West Virginia Code of State Rules
Agency 65 - Health Care Authority
Title 65 - LEGISLATIVE RULE HEALTH CARE AUTHORITY
Series 65-05 - Hospital Cost-Based Rate Review System
Section 65-5-4 - Overview

This is an overview of the Hospital Cost-Based Rate Review System that the Health Care Cost Review Authority (hereinafter "Authority") proposes to implement July 1, 1992. The focus of this new system will be the determination of revenues which determine the rates to be charged to nongovernmental payors. The Authority will utilize rate application request forms, to be developed, as the primary source of information in setting prospective rates. The Authority will also utilize the audited financial statements, the Uniform Reporting System Financial Report, the Medicare Cost Report, the hospital's trial balance, and UB-82 discharge bills as additional sources of data. The audited financial statement, the Uniform Financial Report and the Medicare Cost Report will be compared to information in the rate application to determine that the data contained in the rate application is consistent in all material respects. UB-82 information will also be used to compare discharges and case mix indices. The case mix index for each hospital will be determined from DRG weights in effect during that hospital's fiscal year. Initially the DRG weights will be the Medicare weights, however, the Authority will work toward development of West Virginia specific weights for use in future years.

Initially the Authority will use fiscal years which end in the calendar years 1990 and 1991 as the base years because they are the most recent years for which the Authority has consistent data available for each hospital. The base years shall apply to hospitals with fiscal years ended June 30, 1990 and 1991; August 31, 1990 and 1991; September 30, 1990 and 1991; October 31, 1990 and 1991; and December 31, 1990 and 1991. Inflation and volume adjustments will be made to a hospital's base year to arrive at an appropriate level of costs to evaluate the reasonableness of the hospital's budgeted rate request. The inflation factor after the initial filing will be applied to the lower of actual costs or the approved rates.

Volume changes (increases or decreases) up to the hospital's most recent fiscal year filing under the new methodology will also be taken into consideration, as well as a technology factor to be developed by the Authority. The technology factor may be based on the review hospital's case mix or its relationship to the peer group.

The base year Medicare Cost Report may be unaudited at the time it is utilized. However, adjustments to future year rates may be necessary to reflect the impact of significant differences that arise as a result of Medicare Cost Report audit adjustments. No adjustments will be made to the base year as the result of Medicare audit adjustments unless the hospital or its independent accountant are required to make such adjustments because of significant changes by the Medicare Intermediary that result in a refiling of the cost report.

Standards will be developed by the Authority which will allow for a comparison of an applicant hospital to a peer group of hospitals. The base operating expenses per discharge of the hospital requesting a rate increase will be compared to the same base operating expenses per discharge in the peer group. The Authority shall establish standards of variance to be applied to these base operating expenses to be used to determine efficient or inefficient hospitals and to provide for incentives and penalties, where practicable.

This rule is directed at acute care hospital costs unless otherwise specified.