DAR File No. 27171

Health, Health Care Financing, Coverage and Reimbursement Policy

R414-504

Nursing Facility Payments

NOTICE OF PROPOSED RULE

DAR File No.: 27171
Filed: 05/14/2004, 03:31
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

This rulemaking is necessary to implement the nursing facility reimbursement plan for FY 2005.

Summary of the rule or change:

This change amends the nursing facility payments rule by adding to the definition of "sole community provider," and changing the conditions and provisions of participation as a sole community provider. It also amends the provision for phase-out of the property as a separate component of the reimbursement rate, specifying that the property payment will continue under the current methodology for a period of six months. The rule provides that the case-mix rate and other non-property components of the total reimbursement rate effective July 2, 2004, will be the same as the rate in effect on June 30, 2004, pending federal approval of a Medicaid State Plan Amendment implementing Rule R414-401, Utah Nursing Care Facility Assessment Act. This rulemaking provides: that upon federal approval of the aforementioned State Plan Amendment, components of the reimbursement rate will be adjusted retroactive to July 1, 2004, to reflect the additional funding made available; adds a provision for incentive payments; and makes provisions for urban/rural differential payments based on labor costs. The rule anticipates adoption of a fair rental value model for property reimbursement in the future. (DAR NOTE: The proposed new rule of R414-401 is under DAR No. 27143 in this issue.)

State statutory or constitutional authorization for this rule:

Sections 26-1-5 and 26-18-3

Anticipated cost or savings to:

the state budget:

No change--The clarifications in this rule change will not change the amount of state and federal funds that will be distributed to regulated health care facilities.

local governments:

Local government operated nursing homes may benefit from the sole community provider adjustment. This change sets the terms and conditions for qualifying. This could have a positive benefit for local government.

other persons:

Except for sole community nursing facilities which may benefit from a rate adjustment, the overall impact on nursing facilities will be budget neutral. Facilities wishing to qualify for the sole community provider adjustment will be required to submit financial information and other data to support that they are in financial distress. Application for the adjustment is voluntary. Once the federal government approves the nursing home assessment, this rule will facilitate a significant increase in nursing home reimbursement.

Compliance costs for affected persons:

Except for sole community nursing facilities which may benefit from a rate adjustment, the overall impact on nursing facilities will be budget neutral. Facilities wishing to qualify for the sole community provider adjustment will be required to submit financial information and other data to support that they are in financial distress. Application for the adjustment is voluntary.

Comments by the department head on the fiscal impact the rule may have on businesses:

Upon federal approval of the nursing home assessment passed in the 2004 Legislature (S.B. 128), this rule will have a positive fiscal impact on nursing homes. Scott D. Williams, MD (DAR NOTE: S.B. 128 is found at UT L 2004 Ch 284, and will be effective 07/01/2004.)

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Direct questions regarding this rule to:

Ross Martin at the above address, by phone at 801-538-6592, by FAX at 801-538-6099, or by Internet E-mail at rmartin@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

07/01/2004

This rule may become effective on:

07/02/2004

Authorized by:

Scott D. Williams, Executive Director

RULE TEXT

R414. Health, Health Care Financing, Coverage and Reimbursement Policy.

R414-504. Nursing Facility Payments.

R414-504-1. Introduction.

(1) This rule adopts a case mix or severity based payment system, commonly referred to as RUGS (Resource Utilization Group System). This system reimburses facilities based on the case mix index of the facility.

(2) This rule is authorized by Utah Code sections 26-1-5[, 26-18-2,] and 26-18-3.

R414-504-2. Definitions.

The definitions in R414-1-2 and R414-501-2 apply to this rule. In addition:

(1) "Behaviorally complex resident" means a long-term care resident with a severe, medically based behavior disorder, including traumatic brain injury, dementia, Alzheimer's, Huntington's Chorea, which causes diminished capacity for judgment, retention of information or decision-making skills, or a resident, who meets the Medicaid criteria for nursing facility level of care and who has a medically-based mental health disorder or diagnosis and has a high level resource use in the nursing facility not currently recognized in the case mix.

(2) "Case Mix Index" means a score assigned to each facility based on the average of the Medicaid patients' RUGS scores for that facility.

(3) "Facility Case Mix Rate" means the rate the Department issues to a facility for a specified period of time. This rate utilizes the case mix index for a provider, labor wage index application and other case mix related costs.

(4) "FCP" means the Facility Cost Profile cost report filed by the provider on an annual basis.

(5) "Minimum Data Set" (MDS) means a set of screening, clinical and functional status elements, including common definitions and coding categories, that form the foundation of the comprehensive assessment for all residents of long term care facilities certified to participate in Medicaid.

(6) "Nursing Costs" means the most current [property ]costs from the annual FCP report reported on lines 070-012 Nursing Admin Salaries and Wages; 070-013 Nursing Admin Tax and Benefits; 070-040 Nursing Direct Care Salaries and Wages; [and ]070-041 Nursing Direct Care Tax and Benefits, and 070-050 Purchased Nursing Services.

(7) "Nursing facility" or "facility" means a Medicaid-participating NF, SNF, or a combination thereof, as defined in 42 USC 1396r (a) (1988), 42 CFR 440.150 and 442.12 (1993), and UCA 26-21-2(15).

(8) "Patient day" means the care of one patient during a day of service, excluding the day of discharge.

(9) "Property costs" means the most current property costs from the annual FCP report reported on lines 230 (Rent and Leases Expense), 240 (Real Estate and Personal Property Taxes), 250 (Depreciation - Building and Improvement), 260 (Depreciation - Transportation Equipment), 270 (Depreciation - Equipment), 280 (Interest - Mortgage, Personal Property Furniture and Equipment - Small Items), 300 (Property Insurance).

(10) "RUGS" means the 34 RUG identification system based on the Resource Utilization Group System established by Medicare to measure and ultimately pay for the labor, fixed costs and other resources necessary to provide care to Medicaid patients. Each "RUG" is assigned a weight based on an assessment of its relative value as measured by resource utilization.

(11) "RUGS score" means a total number based on the individual RUGS derived from a resident's physical, mental and clinical condition, which projects the amount of relative resources needed to provide care to the resident. RUGS is calculated from the information obtained through the submission of the MDS data.

(12) "Sole community provider" means a facility that is not an urban provider and is not within 30 paved road miles of another existing facility is the only facility:

(a) within a city, if the facility is located within the incorporated boundaries of a city; or

(b) within the unincorporated area of the county if it is located in an unincorporated area.

(13) "Urban provider" means a facility located in a county of more than 90,000 population.

R414-504-3. Principles of Facility Case Mix Rates and Other Payments.

The following principles apply to the payment of freestanding and provider based nursing facilities for services rendered to nursing care level I, II, and III Medicaid patients, as defined in R414-502. This rule does not affect the system for reimbursement for intensive skilled Medicaid patients.

(1) Effective January 1, 2003, approximately 50% of total payments in aggregate to nursing facilities for nursing care level I, II and III Medicaid patients are based on a prospective facility case mix rate. In addition, these facilities shall be paid a flat basic operating expense payment equal to approximately 38% of the total payments. The balance of the total payments will be paid in aggregate to facilities as required by R414-504-3 based on other authorized factors, including property and behaviorally complex residents, in the proportion that the facility qualifies for the factor.

(2) Pending federal approval of a Medicaid State Plan Amendment implementing the Utah Nursing Care Facility Assessment Act, and consequent rules, the case mix rate in effect on July 2, 2004, as well as other components of the total rate will be the same as those in effect on June 30, 2004.

(3) Upon federal approval of the nursing care facility assessment State Plan Amendment, rate components will be adjusted retroactively to July 2, 2004, to reflect the additional funding made available.

(4) The Department calculates each nursing facility's case mix index quarterly based upon the previous 12 month moving average case mix history.

([3]5) A facility may apply for a special add-on rate for behaviorally complex residents by filing a written request with the Division of Health Care Financing. The Department may approve an add-on rate if an assessment of the acuity and needs of the patient demonstrates that the facility is not adequately reimbursed by the RUGS score for that patient. The rate is added on for the specific resident's payment and is not subsumed as part of the facility case mix rate. The Resident Assessment Section will make the determination as to qualification for any additional payment. The Division of Health Care Financing shall determine the amount of any add-on.

([4]6) Property costs are paid separately from the RUGS rate.[ Each facility's property payment is as follows:]

(a) Each facility's reimbursement rate effective July [1]2, 200[2]4, includes a property payment [between]of $11.19 per patient day[ or up to a maximum of $20.00 per patient day. No facility may receive a higher payment attributable to property as a result of this rule. The property payment shall be reduced if the occupancy of the facility is below 75%, by assuming occupancy of 75% and adjusting 2001 FCP allowable property costs accordingly. This adjusted patient day figure is then divided into actual property costs to determine allowable property costs].

(b) [The property payment shall be set on January 1, 2003, based on the calculation in (a), above. Property payments shall be phased out by reducing the payment by 25% of the January 1, 2003 amount for each of the succeeding two calendar years, with property payment stopping effective January 1, 2006.]A facility with property costs greater than $11.19 per patient day as reported on the most recent FCP may receive a property differential payment, as follows:

(i) For facilities with the most recent FCP-reported occupancy greater than 75%, the property differential is the FCP-reported property cost divided by the sum of the number of Medicaid patient days and non-Medicaid patient days from which the $11.19 base is subtracted. This can be algebraically stated as: (FCP-reported property cost / (total number of Medicaid patient days + non-Medicaid patient days)) - $11.19 = property differential.

(ii) For facilities with an FCP-reported occupancy less than 75%, the property differential is the FCP-reported property cost divided by the number of licensed beds times 365 times .75 from which the $11.19 base is subtracted. This can be algebraically stated as: (FCP-reported property cost / (total number of licensed beds x 365 x .75)) - $11.19 = property differential.

(c) Regardless of the result produced under subsection (b), the property differential payment shall not exceed $8.81 per patient day from the effective date of this rule until December 31, 2004. Regardless of the result produced under subsection (b), beginning January 1, 2005, the property differential shall not exceed $4.40. The amount reduced beginning January 1, 2005 from property payments shall be shifted to other components of the rate and distributed to facilities.

([5]7) Newly constructed facilities' case mix component of the rate shall be paid at the average rate. This average rate shall remain in place for a new facility for six months, whereupon the provider's case mix index and property payment is established. At this point, the Department shall issue a new case mix adjusted rate. The property payment to the facility is controlled by R414-504-3([4]6). A newly constructed [facilities']facility's property payment may not exceed $20.00 per patient day[ and shall be reduced if R414-504-3(4)(b) is applicable].

([6]8) An existing facility acquired by a new owner will continue at the same case mix index and property cost payment established for the facility under the previous ownership for the remainder of the quarter. The new owners property payment may not exceed $20.00 per patient day[ and shall be reduced if R414-504-3(4)(b) is applicable].

([7]9)(a) A sole community provider that is financially distressed may apply for a payment adjustment above the case mix index established rate. The maximum increase will be the lesser of the facility's reasonable costs (as defined in CMS publication 15-1, Section 2102.2), or 7.5% above the average of the most recent FCP Medicaid daily rate for all Medicaid residents in all freestanding nursing facilities in the state. The maximum duration of this adjustment is 12 months.

(b) The application shall propose what the adjustment should be and include a financial review prepared by the facility documenting:

(i) the facility's income and expenses for the past 12 months; and

(ii) steps taken by the facility to reduce costs and increase occupancy.

(c) Financial support from the local municipality and county governing bodies for the continued operation of the facility in the community is a necessary prerequisite to an acceptable application. The Department, the facility, and the local governing bodies may negotiate the amount of the financial commitment from the governing bodies, but in no case may the local commitment be less than [10%]50% of the state share required to fund the proposed adjustment. Any continuation of the adjustment beyond 6 months requires a local commitment of 100% of the state share for the rate increase above the base rate. The applicant shall submit letters of commitment from the applicable municipality or county, or both, committing to make an intergovernmental transfer for the amount of the local commitment.

(d) The Department may conduct its own independent financial review of the facility prior to making a decision whether to approve a different payment rate.

(e) If the Department determines that the facility is in imminent peril of closing, it may make an interim rate adjustment for up to 90 days.

(f) The Department's determination shall be based on maintaining access to services on and maintaining economy and efficiency in the Medicaid program.

(g) If the facility desires an adjustment for more than 90 days, it must demonstrate that:

(i) the facility has taken all reasonable steps to reduce costs, increase revenue and increase occupancy;

(ii) despite those reasonable steps the facility is currently losing money and forecast to continue losing money; and

(iii) the amount of the approved adjustment will allow the facility to meet expenses and continue to support the needs of the community it serves, without unduly enriching any party.

(h) If the Department approves an interim or other adjustment, it shall notify the facility when the adjustment is scheduled to take effect and how much contribution is required from the local governing bodies. Payment of the adjustment is contingent on the facility obtaining a fully executed binding agreement with local governing bodies to pay the contribution to the Department.

(i) The Department may withhold or deny payment of the interim or other adjustment if the facility fails to obtain the required agreement prior to the scheduled effective date of the adjustment.

([8]10) A provider may challenge the rate set pursuant to this rule using the appeal in R410-14. A provider must exhaust administrative remedies before challenging rates in any other forum.

([9) The Department may adjust reimbursement to urban providers if it determines that there is a significant difference in industry wide nursing costs as between urban and other providers. Any adjustment shall use either:

(1) a wage index adjustment that reflects local labor market nursing costs relative to the state as a whole; or

(2) a Department analysis of nursing costs reported on FCPs.]11) In developing payment rates, the Department may adjust urban and non-urban rates to reflect differences in urban and non-urban labor costs. The urban labor costs reimbursement cannot exceed 106% of the non-urban labor costs. Labor costs are as reported on the most recent FCP but do not include FCP-reported management, consulting, director, and home office fees.

[R414-504-4. Transition Reimbursement Principles.

For each quarter of calendar year 2003 and for the first two quarters of calendar year 2004:

(1) The Department shall determine if any facility's total rate is scheduled to be reduced by more than $5.00 per patient day, as compared to the total rate for that facility in effect on December 31, 2002. The total rate amount for the facility determined to be in effect as of December 31, 2002 shall be adjusted by any disallowances or other adjustments;

(2) For all facilities with a drop of more than $5.00 per patient day in their total rate as of the applicable quarterly adjustment, the Department shall adjust up the total rate of all such facilities to a rate where the loss is equal to $5.00 per patient day; and

(3) The total rate for all facilities with a gain in rate or a drop of less than $5.00 per patient day shall be proportionately adjusted down to fund the adjustment in R414-504-4(2).]

R414-504-4. Quality Improvement Incentive.

Upon federal approval of the Nursing Care Facilities State Plan Amendment, funds in the amount of $500,000 shall be set aside annually to reimburse facilities that have a quality improvement plan and have no violations that are at an "immediate jeopardy" level, as determined by the Department, at the most recent recertification survey and during the incentive period. The Department shall distribute incentive payments to qualifying facilities based on the proportionate share of the total Medicaid patient days in qualifying facilities. If a facility appeals the determination of a survey violation, the incentive payment will be withheld pending the final administrative appeal. On appeal, if violations are found not to have occurred at a severity level of "immediate jeopardy" or higher, the incentive payment will be paid to the facility. If the survey findings are upheld, the remaining incentive payments will be distributed to all qualifying facilities.

KEY: Medicaid

[October 8, 2003]2004

26-1-5

[26-18-2

]26-18-3

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For questions regarding the content or application of this rule, please contact Ross Martin at the above address, by phone at 801-538-6592, by FAX at 801-538-6099, or by Internet E-mail at rmartin@utah.gov

For questions about the rulemaking process, please contact the Division of Administrative Rules (801-538-3764). Please Note: The Division of Administrative Rules is NOT able to answer questions about the content or application of these administrative rules.