10A NCAC 22G .0304. RATE SETTING METHOD FOR NON-STATE FACILITIES

(a)  A prospective rate shall be determined annually for each non-state facility to be effective for dates of service for a 12 month rate period beginning each July 1.  The prospective rate shall be paid to the provider for every Medicaid eligible day during the applicable rate year.  The prospective rate may be determined after the effective date and paid retroactively to that date.  The prospective rate may be changed due to a rate appeal under Rule .0308 of this Section or facility reclassification under Paragraph (b) of this Rule.  Each non-state facility, except those facilities where Paragraph (v) of this Rule applies, shall be classified into one of the following groups:

(1)           Group 1- Facilities with 32 beds or less.

(2)           Group 2- Facilities with more than 32 beds.

(3)           Group 3- Facilities with medically fragile clients.  For rate reimbursement purposes under this Rule medically fragile clients are defined as individuals with complex medical problems who have chronic debilitating diseases or conditions of one or more physiological or organ systems that generally make them dependent upon 24-hour a day medical/nursing/health supervision or intervention.

(4)           Facilities in group 1 or 2 in Subparagraph (a)(1) or (2) of this Rule shall be further classified in accordance to the level of disability of the facility's clients, as measured by the Developmental Disabilities Profile (DDP) copyrighted assessment instrument which along with the scoring instrument are hereby incorporated by reference, including subsequent amendments and editions.  This material is available for inspection and copies may be obtained from the Division of Medical Assistance, 1985 Umstead Drive, Raleigh, North Carolina 27603 at a cost of twenty cents ($.20) per page.  A summary of the levels of disability is shown in the following chart:

 

FACILITY DDP SCORE

 

Level                                      Low                       High

 

1                                              200.00                   300.00

2                                              125.00                   199.99

3                                              100.00                   124.99

4                                                75.00                      99.99

5                                                50.00                      74.99

 

(b)  If the identified needs of the ICF-MR clients change then facilities shall be reclassified into appropriate groups as defined in Paragraph (a) of this Rule.

(1)           When a facility is reclassified, the rate shall be adjusted retroactively back to the date of the event that caused the reclassification.  This adjustment shall give full consideration to any reclassification based on the change in facts or circumstances during the year.  Overpayments related to this retroactive rate adjustment shall be repaid to the Medicaid program.  Underpayments related to this retroactive rate adjustment shall be paid to the provider.

(2)           The provider shall be given the opportunity to appeal the merits of the reclassification of any facility, prior to any decision by the Division of Medical Assistance.

(3)           The provider shall be notified in writing 30 days before the implementation of new rates resulting from the reclassification of any facility.

(4)           The providers and the Division of Medical Assistance shall make every reasonable effort to ensure that each facility is properly classified for rate setting purposes.

(5)           A provider shall file any request for facility reclassification in writing with the Division of Medical Assistance no later than 60 days subsequent to the proposed reclassification effective date.

(6)           For facilities certified prior to July 1, 1993, the facility DDP score calculated for fiscal year 1993 shall be used to establish proper classification at July 1, 1995.

(7)           For facilities certified after June 30, 1993, the most recent facility DDP score shall be used to establish proper classification.

(8)           A facility reclassification review shall use the most current facility DDP score.

(9)           A facility's DDP score shall be subject to independent validation by the Division of Medical Assistance.

(10)         A new facility that has not had a DDP survey conducted on its clients shall be categorized as a level 2 facility for rate setting purposes, pending completion of the DDP survey.  Upon completion of the DDP survey, the facility shall be subject to reclassification and rates shall be adjusted retroactively back to the date of certification.  Overpayments related to this retroactive adjustment shall be paid to the Medicaid program.  Underpayments related to this retroactive rate adjustment shall be paid to the provider.

(c)  Facility rates under this Rule shall be established at July 1, 1995, under the following:

(1)           For facilities certified prior to July 1, 1993, rates shall be derived from the 1993 cost reports.

(2)           For facilities certified during fiscal year 1993-1994, the fiscal year 1994 facility specific cost report shall be used to derive rates.

(3)           For facilities certified during fiscal year 1994-1995, the fiscal year 1995 facility specific cost report shall be used to derive rates.  Rates for these facilities shall not be adjusted, except for the impact of inflation under Paragraph (k) of this Rule, until the fiscal year 1995 cost report has been reviewed.  Rates for these facilities shall be adjusted retroactively back to July 1, 1995, once the fiscal year 1995 facility specific cost report has been reviewed.  Overpayments related to this retroactive rate adjustment shall be repaid to the Medicaid program.  Underpayments related to this retroactive rate adjustment shall be paid to the provider.

(4)           Facilities with rates established during a rate appeal proceeding with the Division of Medical Assistance during fiscal years 1994 or 1995 shall not have their rates established in accordance with Subparagraph (c)(1), (c)(2), or (c)(3) of this Rule.  The rates for these facilities shall remain at the level approved in the rate appeal proceeding adjusted only for inflation, as reflected in Paragraph (k) of this Rule.

(d)  For facilities certified after June 30, 1993, rates developed from filed cost reports for fiscal years subsequent to 1993 shall be retroactively adjusted if there is found to exist more than a two percent difference between the filed per diem cost and either the desk audited or field audited per diem cost for the same reporting period.  Rates developed from desk audited cost reports shall be retroactively adjusted if there is found to exist more than a two percent difference between the desk audited per diem cost and the field audited per diem cost for the same reporting period.  The rate adjustment shall be made after written notification to the provider 30 days prior to implementation of the rate adjustment.

(e)  Each prospective rate developed in accordance with Subparagraph (c)(1), (c)(2), or (c)(3) of this Rule consists of the sum of two components as follows:

(1)           Indirect care rate.

(2)           Direct care rate.

(f)  A uniform industry wide indirect care rate shall be established for each facility category shown under Subparagraph (a)(1), (a)(2), or (a)(3) of this Rule.

(1)           The indirect rate for group 1 facilities shall be based on the fiftieth percentile of the following costs incurred by all group 1 facilities with six beds or less, except those related by common ownership or control to more than 40 said facilities:  The sum of the cost of property ownership and use; administrative and general; and operation and maintenance of plant, as determined by the Myers and Stauffer study performed on the 1993 base year cost reports.

(2)           The indirect rate for group 2 facilities shall be based on the fiftieth percentile of the costs noted in Subparagraph (f)(1) of this Rule incurred by the group 2 facilities, as determined by the Myers and Stauffer study performed on the 1993 base year cost reports.

(3)           The indirect rate for group 3 facilities shall be based on the fiftieth percentile of the costs noted in Subparagraph (f)(1) of this Rule incurred by the group 3 facilities, as determined by the Myers and Stauffer study performed on the 1993 base year cost reports.

(4)           The indirect rates established under Subparagraphs (f)(1), (f)(2), and (f)(3) of this Rule shall be reduced as determined based on industry cost analysis by an amount not to exceed four percent to account for expected operating efficiencies.

(g)  The direct care rate for facilities certified prior to July 1, 1993, shall be based on the Myers and Stauffer study performed on the 1993 base year cost reports.

(1)           The direct care rate for all facilities certified during fiscal years subsequent to fiscal year 1993 is based on the first facility specific cost report filed after certification.  Based on said cost report, the direct care rate shall be equal to the sum of all allowable costs reflected in the ICF-MR cost report cost centers, as included in the ICF-MR cost report format effective July 1, 1993, except for the following indirect cost centers:

(A)          Property Ownership and Use

(B)          Operation and Maintenance of Plant and Housekeeping-Non-Labor

(C)          Administrative and General

(2)           The direct care rate shall be limited to the lesser of the actual amount incurred in the base year or the cost limit derived from the fiftieth percentile of direct care costs incurred by the related facility group in the fiscal year 1993 base year, based on the Myers and Stauffer study.

(3)           The fiftieth percentile cost limit shall be reduced by one percent each year, for the four year period beginning July 1, 1996, in order to account for expected operating efficiencies, as determined based on industry cost analysis.

(4)           The fiftieth percentile cost limit shall be increased each year by price level changes calculated in accordance with Paragraph (k) of this Rule.

(h)  The indirect rate shall not be subject to cost settlement.

(1)           Costs above the indirect rate shall not be paid to the provider.

(2)           Costs savings below the indirect rate shall not be recouped from the provider.

(i)  The direct care rate shall be subject to cost settlement, based on the cost report, subject to audit, filed with the Division of Medical Assistance.

(1)           Costs above the direct rate shall not be paid to the provider.

(2)           Cost savings below the direct rate shall be recouped from the provider.

(j)  Facilities with rates established during a rate appeal proceeding with the Division of Medical Assistance during fiscal years 1994 or 1995 may choose to cost settle under the provisions of Paragraphs (h) and (i) of this Rule, or under the following procedure:

(1)           If, during a cost reporting period, total allowable costs are less than total prospective payments, then a provider may retain one-half of said difference, up to an amount of five dollars ($5.00) per patient day.  The balance of unexpended payments shall be refunded to the Division of Medical Assistance.  Costs in excess of a facility's total prospective payment rate are not reimbursable.

(2)           The facilities subject to this Paragraph shall make the election on cost settlement methodology on or before the filing of the annual cost report with the Division of Medical Assistance.

(3)           An election to follow the cost settlement procedures of Paragraphs (h) and (i) of this Rule shall be irrevocable.

(4)           Rates established for these facilities during future rate appeal proceedings shall be subject to the cost settlement procedures of Paragraphs (h) and (i) of this Rule.

(k)  To compute each facility's current prospective rate, the direct and indirect rates established by Paragraphs (f) and (g) of this Rule shall be adjusted for price level changes since the base year.  No inflation factor for any provider shall exceed the maximum amount permitted for that provider by federal or state law and regulations.

(1)           Price level adjustment factors shall be computed using aggregate costs in the following manners:

(A)          Costs shall be separated into three groups:

(i)            Labor;

(ii)           Non-labor;

(iii)          Fixed.

(B)          The relative weight of each cost group shall be calculated to the second decimal point by dividing the total costs of each group (labor, nonlabor, and fixed) by the total cost of the three categories.

(C)          Price level adjustment factors for each cost group shall be established as follows:

(i)            Labor.  The percentage change for labor costs shall be based on the projected average hourly wage of North Carolina service workers.  Salaries for all personnel shall be limited to levels of comparable positions in state owned facilities or levels specified by the Division of Medical Assistance based upon market analysis.

(ii)           Nonlabor.  The percentage change for nonlabor costs shall be based on the projected annual change in the implicit price deflator for the Gross National Product as provided by the North Carolina Office of State Budget and Management.

(iii)          Fixed.  No price level adjustment shall be made for this category.

(D)          The weights computed in Part (k)(1)(B) of this Rule shall be multiplied by the rates computed in Part (k)(1)(C) of this Rule.  These weighted rates shall be added to obtain the composite inflation rate to be applied to both the direct and indirect rates.

(2)           If necessary, the Division of Medical Assistance shall adjust the annual inflation factor or rates in order to prevent payment rates from exceeding upper payment limits established by Federal Regulations.

(l)  Effective July 1, 1995, any rate reductions resulting from this Rule shall be implemented based on the following deferral methodology:

(1)           Rates shall be reduced for the excess of current rates over base year costs plus inflation.

(2)           Rates shall be reduced a maximum of 50 percent of the fiscal 1996 inflation rate for the excess of actual costs over applicable cost limits.  This reduction shall result in the facility receiving at a minimum 50 percent of the 1996 inflation rate.  Any excess reduction shall be carried forward to future years.

(3)           Total reduction in future years related to the excess reduction carried forward from Subparagraph (l)(2) of this Rule, shall not exceed the annual rate of inflation.  This reduction shall result in the facility receiving at a minimum the rate established in Paragraph (l)(2) of this Rule.  Any excess reduction shall be carried forward to future years, until the established rate equals that generated by Paragraphs (f), (g), and (k) of this Rule.

(4)           Rates calculated based on Subparagraphs (l)(2) and (3) of this Rule shall be cost settled based on the provisions of Subparagraph (j)(1) of this Rule until the fiscal year that the facility receives full price level increase under Paragraph (k) of this Rule.

(A)          A provider may make an irrevocable election to cost settle under the provisions of Paragraphs (h) and (i) of this Rule during the deferral period.

(B)          Once the rates calculated based on Subparagraphs (l)(2) and (3) of this Rule reach the fiscal year that the facility receives the full price level increase under Paragraph (k) of this Rule, then said fiscal year's rates shall be cost settled based on Paragraphs (h) and (i) of this Rule.

(C)          Chain providers may file combined cost reports, for cost settlement purposes, for facilities that use the same cost settlement methodology and have the same uniform rate.

(D)          A provider may elect to continue cost settlement under Subparagraph (j)(1) of this Rule after the deferral period expires.  Said election shall be made each year, 30 days prior to the cost report due date.

(m)  The initial rate for facilities that have been awarded a Certificate of Need is established at the lower of the fair and reasonable costs in the provider's budget, as determined by the Division of Medical Assistance, or the projected costs in the provider's Certificate of Need application, adjusted from the projected opening date in the Certificate of Need application to the current rate period in which the facility is certified based on the price level change methodology set forth in Paragraph (k) of this Rule, or the rate currently paid to the owning provider, if the provider currently has an approved chain rate for facilities in the related facility category.  The rate may be rebased to the actual cost incurred in the first full year of normal operations in the year an audit of the first year of normal operation is completed.

(1)           In the event of a change in ownership, the new owner shall receive no more than the rate of payment assigned to the previous owner.

(2)           Except in cases wherein the provider has failed to file supporting information as requested by the Division of Medical Assistance, initial rates shall be granted to new enrolled facilities no later than 60 days from the provider's filing of budgets and supporting information.

(3)           The initial rate for a new facility shall be applicable to all dates of service commencing with the date the facility is certified by the Medicaid Program.

(4)           The initial rate for a new facility shall not be entered into the Medicaid payment system until the facility is enrolled in the Medicaid program and a Medicaid identification number has been assigned to the facility by the Division of Medical Assistance.

(n)  A provider with more than one facility shall recover costs through a combined uniform rate for all facilities.

(1)           Combined uniform rates for chain providers shall be approved upon written request from the provider and after review by the Division of Medical Assistance.

(2)           In determining a combined uniform rate for a particular facility group, the weighted average of each facility's rate, calculated in accordance to all other provisions of this Rule, shall be used.

(3)           A chain provider with facility(s) that fall under Paragraphs (h) and (i) of this Rule and with facility(s) that fall under Subparagraph (l)(4) of this Rule may elect to include the facilities in a combined cost report and elect to cost settle under either Paragraphs (h) and (i) or Subparagraph (l)(4) of this Rule.  The cost settlement election shall be made each year, 30 days prior to the cost report due date.

(o)  Each out-of-state provider shall be reimbursed at the lower of the applicable North Carolina rate, as established by this Rule for in-state facilities, or the provider's per diem rate as established by the state in which the provider is located.  An out-of-state provider is defined as a provider that is enrolled in the Medicaid program of another state and provides ICF-MR services to a North Carolina Medicaid client in a facility located in the state of enrollment.  Rates for out-of-state providers are not subject to cost settlement.

(p)  Under no circumstances shall the Medicaid per diem rate exceed the private pay rate of a facility.

(q)  Should the Division of Medical Assistance be unable to establish a rate for a facility, based on this Rule and the applicable facts known, the Division of Medical Assistance shall approve an interim rate.

(1)           The interim rate shall not exceed the rate cap established under this Rule for the applicable facility group.

(2)           The interim rate shall be replaced by a permanent rate, effective retroactive to the commencement of the interim rate, by the Division of Medical Assistance, upon the determination of said rate based on this Rule and the applicable facts.

(3)           The provider shall repay to the Division of Medical Assistance any overpayment resulting from the interim rate exceeding the subsequent permanent rate.

(r)  In addition to the prospective per diem rate developed under this Rule, effective July 1, 1992, an interim payment add on shall be applied to the total rate to cover the estimated cost required in accordance with 42 C.F.R. 447, Subpart C.  The interim rate shall be subject to final settlement reconciliation with reasonable cost to meet the requirements of Rule 1910.1030.  The final settlement reconciliation shall be effectuated during the annual cost report settlement process.  An interim rate add on to the prospective rate shall be allowed, subject to final settlement reconciliation, in subsequent rate periods until cost history is available to include the cost of meeting the requirements of Rule 1910.1030 in the prospective rate.  This interim add on shall be removed, upon 10 days written notice to providers, should it be determined by appropriate authorities that the requirements under Title 29, Part 1910, Subpart 2, Rule 1910.1030 of the Code of Federal Regulations do not apply to ICF-MR facilities.

(s)  All rates, except those noted otherwise in this Rule, approved under this Rule are considered to be permanent.

(t)  In the event that the rate for a facility cannot be developed so that it shall be effective on the first day of the rate period, due to the provider not submitting the required reports by the due date, the average rate for facilities in the same facility group, or the facility's current rate, whichever is lower, shall be in effect until such time as the Division of Medical Assistance can develop a new rate.

(u)  When the Division of Medical Assistance develops a new rate for a facility for which a rate was paid in accordance with Paragraph (t) of this Rule, the rate developed shall be effective on the first day of the second month following the receipt by the Division of Medical Assistance of the required reports.  The Division of Medical Assistance shall upon its own motion or upon application and cause related to patient care shown by the provider, within 60 days subsequent to submission of the delinquent report, make the rate retroactive to the beginning of the rate period in question.  Any overpayment to the provider resulting from this temporary rate being greater than the final approved prospective rate for the facility shall be repaid to the Medicaid Program.

(v)  ICF-MR facilities meeting the requirements of the North Carolina Division of Health Service Regulation as a facility affiliated with one or more of the four medical schools in the state and providing services on a statewide basis to children with various developmental disabilities who are in need of long-term high acuity nursing care, dependent upon high technology machines (i.e. ventilators and other supportive breathing apparatus) monitors, and feeding techniques shall have a prospective payment rate that approximates cost of care.  The payment rate may be reviewed periodically, no more than quarterly, to assure proper payment.  A cost settlement at the completion of the fiscal period year end is required.  Payments in excess of cost shall be returned to the Division of Medical Assistance.

(w)  A special payment in addition to the prospective rate shall be made in the year that any provider changes from the cash basis to the accrual basis of accounting for vacation leave costs.  The amount of this payment shall be determined in accordance with Title XVIII allowable cost principles and shall equal the Medicaid share of the vacation accrual that is charged in the year of the change including the cost of vacation leave earned for that year and all previous years less vacation leave used or expended over the same time period and vacation leave accrued prior to the date of certification.  The payment shall be made as a lump sum payment that represents the total amount due for the entire fiscal year.  An interim payment may be made based on an estimate of the cost of the vacation accrual.  The payment shall be adjusted to actual cost after audit.

(x)  The annual prospective rate, effective beginning each July 1, for facilities that commenced operations under the Medicaid Program subsequent to the base year used to establish rates, and therefore did not file a cost report for the base year, shall be based on the facility's initial rate, established in accordance with Paragraph (m) of this Rule, and the applicable price level changes, in accordance with Paragraph (l) of this Rule.

(y)  Effective for fiscal years beginning on or after fiscal year 1998, installation cost of Fire Sprinkler Systems in an ICF-MR Facility shall be reimbursed in the following manner.

(1)           Upon receipt of the documentation listed in Parts (A) through (E) of this Subparagraph, the Division of Medical Assistance shall reimburse directly to the provider 90 percent of the verified cost.

(A)          All related invoices.

(B)          Verification from the Division of Health Service Regulation that the Sprinkler System is needed to maintain certification for participation in the Medicaid program.

(C)          Statement from appropriate authorities that the Sprinkler System has been installed.  Examples of appropriate authorities for this purpose would include local building inspectors, fire/safety inspectors, insurance company inspectors, or the construction section of the Division of Health Service Regulation.

(D)          Three bids to install the system.

(E)           Prior approval from the Division of Medical Assistance for any installation projected to cost more than twenty-five thousand dollars ($25,000).  Prior approval shall be granted based upon determination by the Division of Medical Assistance that the cost is reasonable considering the specifics of the installation.  The burden to provide adequate documentation that the cost is reasonable is the responsibility of the provider.

(2)           The unreimbursed installation cost shall be reimbursed after audit through the annual Cost Settlement Process.  This portion shall be offset by profits, after taking into consideration any indirect profits and direct losses. Any overpayments determined after audit shall be returned to the program by the provider through the annual cost settlement process.

(3)           The installation of the Sprinkler System is subject to Prudent Buyer Standards contained in the HCFA-15.

(4)           The Sprinkler system's installation costs shall be recorded on the provider's ICF-MR Cost Report.

 

History Note:        Authority G.S. 108A-25(b); 108A-54; 108A-55; 42 C.F.R. Part 447, Subpart C;

Eff. December 1, 1984;

Amended Eff. March 1, 1988; January 1, 1987;

Temporary Amendment Eff. July 8, 1993 for a period of 180 days or until the permanent rule becomes effective, whichever is sooner;

Amended Eff. August 1, 1995; November 1, 1993;

Temporary Amendment Eff. September 8, 1999; August 7, 1998;

Amended Eff. March 19, 2001; August 1, 2000;

Temporary Amendment Eff. December 10, 2001;

Temporary Amendment Expired September 29, 2002;

Amended Eff. August 1, 2004.