SB17: Bill Text

SB17,6,22 Chapter 196

SB17,6,24 Subchapter II Hospital rate setting

SB17,6,25 196.991 Definitions. In this subchapter:

SB17,7,2 (1) "Capital expenditure limit" means the maximum amount of capital expenditures that may be approved under s. 196.9998.

SB17,7,5 (1m) "Capital project" means a proposed capital expenditure that exceeds $1,000,000 or, if the purpose of converting to a new use or renovating part or all of a hospital, a proposed capital expenditure that exceeds $1,500,000.

SB17,7,6 (2) "Commission" means the public service commission.

SB17,7,7 (3) "Consumer price index" has the meaning given in s. 16.004 (8) (e) 1.

SB17,7,9 (4) "Hospital" has the meaning given in s. 50.33 (2), except that "hospital" does not include a center for the developmentally disabled, as defined in s. 51.01 (3).

SB17,7,12 (5) "Rates" means individual charges of a hospital for the services that it provides or, if authorized under s. 196.999 (3), the aggregate charges based on case mix measurements.

SB17,7,17 196.992 Prospective rate setting. Beginning on July 1, 1998, the commission shall establish and may regularly revise maximum hospital rates on a prospective basis. The commission shall publish biennial reports showing its proceedings, together with information necessary to describe the rate of hospital cost increases and the financial condition of hospitals.

SB17,7,18 196.993 Rule making. The commission shall promulgate all of the following:

SB17,7,20 (1) Rules that implement this subchapter. At least 2 commissioners must sign any rules that are promulgated to interpret s. 196.992.

SB17,7,22 (2) Rules that establish the rate for assessments that are authorized under s. 196.9996.

SB17,8,3 196.994 Requests for a rate change. (1) The commission shall create a schedule allowing each hospital to request rate changes annually, on or after the date the hospital receives its audited financial statements. The commission may schedule a review of the hospital's rates and revise the rates on its own initiative or at the request of any person when good cause is shown. A hospital may submit a rate request on or after the scheduled date.

SB17,8,12 (2) Within 10 days after it submits a rate request under sub. (1), the hospital shall publish a class 1 notice under ch. 985. If the hospital fails to submit a rate request by the date scheduled for a review under sub. (1), the commission shall publish a class 1 notice under ch. 985 within 10 days after the date scheduled for the review. This notice, whether published by the hospital or the commission, shall inform the public of the review, summarize the rate sought, if any, and state the process by which interested persons may become parties to the review. A person may become a party to the review only by notifying the commission in writing within 30 days after the date the notice is published.

SB17,8,22 (3) Each hospital shall submit its proposed financial requirements to the commission at the same time that it submits a rate request. Except as provided in s. 196.999 (4) (g), each hospital shall provide the commission with the information that the commission determines is necessary to perform its responsibilities with respect to setting rates and monitoring established rates. Patient care and other organizations and hospital corporate affiliates that generate financial requirements of a hospital under review shall also release to the commission financial or other statistical information related to the financial requirements that the commission determines is necessary to perform its responsibilities with respect to setting rates and monitoring established rates.

SB17,8,24 (4) The commission may require hospitals to conform with a uniform reporting system.

SB17,9,2 (5) The commission shall establish and regularly publish a list of the 25 most heavily used charge elements for hospitals.

SB17,9,4 196.995 Financial requirements. (1) Financial requirements of each hospital that submits a rate request shall include:

SB17,9,12 (a) Necessary operating expenses, including wages, employe fringe benefits, purchased services, professional fees, repairs and maintenance, dietary and medical supplies, pharmaceuticals, utilities, insurance, standby costs and applicable taxes. Any amount representing the value of services performed by members of a religious order or other organized religious group may only be included if actually paid to members of the religious group and shall be equivalent to the amounts paid to employes for similar work. The commission may not use previously accumulated depreciation of capitalized assets to offset operating expenses.

SB17,9,18 (b) Interest expenses on debt incurred for capital or operating costs. Interest payments on debts incurred for capital costs shall be offset by income earned on investments unless the income is assigned by the donor. For the purpose of calculating the interest expense on debt incurred for capital costs to be included as financial requirements after the sale and revaluation of a hospital, the debt may not exceed the revalued price of the hospital, as provided in sub. (4).

SB17,9,23 (c) Direct and indirect costs of medical education, allied education and research programs approved by the commission, to the extent that the costs are reasonable and necessary to maintain the quality of these programs. Costs under this paragraph shall be reduced by tuition, scholarships, endowments, gifts, grants and similar sources of revenue.

SB17,9,25 (d) Costs of services, facilities and supplies that organizations related to the hospital by common ownership or control furnish to the hospital. These costs shall be calculated as the charge of the furnishing organization, but may not exceed a reasonable amount in relation to the price of comparable services, facilities or supplies that could be purchased elsewhere.

SB17,10,6 (e) Unrecovered costs from private parties who fail to pay the full charge for care provided, unless the hospital fails to maintain sound credit and collection policies to minimize these costs.

SB17,10,7 (f) Fees assessed by the commission or other regulatory agencies.

SB17,10,15 (g) Operating fund working capital requirements. In this paragraph, "working capital requirements" means capital in use to operate the hospital at a level sufficient to avoid unnecessary borrowing, including cash, accounts receivable, inventory and prepaid expenses less accounts payable and accrued interest. Working capital requirements shall be calculated independently of available funds, as defined in par. (i) 1. Working capital requirements shall be calculated based on the net change in the estimated year-end balance of the hospital's year under review, compared to the year-end balance of the hospital's prior fiscal year, for the following accounts:

SB17,10,16 1. Cash.

SB17,10,17 2. Accounts receivable.

SB17,10,18 3. Inventories.

SB17,10,19 4. Prepaid expenses.

SB17,10,20 5. Trade accounts payable.

SB17,10,21 6. Accrued interest payable.

SB17,11,3 (h) An amount necessary to establish and maintain a contingency fund in cash and investments equal to 2% of the budgeted gross revenue for the hospital's year under review. The hospital shall use cash and investments to establish and maintain its contingency fund and shall use the fund to meet unexpected expenses. The commission may review any expenditure of contingency funds in a prior year that requires restoration in the hospital's year under review for reasonableness, consistent with the nature of the unexpected expense.

SB17,11,7 (i) Capital requirements, calculated as the greater of historical, straight-line depreciation of plant and equipment or the cost of proposed capital purchases as offset by available funds, plus debt retirement expenses, prospective accumulation and capitalized interest. In this paragraph:

SB17,11,21 1. "Available funds" includes cash and investments that are not assigned by the donor and are available to meet capital needs. "Available funds" does not include operating fund working capital requirements, prospective accumulations that are authorized by the commission, donor-restricted or creditor-restricted funds, grants, commitments for capital requirements, debt retirement expenses or the amounts disallowed under s. 196.997 (1) (b). The commission may authorize prospective accumulations if a capital project has lending requirements that necessitate such an accumulation or can lower its interest costs by borrowing, or if financial needs of a hospital occur because of balloon payments. The commission may also authorize prospective accumulations to finance a capital project, if the cost of the capital project equals or exceeds 25% of the hospital's gross patient revenue for the current fiscal year, the hospital has submitted a 3-year capital expenditure plan to the commission and the department indicates that the capital project is consistent with the projected needs of the community.

SB17,11,23 2. "Capital purchases" includes minor remodeling and the purchase of equipment, land, land improvements and leasehold improvements.

SB17,11,25 3. "Depreciation" means the rational allocation of the historical cost of capitalized assets throughout their useful lives.

SB17,12,2 4. "Prospective accumulation" does not include funds that exceed the cost of the capital project for which the funds are accumulated.

SB17,12,4 (j) The amount by which estimated payments by government payers under s. 196.999 (1) (a) exceed actual payments.

SB17,12,6 (k) Financial incentives. The commission shall, by rule, allow financial incentives as additional financial requirements for efficiently operated hospitals.

SB17,12,19 (2) Hospitals may collect revenue from sources other than patients, including gifts and grants, investment income or income from activities incidental to patient care. Revenues from endowment funds or donor-restricted gifts to provide services for designated patients shall offset the cost of those services. No revenue from general endowment funds or unrestricted gifts may be used to offset operating expenses except that revenue from these funds or gifts may be used to offset interest expenses. Revenues received to finance special projects or wages paid to special project employes shall offset the cost of patient services. Revenues from meals sold to visitors or employes, from drugs sold to persons who are not patients, from the operation of gift shops or parking lots or from the provision of televisions, radios or telephones to patients shall offset the cost of these services, subject to the limitation that the amount of revenue offset from any of these services may not exceed the cost of the service.

SB17,12,25 (3) Purchase discounts, the amount by which actual payments by government payers exceed estimated payments under s. 196.999 (1) (a) and allowances and refunds of expenses shall be subtracted from the calculation of financial requirements under sub. (1). Revenues from invested funds shall also be subtracted from the calculation of financial requirements but may not offset an amount that exceeds the hospital's interest expenses.

SB17,13,5 (4) After the sale of a hospital, the commission may calculate depreciation under sub. (1) based on a revaluation of the hospital's plant and equipment in order to determine its reasonable value. The revaluation shall be based on appraisals conducted by 2 independent appraisers, one of whom shall be selected by the hospital and one by the commission. The hospital shall pay the cost of both appraisals.

SB17,13,8 196.996 Standards for decision making. The commission and its staff shall review and evaluate each hospital's proposed financial requirements and rate request in light of a variety of standards for decision making, including:

SB17,13,11 (1) The need to reduce the rate of hospital cost increases while preserving the quality of health care in all parts of the state and taking into account the financial viability of economically and efficiently operated hospitals.

SB17,13,16 (2) Comparisons with prudently administered hospitals of similar size or providing similar services that offer quality health care with sufficient staff. In classifying hospitals according to size and services, the commission shall consider volume, intensity and educational programs and special services provided by hospitals.

SB17,13,18 (3) A variety of cost-related trend factors based on nationally or regionally recognized economic models.

SB17,13,19 (4) The special circumstances of rural hospitals and teaching hospitals.

SB17,13,21 (5) The past budget and rate experiences of the hospital that submits the rate request.

SB17,13,23 (6) Findings of the utilization review program under s. 196.9993 (3) concerning the hospital that submits the rate request.

SB17,13,25 196.997 Initial determinations. (1) After reviewing a hospital's proposed financial requirements, the commission may disallow any of the following:

SB17,14,2 (a) Costs associated with medical services that a utilization review program under s. 196.9993 determines are medically unnecessary or inappropriate.

SB17,14,10 (b) Forty percent of the amount by which patient revenue generated by the hospital during its previous fiscal year exceeds 104% of the hospital's budgeted patient revenue for that year, if the hospital's annual gross patient revenue is less than $5,000,000, adjusted as provided in s. 196.9995, or exceeds 102% of the hospital's budgeted patient revenue for that year, if the hospital's annual gross patient revenue equals or exceeds $5,000,000, adjusted as provided in s. 196.9995. The commission shall, by rule, establish a procedure under which hospitals whose variable costs exceed 65% are subject to a lesser disallowance under this paragraph.

SB17,14,12 (c) Rate overcharges of the hospital that occurred in a prior year and for which payers have not been reimbursed.

SB17,14,16 (d) The amount by which incremental expenses that are associated with the cost of a capital project exceed 105% of the expenses projected in the hospital's application for approval of the capital project. This paragraph does not apply if any of the following applies:

SB17,14,18 1. The hospital demonstrates to the satisfaction of the commission that the excess was due to conditions beyond its control.

SB17,14,19 2. The excess occurs more than 3 years after completion of the capital project.

SB17,14,20 (e) Costs that the commission determines under s. 196.996 are unreasonable.

SB17,15,2 (f) Wages that the record demonstrates to be excessive. In making determinations under this paragraph, the commission shall consider the wage levels offered by hospitals located in a relevant geographic area surrounding the hospital that submitted the rate request as well as by hospitals of similar size or providing similar services. In addition, the commission shall consider the hospital's ability to attract adequate staff and the wage trends in nonregulated, related sectors of the Wisconsin economy.

SB17,15,3 (g) Amounts paid for services regulated under s. 111.18 (2) (a) 1.

SB17,15,10 (2) (a) After reviewing the hospital's financial requirements and rate request, the commission staff shall suggest any disallowances authorized under sub. (1) and shall submit its rate recommendations to the hospital and commission. If it considers the hospital proposal unacceptable, the commission staff shall explain to the hospital what facts and standards cause it to disagree and shall submit alternate recommendations. A hospital that fails to accept any part of the commission staff's recommendations shall request a settlement conference under s. 196.998.

SB17,15,16 (b) 1. Except as provided in subd. 2., the commission staff shall submit its recommendations under par. (a) within 60 days after the date that review commences under s. 196.994 (1), even if the commission staff determines that the data provided by the hospital for a scheduled review are incomplete. The commission staff may, however, recommend a disallowance or an alternate rate, including no rate increase, on the grounds of insufficient data.

SB17,15,19 2. a. The commission staff may extend the deadline specified in subd. 1. by 15 days if it determines that the rate request submitted involves particularly complex issues of fact.

SB17,15,21 b. The deadline specified in subd. 1. may be extended with the consent of the hospital and the commission staff.

SB17,16,5 196.998 Review of determinations. (1) Any hospital that disputes any part of the recommendations of the commission staff under s. 196.997 shall, within 10 days after the recommendations are submitted under s. 196.997 (2), request a settlement conference between its representatives and the commission staff for the purpose of resolving their differences or defining more precisely the nature of their differences. The chairperson of the commission, or a commissioner designated by the chairperson, shall preside over each settlement conference. Within 20 days after the hospital requests a settlement conference, the settlement conference shall be completed.

SB17,16,13 (2) Any hospital that is dissatisfied with the results of its settlement conference under sub. (1) is entitled to a hearing before the commission under sub. (3) if it submits a timely request. Each request for a hearing shall be submitted to the commission within 10 days after the completion of the settlement conference. The hospital may present testimony based on any standard for decision making listed in s. 196.996. All questions of fact shall be determined without ascribing greater weight to evidence presented by commission staff than to evidence presented by any other party solely due to its presentation by the staff.

SB17,16,19 (3) (a) Informal hearings shall be conducted before at least 2 commissioners. Sworn testimony is required only if the presiding commissioners so specify. The commissioners may establish time limits for cross-examination of witnesses and rebuttal arguments and may limit the number of persons who may appear at the hearing. Rules of evidence, except the rule that evidence be relevant to the issues presented, do not apply to informal hearings.

SB17,17,2 (b) A hospital that requests an informal hearing shall present the reasons supporting its proposed rate increase and financial requirements. Commission staff shall respond by explaining its disagreement and its alternate recommendations. Within the time limits specified in par. (a), the hospital, parties to the review and commission staff may each cross-examine witnesses and rebut arguments presented. The hospital, parties to the review and the commission staff may use outside experts to present their position. The presiding commissioners may impose an overall time limit on the length of the hearing.

SB17,17,4 (c) The commission may, by order, conduct a class 1 contested case proceeding under ch. 227 in place of an informal hearing under pars. (a) and (b).

SB17,17,9 (5) The commission shall keep a complete record of all hearings and investigations conducted under sub. (3) using a stenographic, electronic or other method to record all testimony presented. The commission shall provide a transcribed, certified copy of all or any part of this record on the request of any party to a hearing or investigation, but may charge the requester for the costs involved.

SB17,17,14 (6) (a) Any person may request a hearing under s. 227.44, regardless of whether any other hearing is authorized by law or is authorized at the discretion of the commission or whether any other proceeding is authorized by rule of the commission, subject to the limitation that no person may receive more than one contested case hearing concerning a particular act or failure to act by the commission.

SB17,17,16 (b) Notwithstanding par. (a), no person may request a hearing under s. 227.44 pertaining to the subject matter of a hearing under sub. (3).

SB17,17,18 (c) The right to a hearing under s. 227.44, as specified in this subsection, applies only to subject matter pertaining to this subchapter.

SB17,18,6 196.999 Commission orders. (1) (a) The commission shall determine allowable financial requirements under s. 196.995 and disallowances under s. 196.997. From the difference between these amounts, the commission shall subtract the hospital's estimated relief payments and medical assistance payments under ch. 49 and medicare payments under 42 USC 1395 to 1395ccc, unless the commission determines that the hospital's estimates are incorrect, in which case the commission shall subtract its own estimates of the hospital's relief, medical assistance and medicare payments. The commission shall, by order, establish maximum rates that allow the hospital to generate revenue sufficient to provide this remainder. The commission shall, by rule, establish acceptable methods of estimating payments by relief, medical assistance and medicare under this paragraph. Each hospital shall choose one of these methods and use it consistently unless the commission authorizes the hospital to change its method.

SB17,18,15 (b) Unless the hospital requests a hearing under s. 196.998 (3), the commission shall issue its order under par. (a) within 15 days after the commission staff submits its recommendations or, if the hospital requests a settlement conference under s. 196.998 (1), within 15 days after the commission determines that the hospital will not seek a hearing following the conclusion of the settlement conference. If the hospital disputes only part of the recommendations of the commission staff, the commission may establish maximum rates under par. (a) concerning the recommendations with which the hospital agrees prior to the conclusion of the hearing under s. 196.998 (3).

SB17,18,21 (c) If the hospital disputes the recommendations of the commission staff and a hearing is held under s. 196.998 (3) (c), the commission shall establish by order maximum rates for the hospital's year under review at the conclusion of the hearing. If the commission conducts an informal hearing under s. 196.998 (3) (a) and (b), it shall issue its order within 50 days after the date on which the hospital requested the hearing.

SB17,18,25 (d) 1. The commission shall state findings of fact and the reasons supporting each order that it issues concerning financial requirements and rates. If the commission denies any part of a rate request, it shall also specify, as part of its order, any financial requirements that it has disallowed.

SB17,19,21 2. Any hospital may apply an increase in its rates selectively, if the aggregate increase in its rates does not exceed the amount authorized by the commission. Prior to instituting its rate increase, the hospital shall explain to the commission its method of applying the rate increase and allow the commission 5 working days, as defined in s. 227.01 (14), to determine if the aggregate increase in rates exceeds the authorized amount. Failure to disapprove the hospital's method of applying the rate increase within this period constitutes an approval. If the commission approves the hospital's method of applying the rate increase, the commission may not challenge the method prior to the date of a succeeding review under s. 196.994 (1) except as provided in sub. (4) (a). If the commission disapproves the hospital's method of applying the rate increase, it shall recommend an alternate method. If the hospital fails to modify its method of applying the rate increase, the commission may challenge the method in circuit court. In addition to any other remedy the court may impose under s. 196.9994, if the court finds that the hospital's method generates an aggregate increase in the hospital's rates that is inconsistent with the amount authorized by the commission, the hospital shall forfeit an amount equal to 50% of the amount overcharged and shall comply with the alternate method recommended by the commission or with any other method ordered by the court that the court finds more consistent with the commission's order. No hospital may change a method of applying its rate increase that has received the commission's approval without submitting the changes to the commission for its approval under this subdivision.

SB17,20,2 3. Any hospital receiving a rate increase that may only commence between the 2nd and 7th months of its fiscal year may make an adjustment to the rate increase, that applies to that fiscal year only, in order to generate an amount of revenue equal to the amount that would have been generated if the hospital could have commenced the rate increase beginning with the first month of its fiscal year.

SB17,20,6 (e) Except as provided in s. 196.9991, even if a party seeks judicial review of a commission order, the affected hospital may continue to bill payers at the rates established by the commission. No hospital that bills payers under this paragraph adversely affects its right to contest the rates established by the commission.

SB17,20,9 (1m) Notwithstanding sub. (1) (b) and ss. 196.994 (1), 196.997 (2) and 196.998, at the request of a hospital the commission may waive the procedures for review of a rate request and issue an interim order in an emergency.

SB17,20,12 (2) The commission shall determine the rates of each hospital independently using criteria specified in s. 196.996, but in making these determinations the commission may use methods of identifying similar hospitals.

SB17,20,20 (3) The commission may promulgate rules establishing a system that defines rates as aggregate charges based on case mix measurements if the commission submits its proposed system to the joint committee on finance under s. 13.10, receives that committee's approval and holds a public hearing prior to promulgating its rules. Such a system may not take effect prior to July 1, 1998, shall be consistent with the standard under s. 196.996 (1), shall take into account the reasonable financial requirements of hospitals and shall ensure quality of care and a reasonable cost to patients.

SB17,20,21 (4) The commission may not:

SB17,20,25 (a) Reduce rates that it has established, prior to the date the commission schedules a succeeding review under s. 196.994 (1), unless the hospital misstated any material fact at a prior rate-setting proceeding. Projections on the volume of hospital services utilized do not constitute material facts under this paragraph.

SB17,21,2 (b) During a succeeding review under s. 196.994 (1), reduce rates from levels that it has previously established, except in any of the following situations:

SB17,21,4 1. The hospital implements an unauthorized increase in its approved rates, unless the increase is trivial.

SB17,21,6 2. The hospital uses the funds that it has prospectively accumulated for an authorized capital project for purposes other than the authorized project.

SB17,21,8 4. The hospital's actual total revenue for its fiscal year exceeds it actual total financial requirements by more than 10%.