Code of Massachusetts Regulations
114 CMR - DIVISION OF HEALTH CARE FINANCE AND POLICY
Title 114.1 CMR 40.00 - NON-ACUTE HOSPITAL PUBLICLY ASSISTED RATES OF PAYMENT AND THE FEE FOR RESIDENTIAL ALCOHOLISM TREATMENT PROGRAMS
Section 40.08 - Determination of Base to Rate Year Adjustment of Costs
Universal Citation: 114.1 CMR 40.00 MA Code of Regs 40.08
Current through Register 1531, September 27, 2024
(1) Purpose. The Division will make a Base to Rate Year Adjustment of Costs in order to determine RFR pursuant to 114.1 CMR 40.06. The Division will make a year to year adjustment to base year costs for additional costs that are projected to occur in the rate year due to inflation, changes in volume, costs beyond reasonable control , and new services.
(2) Inflation. The Division shall make an adjustment for inflation prospectively. The Division will adjust allowed operating costs from the base year through the rate year using a composite index comprised of two cost categories: labor and non-labor. These categories shall be weighted according to the weights used by the Health Care Financing Administration for PPS-exempt hospitals. The inflation proxy for the labor cost category shall be the Massachusetts Consumer Price Index. The inflation proxy for the non-labor cost category shall be the non-labor portion of the HCFA market basket for non-acute hospitals. There will be no adjustment upward or downward to account for over or under-projection.
(a) The composite inflation index as
calculated in accordance with the preceding paragraph will be increased by .02
pursuant to M.G.L. c. 118G.
(b) The
Division will recover the additional labor costs for which hospitals were
reimbursed according to the provisions of 114.1 CMR 40.07(2)(a), but were not
expended on the compensation of technicians, nurses, nursing aides, orderlies
and attendants, and occupational, speech, recreational, physical, and
respiratory therapists, as required by M.G.L. c. 118G. The Division will
recover these costs according to the following procedure:
1. Hospitals will report upon the request of
the Division, the rate year expenditure of staff positions defined above . Any
amount not expended will be excluded from the rate year RFR.
2. The Division may further adjust a
hospital's RFR upon audit.
(3) Volume. Allowed base year operating costs shall be further adjusted to reflect reasonable volume increases and decreases as follows:
(a)
The Division shall require each hospital to report its costs, revenue, and
volume data by HURM designated cost centers. The statistics used for volume
adjustment shall be the same as those statistics specified in the HURM Manual.
For purposes of calculating the volume adjustment, the Allowed Unit Cost for
each cost center shall equal the base year direct and indirect costs for that
cost center divided by base year units. The volume associated with a
Determination of Need (DoN) project, new service, or transfer on of cost shall
be part of the volume used in the computation of the volume allowance. Any
allowance due to new service, DoN, or transfer-on volume shall be netted out if
the costs associated with it are submitted as new services, CBCs or
transfers.
(b) For projected volume
increases or decreases from the intermediate year to the budget year which are
greater or equal to 10%, the hospital must submit a supporting statement of
explanation accompanied by the appropriate statistical documentation. No volume
increase shall be allowed without such explanation and documentation.
(c) For routine inpatient care services and
routine ambulatory services, the allowed marginal cost for a unit increase or
decrease in volume shall be 50%. The allowed cost for marginal cost for an
cillary services for a unit increase or decrease in volume shall be 60%. There
shall be no upside corridors for volume increases.
(d) An increase in costs due to an increase
in routine inpatient services or routine ambulatory services volume from the
base year to the budget year shall be calculated as the product of the
projected increase in units multiplied by 50% of the allowed unit cost as
defined in 114.1 CMR 40.08(3)(a) inflated by the base to rate year composite
inflation index.
An increase in costs due to an increase in ancillary services volume from the base year to the budget year shall be calculated as the product of the projected increase in units multiplied by 60% of the allowed unit cost as defined in 114.1 CMR 40.08(3)(a) inflated by the base to rate year composite inflation index.
(e) For
routine inpatient care services, routine ambulatory services and ancillary
services, the allowed marginal cost for a unit decrease in volume shall be as
follows:
|
Unit Decrease |
Allowed Marginal Cost |
|
Up to 5% |
100% |
|
Over 5% to 25% |
50% |
|
Over 25% to 50% |
25% |
|
Over 50% to 75% |
12.5% |
|
Over 75% |
0% |
There shall be no downside corridors for volume decreases.
(f) A decrease
in cost due to a decrease in routine inpatient care service, routine ambulatory
care services or ancillary services volume shall be calculated as the product
of the projected decrease in units multiplied by one minus the applicable
marginal cost percentage, as provided in 114.1 CMR 40.08(3)(e), multiplied by
the Allowed Unit Cost as defined in 114.1 CMR 40.08(3)(a) inflated by the base
to rate year composite inflation index.
(4) Cost Beyond Hospital Control (CBCs). Allowed base year operating costs shall be further adjusted to reflect costs beyond the reasonable control of the hospital which meet the requirements of 114.1 CMR 40.08(4)(a) and the criteria of 114.1 CMR 40.08(4)(b).
(a) A CBC is an unusual and
unforeseen increase in reasonable and allowable costs which is solely
attributable to unique and exceptional circumstances that are beyond the
control of the hospital. The following requirements must be met before certain
costs are qualified as CBCs and included in RFR.
1. A cost shall not be determined to be a CBC
if in a prior fiscal year the Division approved costs corresponding to the CBC
and the events giving rise to the cost did not take place in the year the cost
was approved.
2. The timing and
amount of the increase in costs must be reasonably certain. If the hospital
does not begin to expend costs for which it has received a CBC adjustment
within six months, the hospital must notify the Division that approved amounts
were not expended, and the Division will deduct such costs from RFR.
3. The hospital shall demonstrate that the
category of cost of the requested CBC is not included in the adjusted base year
operating cost or in the base to rate year inflation and volume
allowances.
4. A cost shall be
allowed as a CBC only if the amount requested is greater than one tenth 1/10 of
1% of the hospital's total patient care costs.
5. Multiple unrelated CBC requests for any
one cost beyond control category must not be grouped together. Each individual
CBC request for a particular item must meet the materiality limit specified in
114.1 CMR 40.08(4)(a)4.
6. Approved
costs beyond control shall be only those necessary for the appropriate
provision of services. The Division will consider a cost "necessary" only if it
can be demonstrated to the satisfaction of the Division that such costs cannot
be met through efficient management and economic operation at the existing
reimbursable cost level.
(b) The following shall qualify for CBCs
provided that the criteria set out in 114.1 CMR 40.08(4)(a) and (b) are met.
1. Costs generated by correcting citations
for failure to comply with changes in government requirements related to
hospital licensure and participation in programs of hospital care and services
under
42 U.S.C. §§
1395
et seq. and
42 U.S.C. §§
1396
et seq. An example of
this category of CBC is a cost incurred or expected to be incurred within six
months of filing to comply with a change in the manual issued after 1984 by the
Joint Division on Accreditation of Healthcare Organizations (JCAHO). Costs of
complying with standards contained in the manual before 1985 or costs which
merely recommend improvement will not be considered as a cost beyond reasonable
hospital control. Hospitals which have not previously been accredited by JCAHO
will be allowed reasonable costs of complying with accreditation standards of
the JCAHO contained in its manual. An example of cost which would not be
considered to be beyond reasonable hospital control is expanded emergency room
coverage. Also, increased utilization review costs which are not due to any
allowable cost beyond control shall not be recognized as additional cost in a
hospital's projected reasonable financial requirement. Documentation shall
include a copy of the government requirement, verification of the costs, and
verification that the increase in costs requested is reasonable to meet the
government requirement.
2. Costs
generated by compliance with changes in government requirements which are set
forth in federal or state regulations which mandate non-discretionary hospital
expenditures. However, if the costs fall within a category encompassed by an
inflation factor, it shall not be allowed as a CBC. Documentation shall include
a copy of the government requirement, verification of the costs, and
verification that the increase in costs requested is reasonable to meet the
government requirement.
3. Costs
generated by disaster losses in excess of insurance or extraordinary costs
related to disaster losses not covered by outside sources. Documentation shall
include verification of loss or extraordinary cost and the insurance or outside
source payment. If, however, the loss or extraordinary cost is caused by a
facility being inadequately insured according to the standards of the hospital
industry, or through negligence on part of hospital management, such losses or
costs shall not be approved.
4.
Allowed operating costs associated with a major capital expenditure or
substantial change in services which is subject to and has received a
determination of need pursuant to M.G.L. c. 111, §§ 25B through 25G. These
costs must be segregated from other allowed operating costs. Any volume
allowance due to a DoN shall be netted out if the costs associated with it are
submitted as a CBC. The hospital must demonstrate that the increased costs
requested are reasonable.
5. Wage
parity adjustments resulting from mergers which are clearly demonstrated to be
cost-effective. The term "cost-effective" used in this context shall mean that
at the end of three years the merged hospitals are spending less than the
combined projections of both hospitals. Documentation shall include a copy of
the merger agreement and projections of costs without the merger as well as
projection of the cost savings to be achieved through the merger. This
adjustment will be considered a non-recurring CBC and the costs associated with
it will be subtracted from rate year costs for any year in which the rate year
becomes the base for future rate years.
6. Intra-hospital wage and salary adjustments
which are clearly demonstrated to be cost-effective. The term "cost-effective"
as used in this context shall mean that at the end of three years the hospital
is spending less than it would have without the wage and salary adjustments.
The hospital shall submit documentation of the projected cost savings to be
achieved as a result of adjustments to wages and salaries. This adjustment will
be considered a non-recurring CBC and the costs associated with it will be
subtracted from rate year costs for any year in which the rate year becomes the
base for future rate years.
7.
Costs for reasonable increases in direct care staff salaries and wages in
excess of the amount allowed through inflation.
a. Wage relief may be requested for
technicians, nurses, nursing aides, orderlies, attendants, occupational
therapists, speech therapists, recreational therapists, physical therapists,
and respiratory therapists. Any personnel in these categories who are primarily
conducting administrative job duties and are not directly involved with
providing patient care are not eligible for wage relief under this
exception.
b. The CBC for
reasonable increases in direct care staff salaries and wages is defined as the
reasonable rate year wage rate less the inflated base year wage rate, times the
lesser of the rate year FTE direct care labor force or the base year FTE direct
care labor force.
c. The inflation
allowance for direct care staff includes the full amounts granted under 114.1
CMR 40.08(2)(a) and (b).
d. The
reasonable rate year wage shall be the level of increase required to attract
sufficient staff to ensure minimum quality of care as determined by the
Department of Public Health for current patients. The rate will be determined
by the Division with reference to average rates prevailing at other hospitals
within the same Medicare labor market region, subject to the following
conditions:
i. Outlier wage rates as defined
by the Division shall be excluded from the computation;
ii. Special weight shall be given to rates
prevailing at non-acute hospitals located in the hospital's Medicare labor
market region; and
iii. If it can be
demonstrated that direct care staff at a hospital are transferring in
significant numbers to another competing hospital, then the wage rates
prevailing at that competing hospital shall be given special weight.
iv. In no case shall the reasonable rate year
wage rate used in this calculation exceed the wage rate actually prevailing at
hospitals located in the hospital's Medicare labor market region at the time of
application. The determined Medicare Labor Market Regions and their associated
counties are as follows:
|
Medicare Labor Market Region |
Counties |
|
Eastern Mass |
Bristol Essex Middlesex Norfolk Plymouth Suffolk Worcester |
|
Berkshire |
Berkshire |
|
Springfield |
Hampden Hampshire |
|
Barnstable |
Barnstable Dukes Nantucket |
|
Rural |
Franklin |
e. In order to be eligible for this CBC, a
hospital must demonstrate that it is facing extraordinary difficulties in the
market for direct care staff, as indicated by one or more of the criteria
established in St. 1988, c. 270. These criteria include, but are not limited
to:
i. existence of significant vacancy rates
for a period of time sufficient to jeopardize the welfare of patients according
to Department of Public Health standards, JCAHO standards or other qualifying
guidelines utilized in Massachusetts to ensure adequate care;
ii. persistent difficulty in recruitment
given bona fide recruitment efforts to obtain staffing levels
referenced in 114.1 CMR 40.08(4)(e)7.e.i.; and
iii. existing dependency upon temporary nursing services in order
to maintain staffing levels referenced in 114.1 CMR
40.08(4)(e)7.e.i..
f.
This CBC shall not produce reimbursement exceeding actual rate year
expenditures for such direct care staff.
8. An increase in inpatient care costs
generated by increased care or services required by a more intensely ill
patient population. The hospital shall have the burden of demonstrating a net
increase in intensity from the base year to the intermediate or rate year. The
higher intensity level in the intermediate or rate year shall be used to adjust
RFR.
a. To document that an increase in
intensity has taken place between the base year and the intermediate year, a
non-acute hospital may use any JCAHO-mandated measures of minimum staffing
requirements mutually acceptable to itself and to the Division, or the
management minutes system, in either case with results subject to verification
by the Division or its agents. Alternatively, psychiatric hospitals may
demonstrate that hospital wide increases in certain intensity factors between
the first eligible year and the intermediate year (intensity factors include,
but are not limited to changes in age mix, average length of stay, number of
involuntary lockup patients, patient disability index, and percentage of
patients admitted from an acute hospital) have led to increases in
hospital-wide service intensity (e.g., FTEs, nursing hours per patient), which
in turn have led to quantifiable increases in cost. Note that increases in
inputs alone are not enough to qualify for an intensity CBC; some
intensity-related change in patient characteristics must also be
identified.
b. If the documentation
for the increase in intensity is found to be acceptable, then the hospital
shall have the burden of documenting the increase in patient care costs
resulting from the higher level of intensity.
9. Costs for increases in physician
malpractice insurance premiums paid by the hospital for physicians who are
employees of the hospital and who do not bill patients or third party
reimbursers separately for their professional services. The amount of the
approved CBC will be net of all the increases already determined through the
inflated adjusted base year costs. The hospital must document the actual
malpractice insurance premium expense, as well as show that the physicians
covered are employees of the hospital and do not bill separately for their
services. The hospital may include in its request the amount of any retroactive
premium payments to be made during the rate year.
(c) No costs other than those meeting the
criteria set forth in one or more of the categories enumerated in 114.1 CMR
40.08(4)(b) are allowable CBCs. A cost increase which is affected by or
attributable to a hospital's voluntary business decision is not a CBC. An
increase in the cost of doing business which affects the industry as a whole is
not a CBC.
(5) New Services.
(a) The
Division shall recognize as a new service any health services that were not
offered by a hospital prior to the intermediate year. In order to be recognized
as a new service by the Division, the service to be provided should conform
with the cost centers as defined in the HURM Manual. The Division shall not
approve any cost allowances for a new service that is not scheduled to start
within six months.
(b) For a new
service to be implemented after the start of the hospital's rate year, the
allowable cost shall be equal to the reasonable operating costs attributed to
the new service cost centers. For a new service started in the base year, the
allowable cost shall be equal to the reasonable base year cost attributed to
the new service inflated by a base to rate year inflation factor plus a base to
rate allowance for volume adjustment attributed to the new service.
(6) Capital. The base year capital requirement shall be adjusted to include reasonable projected acquisitions and retirements of fixed equipment and plant, and reasonable projected increases and decreases in a mortization, leases and rentals. The limitations to allowed base year capital costs defined in 114.1 CMR 40.07(3) apply to these adjustments as well.
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