SB17,6,11 10REGULATION OF PUBLIC UTILITIES
11service commission
SB17, s. 11 12Section 11. Subchapter I (title) of chapter 196 [precedes 196.01] of the statutes
13is created to read:
SB17,6,1414 chapter 196
SB17,6,1515 subchapter I
SB17,6,1616 regulation of public utilities
SB17, s. 12 17Section 12. 196.01 (intro.) of the statutes is amended to read:
SB17,6,19 18196.01 Definitions. (intro.) As used in this chapter subchapter and ch. 197,
19unless the context requires otherwise:
SB17, s. 13 20Section 13. Subchapter II of chapter 196 [precedes 196.991] of the statutes is
21created to read:
SB17,6,2222 Chapter 196
SB17,6,2423 Subchapter II
24 Hospital rate setting
SB17,6,25 25196.991 Definitions. In this subchapter:
SB17,7,2
1(1) "Capital expenditure limit" means the maximum amount of capital
2expenditures that may be approved under s. 196.9998.
SB17,7,5 3(1m) "Capital project" means a proposed capital expenditure that exceeds
4$1,000,000 or, if the purpose of converting to a new use or renovating part or all of
5a hospital, a proposed capital expenditure that exceeds $1,500,000.
SB17,7,6 6(2) "Commission" means the public service commission.
SB17,7,7 7(3) "Consumer price index" has the meaning given in s. 16.004 (8) (e) 1.
SB17,7,9 8(4) "Hospital" has the meaning given in s. 50.33 (2), except that "hospital" does
9not include a center for the developmentally disabled, as defined in s. 51.01 (3).
SB17,7,12 10(5) "Rates" means individual charges of a hospital for the services that it
11provides or, if authorized under s. 196.999 (3), the aggregate charges based on case
12mix measurements.
SB17,7,17 13196.992 Prospective rate setting. Beginning on July 1, 1998, the
14commission shall establish and may regularly revise maximum hospital rates on a
15prospective basis. The commission shall publish biennial reports showing its
16proceedings, together with information necessary to describe the rate of hospital cost
17increases and the financial condition of hospitals.
SB17,7,18 18196.993 Rule making. The commission shall promulgate all of the following:
SB17,7,20 19(1) Rules that implement this subchapter. At least 2 commissioners must sign
20any rules that are promulgated to interpret s. 196.992.
SB17,7,22 21(2) Rules that establish the rate for assessments that are authorized under s.
22196.9996.
SB17,8,3 23196.994 Requests for a rate change. (1) The commission shall create a
24schedule allowing each hospital to request rate changes annually, on or after the date
25the hospital receives its audited financial statements. The commission may schedule

1a review of the hospital's rates and revise the rates on its own initiative or at the
2request of any person when good cause is shown. A hospital may submit a rate
3request on or after the scheduled date.
SB17,8,12 4(2) Within 10 days after it submits a rate request under sub. (1), the hospital
5shall publish a class 1 notice under ch. 985. If the hospital fails to submit a rate
6request by the date scheduled for a review under sub. (1), the commission shall
7publish a class 1 notice under ch. 985 within 10 days after the date scheduled for the
8review. This notice, whether published by the hospital or the commission, shall
9inform the public of the review, summarize the rate sought, if any, and state the
10process by which interested persons may become parties to the review. A person may
11become a party to the review only by notifying the commission in writing within 30
12days after the date the notice is published.
SB17,8,22 13(3) Each hospital shall submit its proposed financial requirements to the
14commission at the same time that it submits a rate request. Except as provided in
15s. 196.999 (4) (g), each hospital shall provide the commission with the information
16that the commission determines is necessary to perform its responsibilities with
17respect to setting rates and monitoring established rates. Patient care and other
18organizations and hospital corporate affiliates that generate financial requirements
19of a hospital under review shall also release to the commission financial or other
20statistical information related to the financial requirements that the commission
21determines is necessary to perform its responsibilities with respect to setting rates
22and monitoring established rates.
SB17,8,24 23(4) The commission may require hospitals to conform with a uniform reporting
24system.
SB17,9,2
1(5) The commission shall establish and regularly publish a list of the 25 most
2heavily used charge elements for hospitals.
SB17,9,4 3196.995 Financial requirements. (1) Financial requirements of each
4hospital that submits a rate request shall include:
SB17,9,125 (a) Necessary operating expenses, including wages, employe fringe benefits,
6purchased services, professional fees, repairs and maintenance, dietary and medical
7supplies, pharmaceuticals, utilities, insurance, standby costs and applicable taxes.
8Any amount representing the value of services performed by members of a religious
9order or other organized religious group may only be included if actually paid to
10members of the religious group and shall be equivalent to the amounts paid to
11employes for similar work. The commission may not use previously accumulated
12depreciation of capitalized assets to offset operating expenses.
SB17,9,1813 (b) Interest expenses on debt incurred for capital or operating costs. Interest
14payments on debts incurred for capital costs shall be offset by income earned on
15investments unless the income is assigned by the donor. For the purpose of
16calculating the interest expense on debt incurred for capital costs to be included as
17financial requirements after the sale and revaluation of a hospital, the debt may not
18exceed the revalued price of the hospital, as provided in sub. (4).
SB17,9,2319 (c) Direct and indirect costs of medical education, allied education and research
20programs approved by the commission, to the extent that the costs are reasonable
21and necessary to maintain the quality of these programs. Costs under this
22paragraph shall be reduced by tuition, scholarships, endowments, gifts, grants and
23similar sources of revenue.
SB17,9,2524 (d) Costs of services, facilities and supplies that organizations related to the
25hospital by common ownership or control furnish to the hospital. These costs shall

1be calculated as the charge of the furnishing organization, but may not exceed a
2reasonable amount in relation to the price of comparable services, facilities or
3supplies that could be purchased elsewhere.
SB17,10,64 (e) Unrecovered costs from private parties who fail to pay the full charge for
5care provided, unless the hospital fails to maintain sound credit and collection
6policies to minimize these costs.
SB17,10,77 (f) Fees assessed by the commission or other regulatory agencies.
SB17,10,158 (g) Operating fund working capital requirements. In this paragraph, "working
9capital requirements" means capital in use to operate the hospital at a level sufficient
10to avoid unnecessary borrowing, including cash, accounts receivable, inventory and
11prepaid expenses less accounts payable and accrued interest. Working capital
12requirements shall be calculated independently of available funds, as defined in par.
13(i) 1. Working capital requirements shall be calculated based on the net change in
14the estimated year-end balance of the hospital's year under review, compared to the
15year-end balance of the hospital's prior fiscal year, for the following accounts:
SB17,10,1616 1. Cash.
SB17,10,1717 2. Accounts receivable.
SB17,10,1818 3. Inventories.
SB17,10,1919 4. Prepaid expenses.
SB17,10,2020 5. Trade accounts payable.
SB17,10,2121 6. Accrued interest payable.
SB17,11,322 (h) An amount necessary to establish and maintain a contingency fund in cash
23and investments equal to 2% of the budgeted gross revenue for the hospital's year
24under review. The hospital shall use cash and investments to establish and maintain
25its contingency fund and shall use the fund to meet unexpected expenses. The

1commission may review any expenditure of contingency funds in a prior year that
2requires restoration in the hospital's year under review for reasonableness,
3consistent with the nature of the unexpected expense.
SB17,11,74 (i) Capital requirements, calculated as the greater of historical, straight-line
5depreciation of plant and equipment or the cost of proposed capital purchases as
6offset by available funds, plus debt retirement expenses, prospective accumulation
7and capitalized interest. In this paragraph:
SB17,11,218 1. "Available funds" includes cash and investments that are not assigned by the
9donor and are available to meet capital needs. "Available funds" does not include
10operating fund working capital requirements, prospective accumulations that are
11authorized by the commission, donor-restricted or creditor-restricted funds, grants,
12commitments for capital requirements, debt retirement expenses or the amounts
13disallowed under s. 196.997 (1) (b). The commission may authorize prospective
14accumulations if a capital project has lending requirements that necessitate such an
15accumulation or can lower its interest costs by borrowing, or if financial needs of a
16hospital occur because of balloon payments. The commission may also authorize
17prospective accumulations to finance a capital project, if the cost of the capital project
18equals or exceeds 25% of the hospital's gross patient revenue for the current fiscal
19year, the hospital has submitted a 3-year capital expenditure plan to the commission
20and the department indicates that the capital project is consistent with the projected
21needs of the community.
SB17,11,2322 2. "Capital purchases" includes minor remodeling and the purchase of
23equipment, land, land improvements and leasehold improvements.
SB17,11,2524 3. "Depreciation" means the rational allocation of the historical cost of
25capitalized assets throughout their useful lives.
SB17,12,2
14. "Prospective accumulation" does not include funds that exceed the cost of the
2capital project for which the funds are accumulated.
SB17,12,43 (j) The amount by which estimated payments by government payers under s.
4196.999 (1) (a) exceed actual payments.
SB17,12,65 (k) Financial incentives. The commission shall, by rule, allow financial
6incentives as additional financial requirements for efficiently operated hospitals.
SB17,12,19 7(2) Hospitals may collect revenue from sources other than patients, including
8gifts and grants, investment income or income from activities incidental to patient
9care. Revenues from endowment funds or donor-restricted gifts to provide services
10for designated patients shall offset the cost of those services. No revenue from
11general endowment funds or unrestricted gifts may be used to offset operating
12expenses except that revenue from these funds or gifts may be used to offset interest
13expenses. Revenues received to finance special projects or wages paid to special
14project employes shall offset the cost of patient services. Revenues from meals sold
15to visitors or employes, from drugs sold to persons who are not patients, from the
16operation of gift shops or parking lots or from the provision of televisions, radios or
17telephones to patients shall offset the cost of these services, subject to the limitation
18that the amount of revenue offset from any of these services may not exceed the cost
19of the service.
SB17,12,25 20(3) Purchase discounts, the amount by which actual payments by government
21payers exceed estimated payments under s. 196.999 (1) (a) and allowances and
22refunds of expenses shall be subtracted from the calculation of financial
23requirements under sub. (1). Revenues from invested funds shall also be subtracted
24from the calculation of financial requirements but may not offset an amount that
25exceeds the hospital's interest expenses.
SB17,13,5
1(4) After the sale of a hospital, the commission may calculate depreciation
2under sub. (1) based on a revaluation of the hospital's plant and equipment in order
3to determine its reasonable value. The revaluation shall be based on appraisals
4conducted by 2 independent appraisers, one of whom shall be selected by the hospital
5and one by the commission. The hospital shall pay the cost of both appraisals.
SB17,13,8 6196.996 Standards for decision making. The commission and its staff shall
7review and evaluate each hospital's proposed financial requirements and rate
8request in light of a variety of standards for decision making, including:
SB17,13,11 9(1) The need to reduce the rate of hospital cost increases while preserving the
10quality of health care in all parts of the state and taking into account the financial
11viability of economically and efficiently operated hospitals.
SB17,13,16 12(2) Comparisons with prudently administered hospitals of similar size or
13providing similar services that offer quality health care with sufficient staff. In
14classifying hospitals according to size and services, the commission shall consider
15volume, intensity and educational programs and special services provided by
16hospitals.
SB17,13,18 17(3) A variety of cost-related trend factors based on nationally or regionally
18recognized economic models.
SB17,13,19 19(4) The special circumstances of rural hospitals and teaching hospitals.
SB17,13,21 20(5) The past budget and rate experiences of the hospital that submits the rate
21request.
SB17,13,23 22(6) Findings of the utilization review program under s. 196.9993 (3) concerning
23the hospital that submits the rate request.
SB17,13,25 24196.997 Initial determinations. (1) After reviewing a hospital's proposed
25financial requirements, the commission may disallow any of the following:
SB17,14,2
1(a) Costs associated with medical services that a utilization review program
2under s. 196.9993 determines are medically unnecessary or inappropriate.
SB17,14,103 (b) Forty percent of the amount by which patient revenue generated by the
4hospital during its previous fiscal year exceeds 104% of the hospital's budgeted
5patient revenue for that year, if the hospital's annual gross patient revenue is less
6than $5,000,000, adjusted as provided in s. 196.9995, or exceeds 102% of the
7hospital's budgeted patient revenue for that year, if the hospital's annual gross
8patient revenue equals or exceeds $5,000,000, adjusted as provided in s. 196.9995.
9The commission shall, by rule, establish a procedure under which hospitals whose
10variable costs exceed 65% are subject to a lesser disallowance under this paragraph.
SB17,14,1211 (c) Rate overcharges of the hospital that occurred in a prior year and for which
12payers have not been reimbursed.
SB17,14,1613 (d) The amount by which incremental expenses that are associated with the
14cost of a capital project exceed 105% of the expenses projected in the hospital's
15application for approval of the capital project. This paragraph does not apply if any
16of the following applies:
SB17,14,1817 1. The hospital demonstrates to the satisfaction of the commission that the
18excess was due to conditions beyond its control.
SB17,14,1919 2. The excess occurs more than 3 years after completion of the capital project.
SB17,14,2020 (e) Costs that the commission determines under s. 196.996 are unreasonable.
SB17,15,221 (f) Wages that the record demonstrates to be excessive. In making
22determinations under this paragraph, the commission shall consider the wage levels
23offered by hospitals located in a relevant geographic area surrounding the hospital
24that submitted the rate request as well as by hospitals of similar size or providing
25similar services. In addition, the commission shall consider the hospital's ability to

1attract adequate staff and the wage trends in nonregulated, related sectors of the
2Wisconsin economy.
SB17,15,33 (g) Amounts paid for services regulated under s. 111.18 (2) (a) 1.
SB17,15,10 4(2) (a) After reviewing the hospital's financial requirements and rate request,
5the commission staff shall suggest any disallowances authorized under sub. (1) and
6shall submit its rate recommendations to the hospital and commission. If it considers
7the hospital proposal unacceptable, the commission staff shall explain to the hospital
8what facts and standards cause it to disagree and shall submit alternate
9recommendations. A hospital that fails to accept any part of the commission staff's
10recommendations shall request a settlement conference under s. 196.998.
SB17,15,1611 (b) 1. Except as provided in subd. 2., the commission staff shall submit its
12recommendations under par. (a) within 60 days after the date that review
13commences under s. 196.994 (1), even if the commission staff determines that the
14data provided by the hospital for a scheduled review are incomplete. The commission
15staff may, however, recommend a disallowance or an alternate rate, including no rate
16increase, on the grounds of insufficient data.
SB17,15,1917 2. a. The commission staff may extend the deadline specified in subd. 1. by 15
18days if it determines that the rate request submitted involves particularly complex
19issues of fact.
SB17,15,2120 b. The deadline specified in subd. 1. may be extended with the consent of the
21hospital and the commission staff.
SB17,16,5 22196.998 Review of determinations. (1) Any hospital that disputes any part
23of the recommendations of the commission staff under s. 196.997 shall, within 10
24days after the recommendations are submitted under s. 196.997 (2), request a
25settlement conference between its representatives and the commission staff for the

1purpose of resolving their differences or defining more precisely the nature of their
2differences. The chairperson of the commission, or a commissioner designated by the
3chairperson, shall preside over each settlement conference. Within 20 days after the
4hospital requests a settlement conference, the settlement conference shall be
5completed.
SB17,16,13 6(2) Any hospital that is dissatisfied with the results of its settlement conference
7under sub. (1) is entitled to a hearing before the commission under sub. (3) if it
8submits a timely request. Each request for a hearing shall be submitted to the
9commission within 10 days after the completion of the settlement conference. The
10hospital may present testimony based on any standard for decision making listed in
11s. 196.996. All questions of fact shall be determined without ascribing greater weight
12to evidence presented by commission staff than to evidence presented by any other
13party solely due to its presentation by the staff.
SB17,16,19 14(3) (a) Informal hearings shall be conducted before at least 2 commissioners.
15Sworn testimony is required only if the presiding commissioners so specify. The
16commissioners may establish time limits for cross-examination of witnesses and
17rebuttal arguments and may limit the number of persons who may appear at the
18hearing. Rules of evidence, except the rule that evidence be relevant to the issues
19presented, do not apply to informal hearings.
SB17,17,220 (b) A hospital that requests an informal hearing shall present the reasons
21supporting its proposed rate increase and financial requirements. Commission staff
22shall respond by explaining its disagreement and its alternate recommendations.
23Within the time limits specified in par. (a), the hospital, parties to the review and
24commission staff may each cross-examine witnesses and rebut arguments
25presented. The hospital, parties to the review and the commission staff may use

1outside experts to present their position. The presiding commissioners may impose
2an overall time limit on the length of the hearing.
SB17,17,43 (c) The commission may, by order, conduct a class 1 contested case proceeding
4under ch. 227 in place of an informal hearing under pars. (a) and (b).
SB17,17,9 5(5) The commission shall keep a complete record of all hearings and
6investigations conducted under sub. (3) using a stenographic, electronic or other
7method to record all testimony presented. The commission shall provide a
8transcribed, certified copy of all or any part of this record on the request of any party
9to a hearing or investigation, but may charge the requester for the costs involved.
SB17,17,14 10(6) (a) Any person may request a hearing under s. 227.44, regardless of whether
11any other hearing is authorized by law or is authorized at the discretion of the
12commission or whether any other proceeding is authorized by rule of the commission,
13subject to the limitation that no person may receive more than one contested case
14hearing concerning a particular act or failure to act by the commission.
SB17,17,1615 (b) Notwithstanding par. (a), no person may request a hearing under s. 227.44
16pertaining to the subject matter of a hearing under sub. (3).
SB17,17,1817 (c) The right to a hearing under s. 227.44, as specified in this subsection, applies
18only to subject matter pertaining to this subchapter.
SB17,18,6 19196.999 Commission orders. (1) (a) The commission shall determine
20allowable financial requirements under s. 196.995 and disallowances under s.
21196.997. From the difference between these amounts, the commission shall subtract
22the hospital's estimated relief payments and medical assistance payments under ch.
2349 and medicare payments under 42 USC 1395 to 1395ccc, unless the commission
24determines that the hospital's estimates are incorrect, in which case the commission
25shall subtract its own estimates of the hospital's relief, medical assistance and

1medicare payments. The commission shall, by order, establish maximum rates that
2allow the hospital to generate revenue sufficient to provide this remainder. The
3commission shall, by rule, establish acceptable methods of estimating payments by
4relief, medical assistance and medicare under this paragraph. Each hospital shall
5choose one of these methods and use it consistently unless the commission authorizes
6the hospital to change its method.
SB17,18,157 (b) Unless the hospital requests a hearing under s. 196.998 (3), the commission
8shall issue its order under par. (a) within 15 days after the commission staff submits
9its recommendations or, if the hospital requests a settlement conference under s.
10196.998 (1), within 15 days after the commission determines that the hospital will
11not seek a hearing following the conclusion of the settlement conference. If the
12hospital disputes only part of the recommendations of the commission staff, the
13commission may establish maximum rates under par. (a) concerning the
14recommendations with which the hospital agrees prior to the conclusion of the
15hearing under s. 196.998 (3).
SB17,18,2116 (c) If the hospital disputes the recommendations of the commission staff and
17a hearing is held under s. 196.998 (3) (c), the commission shall establish by order
18maximum rates for the hospital's year under review at the conclusion of the hearing.
19If the commission conducts an informal hearing under s. 196.998 (3) (a) and (b), it
20shall issue its order within 50 days after the date on which the hospital requested
21the hearing.
SB17,18,2522 (d) 1. The commission shall state findings of fact and the reasons supporting
23each order that it issues concerning financial requirements and rates. If the
24commission denies any part of a rate request, it shall also specify, as part of its order,
25any financial requirements that it has disallowed.
SB17,19,21
12. Any hospital may apply an increase in its rates selectively, if the aggregate
2increase in its rates does not exceed the amount authorized by the commission. Prior
3to instituting its rate increase, the hospital shall explain to the commission its
4method of applying the rate increase and allow the commission 5 working days, as
5defined in s. 227.01 (14), to determine if the aggregate increase in rates exceeds the
6authorized amount. Failure to disapprove the hospital's method of applying the rate
7increase within this period constitutes an approval. If the commission approves the
8hospital's method of applying the rate increase, the commission may not challenge
9the method prior to the date of a succeeding review under s. 196.994 (1) except as
10provided in sub. (4) (a). If the commission disapproves the hospital's method of
11applying the rate increase, it shall recommend an alternate method. If the hospital
12fails to modify its method of applying the rate increase, the commission may
13challenge the method in circuit court. In addition to any other remedy the court may
14impose under s. 196.9994, if the court finds that the hospital's method generates an
15aggregate increase in the hospital's rates that is inconsistent with the amount
16authorized by the commission, the hospital shall forfeit an amount equal to 50% of
17the amount overcharged and shall comply with the alternate method recommended
18by the commission or with any other method ordered by the court that the court finds
19more consistent with the commission's order. No hospital may change a method of
20applying its rate increase that has received the commission's approval without
21submitting the changes to the commission for its approval under this subdivision.
SB17,20,222 3. Any hospital receiving a rate increase that may only commence between the
232nd and 7th months of its fiscal year may make an adjustment to the rate increase,
24that applies to that fiscal year only, in order to generate an amount of revenue equal

1to the amount that would have been generated if the hospital could have commenced
2the rate increase beginning with the first month of its fiscal year.
SB17,20,63 (e) Except as provided in s. 196.9991, even if a party seeks judicial review of
4a commission order, the affected hospital may continue to bill payers at the rates
5established by the commission. No hospital that bills payers under this paragraph
6adversely affects its right to contest the rates established by the commission.
SB17,20,9 7(1m) Notwithstanding sub. (1) (b) and ss. 196.994 (1), 196.997 (2) and 196.998,
8at the request of a hospital the commission may waive the procedures for review of
9a rate request and issue an interim order in an emergency.
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