Tenn. Comp. R. & Regs. 1200-13-09-.08 - PROSPECTIVE PAYMENT METHODOLOGY

(1) Except as provided by other provisions of this chapter, each hospital's reimbursable inpatient costs will be determined in accordance with Medicare Title XVIII principles from a base year cost reporting period, as defined by Rule 1200-13-9-.01(8). Costs will be separated into an operating component (defined by Rule 1200-13-9-.01(5) ) and a pass-through component (defined by Rule 1200-13-9-.01(6). A trending factor (defined by Rule 1200-13-9-.08(3) ) will be applied to the operating component only. The prospective rate will consist of the trended operating component. Tennessee Medicaid costs will be determined by a computed utilization ratio (defined by Rule 1200-13-9-.01(3) ) from HCFA Form 2552 which must be submitted by the provider. The prospective payment (operating costs) will be made as a rate per inpatient day. On and after July 1, 1988, in psychiatric hospitals and institutions for mental disease, which dates apply without regard to the date upon which the provider's fiscal year may end, the pass-through component will not be a part of the per diem rate, but will, instead, be paid in lump sum amounts on a monthly basis.
(2) Pass Through Component
(a) For inpatient services in psychiatric facilities on or after July 1, 1988, irrespective of provider fiscal year end, the reimbursable per diem rate will consist of only the operating component. The remaining components: capital, direct medical education, and return on equity will be paid in a lump sum amount. Capital, direct medical education, and return on equity costs will be estimated from each provider's most recent cost report on file as of 4:30 p.m. C.D.T., Monday, June 30, 1988. The estimates will be used to compute a lump sum amount for capital, direct medical education, and return on equity. Payments will be made monthly starting July 1, 1988. Each provider's subsequent cost report will be used to adjust the capital, direct medical education, and return on equity for the subsequent fiscal year. This adjustment shall be effective on the first day of the next month, one month subsequent to the date of receipt of the provider's cost report. Capital, direct medical education, and return on equity costs will be subject to year end cost settlement for inpatient psychiatric services on and after July 1, 1988. Upon the effective date of these rules, the Services Tax will be an allowable cost included in the pass-through component.
(b) Additional costs due to revalued assets will be recognized only when an existing provider is purchased by another provider in a bona fide sale (arms length transaction). The new value for reimbursement purposes shall be the lesser of (1) the purchase price of the asset at the time of the sale, (2) the fair market value of the asset at the time of the sale (as determined by an MAI appraisal), (3) current reproduction cost of the asset depreciated on a straight line basis over its useful life to the time of the sale, or (4) for facilities undergoing a change of ownership on or after July 18, 1984, the acquisition cost to the first owner of record on or after July 18, 1984. The purchaser has the burden of proving that the transaction is a bona fide sale should the issue arise. Gains realized from the disposal of depreciable assets while a provider is participating in the program are to be a deduction from allowable capital costs.
(c) The payment of return on equity (for Proprietary providers only) will be determined by Medicare principles of cost reimbursement, 42 CFR Part 405, in effect on August 1, 1983 providing that, effective April 20, 1983, return on equity shall be adjusted to reflect 100% of the average rate of interest on obligations issued for purchase by the Federal Hospital Insurance Trust Fund.
1. The return on equity for acute care and psychiatric proprietary provider will be reduced as follows: for cost reporting periods beginning after September 1986, payment will be 75% of the current amount; 50 % of the current amount for reporting periods beginning after September 1987; 25 % of the current amount for reporting periods beginning after September 1988; and zero thereafter.
(d) Beginning with fiscal years beginning July 1, 1987 and later, capital costs will be reduced by 3.5% for dates of service July 1, 1987 through September 30, 1987, by 7 % for dates of service October 1, 1987 through December 31, 1987, by 12% for dates of service January 1, 1988 through September 30, 1988 and by 15% for dates of service October 1, 1988 through September 30, 1989, by 0% for dates of service October 1, 1989 through December 31, 1989, and by 15 % for dates of service January 1, 1990 and later. Reduction will be figured into year end final settlements. Hospitals designated as Sole Community Hospitals are exempt from percentage reductions in capital costs. Upon the effective date of these rules, hospitals will be reimbursed 100% of their capital costs.
(3) Operating Component - Each facility's initial prospective rate shall also include an operating component which is computed from the base year cost report. In base years all providers including providers that are within the first three years of operation will be subject to the routine per diem cost limitations for prospective rate purposes. The routine per diem limitations for these purposes will be set in the same manner as those used for acute care hospitals. All new providers may have their prospective rate adjusted at the end of the first five year period. The operating component will be trended forward each year. The trending period shall be from the midpoint of each hospital's base year to the midpoint of the hospital's first cost reporting period subject to prospective payment. Trending to the new rebased year (1988 cost reports or if not available the prior cost report) will be computed by utilizing the indexing rate recommended by the Prospective Payment Assessment Commission, applied from the end of the hospital's fiscal year to October 1, 1989.

Thereafter, the treading index shall be that rate of increase on prospective payments as recommended by the Prospective Payment Assessment Commission and as published in the Tennessee Administrative Register. The trending indexes above shall be applied from October 1, 1989, to the midpoint of the state's fiscal year, no earlier than December 31, 1990, and shall be effective the first of the state's fiscal year, no earlier than July 1, 1990. When necessary, indexes will be prorated to correspond to the provider's year end. Each provider will be notified of their new operating rate due to indexing within 30 days of the beginning of the state's fiscal year.

Medical malpractice insurance reimbursement will be limited to 7.5% of allowable malpractice insurance premiums for prospective rate purposes.

Education costs are considered as a part of the operating component, when educational services are an integral part of a recipients acute inpatient psychiatric care involving active treatment, pursuant to an individual plan of care developed by an inter-disciplinary treatment, and ordered by the recipient's attending physician.

Notes

Tenn. Comp. R. & Regs. 1200-13-09-.08
Original rule filed June 2, 1988; effective July 17, 1988. Amendment filed August 8. 1990, effective September 22, 1990. Amendment filed September 25, 1992, effective November 9, 1992. Amendment filed November 17, 1983; effective January 31, 1994.

Authority: T.C.A. ยงยง 4-5-202, 12-4-301, 71-5-105 and 71-5-109; Public Chapter 913 of the Acts of 1992.

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