AGING AND DISABILITY SERVICES ADMINISTRATION

DESCRIPTION OF JULY 2003 NURSING FACILITY MEDICAID PAYMENT RATE SETTING

• INTRODUCTION
  
  The information contained in this document is provided for informational purposes only. For a complete description of the rate setting process and methodology, please refer to Chapter 74.46 of the Revised Code of Washington (RCW), Chapter 388-96 of the Washington Administrative Code (WAC), and the state’s operating budget.
  
  Methods used to set July 2003 nursing facility Medicaid payment rates are established in c. 8. Laws 2001, 1st sp. s.; the 2001-03 Omnibus Budget; the 2001-03 Supplemental Omnibus Budget; Engrossed Second Substitute Senate Bill (ESSSB) 5341 from the 2003 legislative session (at the time of this document’s printing, the bill had not yet been assigned a session law number); the 2003-05 Omnibus Budget, Ch. 74.46 RCW; and Ch. 388-96 WAC. Note: These materials can be found through the Legislative website at www.leg.wa.gov.
  
  Data used for rate setting came from various sources, including:
  1. Nursing Facility Cost Reports submitted by providers.
  2. Responses by contractors to inquiries initiated by the Office of Rates Management (ORM).
  3. Resident Minimum Data Set Assessments completed by staff at facilities.
  4. ORM's computerized rate history files.
  5. Appraisals acquired by the Department of General Administration of facilities purchased since January 1, 1980 and leased facilities.
  6. Department records on the acquisition date and value of lessor-owned assets and assets owned by previous contractors.
  7. County records of acquisition dates of lessor-owned assets.
  8. United States Office of Management and Budget bulletins.
  9. United States Department of Commerce bulletins.
     
• PATIENT DAY STATISTICS AND INFLATION FACTOR (Section I of the Rate Computation Worksheet)
  
  This section shows any examination adjustments made to the facility's licensed beds and patient days. Per RCW 74.46.431 (2), the higher of actual patient days or patient days calculated at 85% occupancy is used to calculate the Direct Care, Therapy, and Support Services Medicaid rate components for all facilities and the Operations, Property, and Financing Allowance rate component for Essential Community Providers. For Non-Essential Community Providers, the higher of actual patient days or patient days calculated at 90% occupancy is used to calculate the Operations, Property, and Financing Allowance Medicaid rate components. This section lists whether the facility is in a "High Labor Cost”, “Urban”, or “Non-Urban” county according to the definitions contained in section 1 of c. 8, Laws 2001, 1st sp.s. The July Medicaid average case mix index (CMI) for the first quarter (January through March) of 2003 is shown here.
  
  Allowable costs from the 1999 Cost Reports were used for the Direct Care, Therapy Care, Support Services, and Operations rate components. Allowable costs from the 2002 Cost Reports were used for Property and Financing Allowance rate components. Allowable costs in the Direct Care, Therapy Care, Support Services, and Operations rate components were adjusted by a 2.1% vendor rate increase (VRI) effective July 2001. Direct Care was given a 2.3% VRI effective July 2002. A 1.5% VRI was applied to the Therapy Care, Support Services, and Operations Medicaid rate components for July 2002. Additionally, the ceiling and floor parameters used in the cost per case mix unit were increased 2.64% effective July 2002. Direct Care, Therapy Care, Support Services, and Operations rate components will have a 3.0% VRI effective July 2003.
  
  When a Cost Report covered less than 12 months, yet more than six months, costs were adjusted by the following formula: Number of days in the Cost Report divided by the number of calendar days in the Cost Report period multiplied by the VRI.
  
  For example, if a 2002 cost report covered a period of 305 days, the annualized VRI for
  Therapy Care would be:
  
  305/365 * 3.0% = 2.50%
  
  This formula makes the VRI factor for short period reports proportionate to the VRI granted for 12-month reports.
  
• DIRECT CARE RATE COMPONENT (Section II of the Rate Computation Worksheet)
  
  The Direct Care rate component covers salaries, wages, payroll taxes, and benefits for nursing, social services, activities, consulting, and other direct patient care staff; nursing supplies; medical records specialists; and consulting for medical directors and pharmacists. The Direct Care rate component includes elements of case mix in which payments are matched to residents' care needs. The July 2003 Medicaid rate uses case mix numbers from the Resource Utilization Group RUG reports from the first quarter of 2003.
  
  Each provider's allowable costs in this cost area were limited, by two factors, as required by
  Ch. 74.46 RCW:
  1. The first, the pool limit, is a limit on the recognized cost of contract labor. Medicaid allowable costs of contract labor are the hours of contract labor multiplied by the average in?house wage paid to like caregiver classifications, including payroll taxes and benefits for each of RN, LPN, and Nursing Assistant classes.
  2. The second, the case mix unit corridor, is a limit on the amount of the case mix payment. The ceiling, or upper limit, is calculated at 110% of the median. The floor, or lower limit, is calculated at 90% of the median. For July 2002, the ceiling and floor
     were both increased by 2.64%.
     
     Part A of Section II on the Rate Computation Worksheet is the calculation of the cost per case mix unit. Part B compares the cost per case mix unit calculated in Part A to the High Labor Cost, Urban, or Non-Urban peer group ceiling and the floor. Part C contains the 2.1% for the VRI effective July 2001, the 2.3% VRI effective July 2002, and the 3.0% for the VRI effective July 2003.
     
• THERAPY CARE RATE COMPONENT (Section III of the Rate Computation Worksheet)
  
  The Therapy Care rate component covers the cost of physical, occupational, speech, and respiratory therapy plus costs of mental health. Therapy costs are adjusted per regulation and further subjected to two lids. The first, a one-on-one therapy lid, is set at 110% of the median cost per unit for one-on-one therapy. The second, a consulting lid, is set at 110% of the median cost per patient day for therapy consulting. This section contains the VRI of 2.1% effective July 2001, the 1.5% VRI effective July 2002, and the 3.0% for the VRI effective July 2003.
  
• SUPPORT SERVICES RATE COMPONENT (Section IV of the Rate Computation Worksheet)
  
  The Support Services rate component includes all laundry, dietary, housekeeping, bulk and raw food, beverages, and non-sole source supplements purchased for the dietary needs of the residents. Support Services costs are allowable costs as adjusted per regulation and further subjected to a median cost limit of 110% of the median Support Services costs for the Urban or Non-Urban county peer groups. This section contains the VRI of 2.1% effective July 2001, the 1.5% VRI effective July 2002, and the 3.0% for the VRI effective July 2003.
  
  
• OPERATIONS RATE COMPONENT (Section V of the Rate Computation Worksheet)
  
  The Operations rate component includes costs of administration, oversight, management, maintenance, and other property. Operations costs are allowable costs as adjusted per regulation and further subjected to a median cost limit of the median Operations costs for the Urban or Non-Urban county peer groups. This section contains the VRI of 2.1% effective July 2001, the 1.5% VRI effective July 2002, and the 3.0% for the VRI effective July 2003.
  
  Another lid within the Operations rate component is the Home Office median required by RCW 74.46.410 (2) (ww) and further defined by c. 8, Laws 2001, 1st sp. s. The Home Office median is $3.70.
  
  
• PROPERTY RATE COMPONENT (Section VI of the Rate Computation Worksheet)
  
  The 2002 allowable costs of depreciation plus current funding for any capital improvements are included in the Property rate component, net of any revenue offsets related to the Property component. Depreciation on assets used in or at a facility by the contractor is included for assets in which a contractor has an interest through ownership or lease. No cost limit is applied to this rate component.
  
  
• FINANCING ALLOWANCE (Section VII of the Rate Computation Worksheet)
  
  The Financing Allowance is determined by multiplying the net book value of the allowable tangible fixed assets employed in providing patient care by 10% for those assets acquired before May 17, 1999 and by 8.5% for those assets acquired on or after May 17, 1999; then dividing this product by either the product of the contractor's 2002 annualized total resident days divided by total patient days or the minimum occupancy day level, whichever is greater. If the 2002 Cost Report was less than a full year but more than six months, the patient days were annualized by multiplying the reported resident days by 365, divided by the number of days in the Cost Report. Assets acquired after January 1, 1980, are subject to a reasonableness test of an appraisal conducted by the Department of General Administration. The depreciation base cannot exceed the market value as determined by the Department of General Administration appraisal.
  
  WAC 388-96-747 sets maximums for new construction costs including land cost and building
  construction cost.
  
  
• VARIABLE RETURN (Section VIII of the Rate Computation Worksheet)
  
  The Variable Return is determined by first ranking all facilities with at least six months of cost report data from lowest to highest, according to the sum of the per diem non-lidded allowable costs for Therapy Care, Support Services, and Operations rate components for the 1999 cost report period. Included in the ranking is the Direct Care cost per case mix unit, which is the per diem non-lidded allowable Direct Care costs for the 1999 cost report adjusted by its facility average case mix index. The facilities are divided into four groups based on this ranking with each group being assigned a variable return percentage from 1% to 4%. This percentage is then multiplied by the July 1, 2003 prospective rates for the Direct Care (see next paragraph), Therapy Care, Support Services, and Operations components. The Variable Return percentage assigned to the July 1, 2003 is the same percentage used for the July 1, 2001 rate.
  
  In determining the number to use for Direct Care in the calculation of the Variable Return component, the following is used: if the 2002 Direct Care weighted cost on the 2002 Preliminary Settlement is less than the Direct Care weighted rate from the same Preliminary Settlement, then the Direct Care weighted cost from the 2002 Preliminary Settlement is used to calculate the Variable Return component. The initial July 2003 Variable Return component rates will be subject to the examination of the Cost Report, revisions of Preliminary Settlements, and revisions of Medicaid rates.
  
  
• GRANDFATHERED LEASED FACILITIES (Section IX of the Rate Computation Worksheet)
  
  Facilities that were leased by the contractor as of January 1, 1980, and continue to be leased under the same agreement, are eligible for an Alternative Financing Allowance if the sum of the 2002 cost year lease payment and the interest and depreciation of contractor-owned assets, less the Property rate, is greater than the Financing Allowance calculated as described above. Facilities that renewed such a lease prior to April 1, 1985 or purchased such a facility if the purchase meets the requirements of RCW 74.46.360 (6) (c) are also eligible for an Alternative
  Financing Allowance. The new Financing Allowance is computed by first substituting the fair market value of the assets as of January 1, 1982, as determined by a DGA appraisal,
  less accumulated depreciation on the lessor's assets since January 1, 1982, for the net invested funds. The new Financing Allowance is then compared to the facility's lease costs plus depreciation and interest on contractor-owned assets. The Alternative Financing Allowance
  is set at the lower of the new Financing Allowance or the allowable property costs in excess of the
  Property rate. Facilities that renew a grandfathered lease subsequent to April 1, 1985, shall be eligible for an Alternate Return on Investment Allowance, except the allowable costs shall be limited to the annualized lease payments for the last year prior to the renewal or extension of the lease that was in effect on January 1, 1980.
  
  
• RATE ADD-ONS FOR CURRENT FUNDING (Section X of the Rate Computation Worksheet)
  
  Current funding for Administrators-in-training already approved and funded per WAC 388-96-540 and current funding of property taxes approved and funded per RCW 74.46.445 are added here. These current funding add-ons cannot bring the Operations component rate above the median cost limit.
  
  
• LOW-WAGE WORKER ADD-ON /LICENSE FEE ADD-ON (Section XI of the Rate Computation Worksheet)
  
  Each facility will continue to receive .6% of their Direct Care rate as a Low-Wage Worker add-on Per Section 206 (13) of the 2001-03 Omnibus Budget. Additionally, each facility that pays license fees to DSHS will continue to receive a rate add-on to the Operations rate component per the 01-03 Supplemental Omnibus Budget to fund increases in bed license fees. The license fee add-on shall be calculated by multiplying the facility’s current licensed bed count times $148.00 divided by annualized patient days (Item 18).
  
  
• QUALITY MAINTENANCE FEE (Section XII of the Rate Computation Worksheet)
  
  The 2003 Legislature imposed a quality maintenance fee on nursing facility operators.
  
  This act, which takes effect July 1, 2003, in part states: “In addition to any other tax, a quality maintenance fee is imposed on every operator of a nonexempt nursing facility in this state. The quality maintenance fee shall be six dollars and fifty cents per patient day”.
  
  Nonexempt nursing facilities will be reimbursed for the Medicaid portion of the fee (Item 102).
  
  
• BUDGET DIAL (Section XIV of the Rate Computation Worksheet)
  
  The 2003-05 Omnibus Budget increases the budget dial to $144.54 per patient day in fiscal year (FY) 2004. The budget dial applies to the sum of all rate components. The budget dial adjustment calculated in Section XIV is allocated equally to the corresponding components and subtotaled in Section XV.
  
  
• RATES FOR NEW CONTRACTORS
  
  WAC 388-96-710 establishes rules for setting initial rates for newly constructed nursing facilities and nursing facilities that change ownership.
  
  
• ATTACHMENT
  
  An addendum is attached providing pertinent July 2003 rate-setting data.