KRS 205.6406: Hospital rate improvement programs -- Calculation and payment of

assessment on hospitals to provide state matching dollars for federal Medicaid

funds -- Supplemental payments to hospitals -- Federal participation and

approval required for implem entation of programs -- Modification upon

approval of supplemental payment formula -- Program to increase outpatient

reimbursement.

(1) To the extent allowable under federal law, the department shall develop the

following programs to increase Medicaid reim bursement for inpatient and

outpatient hospital services provided by a qualifying hospital to Medicaid

recipients:

(a) A program to increase inpatient reimbursement to qualifying hospitals within

the Medicaid fee -for-service program in an aggregate amount equivalent to

the UPL gap;

(b) A program to increase inpatient reimbursement to qualifying hospitals within

the Medicaid managed care program in an aggregate amount equivalent to the

managed care gap for inpatient services; and

(c) A program to increase outpatient reimbursement to qualifying hospitals within

the Medicaid managed care program in an aggregate amount equivalent to the

managed care gap for outpatient services.

(2) On an annual basis prior to the start of each program year, the department shall

determine:

(a) The maximum allowable UPL for inpatient services provided in the Kentucky

Medicaid fee-for-service program;

(b) The fee-for-service UPL gap for applicable ownership groups;

(c) A per discharge uniform add -on amount to be applied to Medicaid fee-for-

service discharges at qualifying hospitals for that program year, determined

by dividing the UPL gap for the applicable ownership group by total fee -for-

service hospital inpatient discharges at qualifying hospitals in the data used to

calculate the UPL gap. Claims for discharges that already receive an enhanced

rate at qualifying hospitals that also are classified as a pediatric teaching

hospital or as a psychiatric access hospital shall be excluded from the

calculation of the per discharge uniform add-on, unless the department is

required to include these claims to obtain federal approval;

(d) The maximum managed care gap for inpatient services;

(e) A per discharge uniform add -on amount to be applied to Medicaid managed

care discharges at qualifying hospitals for that program year in an amount that

is calculated by dividing the managed care gap for inpatient services by total

managed care in-state qualifying hospital inpatient discharges in the data used

to calculate the managed care gap. Claims for discharges that already receive

an enhanced rate at qualifying hospitals that also are classified as a pediatric

teaching hospital or as a psychiatric access hospital shall be excluded from the

calculation of the per discharge uniform add -on, unless the de partment is

required to include these claims to obtain federal approval;

(f) The maximum managed care gap for outpatient services; and

(g) A uniform add-on amount to be paid to each qualifying hospital to supplement

Medicaid managed care payments for outpatient services performed by the

qualifying hospital in a program year. The uniform add -on amount payable to

each qualifying hospital shall be:

1. A uniform percentage increase calculated by dividing the managed care

gap for outpatient services by the total payments from managed care to

in-state qualifying hospitals for outpatient services taken from the data

used to calculate the managed care gap for outpatient services unless a

different method for calculating the uniform add -on amount is required

by the Centers for Medicare and Medicaid Services; and

2. Made as a lump-sum payment to each qualifying hospital on a quarterly

basis unless a diff erent method for paying qualifying hospitals the

uniform add -on amount is required by the Centers for Medicare and

Medicaid Services.

At least thirty (30) days prior to the beginning of each program year, the department

shall provide each qualifying hospi tal the opportunity to verify the base data to be

utilized in both the fee -for-service and managed care gap calculations for both

inpatient and outpatient services, with data sources and methodologies identified.

(3) On a quarterly basis in the program year, the department shall:

(a) Calculate a fee -for-service quarterly supplemental payment for each

qualifying hospital using fee -for-service claims for inpatient discharges paid

in the quarter to the qualifying hospital multiplied by the uniform add -on

amount determined in subsection (2)(c) of this section;

(b) Calculate a managed care quarterly supplemental payment for each qualifying

hospital to be paid by each managed care organization using managed care

encounter claims for inpatient discharges received in the quarter multiplied by

the uniform add-on amount determined in subsection (2)(e) of this section;

(c) Calculate a managed care quarterly supplemental payment for each qualifying

hospital to be paid by each managed care organization as determined in

subsection (2)(g) of this section;

(d) Make the quarterly supplemental payment calculated under paragraph (a) of

this subsection;

(e) Provide each managed care organization with a listing of the supplemental

payments as calculated under paragraphs (b) and (c ) of this subsection to be

paid by each managed care organization to each qualifying hospital for both

inpatient and outpatient services;

(f) Provide each managed care organization with a supplemental capitation

payment to cover the managed care organizati on's quarterly supplemental

payments to be paid to qualifying hospitals for both inpatient and outpatient

services in the quarter;

(g) Determine the amount of state funds necessary to obtain federal matching

funds that equal the total quarterly supplementa l payments to be paid to all

qualifying hospitals in both the fee -for-service and the Medicaid managed

care programs authorized by this section;

(h) For purposes of the inpatient program authorized by subsection (1)(b) of this

section, determine a per disc harge hospital inpatient assessment for the

quarter for each qualifying hospital, which shall be calculated by first

applying towards the state share determined under paragraph (g) of this

subsection the qualifying hospital disproportionate share percentag e of the

excess disproportionate share taxes and then dividing the remaining state

share by the total discharges reported by all in -state qualifying hospitals on

the Medicare cost report filed by those qualifying hospitals in the calendar

year two (2) years prior to the program year;

(i) Determine each qualifying hospital's quarterly inpatient assessment by

multiplying the assessment established in paragraph (h) of this subsection by

the hospital's total discharges from the qualifying hospital's Medicare co st

report filed in the calendar year two (2) years prior to the program year;

(j) For purposes of the outpatient program authorized by subsection (1)(c) of this

section, determine each qualifying hospital's assessment to be contributed to

the state's share of this outpatient program as calculated under paragraph (g)

of this subsection. Each qualifying hospital's outpatient assessment shall be a

percentage of the state share calculated as the qualifying hospital's total

outpatient net revenue divided by the total outpatient net revenue of all

qualifying hospitals on the Medicare cost reports filed in the calendar year

two (2) years prior to the program year;

(k) Determine each qualifying hospital's quarterly outpatient assessment by

multiplying the outpatient portion of the assessment established in paragraph

(g) of this subsection by the hospital's percentage established in paragraph (j)

of this subsection; and

(l) Provide each qualifying hospital with a notice sent on the same day as the

distribution to mana ged care organizations of the supplemental capitation

payments pursuant to paragraph (f) of this subsection, of the qualifying

hospital's quarterly assessment, that shall state the total amount due from the

assessment, the date assessment is due, the total number of inpatient paid

claims and total outpatient payments used to calculate the qualifying hospital's

quarterly supplemental distribution, and the amount of quarterly supplemental

distribution payments for inpatient and outpatient services due to be r eceived

by the qualifying hospital from the department and each Medicaid managed

care organization.

(4) In calculating the quarterly supplemental payments under subsection (3)(a), (b), and

(c) of this section for qualifying hospitals that are also classifi ed as a pediatric

teaching hospital or as a psychiatric access hospital, no add -on shall be applied to

the paid claims for the services for which that hospital also receives supplemental

payments pursuant to state plan methodologies and managed care contracts in effect

on January 1, 2019.

(5) Each qualifying hospital shall receive four (4) quarterly supplemental payments in

the program year, as determined under subsection (3) of this section.

(6) Medicaid managed care organizations shall pay the supplementa l payments to

qualifying hospitals within five (5) business days of receiving the supplemental

capitation payment from the department.

(7) A qualifying hospital shall pay its quarterly assessment no later than fifteen (15)

days from the date the qualifying hospital is notified of the assessment from the

department. A non -state government -owned hospital may make payment of its

assessment through an intergovernmental transfer. The department may delay or

withhold a portion of the supplemental payment if a hos pital is delinquent in its

payment of a quarterly assessment.

(8) The department shall complete the actions required under subsection (3) of this

section expeditiously and within the same quarter as all required information is

received.

(9) Qualifying hospitals may notify the department of errors in the data used to make a

quarterly supplemental payment by providing documentation within thirty (30) days

of receipt of a quarterly supplemental payment from a Medicaid managed care

organization. If the departme nt agrees that an error occurred in a qualifying

hospital's quarterly supplemental payment, the department shall reconcile the

payment error through an adjustment in the qualifying hospital's next quarterly

supplemental payment.

(10) The programs in this s ection shall not be implemented if federal financial

participation is not available or if the provider tax waiver is not approved. A

qualifying hospital shall have no obligation to pay an assessment if any federal

agency determines that federal financial p articipation is not available for any

assessment. Any assessments received by the department that cannot be matched

with federal funds shall be returned pro rata to the qualified hospitals that paid the

assessments.

(11) The department may implement the ho spital rate improvement programs only if

Medicaid state plan amendments required for federal financial participation are

approved by the United States Centers for Medicare and Medicaid Services.

(12) The assessment authorized under KRS 205.6405 to 205.6408 shall be restricted for

use to accomplish the inpatient and outpatient reimbursement increases established

under this section. The Commonwealth shall not maintain or revert funds received

under KRS 205.6405 to 205.6408 to the state general fund, except th at the

department may receive two hundred fifty thousand dollars ($250,000) in state

funds each program year to administer the programs. The department shall not

establish Medicaid fee -for-service rate -setting methodology changes that result in

rate reductions from policies in effect as of October 1, 2018, for acute care hospitals

and July 1, 2019, for hospitals paid on a per diem basis.

(13) The department shall promulgate administrative regulations to implement the

provisions of KRS 205.6405 to 205.6408.

(14) If the department submits, and the United States Centers for Medicare and

Medicaid Services (CMS) approves, a supplemental payment form ula that permits

the managed care gap to be calculated based upon a percentage of average

commercial rates (ACR) that results in a total annual supplemental payment greater

than eighty percent (80%) of ACR for both inpatient and outpatient services,

instead of the Medicare upper payment limit, then the hospital rate improvement

programs for qualifying hospitals shall be modified as follows:

(a) The amount of funds the department may receive to administer the programs

as stated in subsection (12) of this sec tion shall be replaced by an

administrative fee that shall be calculated to be an amount equal to four

percent (4%) of the assessment collected under this section. The

administrative fee payable under this paragraph shall accrue only for

supplemental payme nts attributable to state fiscal year 2021 -2022 and for

state fiscal years thereafter so long as CMS approves the supplemental

payment formula in accordance with this subsection. The administrative fee

shall be paid within thirty (30) days after supplement al payments for inpatient

and outpatient services are issued to qualifying hospitals; and

(b) The department shall not be required under KRS 205.6408 to transfer any

excess disproportionate share taxes to the hospital Medicaid assessment fund

for use as state matching dollars for the payments made under this section.

(15) To the extent federal matching funds are available, the department may create a

program to increase outpatient reimbursement to qualifying hospitals within the

Medicaid fee -for-service pro gram in an aggregate amount equivalent to the UPL

gap.