1. (a) The Board of the Texas Department of Protective and Regulatory Services (PRS) reviews payment rates for providers of 24-hour residential child care services every other year in an open meeting, after considering financial and statistical information, PRS rate recommendations developed according to the provisions of this subchapter, legislative direction, staff recommendations, agency service demands, public testimony, and the availability of appropriated revenue. Before the open meeting in which rates are presented for adoption, PRS sends rate packets containing the proposed rates and average inflation factor amounts to provider association groups. PRS also sends rate packets to any other interested party, by written request. Providers who wish to comment on the proposed rates may attend the open meeting and give public testimony. Notice of the open meeting is published on the Secretary of State's web site at http://www.sos.state.tx.us/open. If the Board adopts the proposed rates, PRS notifies all foster care providers of the adopted rates by letter.

2. (b) PRS develops rate recommendations for Board consideration for foster homes serving Levels of Care 1 through 4 children as follows:

   1. (1) For all Level of Care 1 rates, PRS analyzes the most recent statistical data available on expenditures for a child published by the United States Department of Agriculture (USDA) from middle income, dual parent households for the "Urban South." USDA data includes costs for age groupings from 0 to 17 years of age. An age differential is included with one rate for children ages 0-11 years, and another rate for children 12 years and older. Foster homes providing services to Level of Care 1 children receive the rate that corresponds to the age of the child in care.

      1. (A) PRS excludes health care costs, as specified in the USDA data, from its calculations since Medicaid covers these costs. USDA specified child-care and education costs are also excluded since these services are available in other PRS day-care programs.
      2. (B) PRS includes the following cost categories for both age groups as specified in the USDA data: housing, food, transportation, clothing, and miscellaneous.
      3. (C) The total cost per day is projected using the Implicit Price Deflator-Personal Consumption Expenditures (IPD-PCE) Index from the period covered in the USDA statistics to September 1 of the second year of the biennium, which is the middle of the biennium that the rate period covers. Information on inflation factors is specified in subsection (h) of this section.

   2. (2) For Levels of Care 2 through 4 rates, PRS analyzes the information submitted in audited foster home cost surveys and related documentation in the following ways:

      1. (A) A statistically valid sample of specialized (therapeutic, habilitative, and primary medical) foster homes complete a cost survey covering one month of service if they meet the following criteria:

         1. (i) the foster home currently has a PRS foster child(ren) residing in the home; and
         2. (ii) the number of children in the home, including the children of the foster parents, is 12 or fewer.
      2. (B) For rates covering the fiscal year 2002-2003 biennium, child-placing agency homes are the only foster homes that complete a cost survey because the children they serve are currently assigned levels of care verified by an independent contractor. By September 1, 2001, children served in PRS specialized foster homes will also be assigned levels of care verified by an independent contractor. All future sample populations completing a one-month foster home cost survey will include both child-placing agency and PRS specialized foster homes. As referenced in subsection (j) of this section, during the 2004-2005 biennium, when the rate methodology is fully implemented, PRS specialized foster homes and child-placing agency foster homes will be required to receive at a minimum the same foster home rate as derived by this subsection.

      3. (C) Cost categories included in the one-month foster home cost survey include:

         1. (i) shared costs, which are costs incurred by the entire family unit living in the home, such as mortgage or rent expense and utilities;
         2. (ii) direct foster care costs, which are costs incurred for PRS foster children only, such as clothing and personal care items. These costs are tracked and reported for the month according to the level of care of the child; and
         3. (iii) administrative costs that directly provide for PRS foster children, such as child-care books, and dues and fees for associations primarily devoted to child care.
      4. (D) A cost per day is calculated for each cost category and these costs are combined for a total cost per day for each level of care served.
      5. (E) A separate sample population is established for each type of specialized foster home (therapeutic, habilitative, and primary medical). Each level of care maintenance rate is established by the sample population's central tendency, which is defined as the mean, or average, of the population after applying two standard deviations above and below the mean of the total population.
      6. (F) The rates calculated for each type of specialized foster home are averaged to derive one foster care maintenance rate for each of the Levels of Care 2 through 4.
      7. (G) The total cost per day is projected using the IPD-PCE Index from the period covered in the cost report to September 1 of the second year of the biennium, which is the middle of the biennium that the rate period covers. Information on inflation factors is specified in subsection (h) of this section.

3. (c) PRS develops rate recommendations for Board consideration for child-placing agencies serving Levels of Care 1 through 4 children as follows:

   1. (1) The rate-setting model defined in subsection (g) of this section is applied to child-placing agencies' cost reports to calculate a daily rate.
   2. (2) At a minimum, child-placing agencies are required to pass through the applicable foster home rate derived from subsection (b) of this section to their foster homes. The remaining portion of the rate is provided for costs associated with case management, treatment coordination, administration, and overhead.

   3. (3) For rate-setting purposes, the following facility types are included as child-placing agencies and will receive the child-placing agency rate:

      1. (A) child-placing agency;
      2. (B) independent foster family/group home;
      3. (C) independent therapeutic foster family/group home;
      4. (D) independent habilitative foster family/group home; and
      5. (E) independent primary medical needs foster family/group home.

4. (d) PRS develops rate recommendations for Board consideration for residential care facilities serving Levels of Care 1 through 6 as follows:

   1. (1) For Levels of Care 1 and 2, PRS applies the same rate paid to child-placing agencies as recommended in subsection (c) of this section.
   2. (2) For Levels of Care 3 through 6, the rate-setting model defined in subsection (g) of this section is applied to residential care facilities' cost reports to calculate a daily rate.

   3. (3) For rate-setting purposes, the following facility types are included as residential care facilities and will receive the residential care facility rate:

      1. (A) residential treatment center;
      2. (B) therapeutic camp;
      3. (C) institution for mentally retarded;
      4. (D) basic care facility;
      5. (E) halfway house; and
      6. (F) maternity home.

5. (e) PRS develops rate recommendations for Board consideration for emergency shelters as follows:

   1. (1) PRS analyzes emergency shelter cost report information included within the rate-setting population defined in subsection (f) of this section. Emergency shelter costs are not allocated across levels of care since, for rate-setting purposes, all children in emergency shelters are considered to be at the same level of care.
   2. (2) For each cost report in the rate-setting population, the total costs are divided by the total number of days of care to calculate a daily rate.
   3. (3) The total cost per day is projected using the IPD-PCE Index from the period covered in the cost report to September 1 of the second year of the biennium, which is the middle of the biennium that the rate period covers. Information on inflation factors is specified in subsection (h) of this section.
   4. (4) The emergency shelter rate is established by the population's central point or central tendency. The measure of central tendency is defined as the mean, or average, of the population after applying two standard deviations above and below the mean of the total population.

6. (f) Level of care rates for contracted providers including child-placing agencies, residential care facilities, and emergency shelters are dependent upon provider cost report information. The following criteria applies to this cost report information:

   1. (1) PRS excludes the expenses specified in §700.1805 and §700.1806 of this title (relating to Unallowable Costs and Costs Not Included in Recommended Payment Rates). Exclusions and adjustments are made during audit desk reviews and on-site audits.

   2. (2) PRS includes therapy costs in its recommended payment rates for emergency shelters and for Levels of Care 3 through 6, and these costs will be considered as allowable costs for inclusion on the provider's annual cost report, only if one of the following conditions applies. The provider must access Medicaid for therapy for children in their care unless:

      1. (A) the child is not eligible for Medicaid or is transitioning from Medicaid Managed Care to fee-for-service Medicaid;
      2. (B) the necessary therapy is not a service allowable under Medicaid;
      3. (C) service limits have been exhausted and the provider has been denied an extension;
      4. (D) there are no Medicaid providers available within 45 miles that meet the needs identified in the service plan to provide the therapy; or
      5. (E) it is essential and in the child's best interest for a non-Medicaid provider to provide therapy to the child and arrange for a smooth coordination of services for a transition period not to exceed 90 days or 14 sessions, whichever is less. Any exception beyond the 90 days or 14 sessions must be approved by PRS before provision of services.

   3. (3) PRS may exclude from the database any cost report that is not completed according to the published methodology and the specific instructions for completion of the cost report. Reasons for exclusion of a cost report from the database include, but are not limited to:

      1. (A) receiving the cost report too late to be included in the database;
      2. (B) low occupancy;
      3. (C) auditor recommended exclusions;
      4. (D) days of service errors;
      5. (E) providers that do not participate in the level of care system;
      6. (F) providers with no public placements;
      7. (G) not reporting costs for a full year;
      8. (H) using cost estimates instead of actual costs;
      9. (I) not using the accrual method of accounting for reporting information on the cost report;
      10. (J) not reconciling between the cost report and the provider's general ledger; and
      11. (K) not maintaining records that support the data reported on the cost report.

   4. (4) PRS requires all contracted providers to complete the first portion of the cost report including contracted provider identification; preparer/contact person; facility license type; reporting period; days of service by level of care provided during the reporting period; facility capacity and occupancy status; and cost report exemption determination. Providers that meet any one of the following criteria are not required to complete the entire cost report:

      1. (A) total number of days of service for state-placed children equal to or less than 10% of total days of service;
      2. (B) total number of PRS days of service equal to or less than 10% of total days of service;
      3. (C) no services provided to PRS children;
      4. (D) services provided to only Level of Care 1 children;
      5. (E) contract with PRS terminated or was not renewed;
      6. (F) occupancy rate for emergency shelters is less than 30%; or
      7. (G) occupancy rate for all other facility types, except for child-placing agencies, is less than 50%.
   5. (5) The occupancy rate equals the total number of days of service provided during the reporting period divided by the maximum operating capacity. The maximum operating capacity is the number of residents the facility is equipped to serve multiplied by the number of days in the reporting period.

   6. (6) All contracted providers not meeting the exemption criteria defined in paragraph (4) of this subsection are included in the rate-setting population and must complete the entire cost report for rate-setting purposes, including:

      1. (A) all child-placing agencies because they do not report occupancy;
      2. (B) emergency shelters with a 30% or more overall occupancy rate; and
      3. (C) all other facilities with a 50% or more overall occupancy rate.

7. (g) A rate-setting model is applied to child-placing agencies' and residential care facilities' cost report information included within the rate-setting population defined in subsection (f) of this section. Three allocation methodologies are used in the rate-setting model to allocate allowable costs among the levels of care of children that are served. The methodologies are explained below and are applied as follows:

   1. (1) The first methodology is a staffing model, validated by a statistically valid foster care time study, driven by the number of direct care and treatment coordination staff assigned to a child-placing agency or residential care facility to care for the children at different levels of care. The staffing model produces a staffing complement that is applied to direct care costs to allocate the costs among the levels of care.

      1. (A) Staff positions reported on the direct care labor area of the cost report are grouped into the following categories to more clearly define the staffing complement required at each level of care:

         1. (i) case management;
         2. (ii) treatment coordination;
         3. (iii) direct care;
         4. (iv) direct care administration; and
         5. (v) medical.

      2. (B) A categorized staffing complement for each Level of Care 1 through 6 is derived as follows:

         1. (i) A 14-day foster care time study is applied to a representative sample of residential care facilities and child-placing agencies that completed a cost report.
         2. (ii) Contracted staff, or employees, within the sampled facilities complete a foster care time study daily activity log that assigns half-hour units of each employee's time to the individual child(ren) with whom the employee is engaged during the time period. By correlating the distribution of the employee's time with the level of care assigned to each child, the employee's time is distributed across the Levels of Care 1 through 6.

         3. (iii) The foster care time study daily activity log also captures the type of activity performed. The total amount of time spent in each of these activities is a component in determining the number of staff needed in each of the categories included in the staffing complement. The activities performed include:

            1. (I) care and supervision;
            2. (II) treatment planning and coordination;
            3. (III) medical treatment and dental care; and
            4. (IV) other (administrative, managerial, training functions, or personal time).
         4. (iv) An analysis of the cumulative frequency distribution of these time units by level of care of all children served in the sample population, by category of staff performing the activity, and by type of activity, establishes appropriate staffing complements for each level of care in child-placing agencies and in residential care facilities. These time units by level of care are reported as values that represent the equivalent of a full-time employee. The results are reported in the following chart for incorporation into the rate-setting model:
            Attached Graphic
            
         5. (v) The foster care time study should be conducted every other biennium, or as needed, if service levels substantially change.
      3. (C) Staff position salaries and contracted fees are reported as direct care labor costs on the cost reports. Each staff position is categorized according to the staffing complement outlined for the time study. The salaries and contracted fees for these positions are grouped into the staffing complement categories and are averaged for child-placing agencies and residential care facilities included in the rate-setting population. This results in an average salary for each staffing complement category (case management, treatment coordination, direct care, direct care administration, and medical).
      4. (D) The staffing complement values, as outlined in the chart at paragraph (1)(B)(iv) of this subsection, are multiplied by the appropriate average salary for each staffing complement category. The products for all of the staffing complement categories are summed for a total for each level of care for both child-placing agencies and residential care facilities. The total by level of care is multiplied by the number of days of service in each level of care, and this product is used as the primary allocation statistic for assigning each provider's direct care costs to the various levels of care.

      5. (E) Direct care costs include the following areas from the cost reports:

         1. (i) direct care labor;
         2. (ii) total payroll taxes/workers compensation; and
         3. (iii) direct care non-labor for supervision/recreation, direct services, and other direct care (not CPAs).

   2. (2) The second methodology allocates the following costs by dividing the total costs by the total number of days of care for an even distribution by day regardless of level of care. This amount is multiplied by the number of days served in each level:

      1. (A) direct care non-labor for dietary/kitchen;
      2. (B) building and equipment;
      3. (C) transportation;
      4. (D) tax expense; and
      5. (E) net educational and vocational service costs.

   3. (3) The third methodology allocates the following administrative costs among the levels of care by totaling the results of the previous two allocation methods, determining a percent of total among the levels of care, and applying those percentages:

      1. (A) administrative wages/benefits;
      2. (B) administration (non-salary);
      3. (C) central office overhead; and
      4. (D) foster family development.

   4. (4) The allocation methods described in paragraphs (1)-(3) of this subsection are applied to each child-placing agency and residential care facility in the rate-setting population, and separate rates are calculated for each level of care served. Rate information is included in the population to set the level of care rate if the following criteria are met:

      1. (A) Providers must have at least 30% of their service days within Levels of Care 3 through 6 for residential settings. For example, for the provider's cost report data to be included for calculating the Level of Care 3 rate, a provider must provide Level of Care 3 services for at least 30% of their service days.
      2. (B) For Levels of Care 5 and 6, a contracted provider could provide up to 60% of "private days" services to be included in the rate-setting population. They must provide at least 40% state-placed services.
   5. (5) Considering the criteria in paragraph (4) of this subsection, the rate-setting population is fully defined for each level of care. Based on this universe, each level of care rate will be established by the group's central point or central tendency. The measure of central tendency is defined as the mean, or average, of the population after applying two standard deviations above and below the mean of the total population.
   6. (6) The total cost per day for each child-placing agency and residential care facility is projected using the IPD-PCE Index from the period covered in the cost report to September 1 of the second year of the biennium, which is the middle of the biennium that the rate period covers. Information on inflation factors is specified in subsection (h) of this section.
8. (h) PRS uses the Implicit Price Deflator - Personal Consumption Expenditures (IPD-PCE) Index, which is a general cost inflation index, to calculate projected allowable expenses. The IPD-PCE Index is a nationally recognized measure of inflation published by the Bureau of Economic Analysis of the United States Department of Commerce. PRS uses the lowest feasible IPD-PCE Index forecast consistent with the forecasts of nationally recognized sources available to PRS when the rates are prepared. Upon written request, PRS will provide inflation factor amounts used to determine rates.
9. (i) All reimbursement rates will be equitably adjusted to the level of appropriations authorized by the Legislature.
10. (j) There will be a transition period for the fiscal year 2002-2003 biennium. During this period current rates will not be reduced, and any increased funding will be applied to those levels of care that are less adequately reimbursed according to the methodology. Since increased funding was appropriated at a different percentage for each year of the 2002-2003 biennium, the rates will be set separately for each year instead of setting a biennial rate, and inflation factors will be applied to the middle of each year of the biennium. Full implementation of the methodology will occur during the fiscal year 2004-2005 biennium.
11. (k) The Board may adjust payment rates, if determined appropriate, when federal or state laws, rules, standards, regulations, policies, or guidelines are changed or adopted. These adjustments may result in increases or decreases in payment rates. Providers must be informed of the specific law, rule, standard, regulation, policy or guideline change and be given the opportunity to comment on any rate adjustment resulting from the change prior to the actual payment rate adjustment.
12. (l) To implement Chapter 1022 of the Acts of the 75th Texas Legislature, §103, the executive director may develop and implement one or more pilot competitive procurement processes to purchase substitute care services, including foster family care services and specialized substitute care services. The pilot programs must be designed to produce a substitute care system that is outcome-based and that uses PRS's outcome measures. Rates for the pilot(s) will be the result of the competitive procurement process, but must be found to be reasonable by the executive director. Rates are subject to adjustment as allowed in subsections (a) and (k) of this section.

Source Note:The provisions of this §700.1802 adopted to be effective September 13, 2001, 26 TexReg 6962.