17-1740.1

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1740.1-1
HAWAII ADMINISTRATIVE RULES
TITLE 17
DEPARTMENT OF HUMAN SERVICES
SUBTITLE 12
MED-QUEST DIVISION
CHAPTER 1740.1
REIMBURSEMENT OF FEDERALLY QUALIFIED HEALTH CENTERS
AND RURAL HEALTH CLINICS
§17-1740.1-1 	Purpose and general principles
§17-1740.1-2 	Definitions
§17-1740.1-3 	Calculations of the baseline PPS
rates for FQHCs and RHCs who, as of
May 31, 2001 have filed two annual
cost reports for their respective
fiscal years ending 1999 and 2000.
§17-1740.1-4 	Calculation of the baseline PPS rates
for FQHCs and RHCs who, as of May 31,
2001, could have filed two annual
cost reports for their respective
fiscal years ending 1999 and 2000,
but only filed one such annual cost
report.
§17-1740.1-5 	Calculations of the baseline PPS rates
for FQHCs and RHCs who did not file
cost reports as of May 31, 2001
§17-1740.1-6 	Calculation of the baseline PPS rates
for FQHCs and RHCs who submitted cost
reports as of May 31, 2001 for their
respective fiscal years ending in
1999 and 2000 but were not certified
as FQHCs or RHCs, as of December 31,
2000 for a length of time sufficient
to produce two annual cost reports
based on their respective fiscal
years
§17-1740.1-7 	PPS rate year

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1740.1-2
§17-1740.1-8 	PPS rates after baseline
§17-1740.1-9 	Fee-for-service interim payments
§17-1740.1-10 	Supplemental managed care payments
under PPS methodology
§17-1740.1-11 	Adjustment for changes to scope of
services
§17-1740.1-12 	Rate reconsideration
§17-1740.1-13 	Cost reporting, record keeping,
and audit requirements
§17-1740.1-14 	Rebasing
§§17-1740.1-15 to 17-1740.1-17 	(Reserved)
§17-1740.1-18 	Billing
§17-1740.1-19 	Provider agreement
§17-1740.1-1 	Purpose and general principles. The
purpose of this chapter is to establish the
Medicaid prospective payment system (PPS) for
federally qualified health centers (FQHCs) and rural
health clinics (RHCs) as described under section 702
of the Medicare, Medicaid, and SCHIP Benefits
Improvement and Protection Act (BIPA) of 2000. The
FQHCs and RHCs prospective payment methodology shall
apply to services provided by FQHCs and RHCs as
described by sections 1905(a)(2)(C) and 1905 (a)(2)(B)
of the Social Security Act, respectively, on or after
January 1, 2001. 	[Eff 11/20/03] 	(Auth: 	HRS §346-14,
42 C.F.R. §431.10) 	(Imp: 	Pub. L. No. 106-554)
§17-1740.1-2 	REPEALED. 	[R 09/30/13]
§17-1740.1-3 	Calculations of the baseline PPS
rates for FQHCs and RHCs who, as of May 31, 2001, have
filed two annual cost reports for their respective
fiscal years ending 1999 and 2000. 	For each FQHC and
RHC, the baseline rate will be calculated using the
cost reports for their respective fiscal years ending
in 1999 and 2000. 	The baseline rate will be
calculated as follows:
(1) 	The total visits and costs shall be obtained
from the “as filed” cost reports, submitted
to the State for the respective FQHC or RHC
fiscal years ending in 1999 and 2000. 	For
those providers having more than one cost

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1740.1-3
report ending in either of these years, a
weighted average to the current year-end
will be used to make both years consistent.
Vision visits and costs will be included
with the medical cost per visit baseline PPS
rates.
(2) 	Each year’s total costs will be divided by
the total visits. 	The total costs should
include the costs of all Medicaid covered
services provided by the FQHC or RHC. 	This
includes all ambulatory services which were
previously paid under a fee-for-service
basis.
(3) 	A two-year average of the calculated cost
per visit rates for years 1999 and 2000 will
be used for each facility. 	The average cost
per visit rate will be calculated separately
for each year, then added together and
divided by two. 	[Eff 11/20/03] 	(Auth: 	HRS
§346-14, 42 C.F.R. §431.10) 	(Imp: 	Pub. L.
No. 106-554)
§17-1740.1-4 	Calculation of the baseline PPS
rates for FQHCs and RHCs who, as of May 31, 2001,
could have filed two annual cost reports for their
respective fiscal years ending 1999 and 2000, but only
filed one such annual cost report. 	For each FQHC and
RHC, the baseline rate will be calculated using the
cost report submitted. The baseline rate will be
calculated as follows:
(1) 	The total visits and costs shall be obtained
from the “as filed” cost report. 	Vision
visits and costs will be included with the
medical cost per visit baseline PPS rates.
A separate PPS rate will be computed for
dental visits.
(2) 	Each year’s total costs will be divided by
the total visits. 	The total costs should
include the costs of all Medicaid covered
services provided by the FQHC or RHC. 	This
includes all ambulatory services which were
previously paid under a fee-for service
basis.
(3) 	If the FQHC or RHC believes it provides more

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in scope of services or caseload, or both,
than reflected in the base rate, it may seek
an adjustment by submitting data and
documentation that substantiates the
difference in services or costs.
[Eff 11/20/03] 	(Auth: 	HRS §346-14, 42
C.F.R. §431.10) 	(Imp: 	Pub. L. No. 106-554)
§17-1740.1-5 	Calculations of the baseline PPS
rates for FQHCs and RHCs who did not file cost reports
as of May 31, 2001. 	(a) 	FQHCs and RHCs who did not
file cost reports are:
(1) 	Those who, prior to January 1, 2001, were
certified as FQHCs or RHCs; or
(2) 	Those who are certified as FQHCs or RHCs on
or after January 1, 2001.
(b) 	Baseline rates will be calculated and
assigned, as follows:
(1) 	For a FQHC, one hundred per cent of the
costs
of furnishing such services based on a cost
per visit rate established under this
section for the FQHC in the state that is
most similar in scope of service and
caseload.
(2) 	For a RHC, one hundred per cent of the costs
of furnishing such services based on a cost
per visit rate established under this
section for the RHC in the state that is
most similar in scope of service and
caseload.
(c) 	If the FQHC or RHC believes it provides more
in scope of services or caseload, or both, than
reflected in the base rate, it may seek an adjustment
by submitting data and documentation that
substantiates the difference in services or costs.
[Eff 11/20/03] (Auth: 	HRS §346-14, 42 C.F.R. §431.10)
(Imp: 	Pub. L. No. 106-554)
§17-1740.1-6 	Calculation of the baseline PPS
rates for FQHCs and RHCs who submitted cost reports as
of May 31, 2001 for their respective fiscal years
ending in 1999 and 2000 but were not certified as
FQHCs or RHCs as of December 31, 2000 for a length of
time sufficient to produce two annual cost reports

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1740.1-5
based on their respective fiscal years. 	(a) 	Baseline
PPS rates for these FQHCs and RHCs will be the higher
of the applicable assigned rate, as described in
section 17-1740.1-4(b), or a cost per visit rate
calculated using the most recent “as filed” cost
report.
(b) 	If the FQHC or RHC believes it provides more
in scope of services or caseload, or both, than
reflected in the base rate, it may seek an adjustment
by submitting data and documentation that
substantiates the difference in services or costs.
[Eff 11/20/03] (Auth: 	HRS §346-14, 42 C.F.R. §431.10)
(Imp: 	Pub. L. No. 106-554)
§17-1740.1-7 	PPS rate year. 	The FQHC and RHC
rates will be effective for services rendered from
January 1 through December 31 of each year.
[Eff 11/20/03] 	(Auth: 	HRS §346-14, 42 C.F.R.
§431.10) 	(Imp: 	Pub. L. No. 106-554)
§17-1740.1-8 	PPS rates after baseline. 	The
annual PPS rates starting January 1, 2002, will be the
prior year’s rate adjusted for the Medicare Economic
Index (MEI, as defined in section 1842(i)(3) of the
Social Security Act applicable to primary care
services as defined in section 1842(i)(4) of the
Social Security Act for that fiscal year).
[Eff 11/20/03] 	(Auth: 	HRS §346-14, 42 C.F.R.
§431.10) 	(Imp: 	Pub. L. No. 106-554)
§17-1740.1-9 	Fee-for-service interim payments.
Until the baseline PPS rates are calculated and
implemented, interim payment to FQHCs and RHC will
continue at rates established as of December 31, 2000.
When the PPS rates are implemented, adjustments for
the period from January 1, 2001 through the date of
PPS implementation will be made. 	[Eff 11/20/03]
(Auth: 	HRS §346-14, 42 C.F.R. §431.10) 	(Imp: 	Pub.
L. No. 106-554)
§17-1740.1-10 	Supplemental managed care payments
under PPS methodology. 	FQHCs or RHCs that provide
services under a contract with a Medicaid managed care
entity (MCE) will receive quarterly state supplemental

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payments for the cost of furnishing such services that
are an estimate of the difference between the payments
the FQHC or RHC receives from MCE(s) (excluding
managed care risk pool accruals, distributions or
losses) and payments the FQHC or RHC would have
received under the BIPA PPS methodology. 	At the end
of each calendar year, the total amount of
supplemental and MCE payments received, excluding
managed care risk pool accruals or distributions, by
the FQHC or RHC will be reviewed against the amount
that the actual number of visits provided under the
FQHCs or RHCs contract with the MCE(s) would have
yielded under PPS. 	The FQHC or RHC will be paid the
difference between the PPS amount calculated using the
actual number of visits, and total amount of
supplemental and MCE payments received by the FQHC or
RHC, if the PPS amount exceeds the total amount of
supplemental and MCE payments. 	The FQHC or RHC will
refund the difference between the PPS amount
calculated using the actual number of visits, and the
total amount of supplemental and MCE payments received
by the FQHC or RHC, if the PPS amount is less than the
total amount of supplement and MCE payments. 	[Eff
11/20/03] 	(Auth: 	HRS §346-14, 42 C.F.R. §431.10)
(Imp: 	Pub. L. No. 106-554)
§17-1740.1-11 	Adjustment for changes to scope of
services. 	The PPS payment rates may be adjusted for
any increases or decreases in the scope of services
furnished by the FQHC or RHC.
(1) 	Providers must notify the department in
writing of any changes to the scope of
services and the reasons for those changes
within sixty days of the effective date of
such changes.
(2) 	Providers must submit data, documentation,
and schedules that substantiate any changes
in services and the related increases or
decreases of reasonable costs following
Medicare principles of reimbursement.
(3) 	Providers must propose a projected adjusted
rate to which the department must agree.
Upon agreement by the department, the
provider will be paid the projected rate
effective the date of change in scope of
services through the date that a rate is
calculated based on the submittal of cost

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1740.1-7
reports for the first two full fiscal years
which include change in scope of services as
required by section 17-1740.1-13(b)(1).
(4) 	Upon receipt of the costs reports required
by section 17-1740.1-13(b)(1), the PPS rate
will be adjusted following a review by the
fiscal agent of the cost reports and
documentation.
(5) 	Adjustments will be made for payments for
the period from the effective date of the
change in scope of services through the date
of the final adjustment of the PPS rate.
[Eff 11/20/03] 	(Auth: 	HRS §346-14, 42
C.F.R. §431.10) 	(Imp: 	Pub. L. No. 106-554)
§17-1740.1-12 	Rate reconsideration. 	(a)
Providers shall have the right to request a rate
reconsideration if extraordinary circumstances beyond
the control of the provider occur after December 31,
2001 and PPS payments are insufficient due to these
extraordinary circumstances. 	Extraordinary
circumstances include, but are not limited to acts of
God, changes in life and safety code requirements, and
changes in licensure law, and rules or regulations.
Mere inflation of cost, absent extraordinary
circumstances, shall not be grounds for rate
reconsideration. 	If a provider’s PPS rate is
sufficient to cover its overall costs including those
associated with the extraordinary circumstances, then
a rate reconsideration is not warranted.
(b) The department will accept a request for rate
reconsideration for a prospective payment year at any
time during that prospective payment year or within
thirty days following the end of that prospective
payment year.
(c) Requests for rate reconsiderations shall be
submitted in writing to the department and shall set
forth the reasons for the requests. 	Each request
shall be accompanied by sufficient documentation to
enable the department to act upon the request.
Documentation shall include the data necessary to
demonstrate that the circumstances for which
reconsideration is requested meet the requirements
noted above. 	Documentation shall include the
following:
(1) 	A presentation of data to demonstrate
reasons

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for the provider’s request for a rate
reconsideration.
(2) 	The rate reconsideration request must be
accompanied by documentation showing the
cost implications. 	The cost impact must be
material and significant ($200,000 or one
per cent of a facility’s total costs,
whichever is less). 	Documentation must be
sufficient to compute an adjustment amount
to the PPS rate for the purpose of
determining a managed care supplemental
payment amount if necessary.
(d) Each rate reconsideration request will be
applicable only for the remainder of the PPS rate
year. 	If the reconsideration request is granted, it
will be effective no earlier than the first date of
the PPS rate year during which the reconsideration
request is received. 	If a provider believes that its
experience justifies continuation of the reconsidered
rate in subsequent years, then it shall submit
information to update the documentation provided in
the prior request. 	A request must be submitted for
each affected year.
(e) Amounts granted for rate reconsideration
requests will be paid as lump-sum amounts for those
years and not as revised PPS rates.
(f) The provider shall be notified of the
department’s decision in writing within ninety
calendar days from the date all necessary verification
and documentation have been provided.
(g) A provider may appeal the department’s
decision on the rate reconsideration if the Medicaid
impact is $10,000 or more. 	The appeal shall be filed
in accordance with the procedural requirements of
chapter 17-1736. 	[Eff 11/20/03] 	(Auth:
HRS §346-14, 42 C.F.R. §431.10) 	(Imp: 	Pub. L. No.
106-554)
§17-1740.1-13 	Cost reporting, record keeping,
and audit requirements. 	(a) 	All participating
facilities shall maintain an accounting system that
identifies costs in a manner that conforms to
generally accepted accounting principles and maintain
documentation to support all data.
(b) 	Annual cost reports will not generally be
required, with the following exceptions:

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(1) 	For participating FQHCs and RHCs that
request
changes to their scope of services under
section 17-1740.1-11, cost reports for the
first two full fiscal years reflecting the
change in scope of services and significant
related data as identified in paragraph (3)
must be submitted.
(2) 	For participating FQHCs and RHCs that
request
rate reconsiderations under section
17-1740.1-12, cost reports for the
provider’s fiscal years covering the period
for which the rate reconsideration was
authorized and significant related data as
identified in paragraph (3) must be
submitted.
(3) 	As related to provisions of paragraphs (1)
and (2), the following shall be submitted no
later than five months after the close of
each facility’s applicable fiscal year and
shall be subject to all provisions in this
section.Uniform cost report;
(A) 	Working trial balance;
(B) 	Provider cost report questionnaire;
(C) 	Audited financial statements, if
available;
(D) 	Disclosure of appeal items included in
the cost report;
(E) 	Disclosure of increases or decreases in
scope of services; and
(F) 	Other schedules as identified by the
department.
(c) 	Each provider who submits an annual cost
report shall keep financial and statistical records of
the cost reporting year for at least six years after
submitting the cost report to the department and shall
also make such records available upon request to
authorized state or federal representatives.
(d) 	The department or its fiscal agent may
conduct periodically either on-site or desk audits of
cost reports, including financial and statistical
records of a sample of participating providers.
(e) 	The providers must submit other information
(statistics, cost and financial data) as deemed
necessary by the department. 	[Eff 11/20/03] 	(Auth:
HRS §346-14, 42 C.F.R. §431.10) 	(Imp: 	Pub. L. No.
106-554)

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§17-1740.1-14 	Rebasing. 	There are no provisions
for rebasing after the initial computation of the
baseline PPS rates, unless authorized by Congress.
[Eff 11/20/03] 	(Auth: 	HRS §346-14, 42 C.F.R.
§431.10) 	(Imp: 	Pub. L. No. 106-554)
§§17-1740.1-15 to 17-1740.1-17 	(Reserved)
§17-1740.1-18 	Billing. 	(a) 	Each FQHC or RHC
shall complete and submit to the department's fiscal
agent the appropriate claim form for any covered item
or service, regardless of whether a claims-based
interim payment will result.
(b) 	The claims shall either be on forms provided
by the department or in a format that the department
has indicated in advance is acceptable.
[Eff 02/07/05 	] 	(Auth: HRS §346-14; 42 C.F.R.
§431.10) 	(Imp: Pub. L. No. 106-554)
§17-1740.1-19 	Provider agreement. 	Each FQHC or
RHC shall execute a provider agreement with the
department. 	[Eff 02/07/05 	] 	(Auth: HRS §346-14;
42 C.F.R. §431.10) 	(Imp: Pub. L. No. 106-554)