Chapter 4.5. Division of Workers' Compensation
Subchapter 1. Administrative Director - Administrative Rules
Article 5.3. Official Medical Fee Schedule

§9789.21. Definitions for Inpatient Hospital Fee Schedule.

(a) “Average length of stay” means the geometric mean length of stay for a diagnosis-related group assigned by CMS.

(b) “Capital outlier factor” means for discharges occurring after January 1, 2004 and before January 1, 2008, the fixed loss cost outlier threshold x capital wage index x large urban add-on x (capital cost-to-charge ratio/total cost-to-charge ratio).

For discharges on or after January 1, 2008, “Capital outlier factor” means fixed loss cost outlier threshold x capital wage index x (capital cost-to-charge ratio/total cost-to-charge ratio) as modified by Title 42, Code of Federal Regulations, Section 412.316(b), as it is in effect on November 11, 2003, amended October 1, 2004, amended October 1, 2006, and amended as of October 1, 2007, which document is hereby incorporated by reference and will be made available upon request to the Administrative Director.

(1) The capital wage index, also referred to as the capital geographic factor (GAF), is specified in the Federal Register notices announcing revisions in the Medicare payment rates. See Section 9789.25(b) for the Federal Register reference that contains the capital wage index value for a given discharge.

(2) For discharges occurring before January 1, 2008, the “large urban add-on” is an additional 3% of what would otherwise be payable to the hospital, and the large urban add-on is eliminated for discharges occurring on or after January 1, 2008, pursuant to Title 42, Code of Federal Regulations, Section 412.316(b). See Section 9789.25(a) for the Federal Regulation reference to the large urban add-on.

(3) “Fixed loss cost outlier threshold” means the Medicare fixed loss cost outlier threshold for inpatient admissions. The threshold is specified in the Federal Register notices announcing revisions in the Medicare payment rates. See Section 9789.25(b) for the Federal Register reference that defines the fixed loss cost outlier threshold by date of discharge.

(c) “CMS” means the Centers for Medicare & Medicaid Services of the United States Department of Health and Human Services.

(d) For discharges before January 1, 2014, “Complex spinal surgery” is defined by the DRG to which a patient is assigned and is used to determine whether any additional payment is allowed for spinal devices used during the spinal surgery. See Section 9789.25(b) for the DRGs that define complex spinal surgery by date of discharge.

(e) “Composite factor” means the standard OMFS rate calculated by the administrative director for a hospital by adding the hospital-adjusted rates for prospective operating costs and for prospective capital costs. It excludes the DRG weight and any applicable payments for outlier cases, spinal devices used in complex spinal surgery, and new technology.

(1) The hospital-adjusted rate for prospective capital costs is determined by the following formula:

(A) For discharges after January 1, 2004 and before January 1, 2008, the hospital-adjusted rate for prospective capital costs is determined by the following formula: Capital standard federal payment rate x capital geographic adjustment factor x large urban add-on x [1 + capital disproportionate share adjustment factor + capital indirect medical education adjustment factor]

For discharges after January 1, 2008, the hospital-adjusted rate for prospective capital costs is determined by the following formula as modified by Title 42, Code of Federal Regulations, Section 412.316(b), as it is in effect on November 11, 2003, amended October 1, 2004, amended October 1, 2006, and amended as of October 1, 2007, which document is hereby incorporated by reference and will be made available upon request to the Administrative Director: Capital standard federal payment rate x capital geographic adjustment factor x [1 + capital disproportionate share adjustment factor + capital indirect medical education adjustment factor].

(B) The “capital market basket” means the Medicare capital input price index (CIPI). To determine the capital standard federal payment rate, the capital market basket is applied to the preceding capital standard federal payment rate. The capital market basket is specified in the Federal Register notices announcing revisions in the Medicare payment rates. See Section 9789.25(b) for the percentage change in the capital market basket that was applied to the preceding capital standard federal payment rate to establish the applicable capital payment rate for a discharge date.

(C) The “capital standard federal payment rate” is $ 414.18 for discharges occurring on or after January 1, 2004 and before November 29, 2004. For each update in the composite factor, the capital standard federal payment rate for the preceding period is adjusted by the rate of change in the capital market basket. See Section 9789.25(b) for the capital standard federal payment rate for discharges occurring on or after November 29, 2004 by date of discharge.

(D) The “capital geographic adjustment factor” is the post-reclassification geographic adjustment factor that is published in the Payment Impact File for each Medicare payment update. See Section 9789.25(c) for the variable name on the Payment Impact File by date of discharge.

(E) For discharges occurring before January 1, 2008, the “large urban add-on” is an additional 3% of what would otherwise be payable to the hospital, and the large urban add-on is eliminated for discharges occurring on or after January 1, 2008.

(F) The “capital disproportionate share adjustment factor” is published in the Payment Impact File for each Medicare payment update. See Section 9789.25(c) for the variable name on the Payment Impact File by date of discharge.

(G) The “capital indirect medical education adjustment factor” (capital IME adjustment) is published in Payment Impact File for each Medicare payment update. See Section 9789.25(c) for the variable name on the Payment Impact File by date of discharge.

(2) The hospital-adjusted rate for prospective operating costs is determined by the following formula:

(A) [(Labor-related national standardized amount x operating wage index) + nonlabor-related national standardized amount] x [1 + operating disproportionate share adjustment factor + operating indirect medical education adjustment]

For discharges on or after November 29, 2004, the hospital-adjusted rate for prospective operating costs is determined by the following formula as modified by Section 403 of Public Law 108-173 amended Sections 1886(d)(3)(E) of the Social Security Act, and as stated in Title 42, Code of Regulations, Section 412.64(h)(3), which document is hereby incorporated by reference and will be made available upon request to the Administrative Director and in conformance with California Labor Code Section 5307.1(g)(1)(A)(i). See Section 9789.25(a) for the Federal Regulation reference for the effective date, revisions, and amendments by date of discharge:

1. The wage-adjusted standard rate is determined as follows:

If operating wage index >1.0, wage-adjusted rate = labor-related national standard operating rate x (labor-related share x operating wage index + nonlabor-related share).

If operating wage index <=1.0, wage-adjusted rate = labor-related national standard operating rate x (.62 x operating wage index + .38).

2. The wage-adjusted operating rate is further adjusted for any additional payments for teaching and serving a disproportionate share of low-income patients.

OMFS Adjusted operating rate = wage-adjusted standard rate x (1 + operating disproportionate share adjustment factor + operating indirect medical education adjustment).

(B) The “labor-related national standardized amount” is $3,136.39 for discharges occurring on or after January 1, 2004 and before November 29, 2004. For each update in the composite factor, the labor-related national standardized amount for the preceding period is adjusted by the rate of change in the operating market basket. See Section 9789.25(b) for the national standard operating rate for discharges occurring on or after November 29, 2004 by date of discharge.

(C) The “operating wage index” is published in the Payment Impact File for each Medicare payment update. See Section 9789.25(c) for the variable name on the Payment Impact File by date of discharge.

(D) The “nonlabor-related national standardized amount” is $1,274.85, as published by CMS in the Federal Register of October 6, 2003 (correcting the publication of August 1, 2003), at Vol. 68, page 57735, Table 1A, which document is hereby incorporated by reference and will be made available upon request to the Administrative Director and as modified by Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108-173, § 401, which document is hereby incorporated by reference and will be made available upon request to the Administrative Director.

For discharges on or after November 29, 2004, the nonlabor-related portion is that portion of operating costs attributable to nonlabor costs, and is determined by the following formula as modified by Section 403 of Public Law 108-173 amended sections 1886(d)(3)(E) of the Social Security Act, and as stated in Title 42, Code of Regulations, Section 412.64(h), which documents are hereby incorporated by reference and will be made available upon request to the Administrative Director. See Section 9789.25(a) for the Federal Regulation reference for the effective date, revisions, and amendments by date of discharge:

100% - labor-related portion (%).

(E) The “operating disproportionate share adjustment factor” is published in the Payment Impact File for each Medicare payment update, and as modified by Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108-173, § 402, which document is hereby incorporated by reference and will be made available upon request to the Administrative Director. See Section 9789.25(c) for the variable name on the Payment Impact File by date of discharge.

For discharges on or after March 5, 2015, the OMFS “operating disproportionate share (DSH) adjustment factor” is determined by the following formula:

OMFS operating DSH adjustment factor equals the sum of a) the Medicare DSH operating adjustment and b) 3 * the Medicare DSH operating adjustment * the Uncompensated Care adjustment).

The Medicare DSH operating adjustment is published in the Payment Impact File for each Medicare payment update, as amended by section 3133 of the Affordable Care Act, and set forth by new section 1886(r) of the Social Security Act, and as implemented in Title 42, Code of Regulations, Section 412.106, which documents are incorporated by reference and will be made available upon request to the Administrative Director. See Section 9789.25(a) for the Federal Regulation reference for the effective date, revisions, and amendments by date of discharge. See Section 9789.25(c) for the variable name on the Payment Impact File by date of discharge.

The Uncompensated Care adjustment factor reflects the change in percentage of uninsured individuals and additional Medicare adjustments, as defined in Section 1886(r) of the Social Security Act, as implemented in Title 42, Code of Regulations, Section 412.106, and as published by CMS in the Federal Register, which documents are incorporated by reference and will be made available upon request to the Administrative Director. See Section 9789.25(a) for the Federal Regulation reference for the effective date, revisions, and amendments by date of discharge. See Section 9789.25(b) for the Uncompensated Care adjustment factor for discharges occurring on or after March 5, 2015, by date of discharge.

(F) The “operating indirect medical education adjustment” is published in the Payment Impact File for each Medicare payment update, and as modified by Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law 108-173, § 502, which document is hereby incorporated by reference and will be made available upon request to the Administrative Director. See Section 9789.25(c) for the variable name on the Payment Impact File by date of discharge.

(G) For sole community hospitals, the operating component of the composite rate shall be the higher of the prospective operating costs determined using the formula in Section 9789.21(e)(2) or the hospital-specific rate published in the Payment Impact File for each Medicare payment update. See Section 9789.25(c) for the variable name on the Payment Impact File by date of discharge.

(3) A table of composite factors for each hospital in California is contained in Section 9789.23. The sole community hospital composite factors that incorporate the operating component specified in Section 9789.21(e)(2)(G) are listed in italics in the column headed “Composite” set forth in Section 9789.23.

(f) “Costs” means the total billed charges for an admission, excluding non-medical charges such as television and telephone charges, charges for Durable Medical Equipment for in home use, charges for implantable medical devices, hardware, and/or instrumentation reimbursed under subdivision (g) of Section 9789.22, multiplied by the hospital's total cost-to-charge ratio plus the hospital's documented paid spinal device costs, plus an additional 10% of the hospital's documented paid cost, net of discounts and rebates, not to exceed a maximum of $250.00, plus any sales tax and/or shipping and handling charges actually paid.

(g) “Cost-to-charge ratio” means the sum of the hospital specific operating cost-to-charge ratio and the hospital specific capital cost-to-charge ratio. The operating cost-to-charge ratio and capital cost-to-charge ratio for each hospital are published in the Payment Impact File for each Medicare payment update. See Section 9789.25(c) for the variable names on the Payment Impact File by date of discharge.

(h) “Cost outlier case” means a hospitalization for which the hospital's costs, as defined in subdivision (f) above, exceeds the cost outlier threshold.

(i) “Cost outlier threshold” means the sum of the Inpatient Hospital Fee Schedule payment amount, the payment for new medical services and technologies reimbursed under Section 9789.22(h), the hospital specific outlier factor, and any additional allowance for spinal devices under section 9789.22(g)(2).

(j) “Diagnosis Related Group (DRG)” means the inpatient classification scheme used by CMS for hospital inpatient reimbursement. The DRG system classifies patients based on principal diagnosis, surgical procedure, age, presence of comorbidities and complications and other pertinent data.

(k) “DRG weight” means the weighting factor for a diagnosis-related group assigned by CMS for the purpose of determining payment under Medicare. Section 9789.24 lists the DRG weights and geometric mean lengths of stay as assigned by CMS.

(l) “FY” means the CMS fiscal year October 1 through September 30.

(m) “Hospital” means any facility as defined in Section 1250 of the Health and Safety Code.

(n) “Inpatient” means a person who has been admitted to a hospital for the purpose of receiving inpatient services. A person is considered an inpatient when he or she is formally admitted as an inpatient with the expectation that he or she will remain at least overnight and occupy a bed, even if it later develops that such person can be discharged or is transferred to another facility and does not actually remain overnight.

(o) Unless otherwise provided by applicable provisions of this fee schedule, “Inpatient Hospital Fee Schedule maximum payment amount” is that amount determined by multiplying the DRG weight x hospital composite factor x 1.20 and by making any adjustments required in Section 9789.22.

(p) “Labor-related portion” is that portion of operating costs attributable to labor costs, as specified in the Federal Register notices announcing revisions in the Medicare payment rates. See Section 9789.25(b) for the Federal Register reference that defines the labor-related portion by date of discharge.

(q) As stated in Title 42, Code of Federal Regulations, Section 412.316(b), for discharges before January 1, 2008, “Large urban add-on” means an additional 3% of what would otherwise be payable to the hospital located in large urban areas. The “large urban add-on” adjustment was eliminated for discharges on or after January 1, 2008. See Section 9789.25(a) for the Code of Federal Regulations reference for effective date, revisions, and amendments by date of discharge. The “large urban add-on” is indicated in the annual Payment Impact File for each Medicare payment update. See Section 9789.25(c) for the variable name on the Payment Impact File by date of discharge.

(r) “Medical services” means those goods and services provided pursuant to Article 2 (commencing with Section 4600) of Chapter 2 of Part 2 of Division 4 of the Labor Code.

(s) “Operating outlier factor” means ((fixed loss cost outlier threshold x ((labor-related portion x operating wage index) + nonlabor-related portion)) x (operating cost-to-charge ratio/ total cost-to-charge ratio)).

(1) The wage index, also referred to as operating wage index published in the Payment Impact File for each Medicare payment update, is specified as the wage index in the Federal Register notices announcing revisions in the Medicare payment rates. See Section 9789.25(c) for the variable name on the Payment Impact File by date of discharge and see Section 9789.25(b) for the Federal Register reference that defines the wage index by date of discharge.

(2) The nonlabor-related portion is that portion of operating costs attributable to nonlabor costs as defined in the Federal Register of October 6, 2003 (correcting the publication of August 1, 2003), at Vol. 68, page 57735, Table 1A, which document is hereby incorporated by reference and will be made available upon request to the Administrative Director.

For discharges on or after November 29, 2004, the nonlabor-related portion is determined by the following formula as modified by Section 403 of Public Law 108-173 amended Sections 1886(d)(3)(E) of the Social Security Act, and as stated in Title 42, Code of Regulations, Section 412.64(h), which document is hereby incorporated by reference and will be made available upon request to the Administrative Director. See Section 9789.25(a) for the Federal Regulation reference for the effective date, revisions, and amendments by date of discharge:

100% - labor-related portion (%).

(t) “Outlier factor” means the sum of the capital outlier factor and the operating outlier factor. A table of hospital specific outlier factors for each hospital in California is contained in Section 9789.23.

(u) “Payment Impact File” means the Prospective Payment System Payment Impact File published by CMS, for each Medicare update. See Section 9789.25(c) for references to the Payment Impact File by date of discharge.

(v) “Spinal device” means a medical device that is an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar related article, including a component part, or accessory which is: (1) recognized in the official National Formulary, or the United States Pharmacopoeia, or any supplement to them; (2) intended for use in the cure, mitigation, treatment, or prevention of disease; or (3) intended to affect the structure or any function of the body, and which does not achieve any of its primary intended purposes through chemical action within or on the body and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes.

(w) “Professional Component” means the charges associated with a professional service provided to a patient by a hospital based physician. This component is billed separately from the inpatient charges.

Note: Authority cited: Sections 133, 4603.5, 5307.1 and 5307.3, Labor Code. Reference: Sections 4600, 4603.2, 5307.1 and 5318, Labor Code.

HISTORY

1. New section filed 1-2-2004 as an emergency; operative 1-2-2004 (Register 2004, No. 2). A Certificate of Compliance must be transmitted to OAL by 5-3-2004 or emergency language will be repealed by operation of law on the following day.

2. Certificate of Compliance as to 1-2-2004 order, including amendment of section, transmitted to OAL 4-30-2004 and filed 6-15-2004 (Register 2004, No. 25).

3. Amendment filed 12-27-2012; operative 1-1-2013 as a file and print only pursuant to Government Code section 11340.9(g) (Register 2012, No. 52).

4. Amendment of subsections (b), (e)(1)(A), (e)(2)(E) and (f), new subsection (v) and subsection relettering filed 2-4-2015; operative 3-5-2015. Submitted to OAL for printing only pursuant to Government Code section 11340.9 (Register 2015, No. 6).

5. Amendment of subsection (e)(2)(B) filed 3-14-2016; operative 3-1-2016 pursuant to Labor Code section 5307.1(g)(2). Submitted to OAL for filing and printing only pursuant to Labor Code section 5307.1(g)(2) (Register 2016, No. 12).

6. Editorial correction of subsections (e)(2)(A)1. and (o) (Register 2018, No. 15).