1. (a) Function and types of indices. In order to account for cost inflation between the reporting period and the prospective reimbursement period, the Texas Department of Human Services (DHS) makes adjustments to allowable costs based on inflation factors or multipliers calculated from appropriate inflation indices. DHS retains the discretion, on a program by program basis, to exercise the following options in order to obtain appropriate inflation indices.
2. (b) Contracting for inflation index development. DHS may contract with a reputable and experienced independent professional firm to develop appropriate optional indices for Texas. If DHS obtains such indices under contract, the agency retains the option, on a program by program basis, of utilizing these indices and/or those described in the remainder of this section, either separately or in combination, for reimbursement determination purposes.
3. (c) Cost inflation indices. DHS may utilize a general cost inflation index obtained from a reputable independent professional source and, where DHS deems appropriate and pertinent data are available, develop and/or utilize several item-specific and program-specific inflation indices, as follows.
4. (d) General cost inflation index. DHS uses the Implicit Price Deflator-Personal Consumption Expenditures (IPD-PCE) as the general cost inflation index. The IPD-PCE is a nationally recognized measure of inflation published by the Bureau of Economic Analysis of the U.S. Department of Commerce. To project or inflate costs from the reporting period to the prospective reimbursement period, DHS uses the lowest feasible IPD-PCE forecast consistent with the forecasts of nationally recognized sources available to DHS at the time proposed reimbursement is prepared for public dissemination and comment.

5. (e) Item-specific and program-specific inflation indices. DHS may use specific indices in place of the general cost inflation index specified in subsection (d) of this section when appropriate item-specific or program-specific cost indices are available from DHS cost reports or other surveys, other Texas state agencies or independent private sources, or nationally recognized public agencies or independent private firms, and DHS has determined that these specific indices are derived from information that adequately represents the program(s) or cost(s) to which the specific index is to be applied. For example, DHS may use specific indices pertaining to cost items such as payroll taxes, key professional and non-professional staff wages, and other costs subject to specific federal or state limits. The specific indices that DHS may use include the following.

   1. (1) Federal Insurance Contributions Act (FICA) or Social Security taxes, including Old Age, Survivors, and Disability Insurance (OASDI) and Medicare taxes, are set by Federal statute. The inflation index for these taxes is the average tax rate, or average tax per payroll dollar, during the prospective reimbursement period divided by the average tax rate, or average tax per payroll dollar, during each provider's reporting period. If tax rates for the prospective reimbursement period are not available at the time proposed reimbursements are prepared for public dissemination and comment, the most recent known rates are assumed to remain in effect.
   2. (2) Costs associated with workers' compensation, e.g., traditional insurance coverage, risk pool participation, and direct claims settlement costs, vary widely among individual providers. Even for those subscribing to traditional insurance, there is no uniform "rate" per payroll dollar. Consequently, these costs are inflated at the same rate as applicable employee wages.
   3. (3) Except where indicated otherwise for specific programs, the unemployment tax inflation index is based on unemployment insurance payroll taxes in accordance with the Federal Unemployment Tax Act (FUTA) and the Texas Unemployment Compensation Act (TUCA) rates obtained from the Texas Employment Commission (TEC). Because the TUCA component of the tax rate may be contractor-specific, DHS obtains the average effective rates for the lowest available Standard Industrial Classification (SIC) code pertinent to each program. The unemployment tax inflation index is the average tax rate during the prospective reimbursement period divided by the average tax rate during each provider's reporting period. If either the FUTA or TUCA rates for the prospective rate period are not available at the time proposed reimbursements are prepared for public dissemination and comment, the most recent known rates are assumed to remain in effect. When changes occur in such factors as payroll limits to which tax rates apply, DHS may make appropriate adjustments in projections to reflect new limits and related factors affecting the impact of new limits, such as employee turnover rates.
   4. (4) Inflation factors for key professional and/or paraprofessional staff wages and salaries, e.g., nurses, nurse aides and attendants, are based on wage survey data pertaining to specific types of professional and paraprofessional staff in Texas when DHS has determined that reliable data of this kind are available for specific or comparable programs. Projections from the cost reporting period to the reimbursement period are based on discernible trends or experience as evidenced by the most recent reliable data available at the time proposed reimbursement is prepared for public dissemination and comment, and take into consideration economic conditions and regulatory changes which may be reasonably anticipated for the reimbursement period. When DHS has determined that reliable wage and salary data pertaining to specific types of staff in Texas are unavailable for specific or comparable programs, inflation factors for professional and/or paraprofessional staff are based on the lowest feasible forecast of the IPD-PCE. Professional and/or paraprofessional wage and benefit inflation rates for state employees are based on state employee wage and salary increases determined by the Texas Legislature.

   5. (5) For the Medicaid nursing facility program, determination of adjustments to historical costs of fixed capital assets are consistent with requirements of the federal Omnibus Budget Reconciliation Act of 1984 (OBRA 1984) and Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA 1985). For each program, one of two options is used.

      1. (A) Reimbursement is in the form of a fixed capital asset use fee component of the overall reimbursement, based on facility appraisals, as described in program-specific reimbursement methodology rules.
      2. (B) Reimbursement for fixed capital asset costs is calculated based on historical costs included in the reimbursement component designated in program-specific reimbursement methodology rules. The index used to inflate lease expense and to adjust the allowable depreciation base of assets which have undergone ownership changes is one-half the All-item Urban Consumer Price Index (CPI-U).

Source Note:The provisions of this §355.108 adopted to be effective September 1, 1996, 21 TexReg 7866; duplicated effective September 1, 1997, as published in the Texas Register October 17, 1997, 22 TexReg 10311; amended to be effective November 22, 1998, 23 TexReg 11631.