the nonfederal share of expansion instead of appropriating general funds. In addition, Medicaid expansion allows Virginia to draw down federal dollars for the expansion population, which avoids increased costs to the state.

Substance: This regulatory action (i) authorizes DMAS to levy a provider coverage assessment and a payment rate assessment upon private acute care hospitals operating in Virginia; (ii) establishes new supplemental inpatient and outpatient payments for qualifying private acute care hospitals in Virginia; and (iii) sunsets existing supplemental payments made to certain teaching hospitals to avoid overlapping supplemental payments.

(i) Provider Coverage Assessment and Payment Rate Assessment: The provider coverage assessment generates funds that will be used to cover the nonfederal share of the full cost of Medicaid coverage for newly eligible individuals, including the administrative costs of collecting the assessment and implementing and operating the coverage for newly eligible adults.

The provider payment rate assessment generates funds that will be used to fund (a) an increase in inpatient and outpatient rates paid to private acute care hospitals in Virginia up to the private hospital upper payment limit and managed care organization hospital payment gap and (b) the administrative costs of collecting the assessment and of implementing and operating the associated rate actions. Separate funds have been established; one for the coverage assessment, and one for the payment rate assessment.

(ii) New Supplemental Inpatient and Outpatient Payments for Qualifying Private Acute Care Hospitals in Virginia: The 2018 Appropriation Act directs DMAS to provide supplemental inpatient and outpatient hospital payments to qualifying hospitals up to the private hospital upper payment limit for payment to private hospitals. Qualifying hospitals are all private acute care hospitals excluding public hospitals, freestanding psychiatric and rehabilitation hospitals, children's hospitals, long stay hospitals, long-term acute care hospitals, and critical access hospitals. The total supplemental payment shall be based on the difference between the private hospital inpatient or outpatient upper payment limit (in 42 CFR 447.272, and 42 CFR 447.321, respectively) as approved by the Centers for Medicare and Medicaid Services and all other Medicaid payments subject to such limit. DMAS has amended the State Plan to make supplemental payments to all qualifying hospitals and has amended its contracts with managed care organizations to include a directed payment for qualifying hospitals consistent with the State Plan Amendment.

(iii) Sunsetting Other Supplemental Payments for Private Acute Care Hospitals: In order to avoid overlapping supplemental payments, supplemental payments made to a limited group of private hospitals are being terminated on the date the new payments are effective. Supplemental Inpatient Payments for Certain Teaching Hospitals (Sentara Norfolk General and Carilion Medical Center) will sunset in this regulatory action.

Issues: Each of the three items included in this regulatory package is required to fund new Medicaid coverage for adults as well as new Medicaid hospital supplemental payments. The primary advantage to the public and the Commonwealth of the new Medicaid coverage for adults is that, to date, it has provided health care coverage to over 300,000 Virginians who did not have medical insurance (i.e., did not qualify for health insurance subsidies under the Affordable Care Act), which is a primary advantage to the public.

The assessments fund the nonfederal share of expansion instead of appropriating general funds. In addition, Medicaid expansion allows Virginia to draw down federal dollars for the expansion population, which generates savings for the state, providing an advantage to the Commonwealth.

Hospitals will be affected by these assessments, but they agreed in advance to these regulatory changes so that Medicaid expansion could be accomplished.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. Pursuant to multiple General Assembly mandates, this permanent regulatory action would: (1) authorize the Department of Medical Assistance Services (DMAS) to levy a provider coverage assessment and a payment rate assessment upon private acute care hospitals operating in Virginia, (2) establish new supplemental inpatient and outpatient payments for qualifying private acute care hospitals, and (3) sunset existing supplemental payments made to certain teaching hospitals to avoid overlapping payments.

The proposed permanent changes have already been in effect since October 2018 under emergency regulations.¹ This action would make the emergency regulations permanent.

Background. The three components of this regulatory package listed above were authorized by three budget items in the 2018 Appropriation Act. Items 3-5.15 and 3-5.16 authorized DMAS to expand Medicaid services in Virginia through the use of two types of assessments: a provider coverage assessment (coverage assessment) and a provider payment rate assessment (rate assessment). These assessments are required to fund new Medicaid coverage for adults, and were to be implemented on or after October 1, 2018, upon private acute care hospitals² operating in Virginia. In addition, Item 303.XX 6 c states that supplemental payments for certain teaching hospitals shall sunset after the effective date of the statewide supplemental payment for private acute care hospitals authorized in Item 3-5.16.³

These budget items collectively made it possible to expand Medicaid coverage to include an estimated 400,000 adult Virginians. In November 2019, more than 327,000 adults who did not have other forms of medical insurance were covered by Medicaid expansion.

The parameters determining the amounts of the assessments and supplemental payments were set out in the budget items in detail. The proposed regulation closely mirrors those parameters without materially changing those amounts. Instead, the regulation mainly adds definitions for the terminology used in the budget.

Estimated Benefits and Costs. The three components of this regulatory package are required to fund the full cost of expanded Medicaid coverage for adults as well as the new Medicaid hospital supplemental payments required by the legislative mandates. As discussed below, the coverage assessment funds the non-federal share of Medicaid coverage for newly-eligible adults, while the rate assessment funds the non-federal share of an increase in inpatient and outpatient supplemental payments to qualifying private acute care hospitals. The new supplemental payments enhance payments to private hospitals and provide incentives to serve the newly-eligible adults, while the sunset of certain supplemental payments is done to avoid overlapping payments. The analysis herein of these three components is based on several different data sources that may not be directly comparable, but represents the Department of Planning and Budget's best estimate of the benefits and costs.

Coverage Assessment and Rate Assessment. The two assessments fund the non-federal share of expansion and the new supplemental payments instead of appropriating general funds. Accordingly, no general funds are associated with these assessments. Separate funds have been established; one for the coverage assessment, and one for the rate assessment. More specifically, the coverage assessment generates funds to cover the non-federal share of the full cost of Medicaid coverage for newly eligible individuals, including the administrative costs of collecting the assessment and implementing and operating Medicaid expansion. In addition, the rate assessment generates funds to cover: (a) the increase in inpatient and outpatient rates paid to private acute care hospitals in Virginia up to the private hospital upper payment limit and managed care organization hospital payment gap, and (b) the administrative costs of collecting the assessment and of implementing and operating the associated rate actions.

The detailed mechanics of both assessments are set out in the budget items. Both are levied prospectively, and their magnitudes are determined by the following factors. For the coverage assessment, DMAS calculates each hospitals coverage assessment amount by multiplying the coverage assessment percentage by the net patient service revenue. The coverage assessment percentage is calculated as (i) 1.08 times the non-federal share of the full cost of expanded Medicaid coverage divided by (ii) the total net patient service revenue for hospitals subject to the assessment. Similarly, for the rate assessment each hospitals payment rate assessment amount is determined by multiplying the payment rate assessment percentage by the net patient service revenue. The payment rate assessment percentage for hospitals is calculated as (i) 1.08 times the non-federal share of funding the private acute care hospitals enhanced payments divided by (ii) the total net patient service revenue for hospitals subject to the assessment.

New Supplemental Inpatient and Outpatient Payments for Qualifying Private Acute Care Hospitals in Virginia. The 2018 Appropriation Act directs DMAS to provide supplemental inpatient and outpatient hospital payments to qualifying acute care hospitals up to the private hospital upper payment limit. The total supplemental payment is based on the difference between (a) the private hospital inpatient or outpatient upper payment limit (in 42 CFR 447.272, and 42 CFR 447.321, respectively) as approved by the Centers for Medicare and Medicaid Services and (b) all other Medicaid payments subject to such limit. DMAS has amended the State Plan for Medical Assistance to make supplemental payments to all qualifying hospitals.

Sunsetting Other Supplemental Payments for Private Acute Care Hospitals. In order to avoid overlapping supplemental payments, supplemental payments made to a limited group of private acute care hospitals were terminated on the date the new payments were effective. The supplemental payments that are sunset in this regulatory package were authorized by the 2017 Acts of Assembly, Chapter 836, Item 306.RRR.1. The hospitals affected are Sentara Norfolk General and Carilion Medical Center in Roanoke.

Fiscal Impact. In Fiscal Year (FY) 2019, $87.3 million and $143.7 million were collected from hospitals for coverage and rate assessments, respectively. Based on the most recent official forecast, and assuming $17.4 million in non-medical costs, the coverage assessments for FY 2020 through FY 2022 are estimated to be $278.3 million, $389.8 million, and $422.1 million, respectively.⁴ The rate assessment projections for the same time period are $444.7 million, $477.1 million, and $501 million.

While this regulatory action establishes the sole regulatory authority for the two assessments, it applies only to the fee-for-service portion of supplemental payments made to private acute care hospitals. The managed care portion of supplemental payment changes is addressed independently from this action, through amendments to contracts with managed care organizations that include a directed payment for qualifying hospitals. However, since the coverage and rate assessments are based on the total cost of expansion, including the services provided through both the fee-for-service and managed care delivery systems, an accurate assessment of the net impact on affected hospitals requires consideration of both the fee-for-service and managed care portions of the supplemental payments.

Including the managed care portion, the total supplemental payments made to these same hospitals were $292.6 million in FY 2019. This payment exceeds $231 million paid by private hospitals as a result of the coverage and rate assessments in FY 2019. Similarly, in FY 2020, affected hospitals are projected to pay an estimated $723 million for the coverage and rate assessments, but are projected to receive approximately $993.2 million in supplemental payments.⁵ Thus, it appears that the affected private acute care hospitals are better off with the proposed rules.

The sunset of supplemental payments for the two teaching hospitals would reduce the supplemental payments available specifically to those two hospitals by $101.8 million in FY 2019 and $135.7 million in FY 2020, in order to avoid overlapping with the payments newly available to them. However, according to DMAS, these two teaching hospitals saw the first and the second highest net gain in FY 2019 (i.e. payments received minus assessments paid were $36.6 and $22.9 million for the first and second places, respectively) of all hospitals statewide. Thus, these two hospitals also appear to be better off under the proposed rules despite the sunset of a portion of payments available to them.

Additionally, an intergovernmental transfer from Eastern Virginia Medical School and Virginia Tech was previously required to provide the non-state match for these teaching hospitals. Under the new rules, both hospitals can use the rate assessment funds to draw down the federal match, thereby eliminating the need for the intergovernmental transfer and the resulting dependency on another governmental entity.

Other Effects of Expansion. Generally available research finds that Medicaid expansion in other states is linked to: gains in coverage; improvements in access, financial security, and some measures of health status/outcomes; and economic benefits for states and providers.⁶

In Virginia, according to DMAS, more than 327,000 members are enrolled in expansion as of November 1, 2019, and more than 375,000 members have been enrolled at some point since the beginning of Medicaid expansion. In the year prior to enrolling in Medicaid, two-thirds of new members went without needed medical care such as primary care, prescriptions, mental health care, substance abuse disorder treatment, and dental care; one in four of new members used the emergency room as their primary source of care. After Medicaid expansion, 80 percent of these new members received at least one type of medical care; and the expansion population has been diagnosed with more chronic conditions than the non-expansion population.

The economic benefits of Medicaid expansion in other states include reductions in uncompensated care costs for hospitals and clinics, and also gains in employment as well as growth in the labor market (with a minority of studies showing neutral effects in this area).⁷ Also, an increase in labor force productivity could be expected from a healthier population.

One of the most significant statewide economic impacts is due to the net inflow of federal funds into the Commonwealth. Medicaid expansion allows Virginia to draw down federal dollars for the newly covered population and the higher supplemental payments, which avoids an increase in costs to the state. For example, the federal government covered 93 percent of the cost of the expansion in calendar year 2019 and will cover 90 percent thereafter. These new federal funds represent a net injection into the state's economy.⁸ In other words, after 2019, Virginia entities would pay for only 10 percent of the full cost of expansion while bringing the remaining 90 percent of federal funds into the Commonwealth, thereby creating new demand for medical services, goods, and labor.

An injection of new demand into the economy creates further expansionary effects beyond the initial increase in spending through what is known as the multiplier effect. The multiplier effect refers to the increase in final income arising from any new injection of spending. Further economic expansion occurs because the initial new spending creates extra income, which further boosts spending, which in turn creates more income, and so on. In the end, a dollar of extra spending leads to an increase of more than a dollar of final income. For example, actual expansion expenditures were $866.7 million in FY 2019.⁹ Projected expansion expenditures for the current and the next two years are $3.1 billion, $3.7 billion, and $4.1 billion.¹⁰ Approximately 90 percent of these amounts represents new spending which is expected to trigger further expansionary effects through the multiplier mechanism.

Businesses and Other Entities Affected. There are 69 private acute care hospitals subject to the provider and rate assessments and that are affected by the supplemental payment changes. These hospitals would also experience an increase in demand for their services and goods as well as their administrative costs due to serving a larger population. Similarly, DMAS would see an increase in its administrative costs driven by a larger population.

There are 400,000 Virginians estimated to be eligible under Medicaid expansion. Of these, more than 327,000 members were enrolled in expansion as of November 1, 2019 and more than 375,000 members have enrolled at some point since the beginning of Medicaid expansion.

Localities¹¹ Affected.¹² Although the expansion is statewide and encompasses all localities, it likely disproportionately affects those localities who have higher percentages of adults lacking health insurance. Medicaid expansion does not impose costs on localities.

Projected Impact on Employment. Medicaid expansion likely increases the size and the productivity of the labor force due to gains in Virginia's health outcomes. The net inflow of funds into the Commonwealth would likely cause an increase in demand for labor due to additional demand for services and goods to cover the expansion population.

Effects on the Use and Value of Private Property. The state's financial responsibility for the expansion population is funded by the private acute care hospitals via the provider assessment. These acute care hospitals also fund the state's share of the funds needed to receive the maximum amount of supplemental payments. The negative effects of the two assessments are offset by the increased demand for their services, their reduced uncompensated care costs, and the increase in supplemental payments they receive.

Adverse Effect on Small Businesses:¹³ The proposed regulation does not appear to adversely affect small businesses.

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¹https://townhall.virginia.gov/l/ViewStage.cfm?stageid=8352

²Public hospitals, freestanding psychiatric and rehabilitation hospitals, children's hospitals, long-term care hospitals and critical access hospitals are excluded from the definition of private acute care hospitals.

³The 2019 Appropriation Act, Items 3-5.15, 3-5.16, and Item 303.XX 6 c carried forward substantially the same instructions.

⁴Source: Official Consensus Medicaid Forecast, available at: https://rga.lis.virginia.gov/Published/2019/RD504/PDF.

⁵The payments in the first four months of FY 2019 are annualized to calculate the $993.2 million (i.e. $331.1 million times three.)

⁶https://www.kff.org/medicaid/issue-brief/the-effects-of-medicaid-expansion-under-the-aca-updated-findings-from-a-literature-review-august-2019/

⁷Ibid.

⁸The federal government may use a variety of strategies to fund the federal portion of the funding some of which may have a contractionary impact at the national level. However, potential nationwide economic effects are not considered in this analysis as the focus is on Virginia's economic activity.

⁹https://www.dmas.virginia.gov/files/links/4167/DMAS SFY19 FM 12 June Medical Accuracy Report.pdf

¹⁰Source: Official Consensus Medicaid Forecast.

¹¹Locality 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.

¹²§ 2.2-4007.04 defines particularly affected as bearing disproportionate material impact.

¹³Pursuant 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 Budget and raises no issues with this analysis.

Summary:

The amendments (i) authorize the Department of Medical Assistance Services to levy assessments upon private acute care hospitals operating in Virginia to fund new Medicaid coverage for adults as well as new Medicaid hospital supplemental payments, (ii) establish new supplemental inpatient and outpatient payments for qualifying private acute care hospitals in Virginia, and (iii) sunset supplemental payments made to certain private teaching hospitals to avoid overlapping supplemental payments. The amendments are required by §§ 3-5.15 and 3-5.16 and Item 303 XX 6 c of the 2018 Appropriation Act (Chapter 2 of the 2018 Acts of Assembly, Special Session I).

12VAC30-70-411. Supplemental payments for certain teaching hospitals.

A. Effective for dates of service on or after July 1, 2017, quarterly supplemental payments will be issued to qualifying private hospitals for inpatient services rendered during the quarter. These quarterly supplemental payments will cease for dates of service on or after October 1, 2018.

B. Qualifying criteria. Qualifying hospitals are the primary teaching hospitals affiliated with a Liaison Committee on Medical Education (LCME) accredited medical school located in Planning District 23 that is a political subdivision of the Commonwealth and an LCME accredited medical school located in Planning District 5 that has a partnership with a public university.

C. Reimbursement methodology. Each qualifying hospital shall receive quarterly supplemental payments for the inpatient services rendered during the quarter equal to the difference between the hospital's Medicaid payments and the hospital's disproportionate share limit (Omnibus Budget Reconciliation Act 93 disproportionate share hospital limit) for the most recent year for which the disproportionate share limit has been calculated divided by four. The supplemental payment amount will be determined prior to the beginning of the fiscal year.

D. Limit. Maximum aggregate payments to all qualifying hospitals shall not exceed the available upper payment limit per state fiscal year (SFY). In SFY 2019, the upper payment limit shall be prorated for the time period these supplemental payments are in effect.

12VAC30-70-429. Supplemental payments for private acute care hospitals.

A. Starting October 1, 2018, supplemental payments will be issued to qualifying hospitals for inpatient services provided to Medicaid patients.

B. Definitions. The following words and terms when used in this section shall have the following meanings unless otherwise stated:

"Acute care hospital" means any hospital that provides emergency medical services on a 24-hour basis.

"Children's hospital" means a hospital (i) whose inpatients are predominantly younger than 18 years of age and (ii) that is excluded from the Medicare prospective payment system pursuant to the Social Security Act.

"Critical access hospital" means a facility that meets the requirements of the State Medicare Rural Hospital Flexibility Program, 42 USC § 1395i-4, for such designation.

"Freestanding psychiatric and rehabilitation hospital" means a freestanding psychiatric hospital, which means a hospital that provides services consistent with 42 CFR 482.60, or a freestanding rehabilitation hospital, which means a hospital that provides services consistent with 42 CFR 482.56.

"Hospital" means a medical care facility licensed as an inpatient hospital or outpatient surgical center by the Department of Health or as a psychiatric hospital by the Department of Behavioral Health and Developmental Services.

"Long-stay hospital" means specialty facilities that serve individuals receiving medical assistance who require a higher intensity of nursing care than that which is normally provided in a nursing facility and who do not require the degree of care and treatment that an acute care hospital is designed to provide.

"Long-term acute care hospital" or "LTACH" means an inpatient hospital that provides care for patients who require a length of stay greater than 25 days and is, or proposes to be, certified by CMS as a long-term care inpatient hospital pursuant to 42 CFR Part 412. A LTACH may be either a freestanding facility or located within an existing or host hospital.

"Public hospital" means a hospital that is solely owned by a government or governmental entity.

"Supplemental payment" or "private acute care enhanced payment" means an increased payment to a qualifying hospital up to the upper payment limit gap from the Health Care Provider Rate Assessment Fund as authorized in the 2018 and 2019 Appropriation Acts.

"Upper payment limit" means the limit on payment for inpatient services for recipients of medical assistance established in accordance with 42 CFR 447.272, and on payment for outpatient services for recipients of medical assistance pursuant to 42 CFR 447.321 for private hospitals. The limit applies only to fee-for-service claims.

"Upper payment limit gap" or "UPL gap" means the difference between the amount of the private acute care hospital upper payment limits estimated for the State Plan rate year using the latest available cost report data, and the amount estimated that would otherwise be paid for the same State Plan rate year pursuant to the State Plan reimbursement methodology for inpatient and outpatient services. The upper payment limit gap shall be updated annually for each rate year.

C. Qualifying criteria. Qualifying hospitals are all in-state private acute care hospitals, excluding public hospitals, freestanding psychiatric and rehabilitation hospitals, children's hospitals, long-stay hospitals, long-term acute care hospitals, and critical access hospitals.

D. Reimbursement methodology. The supplemental payment shall equal inpatient hospital claim payments times the UPL gap percentage.

1. The UPL gap percentage is the percentage calculated when the numerator is the upper payment limit gap for inpatient services for private hospitals and the denominator is Medicaid claim payments to all qualifying hospitals for inpatient hospital services provided to Medicaid patients in the same year used in the numerator.

2. The UPL gap percentage will be calculated annually.

E. Quarterly payments. After the close of each quarter, beginning with the quarter ending December 31, 2018, each qualifying hospital shall receive supplemental payments for the inpatient services paid during that quarter. The supplemental payments for each qualifying hospital for each quarter shall be calculated based on the Medicaid inpatient hospital payments paid in that quarter multiplied by the UPL gap percentage.

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 not participating 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.

7. Supplemental outpatient payments for private acute care hospitals. Starting October 1, 2018, supplemental payments will be issued to qualifying private hospitals for outpatient services provided to Medicaid patients.

a. Definitions. See definitions in 12VAC30-70-429.

b. Qualifying criteria. Qualifying hospitals are all in-state private acute care hospitals, excluding public hospitals, freestanding psychiatric and rehabilitation hospitals, children's hospitals, long-stay hospitals, long-term acute care hospitals, and critical access hospitals. A qualifying hospital is the same as a "covered hospital" in § 32.1-331.02 of the Code of Virginia.

c. Reimbursement methodology. The supplemental payment shall equal outpatient hospital claim payments times the UPL gap percentage.

(1) The UPL gap percentage is the percentage calculated where the numerator is the UPL gap for outpatient services for private hospitals 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 UPL gap percentage will be calculated annually.

d. Quarterly payments. After the close of each quarter, beginning with the quarter ending December 31, 2018, each qualifying hospital shall receive supplemental payments for the outpatient services paid during that quarter. The supplemental payments for each qualifying hospital for each quarter shall be calculated based on the Medicaid outpatient hospital payments paid in that quarter multiplied by the UPL gap percentage.

Chapter 160

Hospital Assessment

12VAC30-160-10. Hospital assessment.

A. Authority. The Department of Medical Assistance Services (DMAS) is authorized to levy a Health Care Coverage Assessment and a Health Care Provider Payment Rate Assessment upon private acute care hospitals operating in Virginia in accordance with §§ 32.1-331.01 and 32.1-331.02 of the Code of Virginia and §§ 3-5.15, 3-5.16, and 4-14 as revised by the 2019 Appropriation Act.

B. Definitions. The following words and terms when used in this section shall have the following meanings unless otherwise stated:

"Covered hospital" means any in-state private acute care hospital other than a hospital classified as a public hospital, freestanding psychiatric and rehabilitation hospital, children's hospital, long-stay hospital, long-term acute care hospital, or critical access hospital.

"Full cost of expanded Medicaid coverage" means (i) any and all Medicaid expenditures related to individuals eligible for Medicaid pursuant to 42 U.S.C. 1396d(y)(1) (2010) of the Patient Protection and Affordable Care Act, including any federal actions or repayments and (ii) all administrative costs associated with providing coverage, which includes the costs of administering the provisions of the 1115 waiver, and collecting the coverage assessment.

"Managed care organization," "MCO," or "Medicaid MCO" means an entity that meets the participation and solvency criteria defined in 42 CFR Part 438 and has an executed contractual agreement with DMAS to provide services covered under a mandatory managed care program.

"Managed care organization hospital payment gap" means the difference between the amount included in the capitation rates for inpatient and outpatient services for the contract year based on historical paid claims and the amount that would be included when the projected hospital services furnished by private acute care hospitals operating in Virginia are priced for the contract year equivalent to the fee-for-service upper payment limit subject to CMS approval under 42 CFR 438.6(c). The managed care organization hospital payment gap shall be updated annually for each contract year.

"Managed care organization supplemental hospital capitation payment adjustment" means the additional amount added to Medicaid MCO capitation rates to pay the Medicaid managed care organization hospital payment gap to qualifying private acute care hospitals for services to Medicaid recipients.

"Net patient service revenue" means the amount each hospital reported in the most recent Virginia Health Information Hospital Detail Report as of December 15 of each year excluding any nonhospital revenue that meets the requirements in subsection C of this section.

"Newly eligible individual" means an individual described in 42 USC § 1396a(a)(10)(A)(i)(VIII).

"Private acute care hospital" means acute care hospitals, excluding public hospitals, freestanding psychiatric and rehabilitation hospitals, children's hospitals, long-stay hospitals, long-term acute care hospitals, and critical access hospitals.

"Provider payment rate costs" means the upper payment limit gap and the managed care organization hospital payment gap.

"Upper payment limit" means the limit on payment for inpatient services for recipients of medical assistance established in accordance with 42 CFR 447.272 and on payment for outpatient services for recipients of medical assistance pursuant to 42 CFR 447.321 for private hospitals. This limit applies only to fee-for-service claims.

"Upper payment limit gap" means the difference between the amount of the private acute care hospital upper payment limits estimated for the State Plan rate year using the latest available cost report data and the amount estimated that would otherwise be paid for that same State Plan rate year pursuant to the State Plan for inpatient and outpatient services. The supplemental payment methodology from the Health Care Provider Payment Rate Fund to qualifying hospitals for inpatient services is described in 12VAC30-70-429 and for outpatient services is described in 12VAC30-80-20. The upper payment limit gap shall be updated annually for each State Plan rate year.

C. Nonhospital revenue that should be excluded from a hospital's net patient service revenue as reported to the Virginia Health Information (VHI) Hospital Detail Report must be reported to DMAS by April 1 of each year. The hospital's chief financial officer must certify any changes to the data reported to VHI.

D. Health care coverage assessment. Private acute care hospitals operating in Virginia shall pay a provider coverage assessment beginning on or after October 1, 2018.

1. DMAS will calculate each hospital's coverage assessment by multiplying the coverage assessment percentage times net patient service revenue.

2. The coverage assessment percentage is calculated as (i) 1.08 times the nonfederal share of the full cost of expanded Medicaid coverage for newly eligible individuals under 42 USC § 1396d(y)(1) (as inserted by § 2001 of the Patient Protection and Affordable Care Act (P.L. 111-148 as amended by P.L. 111-152)) divided by (ii) the total net patient service revenue for hospitals subject to the assessment.

3. DMAS shall, at a minimum, update the "coverage assessment amount" to be effective on January 1 of each year. DMAS is further authorized to update the "coverage assessment amount " on a quarterly basis to ensure amounts are sufficient to cover the full cost of expanded Medicaid coverage based on the latest estimate. Hospitals shall be given no less than 30 days' notice prior to a change in their coverage assessment amount, and shall be provided with associated calculations. Prior to any change to the coverage assessment amount, DMAS shall perform and incorporate a reconciliation of the Health Care Coverage Assessment Fund. Any estimated excess or shortfall of revenue since the previous reconciliation shall be deducted from or added to the "full cost of expanded Medicaid coverage" for the updated coverage assessment amount.

4. The "full cost of expanded Medicaid coverage" shall be updated (i) on November 1 of each year based on the official Medicaid forecast and latest administrative cost estimates developed by DMAS; (ii) no more than 30 days after the enactment of any Appropriation Act to reflect policy changes adopted by the latest session of the General Assembly; and (iii) on March 1 of any year in which DMAS estimates that the most recent non-federal share of the "full cost of expanded Medicaid coverage" multiplied by 1.08 will be insufficient to pay all expenses for the full cost of expanded Medicaid coverage.

5. The coverage assessment shall be used only to cover the nonfederal share of the full cost of expanded Medicaid coverage.

6. Hospitals subject to the coverage assessment shall make quarterly payments to DMAS equal to 25% of the annual coverage assessment amount. The assessment payments are due not later than the first day of each quarter. In the first year, the first coverage assessment payment shall be due on or after October 1, 2018. Hospitals that fail to make the coverage assessment payments within 30 days of the due date shall incur a 5.0% penalty that shall be deposited into the Virginia Health Care Fund. Any unpaid coverage assessment or penalty will be considered a debt to the Commonwealth, and DMAS is authorized to recover it as such.

E. Health care provider payment rate assessment. Private acute care hospitals operating in Virginia shall pay a provider payment rate assessment beginning on or after October 1, 2018.

Proceeds from the provider payment rate assessment shall be disbursed to fund an increase in inpatient and outpatient payment rates paid to private acute care hospitals operating in Virginia up to the upper payment limit and the managed care organization hospital payment gap for care provided to recipients of medical assistance services.

1. DMAS will calculate each hospital's payment rate assessment by multiplying the payment rate assessment percentage times net patient service revenue.

2. The payment rate assessment percentage for covered hospitals will be calculated as (i) 1.08 times the nonfederal share of funding the upper payment limit gap and the managed care organization hospital payment gap divided by (ii) the total net patient service revenue for covered hospitals.

3. DMAS is authorized to update the payment rate assessment amount on a quarterly basis to ensure amounts are sufficient to cover the full cost of the private acute care hospital enhanced payments based on the latest estimate. Hospitals shall be given no less than 30 days prior notice of the new assessment amount and be provided with calculations. Prior to any change to the payment rate assessment amount, DMAS shall perform and incorporate a reconciliation of the Health Care Provider Payment Rate Assessment Fund. Any estimated excess or shortfall of revenue since the previous reconciliation shall be deducted from or added to the calculation of the private acute care hospital enhanced payments.

4. As part of the development of the managed care capitation rates, DMAS shall calculate a managed care organization supplemental hospital capitation payment adjustment. This is a distinct additional amount added to Medicaid MCO capitation rates to pay the managed care organization hospital payment gap as supplemental payments to covered private acute care hospitals operating in Virginia for services to Medicaid recipients. DMAS shall make available quarterly a report of the additional capitation payments that are made to each MCO.

5. Hospitals subject to the assessment shall make quarterly payments to DMAS equal to 25% of the annual provider payment rate assessment amount. The assessment payments are due not later than the first day of each quarter. In the first year, the first assessment payment shall be due on or after October 1, 2018. Hospitals that fail to make the assessment payments within 30 days of the due date shall incur a 5.0% penalty that shall be deposited into the Virginia Health Care Fund. Any unpaid assessment or penalty will be considered a debt to the Commonwealth, and DMAS is authorized to recover it as such.

F. Collection of the assessments. DMAS is responsible for collecting the assessments.

1. All revenue from the coverage assessment, excluding penalties shall be deposited into a special nonreverting fund to be known as the Health Care Coverage Assessment Fund pursuant to § 32.1-331.01 of the Code of Virginia. Proceeds from the Health Care Coverage Assessment Fund shall not be used for any other purpose than to cover the nonfederal share of the full cost of enhanced Medicaid coverage.

2. All revenue from the provider payment rate assessment, excluding penalties, shall be deposited into a special nonreverting fund to be known as the Health Care Provider Payment Rate Assessment Fund pursuant to § 32.1-331.02 of the Code of Virginia. Proceeds from the Health Care Provider Payment Rate Assessment Fund shall not be used for any other purpose than to fund an increase in inpatient and outpatient payment rates paid to private acute care hospitals operating in Virginia up to the private hospital upper payment limit or managed care organization hospital payment gap for care provided to recipients of medical assistance services and the administrative costs of collecting the assessment and of implementing and operating the associated payment rate actions.

3. DMAS will submit reports as required by the Appropriations Act. The reports will include, for the most recently completed state fiscal year, the revenue collected from each assessment, expenditures for purposes covered by each assessment, and the year-end assessment balances in each special nonreverting fund. The report shall include a complete and itemized list of all administrative costs included in the coverage assessment.

G. Appeal. A covered hospital may appeal a DMAS action that falls within the definition of agency action under the Virginia Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia), including DMAS's interpretation and application of assessment methodologies. The assessment methodologies cannot be appealed.

1. Appeals will be conducted in accordance with the provider appeal regulations (12VAC30-20).

2. A covered hospital shall be considered a "provider" for purposes of the appeal procedures set forth in the provider appeal regulations.