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11. TEXAS HEALTHCARE TRANSFORMATION AND QUALITY IMPROVEMENT PROGRAM REIMBURSEMENT

1 TAC §355.8201, §355.8202

The Texas Health and Human Services Commission (HHSC) adopts new §355.8201, relating to Waiver Payments to Hospitals; and §355.8202, relating to Waiver Payments for Physician Services, with changes to the proposed text as published in the April 20, 2012, issue of the Texas Register (37 TexReg 2838). The text of the rules will be republished.

Background and Justification

The Texas Legislature, through the 2012-2013 General Appropriations Act (House Bill 1, 82nd Legislature, Regular Session, 2011) and Senate Bill (SB) 7, 82nd Legislature, First Called Session, 2011, instructed HHSC to expand its use of Medicaid managed care to achieve program savings, while also preserving locally matched supplemental payments to hospitals and physician practice groups.

Funding from local governmental entities has historically comprised the non-federal share of supplemental payments to hospitals and physician practice groups (often referred to as "upper payment limit" or "UPL" programs) under Texas' approved Medicaid State Plan. In a managed care context, however, the Centers for Medicare and Medicaid Services (CMS) has interpreted 42 CFR §438.60 to prohibit UPL payments to providers. CMS has instructed HHSC that a §1115 demonstration waiver is the mechanism the state must employ to continue the use of local funding to support supplemental payments to providers in a managed care environment.

HHSC is given broad authority by the Texas Legislature to seek waivers in the Medicaid program under Texas Human Resources Code §32.021(b). In addition, SB 7, 82nd Legislature, First Called Session, 2011, amended §531.502 of the Texas Government Code and authorized HHSC to implement a §1115 demonstration waiver that serves specific, important goals of the Medicaid program.

HHSC submitted a proposal for a §1115 waiver to CMS that is designed to build on existing Texas health care reforms and to redesign health care delivery in Texas consistent with CMS goals to improve the experience of care, improve the health of populations, and reduce the cost of health care without compromising quality. CMS approved the Texas Healthcare Transformation and Quality Improvement Program §1115 Demonstration on December 12, 2011.

Under the waiver, federal matching funds for traditional supplemental payments to hospitals and physician group practices under the Texas Medicaid State Plan are no longer available. The Disproportionate Share Hospital (DSH) program is not considered by CMS to be a supplemental payment program subject to this limitation. Some hospitals and physician groups that historically received supplemental payments, especially those that serve a large number of indigent patients, would have experienced a significant financial hardship if the supplemental payments were delayed while permanent administrative rules were proposed and adopted. To avoid such hardship, HHSC adopted rules in January 2012, on an emergency basis, governing payments to these providers while permanent rules are developed and adopted.

HHSC is now adopting new permanent payment rules that implement the provider eligibility requirements and payment methodologies approved by CMS under the waiver. Concurrently with the adoption of the permanent payment rules, the emergency rules will be withdrawn.

Comments

The 30-day comment period ended May 21, 2012. During this period, HHSC received comments from Parkland Health and Hospital System, UT Health Science Center - San Antonio, The University of Texas Southwestern Medical Center, the University of Texas System, UHS of Delaware, Inc. (on behalf of Doctors Hospital Laredo, Fort Duncan Medical Center, Northwest Texas Health System, South Texas Health System and Texoma Medical Center), St. David's Healthcare, Memorial Hermann Healthcare System, Methodist Healthcare System, the Texas Hospital Association, and Hospital Payment Advisory Committee. A summary of the comments and HHSC's responses follow.

Comment: Commenters recommended that HHSC modify §355.8201(g)(1) to indicate that the transition maximum payment amount be equal to the "greater" of the hospital's DSH room or the amount the hospital received in supplemental payments under the Texas Medicaid State Plan for claims adjudicated between October 1, 2010, and September 30, 2011, rather than the "lesser" of these two amounts as indicated in the proposed rule. These commenters indicated that such a change is needed to protect certain hospitals in case the UC tool is not approved in a timely manner.

Response: Waiver Standard Term and Condition (STC) 44(b)(ii)(A) states that "Participating hospitals and physician groups will be eligible to receive total Transition Payments equal to the amount the provider received in supplemental payments for claims adjudicated during FFY 2011, annualized to cover the entire twelve (12) month period of DY 1." STC 44(b)(iii) provides that for hospitals receiving DSH payments in 2012, "Transition Payments are considered title XIX payments and must be treated as revenues when determining DSH eligible uncompensated costs as part of the annual DSH audits." The wording of these STCs precludes HHSC from making the requested change to subsection (g)(1). In the event that CMS has not approved the UC tool by the time HHSC issues the fourth quarter transition waiver payment, those hospitals that have remaining DSH room in excess of their transition maximum payment amount will still have the opportunity to submit a UC tool to make up the difference in UC costs upon approval of the UC tool by CMS. HHSC did not change the proposed rule in response to this comment.

Comment: Commenter requested that §355.8201(g)(2) be modified to replace the word "will" with the phrase "is eligible to".

Response: HHSC concurs with this request and has modified §355.8201(g)(2) to replace "will" with "is eligible to."

Comment: Commenter requested that §355.8201(i) be modified to delete the extraneous word "of."

Response: HHSC concurs with this request and has modified §355.8201(i) to delete the extraneous "of."

Comment: Commenter suggested that §355.8201(j)(2)(B)(ii) be modified to refer to hospitals owned by or affiliated with a governmental entity. The proposed language was limited to hospitals affiliated with a governmental entity.

Response: HHSC concurs with this suggestion and has modified §355.8201(j)(2)(B)(ii) to refer to hospitals owned by or affiliated with a governmental entity.

Comment: HHSC should include language on the UC Tool to allow costs incurred by private hospitals for services provided at a public hospital to be allowed to be claimed by the private hospital as uncompensated care costs. Concerns were raised under subsection (h)(3), "Other eligible costs," and the request was made that hospitals be allowed to claim on the UC tool, in addition to direct patient-care services of physicians, costs for payments made to others for 100% indigent care services provided by other physicians at their location. HHSC should also allow more flexibility on UC costs that can be added as adjustments.

Response: These issues will be forwarded to CMS for consideration in its review of the Uncompensated Care Application for Hospitals and Physician Group Practices. If CMS approves, HHSC will consider including language as suggested; at present, however, HHSC did not change the proposed rule in response to this comment.

Comment: The proposed rules, for the first time, permit Governmental Entities to notify HHSC at the time a transfer is made for UC or transition payments of the share of the intergovernmental transfer (IGT) to be allocated to each provider (hospital or physician group practice) that is owned by or affiliated with that entity. In the absence of the notification, each provider owned by or affiliated with that entity will receive a portion of its maximum payment amount for that period, based on the provider's percentage of the total maximum payment amounts for all providers owned by or affiliated with that governmental entity.

Numerous commenters expressed concern that when IGTs are directed to make transition or UC payments to affiliated private providers, this will result in governmental entities making decisions regarding how much UC money to direct to a particular private provider based on the amount of indigent expenses alleviated by that private provider. These commenters feel this creates a link between alleviated indigent expenses and UC Pool payments that may be impermissible under federal guidance regarding prohibited provider donations.

Response: The opportunity for a governmental entity to direct the allocation of its IGT occurs only when the entity transfers less than the amount that would pay all of its owned or affiliated hospitals the maximum payment amount for a payment period. In the former private hospital UPL program, governmental entities were not permitted to direct the allocation of an IGT because it might raise an inference of an impermissible provider related donation. The public hospital supplemental payment programs did not raise that risk. Unlike the former UPL programs, however, the Waiver does not distinguish between public and private hospitals. Consequently, without the ability to direct HHSC in the allocation of its IGT, a governmental entity with insufficient IGT in a payment period could not fund payments to its own hospital ahead of its private affiliates. HHSC felt that policy would discourage public entities from affiliating with private hospitals that would otherwise benefit from opportunities under the Waiver. As in the former private supplemental-payment program, HHSC is continuing to require public and private affiliated entities to certify that impermissible provider-related donations are not occurring. HHSC did not change the proposed rule in response to this comment.

Comment: HHSC has been asked to clarify how the fourth (4th) quarter 2012 reconciliation payment operates in demonstration year one under §355.8201, Waiver Payments to Hospitals. Commenters expressed concern that language in subsection (j)(3) "Final payment opportunity" in which the government entities receive a final chance to transfer funds for any remaining transition cap in demonstration year one would preclude the hospitals having an opportunity to receive a UC payment, if appropriate, after the fourth quarter transition payment has been made.

Response: The final payment opportunities described in §355.8201(j)(3) apply separately to each type of payment (e.g., transition, UC, and DSRIP). Taking advantage of the final payment opportunity for transition payments will not preclude hospitals from having an opportunity to receive a UC payment, if appropriate, after the fourth quarter transition payment has been made. HHSC did not change the proposed rule in response to this comment.

Comment: As proposed, §355.8202 provides only for eligible physician group practices to receive uncompensated care payments. HHSC is urged by several academic institutions to add language to the proposed rule to allow physician group practices to receive Delivery System Reform Incentive Payments (DSRIP) as well.

Response: HHSC concurs that this clarification is necessary and has added DSRIP eligibility and payment methodology language to §355.8202 under subsections (b)(3), (b)(8), (b)(9), (b)(12), (b)(13), (c)(5), (e)(1)-(3), (i), (j)(1) and (j)(3) to allow physician group practices to receive DSRIP payments.

Comment: Several academic health institutions requested HHSC delete eligibility criteria in §355.8202(c)(2) for physician group practices that would prohibit them from participating in uncompensated care payments if any part of the costs associated with their practice were claimed by any hospital on its uncompensated care application. As written, the proposed rule does not take into account that physician group practices employed by certain eligible academic centers provide services at multiple hospitals as well as within their own academic clinics.

Current language at (c)(2) that states "costs associated with the practice are not included, in whole or in part, on any hospital's uncompensated-care application" is too limiting, as no single hospital partner would be able to claim full cost of care provided by an academic institution's faculty physicians. Academic institutions also suggest that the same episode of care may result in more than one cost reporting entry on the hospital and the physician group practice's uncompensated care applications.

Response: HHSC concurs that the proposed language in (c)(2) was too limiting and has deleted (c)(2) and replaced it with subsection (h)(1)(B)(ii) as follows: "(ii) the costs associated with an episode of care where a physician group practice is paid under contract may not be included in the uncompensated care application." Please note that CMS has indicated that only one provider may report the uncompensated care costs associated with a single patient episode of care.

Comment: HHSC should commit to making DSRIP payments twice yearly and to build in flexibility to pay more frequently for certain projects. In addition, HHSC should make available the option for hospitals to request two interim DSRIP payments to preserve cash flows and for a reconciliation to occur when regularly scheduled semi-annual payments are made.

Response: The waiver does not allow for interim DSRIP payments (see STC 45(d)(iv), which states that DSRIP payments are "based on successful completion of the metrics associated with DSRIP incentive payments."). As well, HHSC does not believe that meaningful progress toward completion of the metrics associated with DSRIP incentive payments can be achieved in less than six months. While DSRIP payments will be made on a semi-annual basis, Medicaid fee-for-service payments are made as claims are adjudicated, DSH payments are made monthly, and uncompensated care payments will be made quarterly; together, these various Medicaid payment streams should help to alleviate any hospital cash flow issues. HHSC did not change the proposed rule in response to this comment.

Comment: HHSC should allow governmental entities the discretion to allocate IGTs between the UC and DSRIP Pools. The Waiver sets forth a specific ratio of overall entitlement between the UC Pool and DSRIP Pool, resulting in a 50/50 split in the fifth program year. The Waiver also sets forth statewide maximum dollar amounts for each Pool in each demonstration year. Commenters requested clarification as to whether the governmental entities are required to allocate their local funds between the UC Pool and DSRIP Pool using the same ratios or may allocate as they see fit until the statewide maximum dollar amount is reached for either Pool.

Response: Details pertaining to the allocation of funds between the UC and DSRIP pools are still being negotiated with CMS. The Program Funding and Mechanics Protocol required under STC 45(d)(2)(B) will outline the results of these negotiations. A draft of this protocol has been shared with stakeholders and the final version will be shared as soon as negotiations are complete. HHSC did not change the proposed rule in response to this comment.

Comment: To ensure that the state can access all opportunities available under the waiver, some commenters recommended that, if the maximum statewide entitlement is reached in any demonstration year, the UC and DSRIP pool funds should be allocated based on the proportional entitlement of each pool in each region with available financing similar to how the Aggregate Cap worked in the Private UPL Program.

Response: Details pertaining to the allocation of funds if the maximum statewide entitlement is reached in any demonstration year are still being negotiated with CMS. The Program Funding and Mechanics Protocol required under STC 45(d)(2)(B) will outline the results of these negotiations. A draft of this protocol has been shared with stakeholders and the final version will be shared as soon as negotiations are complete. If CMS approves, HHSC will consider implementing the revision the commenter suggests, but HHSC did not change the proposed rule in response to this comment.

The new rules are adopted under Texas Government Code §531.033, which provides the Executive Commissioner of HHSC with broad rulemaking authority; Texas Human Resources Code §32.021 and Texas Government Code §531.021(a), which provide HHSC with the authority to administer the federal medical assistance (Medicaid) program in Texas; and Texas Government Code §531.021(b), which provides HHSC with the authority to propose and adopt rules governing the determination of Medicaid reimbursements.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on June 5, 2012.

TRD-201202868

Steve Aragon

Chief Counsel

Texas Health and Human Services Commission

Effective date: July 1, 2012

Proposal publication date: April 20, 2012

For further information, please call: (512) 424-6900

355.8201. Waiver Payments to Hospitals.

(a) Introduction. Subject to approval by the Centers for Medicare and Medicaid Services of all required protocols described in the Texas Healthcare Transformation and Quality Improvement Program §1115(a) Medicaid demonstration waiver, payments are available under this section for eligible hospitals described in subsection (c) of this section.

(b) Definitions.

(1) Centers for Medicare and Medicaid Services (CMS)--The federal agency within the United States Department of Health and Human Services responsible for overseeing and directing Medicare and Medicaid, or its successor.

(2) Data year--A 12-month period that is described in §355.8066 of this title (relating to the Hospital-Specific Limit Methodology) and from which HHSC will compile cost and payment data to determine uncompensated-care payment amounts. This period corresponds to the Disproportionate Share Hospital data year.

(3) Delivery System Reform Incentive Payments (DSRIP)--Payments related to the development or implementation of a program of activity that supports a hospital's efforts to enhance access to health care, the quality of care, and the health of patients and families it serves. These payments are not considered patient-care revenue and are not offset against Disproportionate Share Hospital expenditures or other expenditures related to the cost of patient care.

(4) Demonstration year--The 12-month period beginning October 1 for which the payments calculated under this section are made. This period corresponds to the Disproportionate Share Hospital program year.

(5) Disproportionate Share Hospital (DSH)--A hospital participating in the Texas Medicaid program that serves a disproportionate share of low-income patients and is eligible for additional reimbursement from the DSH fund.

(6) DSH room--The difference between a hospital's interim hospital-specific limit, as calculated in §355.8066 of this title, and the total Medicaid payments paid to the hospital during the demonstration year.

(7) Governmental entity--A state agency or a political subdivision of the state. A governmental entity includes a hospital authority, hospital district, city, county, or state entity.

(8) HHSC--The Texas Health and Human Services Commission or its designee.

(9) Indigent care affiliation agreement--An agreement, entered into between one or more private hospitals and a governmental entity, that does not conflict with federal or state law. HHSC does not prescribe the form of the agreement.

(10) Intergovernmental transfer--A transfer of public funds from a governmental entity to HHSC.

(11) Private hospital--A hospital that is not owned or operated by a governmental entity.

(12) Public funds--Funds derived from taxes, assessments, levies, investments, and other public revenues within the sole and unrestricted control of a governmental entity. Public funds do not include gifts, grants, trusts, or donations, the use of which is conditioned on supplying a benefit solely to the donor or grantor of the funds.

(13) Regional Healthcare Partnership (RHP)--A collaboration of interested participants that work collectively to develop and submit to the state a regional plan for health care delivery system reform. Regional Healthcare Partnerships will support coordinated, efficient delivery of quality care and a plan for investments in system transformation that is driven by the needs of local hospitals, communities, and populations.

(14) RHP plan--A multi-year plan within which participants propose their portion of waiver funding and DSRIP projects.

(15) Transition payment--Payments available only during the first demonstration year to hospitals that previously participated in a supplemental payment program under the Texas Medicaid State Plan and meet other eligibility requirements described in subsection (c)(2) of this section.

(16) Uncompensated-care payments--Payments intended to defray the uncompensated costs of services that meet the definition of "medical assistance" contained in §1905(a) of the Social Security Act that are provided by the hospital to Medicaid eligible or uninsured individuals.

(17) Uninsured patient--An individual who has no health insurance or other source of third-party coverage for services, as defined by CMS.

(18) Waiver--The Texas Healthcare Transformation and Quality Improvement Program Medicaid demonstration waiver under §1115 of the Social Security Act.

(c) Eligibility. A hospital that meets the requirements described in this subsection may receive payments under this section. A hospital must notify HHSC within 30 days of changes in ownership, operation, or affiliation that may affect the hospital's continued eligibility for payments under this section.

(1) Generally. To be eligible for any payment under this section, a hospital must:

(A) be enrolled as a Texas Medicaid provider;

(B) have a source of public funding for the non-federal share of waiver payments; and

(C) if a private hospital, have filed with HHSC an indigent care affiliation agreement and the documents described in clauses (i) and (ii) of this subparagraph.

(i) A private hospital must certify on a form prescribed by HHSC:

(I) that it is a private hospital as defined in this section;

(II) that no part of any payment to the hospital under this section will be returned or reimbursed to a governmental entity with which the hospital affiliates; and

(III) that no part of any payment under this section will be used to pay a contingent fee, consulting fee, or legal fee associated with the hospital's receipt of the supplemental funds.

(ii) The governmental entity that is party to the indigent care affiliation agreement must certify on a form prescribed by HHSC:

(I) that the governmental entity has not received and has no agreement to receive any portion of the payments made to any hospital that is party to the agreement;

(II) that the governmental entity has not entered into a contingent fee arrangement related to the governmental entity's participation in the waiver program;

(III) that the governmental entity is authorized to participate in the waiver program pursuant to a vote of the governmental entity's governing body in a public meeting preceded by public notice published in accordance with the governmental entity's usual and customary practices or the Texas Open Meetings Act, as applicable; and

(IV) that all affiliation agreements, consulting agreements, or legal services agreements executed by the governmental entity related to its participation in this waiver payment program are available for public inspection upon request.

(2) Transition payments. For a hospital to be eligible to receive transition payments, in addition to the requirements in paragraph (1) of this subsection, the hospital:

(A) must have received supplemental payments under the Texas Medicaid State Plan for claims adjudicated in one or more months between October 1, 2010, and September 30, 2011; or

(B) for a hospital that received the supplemental payments described in subparagraph (A) of this paragraph through the private hospital supplemental payment program, must have filed the documents described in paragraph (1)(C) of this subsection before September 30, 2011.

(3) Uncompensated care payments. For a hospital to be eligible to receive uncompensated-care payments, in addition to the requirements in paragraph (1) of this subsection, the hospital:

(A) must submit to HHSC an uncompensated-care application, as is more fully described in subsection (h)(1) of this section, by the deadline specified by HHSC;

(B) must submit to HHSC documentation of:

(i) its participation in an RHP; or

(ii) approval from CMS of its eligibility for uncompensated-care payments without participation in an RHP; and

(C) if a private hospital, must submit to HHSC the documents described in paragraph (1)(C) of this subsection.

(4) Delivery system reform incentive payments. For a hospital to be eligible to receive delivery system reform incentive payments, in addition to the requirements in paragraph (1) of this subsection, the hospital must submit to HHSC documentation of completion of one or more of the defined objectives identified in the approved RHP plan.

(d) Source of funding. The non-federal share of funding for payments under this section is limited to timely receipt by HHSC of public funds from a governmental entity.

(e) Payment frequency. HHSC will distribute waiver payments as follows and on a schedule to be determined by HHSC:

(1) Transition payments will be distributed at least quarterly during the first demonstration year.

(2) Uncompensated care payments will be distributed at least quarterly after the uncompensated care application is processed.

(3) DSRIP payments will be distributed at least annually, not to exceed two payments:

(A) during the first demonstration year, upon CMS and HHSC approval of the RHP plan; and

(B) during subsequent demonstration years, upon achievement of RHP plan metrics.

(f) Funding limitations. Payments made under this section are limited by:

(1) the maximum aggregate amount of federal funds approved by CMS for uncompensated care and DSRIP payments for each year that the waiver is in effect; and

(2) the availability of funds identified in subsection (d) of this section.

(g) Transition maximum payment amount.

(1) For a hospital participating in the 2012 DSH program, the maximum amount a hospital may receive in transition payments is the lesser of:

(A) the hospital's 2012 DSH room; or

(B) the amount the hospital received in supplemental payments under the Texas Medicaid State Plan for claims adjudicated between October 1, 2010, and September 30, 2011.

(2) For a hospital not participating in the 2012 DSH program, the hospital will receive the amount it received in supplemental payments under Texas Medicaid State Plan for claims adjudicated between October 1, 2010, and September 30, 2011.

(3) If a hospital had claims adjudicated in fewer than 12 months between October 1, 2010, and September 30, 2011, the payment amount will be annualized to cover the entire 12-month period.

(h) Uncompensated-care maximum payment amount.

(1) Application.

(A) Cost and payment data reported by the hospital in the uncompensated-care application is used to:

(i) calculate the annual maximum uncompensated-care payment amount for the applicable demonstration year, as described in paragraph (2) of this subsection;

(ii) determine the priority of reimbursement, as described in paragraph (6) of this subsection; and

(iii) reconcile the actual uncompensated-care costs reported by the hospital for the data year with uncompensated-care waiver payments, if any, made to the hospital for the same period. The reconciliation process is more fully described in subsection (k) of this section.

(B) Unless otherwise instructed in the application, the hospital must base the cost and payment data reported in the application on its applicable as-filed CMS 2552 Cost Report For Electronic Filing Of Hospitals or reports corresponding to the data year. When the application requests data or information outside of the as-filed cost report, the hospital must provide sufficient documentation to support the reported data or information.

(C) For the first demonstration year, HHSC will use the methodology described in this subsection to determine an uncompensated-care maximum payment amount for each hospital that submits an application. After submitting the application, the hospital may not request that the amount calculated in subsection (g) of this section be used instead.

(D) If a hospital withdraws from participation in an RHP, the hospital must submit an uncompensated-care application reporting its actual costs and payments for any period during which the hospital received uncompensated-care payments. The application will be used for the purpose described in paragraph (1)(A)(iii) of this subsection. If a hospital fails to submit the application reporting its actual costs, HHSC will recoup the full amount of uncompensated-care payments to the hospital for the period at issue.

(2) Calculation. A hospital's annual maximum uncompensated-care payment amount is the sum of the following components, except that the sum may be reduced as described in paragraph (5) of this subsection:

(A) The interim hospital specific limit, calculated as described in §355.8066 of this title;

(B) Other eligible costs for the data year, as described in paragraph (3) of this subsection; and

(C) Cost and payment adjustments, if any, as described in paragraph (4) of this subsection.

(3) Other eligible costs.

(A) In addition to cost and payment data that is used to calculate the hospital-specific limit, as described in §355.8066 of this title, a hospital may also claim reimbursement under this section for uncompensated care, as specified in the uncompensated-care application, that is related to the following services provided to Medicaid-eligible and uninsured patients:

(i) direct patient-care services of physicians and mid-level professionals, except that during the first demonstration year, costs of physician group practices that received transition payments may not be claimed by the hospital;

(ii) pharmacy services; and

(iii) clinics.

(B) The costs described in subparagraph (A) of this paragraph are not considered inpatient or outpatient Medicaid payments for the purpose of the DSH audit described in §355.8065 of this title (related to Disproportionate Share Hospital (DSH) Reimbursement Methodology).

(4) Adjustments. When submitting the uncompensated-care application, hospitals may request that cost and payment data from the data year be adjusted to reflect increases or decreases in costs resulting from changes in operations or circumstances.

(A) A hospital may request that:

(i) costs not reflected on the as-filed cost report, but which would be incurred for the demonstration year, be included when calculating payment amounts; or

(ii) costs reflected on the as-filed cost report, but which would not be incurred for the demonstration year, be excluded when calculating payment amounts.

(B) Documentation supporting the request must accompany the application. HHSC will deny a request if it cannot verify that costs not reflected on the as-filed cost report will be incurred for the demonstration year.

(5) Reduction. In the first demonstration year, HHSC will reduce the amount calculated as described in paragraph (2) of this subsection by the amount of all transition payments to the hospital prior to the first uncompensated-care payment. This reduction will be applied in the same priority as that described in paragraph (6) of this subsection.

(6) Priority of reimbursement. Uncompensated-care payments to a hospital under this section, including payments described in subsection (j)(3) of this section, will first reimburse the hospital for those costs described in paragraph (3) of this subsection, including adjustments, if any, under paragraph (4) of this subsection. When all such costs have been reimbursed, uncompensated-care payments will reimburse the hospital for its remaining allowable uncompensated-care costs.

(i) Delivery System Reform Incentive Payment maximum payment amounts. The approved RHP plan establishes the payment amount associated with of a particular project or quality measure.

(j) Payment methodology.

(1) Notice. Prior to making any category of payment described in subsections (g), (h) and (i) of this section, HHSC will give notice of the following information:

(A) the maximum payment amount for the payment period (based on whether the payment is made quarterly, semi-annually, or annually);

(B) the maximum intergovernmental transfer amount necessary for a hospital to receive the amount described in subparagraph (A) of this paragraph; and

(C) the deadline for completing the intergovernmental transfer.

(2) Payment amount. The amount of the payment to a hospital will be determined based on the amount of funds transferred by the affiliated governmental entity or entities as described below:

(A) If the governmental entity transfers the maximum amount referenced in paragraph (1) of this subsection, the hospital will receive the full payment amount calculated for that payment period.

(B) If a governmental entity does not transfer the maximum amount referenced in paragraph (1) of this subsection, HHSC will determine the payment amount to each hospital owned by or affiliated with that governmental entity as follows:

(i) For payments described in subsections (g) and (h) of this section:

(I) At the time the transfer is made, the governmental entity may notify HHSC, on a form prescribed by HHSC, of the share of the intergovernmental transfer to be allocated to each hospital owned by or affiliated with that entity; or

(II) In the absence of the notification described in subclause (I) of this clause, each hospital owned by or affiliated with the governmental entity will receive a portion of its maximum payment amount for that period, based on the hospital's percentage of the total maximum payment amounts for all hospitals owned by or affiliated with that governmental entity.

(ii) For payments described in subsection (i) of this section, each hospital affiliated with the governmental entity that has completed a project or quality measure will receive a portion of the value associated with that measure (as specified in the RHP plan) that is proportionate to the total value of all projects or quality measures that are completed for that period by hospitals affiliated with that governmental entity.

(C) For a hospital that is affiliated with multiple governmental entities, in the event those governmental entities transfer more than the maximum intergovernmental transfer amount that can be provided for that hospital, HHSC will calculate the amount of intergovernmental transfer funds necessary to fund the hospital to its payment limit and refund the remaining amount to the governmental entities identified by HHSC.

(3) Final payment opportunity. Within payments described in subsections (g), (h), and (i) of this section, a governmental entity that does not transfer the maximum intergovernmental transfer amount described in paragraph (1) of this subsection during a demonstration year will be allowed to fund the remaining payments at the time of the final payment from that category for that demonstration year. The intergovernmental transfer will be applied in the following order:

(A) To the final payment from that category up to the maximum amount;

(B) To remaining balances from that category for prior payment periods in the demonstration year.

(k) Reconciliation. Beginning in the third demonstration year, data on the uncompensated-care application will be used to reconcile actual costs incurred by the hospital for the data year with uncompensated-care payments, if any, made to the hospital during the same period:

(1) If a hospital received payments in excess of its actual costs, the overpaid amount will be recouped from the hospital, as described in subsection (l) of this section.

(2) If a hospital received payments less than its actual costs, and if HHSC has available waiver funding for the data year in which the costs were accrued, the hospital may receive reimbursement for some or all of those actual documented unreimbursed costs.

(3) Transition payments are not subject to reconciliation under this subsection.

(l) Recoupment.

(1) In the event of an overpayment, as described in subsection (k)(1) of this section, or a disallowance by CMS of federal financial participation related to a hospital's receipt or use of payments under this section, HHSC may recoup an amount equivalent to the amount of the overpayment or disallowance. The non-federal share of any funds recouped from the hospital will be returned to the entity that owns or is affiliated with the hospital.

(2) Payments under this section may be subject to adjustment for payments made in error, including, without limitation, adjustments under §371.1703 of this title (relating to Recovery of Overpayments), 42 CFR Part 455, and Chapter 403, Texas Government Code. HHSC may recoup an amount equivalent to any such adjustment.

(3) HHSC may recoup from any current or future Medicaid payments as follows:

(A) HHSC will recoup from the hospital against which any overpayment was made or disallowance was directed.

(B) If, within 30 days of the hospital's receipt of HHSC's written notice of recoupment, the hospital has not paid the full amount of the recoupment or entered into a written agreement with HHSC to do so, HHSC may withhold any or all future Medicaid payments from the hospital until HHSC has recovered an amount equal to the amount overpaid or disallowed.

355.8202. Waiver Payments for Physician Services.

(a) Introduction. Subject to approval by the Centers for Medicare and Medicaid Services of all required protocols described in the Texas Healthcare Transformation and Quality Improvement Program §1115(a) Medicaid demonstration waiver, payments are available under this section for an eligible physician group practice described in subsection (c) of this section.

(b) Definitions.

(1) Centers for Medicare and Medicaid Services (CMS)--The federal agency within the United States Department of Health and Human Services responsible for overseeing and directing Medicare and Medicaid, or its successor.

(2) Demonstration year--The 12-month period beginning October 1 for which the payments calculated under this section are made. This period corresponds to the Disproportionate Share Hospital program year.

(3) Governmental entity--A state agency or a political subdivision of the state. A governmental entity includes a hospital authority, hospital district, city, county, or state entity.

(4) HHSC--The Texas Health and Human Services Commission or its designee.

(5) Intergovernmental transfer--A transfer of public funds from a governmental entity to HHSC.

(6) Public funds--Funds derived from taxes, assessments, levies, investments, and other public revenues within the sole and unrestricted control of a governmental entity. Public funds do not include gifts, grants, trusts, or donations, the use of which is conditioned on supplying a benefit solely to the donor or grantor of the funds.

(7) Transition payment--Payments available only during the first demonstration year and calculated as described in subsection (g) of this section.

(8) Uncompensated-care payments--Payments available after the first demonstration year and calculated as described in subsection (h) of this section. Uncompensated-care payments are intended to defray the uncompensated costs of services that meet the definition of "medical assistance" contained in §1905(a) of the Social Security Act that are provided by the physician group practice to Medicaid eligible or uninsured individuals.

(c) Eligibility. A physician group practice is eligible to receive payments under this section if:

(1) it is enrolled as a Texas Medicaid provider;

(2) costs associated with the practice are not included, in whole or in part, on any hospital's uncompensated-care application;

(3) it received a supplemental payment under the Texas Medicaid State Plan for claims adjudicated in one or more months between October 1, 2010, and September 30, 2011;

(4) it has a source of intergovernmental transfer (IGT) as the non-federal share of the payments; and

(5) for a private physician group practice only, it filed with HHSC before October 1, 2011, documents certifying that:

(A) all funds transferred to HHSC as the non-federal share of the waiver payments are public funds; and

(B) no part of any payment received by the physician group practice under this section will be returned to the governmental entity that transferred to HHSC the non-federal share of the waiver payments.

(d) Source of funding.

(1) The non-federal share of funding for payments under this section is limited to and obtained through an intergovernmental transfer from the governmental entity that owns or is affiliated with the physician group practice receiving the payment.

(2) An intergovernmental transfer that is not received by the date specified by HHSC may not be accepted.

(e) Payment frequency. HHSC will distribute payments quarterly during the demonstration year.

(f) Funding limitations. Payments made under this section are limited by:

(1) the maximum aggregate amount of federal funds approved by CMS for uncompensated-care payment to providers for each demonstration year; and

(2) the availability of funds identified in subsection (d) of this section.

(g) Transition payment amount. For each physician group practice eligible to receive a payment under this section, HHSC will determine a maximum transition payment amount that is equal to the amount of supplemental payments made to the physician group practice under the Texas Medicaid State Plan for claims adjudicated between October 1, 2010, and September 30, 2011. If the physician practice group had claims adjudicated in fewer than 12 months, the payment amount will be annualized to cover the entire 12-month period.

(h) Uncompensated-care maximum payment amount.

(1) Application. Payments to eligible physician group practices after the first demonstration year will be based on cost and payment data reported by the physician group practice on an application form prescribed by HHSC.

(A) Cost and payment data reported by the physician group practice in the uncompensated-care application is used to:

(i) calculate the annual maximum uncompensated-care payment amount for the applicable demonstration year, as described in paragraph (2) of this subsection; and

(ii) reconcile the actual uncompensated-care costs reported by the physician group practice for a prior period with uncompensated-care waiver payments, if any, made to the practice for the same period. The reconciliation process is more fully described in subsection (k) of this section.

(B) Unless otherwise instructed in the application, the cost and payment data reported in the application must be consistent with Medicare cost-reporting principles and the physician group practice must maintain sufficient documentation to support the reported data or information.

(C) If a physician group practice withdraws from participation in the waiver, the practice must submit an uncompensated-care application reporting its actual costs and payments for any period during which the practice received uncompensated-care payments. The application will be used for the purpose described in subparagraph (A)(ii) of this paragraph. If a practice fails to submit the application reporting its actual costs, HHSC will recoup the full amount of uncompensated-care payments to the practice for the period at issue.

(2) Calculation. A physician group practice's annual maximum uncompensated-care payment amount is the sum of the following components:

(A) Its uninsured costs and Medicaid shortfall, as reported on the uncompensated-care application; and

(B) Cost and payment adjustments, if any, as described in paragraph (3) of this subsection.

(3) Adjustments. When submitting the uncompensated-care application, physician group practices may request that cost and payment data from the reporting period be adjusted to reflect increases or decreases in costs resulting from changes in operations or circumstances.

(A) A physician group practice may request that:

(i) Costs not reflected on the financial documents supporting the application, but which would be incurred for the demonstration year, be included when calculating payment amounts; or

(ii) Costs reflected on the financial documents supporting the application, but which would not be incurred for the demonstration year, be excluded when calculating payment amounts.

(B) Documentation supporting the request must accompany the application. HHSC will deny a request if it cannot verify that costs not reflected on the financial documents supporting the application will be incurred for the demonstration year.

(i) Payment methodology.

(1) During each quarter of the demonstration year, HHSC will calculate for each physician group practice an amount that is one-fourth of the maximum payment amount determined in subsection (g) or (h) of this section.

(2) HHSC will give notice of the maximum intergovernmental transfer amount and the deadline for completing the transfer of funds.

(3) The amount of the payment to the physician group practice under paragraph (1) of this subsection will be determined based on the amount of funds transferred by the affiliated governmental entity or entities as described below:

(A) If a governmental entity transfers the maximum amount of funds described in paragraph (2) of this subsection, the physician group practice will receive the maximum allowable payment amount for that period.

(B) If a governmental entity does not transfer the maximum amount referenced in paragraph (1) of this subsection, HHSC will determine the payment amount to each physician group practice owned by or affiliated with that governmental entity as follows:

(i) At the time the transfer is made, the governmental entity may notify HHSC, on a form prescribed by HHSC, of the share of the intergovernmental transfer to be allocated to each physician group practice owned by or affiliated with that entity; or

(ii) In the absence of the notification described in clause (i) of this subparagraph, each physician group practice owned by or affiliated with the governmental entity will receive a portion of its maximum payment amount for that period, based on the physician group practice's percentage of the total maximum payment amounts for all physician group practices owned by or affiliated with that governmental entity.

(j) Reconciliation. Beginning in the third year of the waiver, data on the uncompensated-care application will be used to reconcile actual costs incurred by the physician group practice for a prior period with uncompensated-care payments, if any, made to the hospital during the same period.

(1) If a physician group practice received payments in excess of its actual costs, the overpaid amount will be recouped from the physician group practice, as described in subsection (k) of this section.

(2) If a physician group practice received payments less than its actual costs, and if HHSC has available waiver funding for the period in which the costs were accrued, the physician group practice may receive reimbursement for some or all of those actual documented unreimbursed costs.

(3) Transition payments are not subject to reconciliation under this subsection.

(k) Recoupment.

(1) In the event of a disallowance by CMS of federal financial participation related to a physician group practice's receipt or use of payments under this section, HHSC may recoup an amount equivalent to the amount of the overpayment or disallowance. The non-federal share of any funds recouped from the physician group practice will be returned to the entity that owns or is affiliated with the physician group practice.

(2) Payments under this section may be subject to adjustment for payments made in error, including, without limitation, adjustments under §371.1703 of this title (relating to Recovery of Overpayments), 42 CFR Part 455, and Chapter 403, Texas Government Code. HHSC may recoup an amount equivalent to any such adjustment.

(3) HHSC may recoup from any current or future Medicaid payments as follows:

(A) HHSC will recoup from the physician group practice against which any disallowance was directed or to which an overpayment was made.

(B) If, within 30 days of the physician group practice's receipt of HHSC's written notice of recoupment, the physician group practice has not paid the full amount of the recoupment or entered into a written agreement with HHSC to do so, HHSC may withhold any or all future Medicaid payments from the physician group practice until HHSC has recovered an amount equal to the amount overpaid or disallowed.