1. (a) General information.

   1. (1) The Texas Health and Human Services Commission will reimburse qualified rehabilitative services providers for rehabilitative services provided to Medicaid-eligible persons with mental illness.
   2. (2) HHSC determines reimbursement according to §§355.701 - 355.709 of this subchapter, relating to General Reimbursement Methodology for all Texas Department of Mental Health Mental Retardation Medical Assistance Programs. The reimbursement is uniform and determined prospectively and at least annually. Reimbursement may be determined more often if HHSC determines it to be necessary.

2. (b) Reimbursement during initial reimbursement period.

   1. (1) For the initial reimbursement period beginning January 1, 1997 and until such time as HHSC determines that cost data collected as described in subsection (d) of this section are reliable, rehabilitative services providers will be reimbursed utilizing estimated costs to determine pro forma rates. The pro forma rates will be developed based on the most recent salary data obtained from the Texas Medical Association and the National Survey of Hospital and Medical School Salaries. Salaries will be based on median salary rates and adjusted as appropriate for Texas-specific salaries. The Personal Consumption Expenditures (PCE) Chain-Type Index will be used to inflate the 1994 salaries to the rate period. Rates are cost based using staffing requirements as specified in §419.455 of this title (relating to Rehabilitative Services: General Requirements); §419.456 of this title (relating to Community Support Services); §419.457 of this title (relating to Day Programs Acute Needs); §419.458 of this title (relating to Day Programs for Skills Training); §419.459 of this title (relating to Day Programs for Skills Maintenance); and §419.460 of this title relating to Rehabilitative Treatment Plan Oversight).;
   2. (2) HHSC will collect cost data as described in subsection (d) of this section.
   3. (3) HHSC will calculate rates using the process described in subsection (e) of this section when reliable rehabilitative services provider cost data becomes available.
3. (c) Reimbursement during subsequent periods. At such time that reliable cost data become available the reimbursement will be developed using HHSC's cost report process as described in subsections (d) and (e) of this section.

4. (d) Reporting of Costs.

   1. (1) Cost reporting. Rehabilitative services providers must submit information quarterly, unless otherwise specified, on a cost report formatted according to HHSC's specifications. From the data, HHSC will develop and implement cost-based, statewide, uniform reimbursements for rehabilitative services. Rehabilitative services providers must complete the cost report according to the rules and specifications set forth in this section.
   2. (2) Reporting period and due date. Rehabilitative services providers must prepare the cost report to reflect rehabilitative services provided during the designated cost report reporting period. The cost reports must be submitted to HHSC no later than 45 days following the end of the designated reporting period unless otherwise specified by HHSC.
   3. (3) Extension of the due date. HHSC may grant extensions of due dates for good cause. A good cause is one that the rehabilitative services provider could not reasonably be expected to control. Rehabilitative services providers must submit requests for extensions in writing to HHSC before the cost report due date. HHSC will respond to requests within 10 workdays of receipt.
   4. (4) Failure to file an acceptable cost report. If a rehabilitative services provider fails to file a cost report according to all applicable rules and instructions, HHSC will notify TDMHMR to place the rehabilitative services provider on hold until the rehabilitative services provider submits an acceptable cost report.
   5. (5) Allocation method. If allocations of cost are necessary, rehabilitative services provider must use and be able to document reasonable methods of allocation. HHSC adjusts allocated costs if HHSC considers the allocation method to be unreasonable. The rehabilitative services provider must retain work papers supporting allocations for a period of three years or until all audit exceptions are resolved (whichever is longer).
   6. (6) Cost report certification. Rehabilitative services providers must certify the accuracy of cost reports submitted to HHSC the format specified by HHSC. Rehabilitative services providers may be liable for civil and/or criminal penalties if they misrepresent or falsify information.
   7. (7) Cost data supplements. HHSC may require additional financial and statistical information other than the information contained on the cost report.
   8. (8) Review of cost reports. HHSC reviews each cost report to ensure that financial and statistical information submitted conforms to all applicable rules and instructions. The review of the cost report includes a desk audit. HHSC reviews all cost reports according to the criteria specified in §355.703 of this title (relating to Basic Objectives and Criteria for Review of Cost Reports). If a rehabilitative services provider fails to complete the cost report according to instructions or rules, HHSC returns the cost report to the rehabilitative services provider for proper completion. HHSC may require information other than that contained in the cost report to substantiate reported information.
   9. (9) On-site audits. HHSC may perform on-site audits on all rehabilitative services providers that participate in the Medicaid program for rehabilitative services. HHSC determines the frequency and nature of such audits but ensures that they are not less than that required by federal regulations related to the administration of the program.
   10. (10) Notification of exclusions and adjustments. HHSC notifies rehabilitative services providers of exclusions and adjustments to reported expenses made during desk reviews and on-site audits of cost reports.
   11. (11) Access to records. Each rehabilitative services provider must allow access to all records necessary to verify cost report information submitted to HHSC. Such records include those pertaining to related-party transactions and other business activities engaged in by the rehabilitative services provider. If a rehabilitative services provider does not allow inspection of pertinent records within 14 days following written notice HHSC will notify TDMHMR to place the rehabilitative services provider on vendor hold until access to the records is allowed. If the rehabilitative services provider continues to deny access to records, TDMHMR may terminate the rehabilitative services provider agreement with the rehabilitative services provider.
   12. (12) Record keeping requirements. Rehabilitative services providers must maintain service delivery records and eligibility determination for a period of five years or until any audit exceptions are resolved (whichever is later). Rehabilitative services providers must ensure that records are accurate and sufficiently detailed to support the financial and statistical information contained in cost reports.
   13. (13) Failure to maintain adequate records. If a rehabilitative services provider fails to maintain adequate records to support the financial and statistical information reported in cost reports, HHSC allows 30 days for the rehabilitative services provider to bring record keeping into compliance. If a rehabilitative services provider fails to correct deficiencies within 30 days from the date of notification of the deficiency, HHSC will notify TDMHMR to terminate the rehabilitative services provider agreement with the rehabilitative services provider.

5. (e) Reimbursement determination. HHSC determines reimbursement in the following manner:

   1. (1) Inclusion of certain reported expenses. Rehabilitative services providers must ensure that all requested costs are included in the cost report.

   2. (2) Data collection. HHSC collects several different kinds of data. These include the number of units of rehabilitative services that individuals receive and the number of direct care service minutes by staff. The cost data will include direct costs, programmatic indirect costs, and general and administrative overhead costs. These costs include salaries, benefits, and other costs. Other costs include nonsalary related costs such as building and equipment maintenance, repair, depreciation, amortization, and insurance expenses; employee travel and training expenses; utilities; and material and supply expenses.

      1. (A) Server time is reported by the type of service delivered.
      2. (B) Server time can be given by professionals and paraprofessionals. These include, but are not necessarily limited to physicians, psychologists, nurses, social workers, counselors, therapists, therapy associates, and paraprofessionals. HHSC collects the wages, salaries, benefits, and other costs to determine reimbursement.
      3. (C) Programmatic indirect costs include salaries, benefits, and other costs of the rehabilitative service programs that are indirectly related to the delivery of rehabilitative services to individuals. General administrative overhead includes the salaries, benefits, and other costs of operations of the rehabilitative services provider that, while not directly part of the rehabilitative program, constitute costs which support the operations of the rehabilitative program.

   3. (3) Reimbursement methodology. HHSC determines the reimbursement rate using the following method:

      1. (A) Projected and adjusted costs. Reported costs are projected and adjusted prior to calculations for determining reimbursement. HHSC uses reasonable methods for projecting costs from the historical reporting period to the prospective reimbursement period. The historical reporting period is the time period covered by the cost report. Cost projections adjust the allowed historical costs for significant changes in cost related conditions anticipated to occur between the historical cost period and the prospective reimbursement period. Significant conditions include, but are not necessarily limited to, wage and price inflation or deflation, changes in program utilization and occupancy, modification of federal or state regulations and statutes, and implementation of federal or state court orders and settlement agreements. HHSC determines reasonable and appropriate economic adjusters to calculate the projected expenses. The PCE, which is based on data from the U.S. Department of Commerce, is the most general measure of inflation and is applied to most salaries, materials, supplies, and services when other specific inflators are not appropriate. The three payroll tax inflators, FICA (Social Security), FUTA/SUTA (federal and state unemployment) and WCI (Workers' Compensation) are based on data obtained from the Statistical Abstract of the United States, the Texas Employment Commission, and the Texas Board of Insurance, respectively. For non-state operated rehabilitative services providers, wage inflation factors are based on wage and hour survey information submitted on cost reports or special surveys or the PCE, when wage and hour survey information is unavailable. For state-operated rehabilitative services providers, the inflation factor is based on wage increases approved by the Texas Legislature. HHSC adjusts reimbursement if new legislation, regulations, or economic factors affect costs, as specified in §355.706 of this title (relating to Adjusting Reimbursement).
      2. (B) Reimbursement determination. For each type of rehabilitative service each rehabilitative services provider's projected cost per unit of service is calculated. The mean rehabilitative services provider cost per unit of service is calculated, and the statistical outliers (those rehabilitative services providers whose unit costs exceed plus or minus (+/-) two standard deviations of the mean rehabilitative services provider cost) are removed. After removal of the statistical outliers, the mean cost per unit of service is calculated. This mean cost per unit of service becomes the recommended reimbursement per unit of service.
      3. (C) Reimbursement setting authority. HHSC establishes the reimbursement rate. HHSC sets reimbursements that, in its opinion, are within budgetary constraints, adequate to reimburse the cost of operations for an economic and efficient rehabilitative services provider, and justifiable given current economic conditions.
      4. (D) Reviews of cost report disallowances. A rehabilitative services provider may request notification of the exclusions and adjustments to reported expenses made during either desk reviews or on-site audits, according to §355.705 of this title (relating to Notification). Rehabilitative Services providers may request an informal review and, if necessary, an administrative hearing to dispute the action taken by HHSC under §355.707 of this title (relating to Reviews and Administrative Hearings).

      5. (E) Requirements for allowable costs. Allowable costs must be:

         1. (i) necessary and reasonable for the proper and efficient administration of rehabilitative services for which TDMHMR has contracted;
         2. (ii) authorized or not prohibited under state or local laws or regulations;
         3. (iii) consistent with any limitations or exclusions described in this section, federal or state laws, or other governing limitations as to types or amounts of cost items;
         4. (iv) consistent with policies, regulations, and procedures that apply to both rehabilitative services and other activities of the organization of which the rehabilitative services provider is a part;
         5. (v) treated consistently using generally accepted accounting principles appropriate to the circumstances;
         6. (vi) not allowable to or included as a cost of any other program in either the current or a prior period; and
         7. (vii) net of all applicable credits.

      6. (F) Reasonableness. A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by an ordinarily prudent person in the conduct of competitive business. In determining the reasonableness of a given cost, HHSC considers the following:

         1. (i) whether the cost is of a type generally recognized as ordinary and necessary for the provision of rehabilitative services or the performance under the provider agreement;
         2. (ii) the restraints or requirements imposed by generally accepted sound business practices, arm's length bargaining, federal and state laws and regulations, and contract terms and specifications; and
         3. (iii) the action that a prudent person would take in the circumstances, considering his/her responsibilities to the public, the government, employees, clients, shareholders, and/or members, and the fulfillment of the purpose for which the business was organized.

      7. (G) Allowable costs. Costs associated with rehabilitative services for persons with mental illness for which a claim is submitted must be found to be allowable as described in federal Circular OMB-A87, with the following exceptions:

         1. (i) Equipment is defined as having a useful life of more than one year and a value of $2,500 or more.
         2. (ii) Legal expenses to prosecute claims against the state of Texas or the United States are unallowable.

6. (f) Definition. "Unit of service" or "unit of rehabilitative service" means:

   1. (1) for community support services--a direct contact lasting up to 30 minutes including the time spent by the staff person traveling to and from the location at which the direct contact occurs;
   2. (2) for day programs--one hour; and
   3. (3) for rehabilitative treatment plan oversight--one direct contact.

Source Note:The provisions of this §355.781 adopted to be effective January 1, 1997, 21 TexReg 8933; duplicated effective September 1, 1997, as published in the Texas Register December 11, 1998, 23 TexReg 12660; amended to be effective November 14, 1999, 24 TexReg 9825; amended to be effective March 1, 2001, 26 TexReg 1696.