1. (a) General information.

   1. (1) The department will reimburse qualified providers for rehabilitative services provided to Medicaid-eligible persons with mental illness.
   2. (2) The Texas Mental Health and Mental Retardation Board determines reimbursement according to Chapter 409, Subchapter A of this title, governing General Reimbursement Methodology for all Medical Assistance Programs. The reimbursement is uniform and determined prospectively and at least annually. Reimbursement may be determined more often if the Texas Mental Health and Mental Retardation Board 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 the department determines that cost data collected as described in subsection (d) of this section are reliable, 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 Implicit Price Deflator for Personal Consumption Expenditures (IPD-PCE) will be used to inflate the 1994 salaries to the rate period. Rates are cost based using staffing requirements as specified in §409.356 of this title (relating to Reimbursable Rehabilitative Service Definitions: Community Support Services); §409.357 of this title (relating to Reimbursable Rehabilitative Service Definitions: Day Program Services for Acute Needs); §409.358 of this title (relating to Reimbursable Rehabilitative Service Definitions: Day Program Services for Skills Training); and §409.359 of this title (relating to Reimbursable Rehabilitative Service Definitions: Day Program Services for Skills Maintenance; Plan of Care Oversight--Adults and Children).
   2. (2) The department will collect cost data as described in subsection (d) of this section.
   3. (3) The department will calculate rates using the process described in subsection (e) of this section when reliable 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 via the department's cost report process as described in subsections (d) and (e) of this section.

4. (d) Reporting of Costs.

   1. (1) Cost reporting. Providers must submit information quarterly, unless otherwise specified, on a cost report formatted according to the department's specifications. From the data, the department will develop and implement cost-based, statewide, uniform reimbursements for 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. Provider agencies must prepare the cost report to reflect rehabilitative services provided during the designated cost report reporting period. The cost reports must be submitted to the department no later than 45 days following the end of the designated reporting period unless otherwise specified by the department.
   3. (3) Extension of the due date. The department may grant extensions of due dates for good cause. A good cause is one that the provider agency could not reasonably be expected to control. Provider agencies must submit requests for extensions in writing to the department before the cost report due date. The department will respond to requests within 10 workdays of receipt.
   4. (4) Failure to file an acceptable cost report. If a provider agency fails to file a cost report according to all applicable rules and instructions, the department may withhold all provider payments until the provider agency submits an acceptable cost report.
   5. (5) Allocation method. If allocations of cost are necessary, provider agencies must use and be able to document reasonable methods of allocation. The department adjusts allocated costs if the department considers the allocation method to be unreasonable. The provider agency 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. Provider agencies must certify the accuracy of cost reports submitted to the department in the format specified by the department. Provider agencies may be liable for civil and/or criminal penalties if they misrepresent or falsify information.
   7. (7) Cost data supplements. The department may require additional financial and statistical information other than the information contained on the cost report.
   8. (8) Review of cost reports. The department staff review 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. The department reviews all cost reports according to the criteria specified in §409.3 of this title (relating to Basic Objectives and Criteria for Desk Review of Cost Reports). If a provider agency fails to complete the cost report according to instructions or rules, the department returns the cost report to the provider agency for proper completion. The department may require information other than that contained in the cost report to substantiate reported information.
   9. (9) On-site audits. The department may perform on-site audits on all provider agencies that participate in the Medicaid program for rehabilitative services. The department 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. The department notifies providers of exclusions and adjustments to reported expenses made during desk reviews and on-site audits of cost reports as specified in §409.5 of this title (relating to Notification).
   11. (11) Access to records. Each provider agency must allow access to all records necessary to verify cost report information submitted to TDMHMR. Such records include those pertaining to related-party transactions and other business activities engaged in by the provider agency. If a provider agency does not allow inspection of pertinent records within 14 days following written notice from the department, a hold is placed on vendor payments until access to the records is allowed. If the provider agency continues to deny access to records, the department may terminate the provider agreement with the provider agency.
   12. (12) Record keeping requirements. Provider agencies must maintain service delivery records and eligibility determination for a period of five years or until any audit exceptions are resolved (whichever is later). Provider agencies 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 provider agency fails to maintain adequate records to support the financial and statistical information reported in cost reports, the department allows 30 days for the provider to bring record keeping into compliance. If a provider agency fails to correct deficiencies within 30 days from the date of notification of the deficiency, the department may terminate the provider agreement with the provider agency.

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

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

   2. (2) Data collection. The department 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; plus material and supply expenses.

      1. (A) Server time is reported by the type of service delivered. These services are specified in §409.356 of this title (relating to Reimbursable Rehabilitative Service Definitions: Community Support Services); §409.357 of this title (relating to Reimbursable Rehabilitative Service Definitions: Day Program Services for Acute Needs); §409.358 of this title (relating to Reimbursable Rehabilitative Service Definitions: Day Program Services for Skills Training); and §409.359 of this title (relating to Reimbursable Rehabilitative Service Definitions: Day Program Services for Skills Maintenance; Plan of Care Oversight--Adults and Children).
      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. The department 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 provider that, while not directly part of the rehabilitative program, constitute costs which support the operations of the rehabilitative program.

   3. (3) Reimbursement methodology. The department determines the recommended reimbursement using the following method:

      1. (A) Projected and adjusted costs. Reported costs are projected and adjusted prior to calculations for determining reimbursement. The department 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. The department determines reasonable and appropriate economic adjusters, as specified in §409.4 of this title (relating to Determination of Inflation Indices), to calculate the projected expenses. The Implicit Price Deflator for Personal Consumption Expenditures (IPD-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 providers, wage inflation factors are based on wage and hour survey information submitted on cost reports or special surveys or the IPD-PCE, when wage and hour survey information is unavailable. For state-operated providers, the inflation factor is based on wage increases approved by the Texas Legislature. The department adjusts reimbursement if new legislation, regulations, or economic factors affect costs, as specified in §409.6 of this title (relating to Adjusting Rates when New Legislation, Regulations, or Economic Factors Affect Costs).
      2. (B) Reimbursement determination. For each type of rehabilitative service each provider's projected cost per unit of service is calculated. The mean provider cost per unit of service is calculated, and the statistical outliers (those providers whose unit costs exceed plus or minus (+/-) two standard deviations of the mean 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. The Texas Mental Health and Mental Retardation Board establishes the reimbursement in an open meeting after consideration of financial and statistical information and public testimony. The board sets reimbursements that, in its opinion, are within budgetary constraints, adequate to reimburse the cost of operations for an economic and efficient provider, and justifiable given current economic conditions.
      4. (D) Reviews of cost report disallowances. A provider agency may request notification of the exclusions and adjustments to reported expenses made during either desk reviews or on-site audits, according to §409.5 of this title (relating to Notification). Providers may request an informal review and, if necessary, an administrative hearing to dispute the action taken by the department under §409.7 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 contracted provider agency 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, the department 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 contract;
         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 expense 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 (as defined in §419.453 of Title 25 (relating to Definitions)) 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 (as defined in §419.453 of Title 25 (relating to Definitions)).

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.