DAR File No. 27325

Health, Health Care Financing, Coverage and Reimbursement Policy

R414-504

Nursing Facility Payments

NOTICE OF PROPOSED RULE

DAR File No.: 27325
Filed: 08/02/2004, 02:10
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 rule amends the provision for the phasing-out of property as a separate component of the reimbursement rate. It specifies that the property payment will continue under the current methodology until at least September 15, 2004. This provision is pending federal approval of a request to the federal government to allow implementation of the Utah Nursing Care Facility Assessment Act and new rates calculated on the basis of the assessment. On September 15, 2004 (or retroactively upon implementation of the assessment if that occurs after September 15, 2004), the property component of the reimbursement rate will be calculated using a fair rental value methodology described by the rule. The rule retains the provision that the case-mix rate and other nonproperty components of the total reimbursement rate that became effective on July 2, 2004, will be the same as the rate in effect on June 30, 2004.

State statutory or constitutional authorization for this rule:

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

Anticipated cost or savings to:

the state budget:

The costs involved in this rulemaking were already accounted for in Rule R414-401, Nursing Care Facility Assessment, and are as follows: Budget neutral due to collection of $10,100,000 from nursing facilities and a draw down of federal matching funds in the amount of approximately $26,000,000. (DAR NOTE: The proposed new rule of R414-401 was published in the June 1, 2004, issue of the Bulletin under DAR No. 27143, and was effective 07/02/2004.)

local governments:

The costs involved in this rulemaking were already accounted for in Rule R414-401. There is no budget impact to local governments because local governments do not fund nursing care facilities.

other persons:

The costs involved in this rulemaking were already accounted for in Rule R414-401 and are as follows: there is an enhanced revenue of approximately $26,000,000 for nursing facility providers as a result of federal matching funds.

Compliance costs for affected persons:

The costs involved in this rulemaking were already accounted for in Rule R414-401 and are as follows: compliance costs include a collection of $6.18 per nonMedicare patient day from each nursing facility or a total of $10,100,000. This collection will be used as state funds to draw down about $26,000,000 in federal funds. 99% of all facilities will gain from this process. The amount of gain depends on the number of Medicaid patients in the facility.

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

Property reimbursement in the nursing home rate has been based on reported costs, rather than the value of the property. It is hoped that this new system of basing reimbursement for property on fair rental value will give owners an incentive to renovate and upgrade again physical plants and will lead to better living environments for residents. This should have a positive fiscal impact on regulated businesses. Scott D. Williams, MD, Executive Director

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:

09/14/2004

This rule may become effective on:

09/15/2004

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 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 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; 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). Under a fair rental value (FRV) system, a facility is reimbursed on the basis of the estimated current value of its capital assets in lieu of direct reimbursement for depreciation, amortization, interest, and rent/lease expenses. The FRV system establishes a nursing facility's bed value based on the age of the facility and total square footage.

(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 and 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, a]Approximately 5[0]9% 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]29% 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]the Medicaid rate adjustment, the [State Plan Amendment implementing]request to allow the implementation of 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 rate adjustment and the assessment pursuant to R414-504-3(2)[State Plan Amendment], rate components will be adjusted retroactively to July 2, 2004, to reflect the additional funding made available. The adjusted rate will be further adjusted retroactive to September 15, 2004 to include the application of a Fair Rental Value reimbursement system for property as addressed in R414-504-3(7).

(4) The Department calculates each nursing facility's case mix index quarterly based upon the previous 3-[12 ]month moving average case mix history. The newly calculated case mix index is applied to the case mix rate one month after the end of the quarter.

(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.

(6) Property costs are paid separately from the RUGS rate.

([a]7) Each facility's reimbursement interim rate effective July 2, 2004, includes a property payment of $11.19 per patient day.

([b]a) 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]b) 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].

(8) Upon federal approval, property costs will be calculated and reimbursed as a component of the facility rate based on an FRV System, effective September 15, 2004.

(a) Under this FRV system, the Department reimburses a facility based on the estimated current value of its capital assets in lieu of direct reimbursement for depreciation, amortization, interest, and rent or lease expenses. The FRV system establishes a nursing facility's bed value based on the age of the facility and total square footage.

(i) The initial age of each nursing facility used in the FRV calculation is determined as of September 15, 2004, using each facility's year of construction.

(ii) The age of each facility is adjusted each July 1 to make the facility one year older.

(iii) The age is reduced for replacements, major renovations, or additions placed into service since the facility was built, provided there is sufficient documentation to support the historical changes.

(A) If a facility adds new beds, these new beds are averaged into the age of the original beds to arrive at the facility's age.

(B) If a facility completed a major renovation (defined as a project with capitalized cost equal to or greater than $500 per bed) or replacement project, the cost of the project is represented by an equivalent number of new beds

(I) The renovation or replacement project must have been completed during a 24-month period and reported on the FCP (due March 31st) for the calendar year prior to a July 1 rate year and be related to the reasonable functioning of the nursing facility. Renovations unrelated to either the direct or indirect functioning of the nursing facility shall not be used to adjust the facility's age.

(II) The equivalent number of new beds is determined by dividing the cost of the project by the accumulated depreciation per bed of the facility's existing beds immediately before the project.

(III) The equivalent number of new beds is then subtracted from the total actual beds. The result is multiplied by the difference in the year of the completion of the project and the age of the facility, which age is based on the initial construction year or the last reconstruction or renovation project. The product is then divided by the actual number of beds to arrive at the number of years to reduce the age of the facility.

(b) A nursing facility's fair rental value per diem is calculated as follows:

As used in this subsection (b), "capital index" is the percent change in the nursing home "Per bed or person, total cost" row and "3/4" column as found in the two most recent annual R.S. Means Building Construction Cost Data as adjusted by the weighted average total city cost index for Salt Lake City, Utah.

(i) The buildings and fixtures value per licensed bed is $50,000, which is based upon a standard facility size of at least 450 square feet determined using the R.S. Means Building Construction Cost Data adjusted by the weighted average total city cost index for Salt Lake City, Utah. To this $50,000 is added 10% ($5,000) for land and 10% ($5,000) for movable equipment. Each nursing facility's total licensed beds are multiplied by this amount to arrive at the "total bed value." The total bed value is trended forward by multiplying it by the capital index and adding it to the total bed value to arrive at the "newly calculated total bed value." The newly calculated total bed value is depreciated, except for the portion related to land, at 1.50 percent per year according to the weighted age of the facility. The maximum age of a nursing facility shall be 35 years. Therefore, nursing facilities shall not be depreciated to an amount less than 47.50 percent or 100 percent minus (1.50 percent times 35) of the newly calculated bed value. There shall be no recapture of depreciation.

(ii) A nursing facility's annual FRV is calculated by multiplying the facility's newly calculated bed value times a rental factor. The rental factor is the sum of the 20-year Treasury Bond Rate as published in the Federal Reserve Bulletin using the average for the calendar year preceding the rate year and a risk value of 3 percent. Regardless of the result produced in this subsection (ii), the rental factor shall not be less than 9 percent or more than 12 percent.

(iii) the facility's annual FRV is divided by the greater of:

(A) the facility's annualized actual resident days during the cost reporting period; and

(B) 75 percent of the annualized operational bed capacity of the facility.

(iv) The FRV per diem determined under this fair rental value system shall be no lower than $8 per patient day.

(v) The FRVper diem determined under this fair rental value system shall be phased-in using a hold-harmless method over a one-year period,as follows:

(A) Nursing facility property rates are calculated under the fair rental value system and compared to rates in effect on July 2, 2004.

(B) If the fair rental value system property rate is less than the nursing facility's July 2, 2004 rate, the nursing facility's rate is adjusted to additionally pay the nursing facility the difference between the September 15, 2004 rate and the July 2, 2004 rate, but not to exceed $5 per patient day; and

(C) the hold harmless method expires on June 30, 2005.

(c) A pass-through component of the rate is applied and is calculated as follows:

(i) As used in this subsection (c), "property tax and property insurance index" is the percent change in the combined property tax and property insurance costs reported by the facility on its two most recent FCPs.

(ii) For a newly constructed facility that has not made two FCP reports, the property tax and property insurance index is the average percent change in the combined property tax and property insurance costs reported by all facilities on their two most recent FCPs.

(iii) The property tax and property insurance pass-through is trended forward by multiplying it by the property tax and property insurance index and adding it to the combined property tax and property insurance costs as reported on the most recent FCP to arrive at the pass-through amount.

(iv) The nursing facility's per diem property tax and property insurance cost is determined by dividing the facility's pass-through amount by the facility's actual total patient days.

([7]9) 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(6). Prior to implementation of a fair rental value system,[A] a newly constructed facility's property payment may not exceed $20.00 per patient day.

([8]10) 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. Prior to implementation of a fair rental value system,[T] the new owners property payment may not exceed $20.00 per patient day.

([9]11)[(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]a) 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]b) 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 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]c) 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]d) 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]e) The Department's determination shall be based on maintaining access to services on and maintaining economy and efficiency in the Medicaid program.

([g]f) 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]g) 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]h) 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.

([10]12) 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.

([11]13) 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. 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 re-certification 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

[July 2,] 2004

26-1-5

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.