E6-16600. Notice of Hearing: Reconsideration of Disapproval of Oregon State Plan Amendment 05-003

AGENCY:

Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION:

Notice of hearing.

SUMMARY:

This notice announces an administrative hearing to be held on December 8, 2006, at 2201 6th Street, Suite 1101, Seattle, Washington 98121, to reconsider CMS' decision to disapprove Oregon State plan amendment 05-003.

Closing Date: Requests to participate in the hearing as a party must be received by the presiding officer by October 23, 2006.

FOR FURTHER INFORMATION CONTACT:

Kathleen Scully-Hayes, Presiding Officer, CMS, Lord Baltimore Drive, Mail Stop LB-23-20, Baltimore, Maryland 21244, Telephone: [phone].

SUPPLEMENTARY INFORMATION:

This notice announces an administrative hearing to reconsider CMS' decision to disapprove Oregon State plan amendment (SPA) 05-003 which was resubmitted on April 11, 2006. This SPA was disapproved on July 10, 2006. Under SPA 05-003, Oregon proposed to modify the State's methodology for calculating supplemental payments that are tied to the regulatory upper payment limit (UPL) for inpatient hospital services.

This amendment was disapproved because it did not comport with the general requirements of section 1902(a) and the specific requirements of 1902(a)(30)(A) of the Social Security Act (the Act).

At issue in this reconsideration is whether the State has demonstrated that the proposed supplemental payments, in conjunction with regular payments, would result in rates that are consistent with the regulatory UPL established at 42 CFR 447.272 under the authority of section 1902(a)(30)(A) of the Act, which requires that provider payment rates be “consistent with efficiency, economy, and quality of care.” Under that regulatory UPL, rates must be based on a reasonable estimate of what would be paid under Medicare payment principles for the same services. Also at issue is whether, in the absence of such a showing, the State plan can be a sound basis for Federal financial participation (FFP).

In a formal request for additional information and several subsequent discussions, CMS requested that the State demonstrate that its calculation of the UPL for inpatient hospital services would be a reasonable estimate of what would be paid under Medicare payment principles for the same services, which is the standard set forth in the Federal regulations at 42 CFR 447.272(b)(1). Oregon currently uses a case-mix index model to determine the UPL as specified in the approved Medicaid State plan, but proposed in SPA 05-003 to change to a length of stay (LOS) model. Case mix acuity appears to be a more accurate adjuster for Medicaid acuity than the LOS model because it reflects increases in services furnished, as opposed to just being based on the amount of time that patients spend in the hospital. Applying a case-mix index model to services furnished by the Oregon Health and Science University to adjust for Medicaid acuity reduced the UPL for inpatient hospital services for all non-State governmentally owned or operated hospitals by about 25 percent compared to the LOS model. (The difference between the two adjustments is an indication that, while Medicaid patients may have longer lengths of stay, the length of stay does not reflect greater service needs.) In other words, Oregon proposed to use the LOS adjustment instead of the case-mix adjustment, but did not provide CMS any additional information in order to demonstrate that use of the LOS adjustment would accurately reflect UPL requirements, or would otherwise result in rates that were consistent with efficiency, economy, and quality of care pursuant to section 1902(a)(30)(A) of the Act.

Furthermore, under Federal regulations at 42 CFR 430.10, implementing the requirements for State plans in section 1902(a) generally, the State plan must demonstrate to CMS that the plan can serve as a basis for FFP available under section 1903(a)(1) of the Act. Absent information that the proposed rates would be consistent with the applicable UPL, we could not conclude that the proposed rates could be a basis for FFP.

Section 1116 of the Act and Federal regulations at 42 CFR part 430, establish Department procedures that provide an administrative hearing for reconsideration of a disapproval of a State plan or plan amendment. CMS is required to publish a copy of the notice to a State Medicaid agency that informs the agency of the time and place of the hearing, and the issues to be considered. If we subsequently notify the agency of additional issues that will be considered at the hearing, we will also publish that notice.

Any individual or group that wants to participate in the hearing as a party must petition the presiding officer within 15 days after publication of this notice, in accordance with the requirements contained at 42 CFR 430.76(b)(2). Any interested person or organization that wants to participate as amicus curiae must petition the presiding officer before the hearing begins in accordance with the requirements contained at 42CFR 430.76(c). If the hearing is later rescheduled, the presiding officer will notify all participants.

The notice to Oregon announcing an administrative hearing to reconsider the disapproval of its SPA reads as follows:

Allen Douma, M.D., Administrator, Department of Human Services, Health Services, Office of Medical Assistance Programs, 500 Summer Street, NE., E49, Salem, OR 97301-1079.

Dear Dr. Douma:

I am responding to your request for reconsideration of the decision to disapprove the Oregon State plan amendment (SPA) 05-003, which was resubmitted on April 11, 2006, and disapproved on July 10, 2006.

Under SPA 05-003, Oregon was proposing to modify the State's methodology for calculating supplemental payments that are tied to the regulatory upper payment limit (UPL) for inpatient hospital services.

This amendment was disapproved because it did not comport with the general requirements of section 1902(a) and the specific requirements of 1902(a)(30)(A) of the Social Security Act (the Act).

At issue in this reconsideration is whether the State has demonstrated that the proposed supplemental payments, in conjunction with regular payments, would result in rates that are consistent with the regulatory UPL established at 42 CFR 447.272 under the authority of section 1902(a)(30)(A) of the Act, which requires that provider payment rates be “consistent with efficiency, economy, and quality of care.” Under that regulatory UPL, rates must be based on a reasonable estimate of what would be paid under Medicare payment principles for the same services. Also at issue is whether, in the absence of such a showing, the State plan can be a sound basis for Federal financial participation (FFP).

In a formal request for additional information and several subsequent discussions, the Centers for Medicare & Medicaid Services (CMS) requested that the State demonstrate that its calculation of the UPL for inpatient hospital services would be a reasonable estimate of what would be paid under Medicare payment principles for the same services, which is the standard set forth in the Federal regulations at 42 CFR 447.272(b)(1). Oregon currently uses a case-mix index model to determine the UPL as specified in the approved Medicaid State plan, but proposed in SPA 05-003 to change to a length of stay (LOS) model. Case mix acuity appears to be a more accurate adjuster for Medicaid acuity than the LOS model because it reflects increases in services furnished, as opposed to just being based on the amount of time that patients spend in the hospital. Applying a case-mix index model to services furnished by the Oregon Health and Science University to adjust for Medicaid acuity reduced the UPL for inpatient hospital services for all non-State governmentally owned or operated hospitals by about 25 percent compared to the LOS model. (The difference between the two adjustments is an indication that, while Medicaid patients may have longer lengths of stay, the length of stay does not reflect greater service needs.) In other words, Oregon proposed to use the LOS adjustment instead of the case-mix adjustment, but did not provide CMS any additional information in order to demonstrate that use of the LOS adjustment would accurately reflect UPL requirements, or would otherwise result in rates that were consistent with efficiency, economy, and quality of care pursuant to section 1902(a)(30)(A) of the Act.

Furthermore, under Federal regulations at 42 CFR 430.10, implementing the requirements for State plans in section 1902(a) generally, the State plan must demonstrate to CMS that the plan can serve as a basis for FFP available under section 1903(a)(1) of the Act. Absent information that the proposed rates would be consistent with the applicable UPL, we could not conclude that the proposed rates could be a basis for FFP.

I am scheduling a hearing on your request for reconsideration to be held on December 8, 2006, at 2201 6th Avenue, Suite 1101, Seattle, Washington 98121, to reconsider the decision to disapprove SPA 05-003. If this date is not acceptable, we would be glad to set another date that is mutually agreeable to the parties. The hearing will be governed by the procedures prescribed at 42 CFR Part 430.

I am designating Ms. Kathleen Scully-Hayes as the presiding officer. If these arrangements present any problems, please contact the presiding officer at [phone]. In order to facilitate any communication which may be necessary between the parties to the hearing, please notify the presiding officer to indicate acceptability of the hearing date that has been scheduled and provide names of the individuals who will represent the State at the hearing.

Sincerely, Mark B. McClellan, M.D., PhD.

Section 1116 of the Social Security Act (42 U.S.C. 1316); 42 CFR 430.18).

(Catalog of Federal Domestic Assistance program No. 13.714, Medicaid Assistance Program.)

Dated: September 29, 2006.

Mark B. McClellan,

Administrator, Centers for Medicare & Medicaid Services.