RELATES TO: KRS 13B.140, 142.303, 205.510(16), 205.565, 205.637, 205.638, 205.639, 205.640, 216.380, 42 C.F.R. Parts 412, 413, 440.10, 440.140, 447.250-447.280, 42 U.S.C. 1395f(l), 1395ww(d)(5)(F), 1395x(mm), 1396a, 1396b, 1396d, 1396r-4
NECESSITY, FUNCTION, AND CONFORMITY: The Cabinet for Health and Family Services, Department for Medicaid Services has responsibility to administer the Medicaid Program. KRS 205.520(3) authorizes the cabinet, by administrative regulation, to comply with a requirement that may be imposed, or opportunity presented, by federal law for the provision of medical assistance to Kentucky's indigent citizenry. This administrative regulation establishes the Department for Medicaid Services' reimbursement provisions and requirements for acute care inpatient hospital services provided to a Medicaid recipient who is not enrolled with a managed care organization.
Section 1. Definitions. (1) "Acute care hospital" is defined by KRS 205.639(1).(2) "Appalachian Regional Hospital System" means a private, not-for-profit hospital chain operating in a Kentucky county that receives coal severance tax proceeds.(3) "Capital cost" means capital related expenses including insurance, taxes, interest, and depreciation related to plant and equipment.(4) "CMS" means the Centers for Medicare and Medicaid Services.(5) "CMS IPPS Pricer Program" means the software program published on the CMS Web site of http://www.cms.hhs.gov, which shows the Medicare rate components and payment rates under the Medicare inpatient prospective payment system for a discharge within a given federal fiscal year.(6) "Cost outlier" means a claim for which estimated cost exceeds the outlier threshold.(7) "Critical access hospital" or "CAH" means a hospital:(a) Meeting the licensure requirements established in 906 KAR 1:110; and(b) Designated as a critical access hospital by the department.(8) "Department" means the Department for Medicaid Services or its designated agent.(9) "Diagnosis code" means a code:(a) Maintained by the Centers for Medicare and Medicaid Services (CMS) to group and identify a disease, disorder, symptom, or medical sign; and(b) Used to measure morbidity and mortality.(10) "Diagnosis related group" or "DRG" means a clinically similar grouping of services that can be expected to consume similar amounts of hospital resources.(11) "Distinct part unit" means a separate unit within an acute care hospital that meets the qualifications established in 42 C.F.R. 412.25 and is designated as a distinct part unit by the department.(12) "DRG base payment" means the sum of the operating base payment and capital base payment, calculated as described in Section 2(4)(b) and (c) of this administrative regulation.(13) "DRG geometric mean length-of-stay" means an average hospital length-of-stay, expressed in days, for each DRG, with the geometric mean calculated by taking the nth (number of values in the set) root of the product of all length-of-stay values within a given DRG.(14) "Enrollee" means a recipient who is enrolled with a managed care organization.(15) "Enrollee day" means a day of an inpatient hospital stay of a Medicaid recipient who is enrolled with a managed care organization.(16) "Federal financial participation" is defined by 42 C.F.R. 400.203.(17) "Fixed loss cost threshold" means an amount, established annually by CMS, which is combined with the full DRG payment or transfer payment for each DRG to determine the outlier threshold.(18) "Government entity" means an entity that qualifies as a unit of government for the purposes of 42 U.S.C. 1396b(w)(6)(A).(19) "Graduate medical education program" means a Medicare-approved education and training program for interns and residents in medicine, osteopathy, dentistry, or podiatry.(20) "Hospital-acquired condition" means a condition: (a)1. Associated with a diagnosis code selected by the Secretary of the U.S. Department of Health and Human Services pursuant to 42 U.S.C. 1395ww(d)(4)(D); and2. Not present upon the recipient's admission to the hospital; and(b) That is recognized by the Centers for Medicare and Medicaid Services as a hospital acquired condition.(21) "Indirect medical education costs" means additional costs of serving Medicaid recipients, incurred by teaching hospitals, to provide training and education to interns and residents in graduate medical education programs, which are not reimbursed through direct graduate medical education payments.(22) "Long-term acute care hospital" means a long term care hospital that meets the requirements established in 42 C.F.R. 412.23(e).(23) "Managed care organization" means an entity for which the Department for Medicaid Services has contracted to serve as a managed care organization as defined by 42 C.F.R. 438.2.(24) "Medicaid fee-for-service" means a service associated with a Medicaid recipient who is not enrolled with a managed care organization.(25) "Medicaid fee-for-service covered day" means an inpatient hospital day associated with a Medicaid recipient who is not enrolled with a managed care organization.(26) "Medicaid shortfall" means the difference between a provider's allowable cost of providing services to Medicaid recipients and the amount received in accordance with the payment provisions established in Section 2 of this administrative regulation.(27) "Medically necessary" or "medical necessity" means that a covered benefit shall be provided in accordance with 907 KAR 3:130.(28) "Medicare-dependent hospital" means a hospital designated as a Medicare dependent hospital by the Centers for Medicare and Medicaid Services.(29) "Medicare IPPS Final Rule Data Files and Tables" means information related to Medicare hospital reimbursement that is: (a) Published annually by the Centers for Medicare and Medicaid Services; and(30) "Medicare operating and capital cost-to-charge ratios" means two (2) hospital-specific calculations: (a) Completed by Medicare using CMS 2552 cost report information;(b) In which: 1. Medicare operating costs are divided by total applicable charges to determine a Medicare operating cost-to-charge ratio; and2. Medicare capital costs are divided by total applicable charges to determine a Medicare capital cost-to-charge ratio; and(c) That are published annually by CMS in an impact file released with the Medicare IPPS Final Rule Data Files and Tables for a given federal fiscal year.(31) "Never event" means: (a) A procedure, service, or hospitalization not reimbursable by Medicare pursuant to CMS Manual System Pub 100-03 Medicare National Coverage Determinations Transmittal 101; or(b) A hospital-acquired condition.(32) "Outlier threshold" means the sum of the DRG base payment or transfer payment and the fixed loss cost threshold.(33) "Pediatric teaching hospital" is defined by KRS 205.565(1).(34) "Per diem rate" means the per diem rate paid by the department for:(a) Inpatient care in an in-state psychiatric or rehabilitation hospital;(b) Inpatient care in a long-term acute care hospital;(c) Inpatient care in a critical access hospital;(d) Psychiatric, substance use disorder, or rehabilitation services in an in-state acute care hospital which has a distinct part unit; or(e) A psychiatric or rehabilitation service in an in-state acute care hospital.(35) "Psychiatric hospital" means a hospital that meets the licensure requirements as established in 902 KAR 20:180.(36) "Quality improvement organization" or "QIO" means an organization that complies with 42 C.F.R. 475.101.(37) "Rehabilitation hospital" means a hospital meeting the licensure requirements as established in 902 KAR 20:240.(38) "Relative weight" means the factor assigned to each Medicare DRG classification that represents the average resources required for a Medicare DRG classification paid under the DRG methodology relative to the average resources required for all DRG discharges paid under the DRG methodology for the same period.(39) "Resident" means an individual living in Kentucky who is not receiving public assistance in another state.(40) "Rural hospital" means a hospital located in a rural area pursuant to 42 C.F.R. 412.64(b)(1)(ii)(C).(41) "Sole community hospital" means a hospital that is currently designated as a sole community hospital by the Centers for Medicare and Medicaid Services.(42) "State university" means the University of Kentucky or the University of Louisville.(43) "State university teaching hospital" means a hospital that is owned or operated by a state university, or a state university-related party organization, as allowed by 42 C.F.R. 413.17, with a state university affiliated graduate medical education program.(44) "Transfer payment" means a payment made for a recipient who is transferred to or from another hospital for a service reimbursed on a prospective discharge basis.(45) "Universal rate year" means the twelve (12) month period under the prospective payment system, beginning October 1 of each year, for which a payment rate is established for a hospital regardless of the hospital's fiscal year end.(46) "Urban hospital" means a hospital located in an urban area pursuant to 42 C.F.R. 412.64(b)(1)(ii).(47) "Urban trauma center hospital" means an acute care hospital that:(a) Is designated as a Level I Trauma Center by the American College of Surgeons;(b) Has a Medicaid utilization rate greater than twenty-five (25) percent; and(c) Has at least fifty (50) percent of its Medicaid population as residents of the county in which the hospital is located.Section 2. Payment for an Inpatient Acute Care Service in an In-state Acute Care Hospital.(1)(a) The department shall reimburse an in-state acute care hospital for an inpatient acute care service, except for a service not covered pursuant to 907 KAR 10:012, on a fully-prospective per discharge basis.(b) The department's reimbursement pursuant to this administrative regulation shall approximate ninety-five (95) percent of a hospital's Medicare reimbursement excluding the following Medicare reimbursement components: 1. A Medicare low-volume hospital payment;2. A Medicare end stage renal disease payment;3. A Medicare new technology add-on payment;4. A Medicare routine pass-through payment;5. A Medicare ancillary pass-through payment;6. A Medicare value-based purchasing payment or penalty;7. A Medicare readmission penalty in accordance with paragraph (c) of this subsection;8. A Medicare hospital-acquired condition penalty in accordance with paragraph (c) of this subsection;9. Any type of Medicare payment implemented by Medicare after October 1, 2015; or10. Any type of Medicare payment not described in this administrative regulation.(c) The department's: 1. Never event and hospital-acquired condition provisions established in Section 3 of this administrative regulation shall apply to acute care inpatient hospital reimbursement under this administrative regulation; and2. Readmission provisions established in Section 12 of this administrative regulation shall apply to acute care inpatient hospital reimbursement under this administrative regulation.(2)(a) For an inpatient acute care service, except for a service not covered pursuant to 907 KAR 10:012, in an in-state acute care hospital, the total hospital-specific per discharge payment shall be the sum of: 1. A DRG base payment; and2. If applicable, a cost outlier payment.(b) The resulting payment shall be limited to ninety-five (95) percent of the calculated value.(c) If applicable, a transplant acquisition fee payment shall be added pursuant to subsection (11)(b) of this section.(3)(a) The department shall assign a DRG classification to each unique discharge billed by an acute care hospital.(b)1. The DRG assignment shall be based on the most recent Medicare Severity DRG (MS-DRG) grouping software released by the Centers for Medicare and Medicaid Services beginning with version 32 on October 1, 2015 unless CMS releases version 33 on October 1, 2015.2. If CMS releases version 33 on October 1, 2015, the department shall make interim payments for dates of service beginning October 1, 2015 based on version 32 and then retroactively adjust claims for dates of service beginning October 1, 2015 using version 33.3. The grouper version shall be updated in accordance with Section 8 of this administrative regulation.(c) In assigning a DRG for a claim, the department shall exclude from consideration any secondary diagnosis code associated with a never event.(4)(a) A DRG base payment shall be the sum of the operating base payment and the capital base payment calculated as described in paragraphs (c) and (d) of this subsection.(b) All calculations in this subsection shall be subject to special rate-setting provisions for sole community hospitals and Medicare dependent hospitals as described in Sections 5 and 6 of this administrative regulation.(c)1. The operating base payment shall be determined by multiplying the hospital-specific operating rate by the DRG relative weight.2. If applicable, the resulting product of subparagraph 1. of this paragraph shall be multiplied by the sum of one (1) and a hospital-specific operating indirect medical education (IME) factor determined in accordance with subparagraph 7. of this paragraph.3. Beginning October 1, 2015, the hospital-specific operating rate referenced in subparagraph 1. of this paragraph shall be calculated using inputs from the Federal Fiscal Year 2016 Medicare IPPS Final Rule Data Files and Tables published by CMS as described in subparagraphs 4. through 6. of this paragraph.4. The Medicare IPPS standard amount established for operating labor costs shall be multiplied by the wage index associated with the final Core Based Statistical Area (CBSA) assigned to the hospital by Medicare, inclusive of any Section 505 adjustments applied by Medicare.5. The resulting product of subparagraph 4. of this paragraph shall be added to the Medicare IPPS standard amount for non-labor operating costs.6. The operating rate shall be updated in accordance with Section 8 of this administrative regulation.7.a. Beginning October 1, 2015, the hospital-specific operating IME factor shall be taken from the Federal Fiscal Year 2016 Medicare Inpatient Prospective Payment System (IPPS) Final Rule Data Files and Tables published by CMS.b. The operating IME factor shall be updated in accordance with Section 8 of this administrative regulation. (d)1. The capital base payment shall be determined by multiplying the hospital-specific capital rate by the DRG relative weight.2. If applicable, the resulting product of subparagraph 1. of this paragraph shall be multiplied by the sum of one (1) and a hospital-specific capital indirect medical education factor determined in accordance with subparagraph 6. of this paragraph.3. Beginning October 1, 2015, the hospital-specific capital rate referenced in subparagraph 1. of this paragraph shall be calculated using inputs from the Federal Fiscal Year 2016 Medicare IPPS Final Rule Data Files and Tables published by CMS as described in subparagraphs 4. and 5. of this paragraph.4. The Medicare IPPS standard amount established for capital costs shall be multiplied by the geographic adjustment factor (GAF) associated with the final CBSA assigned to the hospital by Medicare.5. The capital rate shall be updated in accordance with Section 8 of this administrative regulation.6.a. Beginning October 1, 2015, the hospital-specific capital IME factor shall be taken from the Medicare Inpatient Prospective Payment System (IPPS) Final Rule Data Files and Tables published by CMS.b. The capital IME factor shall be updated in accordance with Section 8 of this administrative regulation.(e)1. Effective beginning May 10, 2019 pursuant to federal approval, the department shall make an annual IME payment to state university teaching hospitals, in addition to the adjustments specified in paragraphs (c)2. and (d)2. of this subsection, equal to:a. The total of all operating base payments, as determined under paragraph (c)1. of this subsection, received by the hospital during the previous year multiplied by the sum of one (1) and the adjusted hospital-specific education (IME) factor determined in accordance with subparagraph 2. of this paragraph; plusb. The total of all capital base payments, as determined under paragraph (d)1. of this subsection, received by the hospital during the previous year multiplied by the sum of one (1) and the adjusted hospital-specific education (IME) factor determined in accordance with subparagraph 2. of this paragraph; plusc. The total of all inpatient operating and capital base hospital payments received from managed care organizations in the previous year multiplied by the sum of one (1) and the adjusted hospital-specific education (IME) factor determined in accordance with subparagraph 2. of this paragraph; minusd. The amount of IME adjustments to the operating base rate received during the previous year pursuant to paragraph (c)2. of this subsection; minuse. The amount of IME adjustments to the capital base rate received during the previous year pursuant to paragraph (d)2. of this subsection; minusf. The amount of IME adjustments received from managed care organizations during the previous year.2. The adjusted hospital-specific operating IME factor shall be calculated pursuant to 42 C.F.R. 412.105(d); however, the count of full-time equivalent (FTE) residents in the resident-to-bed ratio in the formula described within 42 C.F.R. 412.105(d) shall be substituted with the number of FTE residents reported on Worksheet E Part A, Lines 10 and 11, Column 1 of the Medicare cost report.(5)(a) The department shall make a cost outlier payment for an approved discharge meeting the Medicaid criteria for a cost outlier for each DRG as established in paragraphs (b) to (e) of this subsection.(b) A cost outlier shall be subject to QIO review and approval.(c) A discharge shall qualify for a cost outlier payment if its estimated cost exceeds the DRG's outlier threshold.(d)1. The department shall calculate the estimated cost of a discharge: a. For purposes of comparing the discharge cost to the outlier threshold; andb. By multiplying the sum of the hospital-specific Medicare operating and capital-related cost-to-charge ratios by the Medicaid allowed charges.2.a. A Medicare operating and capital-related cost-to-charge ratio shall be extracted from the Federal Fiscal Year 2016 Medicare IPPS Final Rule Data Files and Tables published by CMS.b. The Medicare operating and capital cost-to-charge ratios shall be updated in accordance with Section 8 of this administrative regulation.(e)1. The department shall calculate an outlier threshold as the sum of a hospital's DRG base payment or transfer payment and the fixed loss cost threshold.2.a. Beginning October 1, 2015, the fixed loss cost threshold shall equal the Medicare fixed loss cost threshold established for Federal Fiscal Year 2016.b. The fixed loss cost threshold shall be updated in accordance with Section 8 of this administrative regulation.(f)1. For specialized burn DRGs as established by Medicare, a cost outlier payment shall equal ninety (90) percent of the amount by which estimated costs exceed a discharge's outlier threshold.2. For all other DRGs, a cost outlier payment shall equal eighty (80) percent of the amount by which estimated costs exceed a discharge's outlier threshold.(6)(a) The department shall establish DRG relative weights obtained from the Medicare IPPS Final Rule Data Files and Tables corresponding to the grouper version in effect under subsection (3) of this section.(b) Relative weights shall be revised to match the grouping software version for updates in accordance with Section 8 of this administrative regulation.(7) The department shall separately reimburse for a mother's stay and a newborn's stay based on the DRGs assigned to the mother's stay and the newborn's stay.(8)(a) If a patient is transferred to or from another hospital, the department shall make a transfer payment to the transferring hospital if the initial admission and the transfer are determined to be medically necessary.(b) For a service reimbursed on a prospective discharge basis, the department shall calculate the transfer payment amount based on the average daily rate of the transferring hospital's payment for each covered day the patient remains in that hospital, plus one (1) day, up to 100 percent of the allowable per discharge reimbursement amount.(c)1. The department shall calculate an average daily discharge rate by dividing the DRG base payment by the Medicare geometric mean length-of-stay for a patient's DRG classification.2. The Medicare geometric length-of-stay shall be obtained from the Medicare IPPS Final Rule Data Files and Tables corresponding to the grouper version in effect under subsection (3) of this section.3. The geometric length-of-stay values shall be revised to match the grouping software version for updates in accordance with Section 8 of this administrative regulation.(d) Total reimbursement to the transferring hospital shall be the transfer payment amount and, if applicable, a cost outlier payment amount, limited to ninety-five (95) percent of the amount calculated for each.(e) For a hospital receiving a transferred patient, the department shall reimburse the standard DRG payment established in subsection (2) of this section.(9)(a) The department shall reimburse a transferring hospital for a transfer from an acute care hospital to a qualifying post-acute care facility for selected DRGs in accordance with paragraphs (b) through (d) of this subsection as a post-acute care transfer.(b) The following shall qualify as a post-acute care setting:1. A skilled nursing facility;2. A cancer or children's hospital;4. A rehabilitation hospital or rehabilitation distinct part unit located within an acute care hospital;5. A long-term acute care hospital;6. A psychiatric hospital or psychiatric distinct part unit located within an acute care hospital; or(c) A DRG eligible for a post-acute care transfer payment shall be in accordance with 42 U.S.C. 1395ww(d)(5)(J).(d)1. The department shall pay each transferring hospital an average daily rate for each day of a stay.2. A transfer-related payment shall not exceed the full DRG payment that would have been made if the patient had been discharged without being transferred.3. A DRG identified by CMS as being eligible for special payment shall receive fifty (50) percent of the full DRG payment plus the average daily rate for the first day of the stay and fifty (50) percent of the average daily rate for the remaining days of the stay up to the full DRG base payment.4. A DRG that is referenced in paragraph (b) of this subsection and not referenced in subparagraph 2. of this paragraph shall receive twice the average daily rate for the first day of the stay and the average daily rate for each following day of the stay prior to the transfer.5. Total reimbursement to the transferring hospital shall be the transfer payment amount and, if applicable, a cost outlier payment amount, limited to ninety-five (95) percent of the amount calculated for each.(e)1. The average daily rate shall be the base DRG payment allowed divided by the Medicare geometric mean length-of-stay for a patient's DRG classification.2. The Medicare geometric mean length-of-stay shall be determined and updated in accordance with subsection (8)(c) of this section.(10) The department shall reimburse a receiving hospital for a transfer to a rehabilitation or psychiatric distinct part unit the facility-specific distinct part unit per diem rate, in accordance with 907 KAR 10:815, for each day the patient remains in the distinct part unit.(11)(a) The department shall reimburse for an organ transplant on a prospective per discharge method according to the recipient's DRG classification.(b)1. The department's organ transplant reimbursement shall include an interim reimbursement followed by a final reimbursement.2. The final reimbursement shall:a. Include a cost settlement process based on the Medicare 2552 cost report form; andb. Be designed to reimburse hospitals for ninety-five (95) percent of organ acquisition costs.3.a. An interim organ acquisition payment shall be made using a fixed-rate add-on to the standard DRG payment using the rates established in subclauses (i), (ii), (iii), (iv), and (v) of this clause:(i) Kidney Acquisition - $65,000;(ii) Liver Acquisition - $55,000;(iii) Heart Acquisition - $70,000;(iv) Lung Acquisition - $65,000; or(v) Pancreas Acquisition - $40,000.b. Upon receipt of a hospital's as-filed Medicare cost report, the department shall calculate a tentative settlement at ninety-five (95) percent of costs for organ acquisition costs utilizing worksheet D-4 of the CMS 2552 cost report for each organ specified in clause a. of this subparagraph.c. Upon receipt of a hospital's finalized Medicare cost report, the department shall calculate a final reimbursement, which shall be a cost settlement at ninety-five (95) percent of costs for organ acquisition costs utilizing worksheet D-4 of the CMS 2552 cost report for each organ specified in clause a. of this subparagraph.d. The final cost settlement shall reflect any cost report adjustments made by CMS.Section 3. Never Events. (1) For each diagnosis on a claim, a hospital shall specify on the claim whether the diagnosis was present upon the individual's admission to the hospital.(2) In assigning a DRG for a claim, the department shall exclude from the DRG assignment consideration of any secondary diagnosis code associated with a hospital-acquired condition.(3) A hospital shall not seek payment for treatment for or related to a never event through: (b) The Cabinet for Health and Family Services for a child in the custody of the cabinet; or(c) The Department for Juvenile Justice for a child in the custody of the Department for Juvenile Justice.(4) A recipient, the Cabinet for Health and Family Services, or the Department for Juvenile Justice shall not be liable for treatment for or related to a never event.Section 4. Preadmission Services for an Inpatient Acute Care Service. A preadmission service provided within three (3) calendar days immediately preceding an inpatient admission reimbursable under the prospective per discharge reimbursement methodology shall: (1) Be included with the related inpatient billing and shall not be billed separately as an outpatient service; and(2) Exclude a service furnished by a home health agency, a skilled nursing facility, or hospice, unless it is a diagnostic service related to an inpatient admission or an outpatient maintenance dialysis service.Section 5. Reimbursement for Sole Community Hospitals. An operating rate for sole community hospitals shall be calculated as described in subsections (1) and (2) of this section.(1)(a) For each sole community hospital, the department shall utilize the hospital's hospital-specific (HSP) rate calculated by Medicare.(b) The HSP rate shall be extracted from the Federal Fiscal Year 2016 Medicare IPPS Final Rule Data Files and Tables.(c) Effective October 1, 2016 and for subsequent years on October 1, the HSP rate shall be updated in accordance with Section 8 of this administrative regulation.(2)(a) The department shall compare the rate referenced in subsection (1) of this section with the operating rate calculated in Section 2(4)(c) of this administrative regulation.(b) The higher of the two (2) rates compared in paragraph (a) of this subsection shall be utilized as the operating rate for sole community hospitals.Section 6. Reimbursement for Medicare Dependent Hospitals.(1)(a) For a Medicare-dependent hospital, the department shall utilize the hospital's hospital-specific (HSP) rate calculated by Medicare.(b) The HSP rate shall be extracted from the Federal Fiscal Year 2016 Medicare IPPS Final Rule Data Files and Tables.(c) Effective October 1, 2016 and for subsequent years on October 1, the HSP rate shall be updated in accordance with Section 8 of this administrative regulation.(2)(a) The department shall compare the rate referenced in subsection (1) of this section with the operating rate calculated in Section 2(4)(c) of this administrative regulation.(b) If the Section 2(4)(c) rate is higher, it shall be utilized as the hospital's operating rate for the period.(c)1. If the rate referenced in subsection (1) of this section is higher, the department shall calculate the arithmetic difference between the two (2) rates.2. The difference shall be multiplied by seventy-five (75) percent.3. The resulting product shall be added to the Section 2(4)(c) rate to determine the hospital's operating rate for the period.(d) If CMS terminates the Medicare-dependent hospital program, a hospital that is a Medicare-dependent hospital at the time that CMS terminates the program shall receive operating rates as calculated in Section 2(4)(c) of this administrative regulation.Section 7. Direct Graduate Medical Education Costs at In-state Hospitals with Graduate Medical Education Programs. (1) If federal financial participation for direct graduate medical education (DGME) costs is not provided to the department, the department shall not reimburse eligible in-state hospitals for direct graduate medical education costs.(2) If federal financial participation for direct graduate medical education costs is provided to the department, the department shall provide a base DGME payment to in-state hospitals for the direct costs of a graduate medical education program approved by Medicare as established in this subsection.(a) A base DGME payment shall be made:1. Separately from the per discharge and per diem payment methodologies; and2. On an annual basis corresponding to the hospital's fiscal year.(b) The department shall determine an annual base DGME payment amount for a hospital as established in subparagraphs 1. through 4. of this paragraph.1. Total direct graduate medical education costs shall be obtained from a facility's as-filed CMS 2552 cost report, worksheet E-4, line 25.2.a. The facility's Medicaid utilization shall be calculated by dividing Medicaid fee-for-service covered days during the cost report period, as reported by the Medicaid Management Information System, by total inpatient hospital days, as reported on worksheet E-4, line 27 of the CMS 2552 cost report.b. The resulting Medicaid utilization factor shall be rounded to six (6) decimals.3. The total graduate medical education costs referenced in subparagraph 1. of this paragraph shall by multiplied by the Medicaid utilization factor calculated in subparagraph 2. of this paragraph to determine the total graduate medical education costs related to the fee-for-service Medicaid program.4. Medicaid program graduate medical education costs shall then be multiplied by ninety-five (95) percent to determine the annual base DGME payment amount.(3) Effective beginning May 10, 2019 pursuant to federal approval, the department shall provide a supplemental direct graduate medical education (supplemental DGME) payment for the direct costs of graduate medical education incurred by eligible in-state hospitals as established in paragraph (a) of this subsection. (a) In-state hospitals eligible for supplemental DGME shall include:1. Those hospitals receiving direct graduate medical education payments from the department as of April 1, 2019; and2. Any hospital that sponsors a graduate medical education program affiliated with a state university on or after April 1, 2019.(b) A supplemental DGME payment shall be made:1. Separately from the per discharge and per diem payment methodologies;2. In addition to any base DGME payment made pursuant to subsection (2) of this section; and3. On an annual basis corresponding to the hospital's fiscal year.(c) The annual supplemental DGME payment shall be calculated by the department by subtracting any base DGME payments made by the department pursuant to subsection (2) of this section, any DGME payments received through outpatient cost settlements, and any DGME payments received from Medicaid managed care organizations from the total DGME amount determined under paragraph (d) of this subsection.(d) The total DGME amount shall equal the product of:1. Total DGME costs, obtained from Worksheet B, Part 1, Line 118, Columns 21 and 22 of the CMS 2552 cost report; and2. The hospital's Medicaid utilization, calculated by dividing the total number of Medicaid inpatient days, including both fee for service and managed care days, by total inpatient days.(e) The supplemental DGME payment shall be calculated prior to the determination of applicable supplemental payments described in Section 14 of this administrative regulation. Only the portion of the supplemental DGME payment associated with Medicaid fee for service days shall count towards the upper payment limit described in Section 18 of this administrative regulation.Section 8. Reimbursement Updating Procedures.(1)(a) The department shall annually update the Medicare grouper software to the most current version used by the Medicare program. The annual update shall be effective October 1 of each year, except as provided in paragraph (b) of this subsection.(b) If Medicare does not release a new grouper version effective October 1 of a given year: 1. The current grouper effective prior to October 1 shall remain in effect until a new grouper is released; and2. When the new grouper is released by Medicare, the department shall update the Medicare grouper software to the most current version used by the Medicare program.(c) The department shall not update the Medicare grouper software more than once per federal fiscal year, which shall be October 1 through September 30 of the following year.(2) At the time of the grouper update referenced in subsection (1) of this section, all DRG relative weights and geometric length-of-stay values shall be updated to match the most recent relative weights and geometric length-of-stay values effective for the Medicare program.(3)(a) Annually, on October 1, all values obtained from the Medicare IPPS Final Rule Data Files and Tables shall be updated to reflect the most current Medicare IPPS final rule in effect.(b)1. Within thirty (30) days after the Centers for Medicare and Medicaid Services publishes the Medicare IPPS Final Rule Data Files and Tables for a given year, the department shall send a notice to each hospital containing the hospital's data from the Medicare IPPS Final Rule Data Files and Tables to be used by the department to establish diagnosis related group rates on October 1.2. The notice referenced in subparagraph 1. of this paragraph shall request that the hospital:a. Review the information; andb. If the hospital discovers that the data in the notice sent by the department does not match the data published by the Centers for Medicare and Medicaid Services, notify the department of the discrepancy prior to October 1.(4) All Medicare IPPS final rule values utilized in this administrative regulation shall be updated to reflect any correction notices issued by CMS, if applicable.(5) Except for an appeal in accordance with Section 22 of this administrative regulation, the department shall make no other adjustment.Section 9. Universal Rate Year.(1) A universal rate year shall be established as October 1 of one (1) year through September 30 of the following year.(2) A hospital shall not be required to change its fiscal year to conform with a universal rate year.Section 10. Cost Reporting Requirements.(1)(a) An in-state hospital participating in the Medicaid Program shall submit to the department, in accordance with the requirements in this section:1. A copy of each Medicare cost report it submits to CMS;2. An electronic cost report file (ECR);3. The Supplemental Medicaid Schedule KMAP-1; and4. The Supplemental Medicaid Schedule KMAP-6.(b) A document listed in paragraph (a) of this subsection shall be submitted:1. For the fiscal year used by the hospital; and2. Within five (5) months after the close of the hospital's fiscal year.(c) Except as provided in subparagraph 1. or 2. of this paragraph, the department shall not grant a cost report submittal extension.1. If an extension has been granted by Medicare, the cost report shall be submitted simultaneously with the submittal of the Medicare cost report.2. If a catastrophic circumstance exists, for example flood, fire, or other equivalent occurrence, the department shall grant a thirty (30) day extension.(2) If a cost report submittal date lapses and no extension has been granted, the department shall immediately suspend all payments to the hospital until a complete cost report is received.(3) A cost report submitted by a hospital to the department shall be subject to audit and review.(4) An in-state hospital shall submit to the department a final Medicare-audited cost report upon completion by the Medicare intermediary along with an electronic cost report file (ECR).Section 11. Unallowable Costs. (1) The following shall not be allowable costs for Medicaid reimbursement:(a) A cost associated with a political contribution;(b) A cost associated with a legal fee for an unsuccessful lawsuit against the Cabinet for Health and Family Services. A legal fee relating to a lawsuit against the Cabinet for Health and Family Services shall only be included as a reimbursable cost in the period in which the suit is settled after a final decision has been made that the lawsuit is successful or if otherwise agreed to by the parties involved or ordered by the court; and(c) A cost for travel and associated expenses outside the Commonwealth of Kentucky for the purpose of a convention, meeting, assembly, conference, or a related activity, subject to the limitations of subparagraphs 1. and 2. of this paragraph. 1. A cost for a training or educational purpose outside the Commonwealth of Kentucky shall be allowable.2. If a meeting is not solely educational, the cost, excluding transportation, shall be allowable if an educational or training component is included.(2) A hospital shall identify an unallowable cost on a Supplemental Medicaid Schedule KMAP-1.(3) A Supplemental Medicaid Schedule KMAP-1 shall be completed and submitted to the department with an annual cost report.Section 12. Readmissions.(1) An unplanned inpatient admission within fourteen (14) calendar days of discharge for the same diagnosis shall be considered a readmission and reviewed by the QIO.(2) Reimbursement for an unplanned readmission with the same diagnosis shall be included in an initial admission payment and shall not be billed separately.Section 13. Reimbursement for Out-of-State Hospitals.(1) The department shall reimburse an acute care out-of-state hospital for inpatient care on a fully prospective per discharge basis except for the following hospitals: (a) A children's hospital located in a Metropolitan Statistical Area as defined by the United States Office of Management and Budget whose boundaries overlap Kentucky and a bordering state; and(b) Vanderbilt Medical Center.(2) For an inpatient acute care service, except for a service not covered pursuant to 907 KAR 10:012, in an out-of-state acute care hospital the total hospital-specific per discharge payment shall be calculated in the same manner as an in-state hospital as described in Section 2(2) of this administrative regulation with modifications to rates used as described in subsections (3) through (7) of this section.(3) The DRG payment parameters listed in this subsection shall be modified for out-of-state hospitals not specifically excluded in subsection (1) of this section. (a) The operating rate used in the calculation of the operating base payment described in Section 2(4)(c)1. of this administrative regulation shall equal the average of all in-state acute care hospital operating rates calculated in accordance with Section 2(4)(c) of this administrative regulation multiplied by eighty (80) percent, excluding any adjustments made for:1. Sole community hospitals pursuant to Section 5 of this administrative regulation; or2. Medicare-dependent hospitals pursuant to Section 6 of this administrative regulation.(b) The capital rate used in the calculation of the capital base payment described in Section 2(4)(c)1. of this administrative regulation shall equal the average of all in-state acute care hospital capital rates calculated in accordance with Section 2(4)(c) of this administrative regulation multiplied by eighty (80) percent.(c) The DRG relative weights used in the calculation of the operating base payment described in Section 2(4)(c)1. of this administrative regulation and the calculation of the capital base payment described in Section 2(4)(c)1. of this administrative regulation shall be reduced by twenty (20) percent.(d) The following provisions shall not be applied: 1. Medicare indirect medical education cost or reimbursement;2. Organ acquisition cost settlements;3. Disproportionate share hospital distributions; and4. Any adjustment mandated for in-state hospitals pursuant to KRS 205.638.(e) The Medicare operating and capital cost-to-charge ratios used to estimate the cost of each discharge, for purposes of comparing the estimated cost of each discharge to the outlier threshold, shall be determined by calculating the arithmetic mean of all in-state cost-to-charge ratios established in accordance with Section 2(5)(d) of this administrative regulation.(4) The department shall reimburse for inpatient acute care provided by an out-of-state children's hospital located in a Metropolitan Statistical Area as defined by the United States Office of Management and Budget and whose boundaries overlap Kentucky and a bordering state, and except for Vanderbilt Medical Center, the average operating rate and average capital rate paid to in-state children's hospitals.(5) The department shall reimburse for inpatient care provided by Vanderbilt Medical Center using the hospital-specific Medicare base rate extracted from the CMS IPPS Pricer Program in effect at the time that the care was provided multiplied by eighty-five (85) percent.(6) The out-of-state hospitals referenced in subsections (4) and (5) of this section shall not be eligible to receive indirect medical education reimbursement, organ acquisition cost settlements, or disproportionate share hospital payments.(7)(a) The department shall reimburse a hospital referenced in subsection (4) or (5) of this section a cost outlier payment for an approved discharge meeting Medicaid criteria for a cost outlier for each Medicare DRG.(b) A cost outlier shall be subject to quality improvement organization review and approval.(c) The department shall determine the cost outlier threshold for an out-of-state claim regarding a hospital referenced in subsection (4) or (5) of this section using the same method used to determine the cost outlier threshold for an in-state claim.Section 14. Supplemental Payments. (1) Payment of a supplemental payment established in this section shall be contingent upon the department's receipt of corresponding federal financial participation.(2) If federal financial participation is not provided to the department for a supplemental payment, the department shall not make the supplemental payment.(3) In accordance with subsections (1) and (2) of this section, the department shall:(a) In addition to a payment based on a rate developed under Section 2 of this administrative regulation, make quarterly supplemental payments to:1. A hospital that qualifies as an in-state non-state owned pediatric teaching hospital in an amount:a. Equal to the sum of the hospital's Medicaid shortfall for Medicaid fee-for-service recipients under the age of eighteen (18) plus an additional $250,000 ($1,000,000 annually); andb. Prospectively determined by the department with an end of the year settlement based on actual patient days of Medicaid fee-for-service recipients under the age of eighteen (18);2. A hospital that qualifies as a pediatric teaching hospital and additionally meets the criteria of a state university teaching hospital in an amount: a. Equal to the difference between payments made in accordance with Sections 2 and 7 of this administrative regulation and the amount allowable under 42 C.F.R. 447.272, not to exceed the payment limit as specified in 42 C.F.R. 447.271;b. That is prospectively determined subject to a year-end reconciliation; andc. Based on the state matching contribution made available for this purpose by a facility that qualifies under this paragraph; and3. A hospital that qualifies as an urban trauma center hospital in an amount: a. Based on the state matching contribution made available for this purpose by a government entity on behalf of a facility that qualifies under this paragraph;b. Based upon a hospital's proportion of Medicaid patient days to total Medicaid patient days for all hospitals that qualify under this paragraph;c. That is prospectively determined with an end of the year settlement; andd. That is consistent with the requirements of 42 C.F.R. 447.271;(b) Make quarterly supplemental payments to the Appalachian Regional Hospital system:1. In an amount that is equal to the lesser of: a. The difference between what the department pays for inpatient services pursuant to Sections 2 and 7 of this administrative regulation and what Medicare would pay for inpatient services to Medicaid eligible individuals; orb. $7.5 million per year in aggregate;2. For a service provided on or after July 1, 2005; and3. Subject to the availability of coal severance funds, in addition to being subject to the availability of federal financial participation, which supply the state's share to be matched with federal funds; and(c) Base a quarterly payment to a hospital in the Appalachian Regional Hospital System on its Medicaid claim volume in comparison to the Medicaid claim volume of each hospital within the Appalachian Regional Hospital System.(4) An overpayment made to a hospital under this section shall be recovered by subtracting the overpayment amount from a succeeding year's payment to be made to the hospital.(5) For the purpose of this section, Medicaid patient days shall not include enrollee days.(6) A payment made under this section shall not duplicate a payment made via 907 KAR 10:820.(7) A payment made in accordance with this section shall be in compliance with the limitations established in 42 C.F.R. 447.272.Section 15. Certified Public Expenditures. (1)(a) The department shall reimburse an in-state public government-owned or operated hospital the full cost of a Medicaid fee-for-service inpatient service provided during a given state fiscal year via a certified public expenditure (CPE) contingent upon approval by the Centers for Medicare and Medicaid Services (CMS).(b) A payment referenced in paragraph (a) of this subsection shall be limited to the federal match portion of the hospital's uncompensated care cost for inpatient Medicaid fee-for-service recipients.(2) To determine the amount of costs eligible for a CPE, a hospital's allowed charges shall be multiplied by cost-center specific cost-to-charge ratios from the hospital's 2552 cost report.(3) The department shall verify whether or not a given CPE is allowable as a Medicaid cost.(4)(a) Subsequent to a cost report being submitted to the department and finalized, a CPE shall be reconciled with the actual costs reported to determine the actual CPE for the period.(b) If any difference between actual cost and submitted costs remains, the department shall reconcile any difference with the provider.Section 16. Access to Subcontractor's Records. If a hospital has a contract with a subcontractor for services costing or valued at $10,000 or more over a twelve (12) month period: (1) The contract shall contain a provision granting the department access: (a) To the subcontractor's financial information; and(b) In accordance with 907 KAR 1:672; and(2) Access shall be granted to the department for a subcontract between the subcontractor and an organization related to the subcontractor.Section 17. New Provider, Change of Ownership, or Merged Facility. (1)(a) The department shall reimburse a new acute care hospital based on the Medicare IPPS Final Rule Data Files and Tables inputs described in this administrative regulation in effect at the time of the hospital's enrollment with the Medicaid program.(b) If applicable rate information does not exist in the Medicare IPPS Final Rule Data Files and Tables for a given period for an in-state acute care hospital, the department shall use, for the in-state acute care hospital, the average of all in-state acute care hospitals for the operating rate, capital rate, and outlier cost-to-charge ratio, excluding any adjustments made for sole community hospitals or Medicare dependent hospitals.(2) If a hospital undergoes a change of ownership, the new owner shall continue to be reimbursed at the rate in effect at the time of the change of ownership.Section 18. Department reimbursement for inpatient hospital care shall not exceed the upper payment limit established in 42 C.F.R. 447.271 or 447.272.Section 19. Not Applicable to Managed Care Organizations. A managed care organization shall not be required to reimburse in accordance with this administrative regulation for a service covered pursuant to: (2) This administrative regulation.Section 20. Federal Approval and Federal Financial Participation. The department's reimbursement for services pursuant to this administrative regulation shall be contingent upon: (1) Receipt of federal financial participation for the reimbursement; and(2) Centers for Medicare and Medicaid Services' approval for the reimbursement.Section 21. Matters Subject to an Appeal. A hospital may appeal whether the Medicare data specific to the hospital that was extracted by the department in establishing the hospital's reimbursement was the correct data.Section 22. Appeal Process.(1) An appeal shall comply with the requirements and provisions established in this section.(2)(a) A request for a review of an appealable issue shall be received by the department within sixty (60) calendar days of the date of receipt by the provider of the department's notice of rates set under this administrative regulation.(b) The request referenced in paragraph (a) of this subsection shall: 1. Be sent to the Office of the Commissioner, Department for Medicaid Services, Cabinet for Health and Family Services, 275 East Main Street, 6th Floor, Frankfort, Kentucky 40621-0002; and2. Contain the specific issues to be reviewed with all supporting documentation necessary for the departmental review.(3)(a) The department shall review the material referenced in subsection (2) of this section and notify the provider of the review results within thirty (30) days of its receipt except as established in paragraph (b) of this subsection.(b) If the provider requests a review of a non-appealable issue under this administrative regulation, the department shall:1. Not review the request; and2. Notify the provider that the review is outside of the scope of this section.(4)(a) A provider may appeal the result of the department's review, except for a notification that the review is outside the scope of this section, by sending a request for an administrative hearing to the Office of the Ombudsman and Administrative Review within thirty (30) days of receipt of the department's notification of its review decision.(b) A provider shall not appeal a notification that a review is outside of the scope of this section.(5)(a) An administrative hearing shall be conducted in accordance with KRS Chapter 13B.(b) Pursuant to KRS 13B.030, the secretary of the Cabinet for Health and Family Services delegates to the Cabinet for Health and Family Services, Office of the Ombudsman and Administrative Review the authority to conduct administrative hearings under this administrative regulation.(c) A notice of the administrative hearing shall comply with KRS 13B.050.(d) The administrative hearing shall be held in Frankfort, Kentucky no later than ninety (90) calendar days from the date the request for the administrative hearing is received by the Office of the Ombudsman and Administrative Review.(e) The administrative hearing date may be extended beyond the ninety (90) calendar days by: 1. A mutual agreement by the provider and the department; or2. A continuance granted by the hearing officer.(f)1. If the prehearing conference is requested, it shall be held at least thirty (30) calendar days in advance of the hearing date.2. Conduct of the prehearing conference shall comply with KRS 13B.070.(g) If a provider does not appear at the hearing on the scheduled date, the hearing officer may find the provider in default pursuant to KRS 13B.050(3)(h).(h) A hearing request shall be withdrawn only under the following circumstances:1. The hearing officer receives a written statement from a provider stating that the request is withdrawn; or2. A provider makes a statement on the record at the hearing that the provider is withdrawing the request for the hearing.(i) Documentary evidence to be used at the hearing shall be made available in accordance with KRS 13B.090.(j) The hearing officer shall: 1. Preside over the hearing; and2. Conduct the hearing in accordance with KRS 13B.080 and 13B.090.(k) The provider shall have the burden of proof concerning the appealable issues under this administrative regulation.(l)1. The hearing officer shall issue a recommended order in accordance with KRS 13B.110.2. An extension of time for completing the recommended order shall comply with the requirements of KRS 13B.110(2) and (3).(m)1. A final order shall be entered in accordance with KRS 13B.120.2. The cabinet shall maintain an official record of the hearing in compliance with KRS 13B.130.3. In the correspondence transmitting the final order, clear reference shall be made to the availability of judicial review pursuant to KRS 13B.140, 13B.150, and 13B.160.Section 23. Incorporation by Reference.(1) The following material is incorporated by reference:(a) "Supplemental Medicaid Schedule KMAP-1"; 2013;(b) "Supplemental Medicaid Schedule KMAP-6", 2013; and(c) "CMS Manual System Pub 100-03 Medicare National Coverage Determinations Transmittal 101", June 12, 2009.(2) This material may be inspected, copied, or obtained, subject to applicable copyright law: (a) At the Department for Medicaid Services, 275 East Main Street, Frankfort, Kentucky 40621, Monday through Friday, 8 a.m. to 4:30 p.m.; or34 Ky.R. 1605; 2190; 2406; eff. 6-6-2008; Recodified from 907 KAR 1:815; eff. 5-3-2011; Crt eff. 7-23-2018; 48 Ky.R. 1055, 1814, 2098 ; eff. 1/13/2022.STATUTORY AUTHORITY: KRS 194A.030(2), 194A.050(1), 205.520(3), 205.560(2), 205.637(3), 205.640(1), 216.380(12), 42 C.F.R. 447.200, 447.250, 447.252, 447.253, 447.271, 447.272, 42 U.S. C. 1396a, 1396r-4