1. (a) Introduction. The Texas Health and Human Services Commission (HHSC) establishes the annual patient care expense ratio for nursing facilities (NF) on or after September 1, 2025.

2. (b) Definitions. The following words and terms, when used in this section, have the following meanings unless the context clearly indicates otherwise.

   1. (1) Annual patient expense ratio--The ratio of patient care expenses as defined in paragraph (2) of this subsection to the NF's patient care revenue as defined in paragraph (3) of this subsection for a rate year as defined in paragraph (4) of this subsection.

   2. (2) Patient care expenses--

      1. (A) Include allowable expenses incurred by an NF in a rate year for the following cost areas:

         1. (i) compensation and benefits for direct care staff and direct care contracted labor for the following staff:

            1. (I) licensed registered nurse;
            2. (II) licensed vocational nurse;
            3. (III) medication aide;
            4. (IV) restorative aide;
            5. (V) nurse aide who provides nursing-related care to residents occupying medical assistance beds;
            6. (VI) licensed social worker;
            7. (VII) social services assistant;
            8. (VIII) additional staff associated with providing care to facility residents with a severe cognitive impairment;
            9. (IX) nonprofessional administrative staff, including medical records staff and accounting or bookkeeping staff;
            10. (X) central supply staff and ancillary facility staff;
            11. (XI) laundry staff;
            12. (XII) housekeeping staff; and
            13. (XIII) food service staff; and

         2. (ii) central supply costs and ancillary costs for facility services and supplies, including:

            1. (I) diagnostic laboratory and radiology costs;
            2. (II) durable medical equipment costs, including costs to purchase, rent, or lease the equipment;
            3. (III) costs for oxygen used to provide oxygen treatment;
            4. (IV) prescription and nonprescription drug costs;
            5. (V) therapy consultant costs; and
         3. (iii) costs for dietary and nutrition services, including costs for food services and related supplies, and nutritionist services; and

      2. (B) exclude the following:

         1. (i) administrative or operational costs, other than administrative or operational costs described in subparagraph (A) of this paragraph; and
         2. (ii) fixed capital assets costs.

   3. (3) Patient care revenue--In a rate year, the medical assistance revenue paid to an NF where the revenue is associated with the following rate components as described in §355.318 of this subchapter (relating to Reimbursement Setting Methodology for Nursing Facilities on or after September 1, 2025):

      1. (A) nursing rate component;
      2. (B) non-therapy ancillary (NTA) rate component;
      3. (C) brief interview for mental status (BIMS) rate component;
      4. (D) dietary rate component; and
      5. (E) operations rate component.
   4. (4) Rate year--The rate year begins on the first day of September and ends on the last day of August of the following year and aligns with the NF's annual cost reporting period.
3. (c) Reporting requirements. An NF must submit an annual cost report in accordance with §355.102 of this chapter (relating to General Principles of Allowable and Unallowable Costs) and §355.103 of this chapter (relating to Specifications for Allowable and Unallowable Costs). HHSC will examine the cost report in accordance with §355.106 of this chapter (relating to Basic Objectives and Criteria for Audit and Desk Review of Cost Reports).
4. (d) Determining the annual patient expense ratio and spending requirement. HHSC will calculate an NF's annual patient expense ratio to ensure the NF's patient expense ratio is at least 80 percent.

5. (e) Recoupment. An NF that fails to meet the annual patient expense ratio is subject to a spending requirement and recoupment calculated as follows.

   1. (1) HHSC will calculate a spending requirement for the rate year by multiplying the patient care revenues as defined in subsection (b)(3) of this section by 0.80.
   2. (2) HHSC will calculate a total patient care expense amount by summing the allowable patient care expenses as defined in subsection (b)(2) of this section accrued during the rate year.
   3. (3) The estimated recoupment will be calculated by subtracting paragraph (2) of this subsection from paragraph (1) of this subsection. HHSC or its designee will recoup the difference from an NF whose patient care expenses are less than its spending requirement.

6. (f) Recoupment exclusions. HHSC may not recoup a medical assistance reimbursement amount under this section if the NF meets one of the following conditions during the rate year.

   1. (1) The NF held at least a four-star rating under the Centers for Medicare and Medicaid Services (CMS) five-star quality rating system for nursing facilities in three or more of the following categories:

      1. (A) overall;
      2. (B) health inspections;
      3. (C) staffing; and
      4. (D) long-stay quality measures.

   2. (2) The NF:

      1. (A) maintained an average daily occupancy rate of 75 percent or less; and
      2. (B) spent at least 70 percent of the patient care revenue as defined in subsection (b)(3) of this section on patient care expenses as defined in subsection (b)(2)(A) of this section.
   3. (3) The NF incurred expenses related to a disaster for which the governor issued a disaster declaration under Texas Government Code Chapter 418.
7. (g) Notification of recoupment based on annual cost reports. HHSC will notify an NF that failed to meet the annual patient care expense ratio of the associated spending requirement and recoupment as specified under §355.107 (relating to Notification of Exclusions and Adjustments).
8. (h) Appeals. Informal reviews and formal appeals relating to these reporting requirements in subsection (c) of this section are governed by §355.110 of this chapter (relating to Informal Reviews and Formal Appeals).
9. (i) State-owned facilities. This section does not apply to state-owned facilities.

Source Note:The provisions of this §355.305 adopted to be effective September 11, 2025, 50 TexReg 5899.