DEPARTMENT OF

SOCIAL AND HEALTH SERVICES

(Aging and Long-Term Support Administration)

Unless the context indicates otherwise, the following definitions apply in this chapter.

"Accounting" means activities providing information, usually quantitative and often expressed in monetary units, for:

(1) Decision making;

(2) Planning;

(3) Evaluating performance;

(4) Controlling resources and operations; and

(5) External financial reporting to investors, creditors, regulatory authorities, and the public.

"Accrual method of accounting" is a method of accounting in which revenues are reported in the period when they are earned, regardless of when they are collected, and expenses are reported in the period in which they are incurred, regardless of when they are paid.

"Administration and management" means activities used to maintain, control, and evaluate the efforts and resources of an organization for the accomplishment of the objectives and policies of that organization.

"Allowable costs" are documented costs that are necessary, ordinary, reasonable, and related to the care of medicaid recipients, and are not expressly declared nonallowable by this chapter or chapter 74.46 RCW. Costs are ordinary if they are of the nature and magnitude that prudent and cost conscious management would pay.

"Assignment of contract" means:

(1) A new nursing facility licensee has elected to care for medicaid residents;

(2) The department finds no good cause to object to continuing the medicaid contract at the facility; and

(3) The new licensee accepts assignment of the immediately preceding contractor's contract at the facility.

"Bad debts" are amounts considered to be uncollectible from accounts and notes receivable.

"Beneficial owner" is any one or more of the following:

(1) Any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares one or more of the following:

(a) Voting power which includes the power to vote, or to direct the voting of such ownership interest; ((and/))or

(b) Investment power which includes the power to dispose, or to direct the disposition of such ownership interest.

(2) Any person who, directly or indirectly, creates or uses a trust, proxy, power of attorney, pooling arrangement, or any other contract, arrangement, or device with the ((purpose of)) effect of divesting himself or herself of beneficial ownership of an ownership interest or preventing the vesting of such beneficial ownership as part of a plan or scheme to evade the reporting requirements of this chapter;

(3) Any person who, subject to (b) of this subsection, has the right to acquire beneficial ownership of such ownership interest within sixty days, including but not limited to any right to acquire:

(a) Through the exercise of any option, warrant, or right;

(b) Through the conversation of an ownership interest;

(c) Pursuant to the power to revoke a trust, discretionary account, or similar arrangement; or

(d) Pursuant to the automatic termination of a trust, discretionary account, or similar arrangement; except that, any person who acquires an ownership interest or power specified in (((3)))(a), (b), or (c) of this subsection with the purpose or effect of changing or influencing the control of the contractor, or in connection with or as a participant in any transaction having such purpose or effect, immediately upon such acquisition shall be deemed to be the beneficial owner of the ownership interest which may be acquired through the exercise or conversion of such ownership interest or power;

(4) Any person who in the ordinary course of business is a pledgee of ownership interest under a written pledge agreement shall not be deemed to be the beneficial owner of such pledged ownership interest until the pledgee has taken all formal steps necessary which are required to declare a default and determines that the power to vote or to direct the vote or to dispose or to direct the disposition of such pledged ownership interest will be exercised; except that:

(a) The pledgee agreement is bona fide and was not entered into with the purpose nor with the effect of changing or influencing the control of the contractor, nor in connection with any transaction having such purpose or effect, including persons meeting the conditions set forth in (b) of this subsection; and

(b) The pledgee agreement, prior to default, does not grant to the pledgee:

(i) The power to vote or to direct the vote of the pledged ownership interest; or

(ii) The power to dispose or direct the disposition of the pledged ownership interest, other than the grant of such power(s) pursuant to a pledge agreement under which credit is extended and in which the pledgee is a broker or dealer.

"Capitalized lease" means a lease required to be recorded as an asset and associated liability in accordance with generally accepted accounting principles.

"Cash method of accounting" means a method of accounting in which revenues are recorded when cash is received, and expenditures for expense and asset items are not recorded until cash is disbursed for those expenditures and assets.

"Change of ownership" means a substitution, elimination, or withdrawal of the individual operator or operating entity contracting with the department to deliver care services to medical care recipients in a nursing facility and ultimately responsible for the daily operational decisions of the nursing facility.

(1) Events which constitute a change of ownership include, but are not limited to, the following:

(a) Changing the form of legal organization of the contractor, ((e.g.,)) such as a sole proprietor forms a partnership or corporation;

(b) Transferring ownership of the nursing facility business enterprise to another party, regardless of whether ownership of some or all of the real property ((and/or)) or personal property assets of the facility are also transferred;

(c) Dissolving of a partnership;

(d) Dissolving the corporation, merging the corporation with another corporation, which is the survivor, or consolidating with one or more other corporations to form a new corporation;

(e) Transferring, whether by a single transaction or multiple transactions within any continuous twenty-four-month period, fifty percent or more of the stock to one or more:

(i) New or former stockholders; or

(ii) Present stockholders each having held less than five percent of the stock before the initial transaction;

(f) Substituting of the individual operator or the operating entity by any other event or combination of events that results in a substitution or substitution of control of the individual operator or the operating entity contracting with the department to deliver care services; or

(g) A nursing facility ceases to operate.

(2) Ownership does not change when the following, without more, occurs:

(a) A party contracts with the contractor to manage the nursing facility enterprise as the contractor's agent, i.e., subject to the contractor's general approval of daily operating and management decisions; or

(b) The real property or personal property assets of the nursing facility change ownership or are leased, or a lease of them is terminated, without a substitution of individual operator or operating entity and without a substitution of control of the operating entity contracting with the department to deliver care services.

"Charity allowance" means a reduction in charges made by the contractor because of the indigence or medical indigence of a patient.

"Component rate allocation(((s)))" means the initial component rate allocation(((s))) of the rebased rate for a rebase period effective July ((1)) 1st. If a month and a day, other than July ((1,)) 1st with a year precedes "component rate allocation(((s)))," it means the initial component rate allocation(((s))) of the rebased rate of the rebase period has been amended or updated effective the date that precedes it, e.g., October 1, 1999 direct care component rate allocation.

"Contract" means an agreement between the department and a contractor for the delivery of nursing facility services to medical care recipients.

"Cost report" means all schedules of a nursing facility's cost report submitted according to the department's instructions.

"Courtesy allowances" are reductions in charges in the form of an allowance to physicians, clergy, and others, for services received from the contractor. Employee fringe benefits are not considered courtesy allowances.

"Department" means department of social and health services and its employees.

"Direct care supplies (((DCS)" are those supplies)) or "DCS" means:

(1) Those supplies:

(a) Used by staff providing direct care to residents;

(((2))) (b) Consumed during a single accounting period; and

(((3))) (c) Expensed in that accounting period.

(2) Supplies excluded from DCS include but are not limited to the following:

(((1))) (a) Medical equipment (such as IV poles);

(((2))) (b) Items covered by medicaid fee-for-service system; and

(((3))) (c) Administrative supplies used by direct care staff (such as pencils, pens, paper, and office supplies((, etc))).

"Donated asset" means an asset the contractor acquired without making any payment for the asset either in cash, property, or services. An asset is not a donated asset if the contractor:

(1) Made even a nominal payment in acquiring the asset; or

(2) Used donated funds to purchase the asset.

"Equity capital" means total tangible and other assets ((which)) that are necessary, ordinary, and related to patient care from the most recent provider cost report minus related total long-term debt from the most recent provider cost report plus working capital defined as current assets minus current liabilities.

"Fiscal year" means the operating or business year of a contractor. All contractors report on the basis of a twelve((-))month fiscal year, but provision is made in this chapter for reports covering abbreviated fiscal periods. As determined by context or otherwise, (("fiscal year")) "fiscal year" may also refer to a state fiscal year extending from July ((1)) 1st through June ((30)) 30th of the following year and comprising the first or second half of a state fiscal biennium.

"Goodwill" means the excess of the price paid for a nursing facility business over the fair market value of all net identifiable tangible and intangible assets acquired, as measured in accordance with generally accepted accounting principles.

"Imprest fund" means a fund ((which)) that is regularly replenished in exactly the amount expended from it.

"Intangible asset" is an asset that lacks physical substance but possesses economic value.

"Interest" means the cost incurred for the use of borrowed funds, generally paid at fixed intervals by the user.

"Joint facility costs" are any costs that benefit more than one facility, or one facility and any other entity.

"Nonadministrative wages and benefits" are wages, benefits, and corresponding payroll taxes paid for nonadministrative personnel, not ((to include)) including the administrator, assistant administrator, or administrator-in-training.

"Nonallowable costs" are the same as (("unallowable costs.")) "unallowable costs."

"Nonrestricted funds" are funds that are not restricted to a specific use by the donor, ((e.g.,)) such as general operating funds.

"Nursing facility occupancy percentage" is a percentage determined by multiplying the number of calendar days for the cost report period by the number of licensed beds, regardless of how many beds are set up, in use, or banked under ((chapter 70.38 RCW)) chapter 246-310 WAC, for the same cost report period. Then, the product is divided into the nursing facility's actual resident days for the same cost report period. Banked beds are not counted as licensed beds for nursing facility occupancy percentage calculation.

"Operating lease" means a lease under which rental or lease expenses are included in current expenses in accordance with generally accepted accounting principles.

"Ownership interest" means all interests beneficially owned by a person, calculated in the aggregate, regardless of the form ((which such)) the beneficial ownership takes.

"Per diem (((per patient day or per resident day))) costs," or "per patient day costs," or "per patient days costs" mean((s)) total allowable costs for a fiscal period divided by total patient or resident days for the same period.

"Prospective daily payment rate" means the rate assigned by the department to a contractor for providing service to medical care recipients prior to the application of settlement principles.

"Real property," whether leased or owned by the contractor, means the building, allowable land, land improvements, and building improvements associated with a nursing facility.

"Recipient" means a medicaid recipient.

"Related care" means only those services that are directly related to providing direct care to nursing facility residents including but not limited to:

(1) The director of nursing services;

(2) Nursing direction and supervision;

(3) Activities and social services programs;

(4) Medical and medical records specialists((.)); and

(5) Consultation provided by:

(a) Medical directors; and

(b) Pharmacists.

"Relative" includes:

(1) Spouse;

(2) Natural parent, child, or sibling;

(3) ((Adopted)) Adoptive child ((or adoptive)), parent, or sibling;

(4) Stepparent, stepchild, stepbrother, stepsister;

(5) Father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law;

(6) Grandparent ((or)) and grandchild; and

(7) Uncle, aunt, nephew, niece, ((or)) and cousin.

"Related organization" means an entity ((that is)) under common ownership ((and/or)) or common control with, or has control of((,)) or is controlled by((,)) the contractor.

(((a))) (1) "Common ownership" exists when an entity or person is the beneficial owner of five percent or more ownership interest in the contractor and any other entity.

(((b))) (2) "Control" exists where an entity or person has the power, directly or indirectly, significantly to influence or direct the actions or policies of an organization or institution, whether or not it is legally enforceable and however it is exercisable and exercised.

"Restricted fund" means those funds in which either the principal ((and/or)) or income ((of which)), or both, is limited by agreement with or direction of the donor to a specific purpose.

"Start up costs" are the one-time preopening costs incurred from the time preparation begins on a newly constructed or purchased building until the first patient is admitted. Start up costs include:

(1) Administrative and nursing salaries;

(2) Utility costs;

(3) Taxes;

(4) Insurance;

(5) Repairs and maintenance; and

(6) Training costs.

Start up costs do not include expenditures for capital assets.

"Total rate allocation" means the initial rebased rate for a rebase period effective July ((1)) 1st. If a month and a day, other than July ((1)) 1st, with a year precedes "total rate allocation," it means the initial rebased rate of the rebase period has been amended or updated effective the date that precedes it, ((e.g.,)) such as October 1, 1999 direct care component rate allocation.

"Unallowable costs" are costs that do not meet every test of an allowable cost.

"Uniform chart of accounts" are account titles identified by code numbers established by the department for contractors to use in reporting costs.

"Vendor number" means a number assigned to each contractor delivering care services to medical care recipients.

(1) The contractor ((shall)) must submit annually a complete report of costs and financial conditions of the contractor that is prepared and presented in a standardized manner and in accordance with this chapter and chapter 74.46 RCW.

(2) The department will review the contractor's costs and financial conditions in accordance with the methodology effective at the time the contractor incurred the costs as described in chapters 388-96 WAC and 74.46 RCW.

(3) Not later than March 31st of each year, each contractor ((shall)) must submit to the department an annual cost report for the period from January 1st through December 31st of the preceding year.

(((3))) (6) Not later than one hundred twenty days following the termination or assignment of a contract, the terminating or assigning contractor ((shall)) must submit to the department a cost report for the period from January 1st through the date the contract was terminated or assigned.

(((4) If the cost report is not properly completed or if it is not received by the due date established in subsection (2) or (3) of this section, all or part of any payments due under the contract may be withheld by the department until such time as required cost report is properly completed and received)) (7) If the contractor does not properly complete the cost report or the department does not receive it by the due date established in this section, the department may withhold all or part of any payments due under the contract until the department receives the contractor's properly completed cost report.

(((5))) (8) The department may impose civil fines((,)) or take adverse rate action against contractors and former contractors who do not submit properly completed cost reports by the applicable due date established in ((subsection (2) or (3) of)) this section.

(1) A contractor may request in writing an extension for submitting cost reports. Contractor requests ((shall)) must:

(a) Be addressed to the manager, ((residential)) nursing facility rates program;

(b) State the circumstances prohibiting compliance with the report due date; and

(c) Be received by the department at least ten days prior to the due date of the report.

(2) The department may grant two extensions of up to thirty days each, only if the circumstances, stated clearly, indicate the due date cannot be met and the following conditions are present:

(a) The circumstances were not foreseeable by the provider; and

(b) The circumstances were not avoidable by advance planning.

(1) For the purpose of determining allowable costs, the department ((shall)) must consider an amendment to an annual report only if filed by the provider before the receipt by the provider of the notification scheduling the department's audit. The contractor may file an amendment subsequent to such notification and pursuant to the provisions of RCW 74.46.531 to adjust a payment rate allocation because of an error or omission. When the provider files an amendment, the department ((shall)) must consider it only if significant errors or omissions are discovered. The department ((shall)) must deem errors or omissions "significant" when the errors or omissions would mean a net difference of two cents or more per patient day or one thousand dollars or more in reported costs, whichever is higher, in any component rate allocation.

(2) To file an amendment, ((only those cost report pages where changes appear need to be filed, together with the certification required by WAC 388-96-117)) the provider must submit the amended cost report and amended cost report certification page to the department electronically. An amended cost report is not complete until the department receives both documents.

(((2))) (3) If an amendment is filed, a contractor shall also submit with the amendment an account of the circumstances relating to and the reasons for the amendment, along with supporting documentation. The department ((shall)) must refuse to consider an amendment resulting in a more favorable settlement or payment rate allocation to a contractor if the amendment is not the result of circumstances beyond the control of the contractor or the result of good-faith error under the system of cost allocation and accounting in effect during the reporting period in question.

(((3))) (4) Acceptance or use by the department of an amendment to a cost report ((shall in no way be construed as)) is not a release of applicable civil or criminal liability.

(1) The purposes of department audits and examinations under this chapter and chapter 74.46 RCW are to ascertain that:

(a) Allowable costs for each year for each medicaid nursing facility are accurately reported;

(b) Cost reports accurately reflect the true financial condition, revenues, expenditures, equity, beneficial ownership, related party status, and records of the contractor;

(c) The contractor's revenues, expenditures, ((and costs of the building, land, land improvements, building improvements, and movable and fixed equipment)) building, building square footage, building improvements, leasehold improvements, fixed equipment, and age are recorded in compliance with department requirements, instructions, and generally accepted accounting principles;

(d) The contractor is in compliance with the direct care staffing requirements found in this chapter and chapter 74.42 RCW;

(e) The responsibility of the contractor has been met in the maintenance and disbursement of patient trust funds; and

(((e))) (f) The contractor has reported and maintained accounts receivable in compliance with this chapter and chapter 74.46 RCW.

(2) The department ((shall)) must examine the submitted cost report, or a portion thereof, of each contractor for each nursing facility for each report period to determine whether the information is correct, complete, and reported in conformance with department instructions and generally accepted accounting principles, the requirements of this chapter, and chapter 74.46 RCW. The department ((shall)) must determine the scope of the examination.

(3) When the department finds that the cost report is incorrect or incomplete, the department may make adjustments to the reported information for purposes of establishing component rate allocations or in determining amounts to be recovered in direct care((, therapy care, and support services)) under WAC ((388-96-211 (3) and (4))) 388-96-218 or in any component rate resulting from undocumented or misreported costs. A schedule of the adjustments ((shall)) must be provided to the contractor, including dollar amount and explanations for the adjustments. Adjustments ((shall be)) are subject to review under WAC 388-96-901 and 388-96-904.

(4) Audits of resident trust funds and receivables ((shall)) must be reported separately and in accordance with the provisions of this chapter and chapter 74.46 RCW.

(5) The contractor ((shall)) must:

(a) Provide access to the nursing facility, all financial and statistical records, and all working papers that are in support of the cost report, receivables, and resident trust funds. To ensure accuracy, the department may require the contractor to submit for departmental review any underlying financial statements or other records, including income tax returns, relating to the cost report directly or indirectly;

(b) ((Prepare a reconciliation of the cost report with:

(c))) Make available to the department staff an individual or individuals to respond to questions and requests for information from department staff. The designated individual or individuals ((shall)) must have sufficient knowledge of the issues, operations, or functions to provide accurate and reliable information; and

(ii) The records for the period covered by the cost report.

(6) If an examination discloses material discrepancies, undocumented costs, or mishandling of resident trust funds, the department may open or reopen one or both of the two preceding cost reports or resident trust fund periods, whether examined or unexamined, for indication of similar discrepancies, undocumented costs, or mishandling of resident trust funds.

(7) Any assets, liabilities, revenues, or expenses reported as allowable that are not supported by adequate documentation in the contractor's records ((shall)) must be disallowed. Documentation must show both that costs reported were incurred during the period covered by the report and were related to resident care, and that assets reported were used in the provision of resident care.

(8) When access is required at the facility or at another location in the state, the department ((shall)) must notify ((a)) the contractor of its intent to examine all financial and statistical records, and all working papers that are in support of the cost report, receivables, and resident trust funds.

(9) The department is authorized to assess civil fines and take adverse rate action if a contractor, or any of its employees, ((does)) do not allow access to the contractor's nursing facility records.

(1) The department ((shall)) must reconcile medicaid resident days to billed days and medicaid payments for each medicaid nursing facility for each calendar year, or for that portion of the calendar year the provider's contract was in effect.

(2) The contractor ((shall)) must make any payment owed the department as determined by either reconciliation ((and/or)) or settlement, or both, at the lower of cost or rate ((in direct care, therapy care, and support services component rate allocations)) within sixty days after the department notifies the contractor of the amount owed.

(3) The department ((shall)) must pay the contractor within sixty days after it notifies the contractor of an underpayment.

(4) Interest at the rate of one percent per month accrues against the department or the contractor on an unpaid balance existing sixty days after notification of the contractor. Accrued interest ((shall)) must be adjusted back to the date it began to accrue if the payment obligation is subsequently revised after administrative or judicial review.

(5) The department ((shall)) may withhold funds from the contractor's payment for services and ((shall)) may take all other actions authorized by law to recover from the contractor amounts due and payable including any accrued interest. Neither a timely filed appeal under WAC 388-96-901 and 388-96-904 nor the commencement of judicial review as may be available to the contractor in law to contest a payment obligation determination shall delay recovery from the contractor or payment to the contractor.

(1) Contractors ((shall)) must submit with each annual nursing facility cost report a proposed settlement report showing underspending or overspending in each component rate during the cost report year on a per-resident day basis. The department ((shall)) must accept or reject the proposed settlement report, explain any adjustments, and if needed, issue a revised settlement report.

(2) Contractors ((shall not be)) are not required to refund payments made ((in the operations, variable return, property, and financing allowance component rates)) to cost components not identified in WAC 388-96-208 (7) or (8) in excess of the adjusted costs of providing services corresponding to these components.

(3) The facility ((will)) must return to the department any overpayment amounts ((in each of the direct care, therapy care, and support services rate components)) identified in WAC 388-96-208 (7) or (8) that the department identifies following the examination and settlement procedures as described in this chapter, provided that the contractor may retain any overpayment that does not exceed one percent of the facility's ((direct care, therapy care, and support services)) component rate identified in WAC 388-96-208 (7) or (8). However, no overpayments may be retained in a cost center to which savings have been shifted to cover a deficit, as provided in subsection (((4))) (5) of this section. Facilities that are not in substantial compliance for more than ninety days((,)) and facilities that provide substandard quality of care at any time during the period for which settlement is ((being)) calculated, will not be allowed to retain any amount of overpayment in the facility's ((direct care, therapy care, and support services component rate)) cost components identified in WAC 388-96-208 (7) or (8). The terms "not in substantial compliance" and "substandard quality of care" ((shall)) must be defined by federal survey regulations.

(4) ((Determination of unused rate funds, including the amounts of direct care, therapy care, and support services to be recovered, shall be done separately for each rate component, and, except as otherwise provided in this subsection, neither costs nor rate payments shall be shifted from one component rate or corresponding service area to another in determining the degree of underspending or recovery, if any. In computing a preliminary or final settlement, savings in the support services cost center shall be shifted to cover a deficit in the direct care or therapy cost centers up to the amount of any savings, but no more than twenty percent of the support services component rate may be shifted. In computing a preliminary or final settlement, savings in direct care and therapy care may be shifted to cover a deficit in these two cost centers up to the amount of savings in each, regardless of the percentage of either component rate shifted. Contractor-retained overpayments up to one percent of direct care, therapy care, and support services rate components, as authorized in subsection (3) of this section, shall be calculated and applied after all shifting is completed.

(5))) Total and component payment rates assigned to a nursing facility, as calculated and revised, if needed, under the provisions of this chapter and chapter 74.46 RCW ((shall)) represent the maximum payment for nursing facility services rendered to medicaid recipients for the period the rates are in effect. No increase in payment to a contractor shall result from spending above the total payment rate or in any rate component.

(1) For each component rate, the department ((shall)) must calculate a proposed, preliminary, or final settlement at the lower of prospective payment rate or audited allowable costs, except as otherwise provided in this chapter ((and)) or chapter 74.46 RCW.

(2) As part of the cost report, the proposed settlement report is due in accordance with WAC 388-96-022. In the proposed preliminary settlement report, a contractor ((shall)) must compare the contractor's payment rates during a cost report period, weighted by the number of resident days reported for the same cost report period to the contractor's allowable costs for the cost report period. In accordance with WAC 388-96-205, 388-96-208, and 388-96-211 the contractor ((shall)) must take into account all authorized shifting, retained savings, and upper limits to rates on a cost center basis.

(((a))) (3) The department will((:

(i))) review the proposed preliminary settlement report for accuracy((;)) and

(((ii))) accept or reject the ((proposal of the)) contractor's proposal. If accepted, the proposed preliminary settlement report ((shall)) must become the preliminary settlement report. If rejected, the department ((shall)) must issue, by component payment rate allocation, a preliminary settlement report fully substantiating disallowed costs, refunds, or underpayments due and adjustments to the proposed preliminary settlement.

(((b))) (4) When the department receives the proposed preliminary settlement report((:

(i))) by the cost report due date specified in WAC 388-96-022, it will issue the preliminary settlement report within one hundred twenty days of the cost report due date((; or

(ii) A)) When the department receives the proposed preliminary settlement report after the cost report due date specified in WAC 388-96-022, it will issue the preliminary settlement report within one hundred twenty days of the date the cost report was received.

(((c))) In its discretion, the department may designate a date later than the dates specified in this subsection (((2)(b)(i) and (ii) of this section)) to issue preliminary settlements.

(((d))) (5) A contractor ((shall have)) has twenty-eight days after receipt of a preliminary settlement report to contest such report under WAC 388-96-901 and 388-96-904. Upon expiration of the twenty-eight day period, the department ((shall)) must not review or adjust a preliminary settlement report. Any administrative review of a preliminary settlement ((shall)) must be limited to either calculation of the settlement((, to the)) or application of settlement principles and rules, or both, and ((shall)) must not encompass rate or audit issues.

(((3))) (6) The department ((shall)) must issue a final settlement report to the contractor after the completion of the department audit process, including exhaustion or termination of any administrative review and appeal of audit findings or determinations requested by the contractor, but not including judicial review as may be available to and commenced by the contractor.

(((a))) (7) The department ((shall)) must prepare a final settlement by component payment rate allocation and ((shall)) must fully substantiate disallowed costs, refunds, underpayments, or adjustments to the cost report and financial statements, reports, and schedules submitted by the contractor. The department ((shall)) must take into account all authorized shifting, savings, and upper limits to rates on a component payment rate allocation basis. For the final settlement report, the department ((shall)) must compare((:

(i))) the payment rates it paid the contractor for the facility in question during the report period, weighted by the number of allowable resident days reported for the period each rate was in effect to the contractor's((;)):

(((ii))) (a) Audited allowable costs for the reporting period; or

(((iii))) (b) Reported costs for the nonaudited reporting period.

(((b))) (8) A contractor ((shall have)) has twenty-eight days after the receipt of a final settlement report to contest such report pursuant to WAC 388-96-901 and 388-96-904. Upon expiration of the twenty-eight day period, the department ((shall)) must not review a final settlement report. Any administrative review of a final settlement ((shall)) must be limited to either calculation of the settlement((, the)) or application of settlement principles and rules, or both, and ((shall)) must not encompass rate or audit issues.

(((c))) (9) The department ((shall)) may reopen a final settlement if it is necessary to make adjustments based upon findings resulting from a department audit performed pursuant to WAC 388-96-205. The department may also reopen a final settlement to recover an industrial insurance dividend or premium discount under RCW 51.16.035 in proportion to a contractor's medicaid recipient days.

(((4)(a))) (10) In computing a preliminary or final settlement, a contractor must comply with the requirements of WAC 388-96-211 for retaining or refunding to the department payments made in excess of the adjusted costs of providing services corresponding to each component rate allocation.

(((b))) (11) The nursing facility contractor ((shall)) must refund all amounts due the department within sixty days after the department notifies the contractor of the overpayment and demands repayment. When notification is by postal mail, the department ((shall)) must deem the contractor to have received the department's notice five calendar days after the date of the notification letter, unless proof of the date of receipt of the department's notification letter exists, in which case the actual date of receipt ((shall)) must be used to determine the sixty day period for repayment. After the sixty day period, interest on any unpaid balance will accrue at one percent per month.

(((c))) (12) Repayment will be without prejudice to obtain review of the settlement determination pursuant to WAC 388-96-901 and 388-96-904. ((After an administrative hearing and/or judicial review,)) If the payment obligation is reduced((, then)) after an administrative hearing or judicial review, the department will rescind the difference between the accrued interest on the payment obligation and the interest that would have accrued on the reduced payment obligation from the date interest began to accrue on the original payment obligation.

(((5))) (13) In determining whether a facility has forfeited unused rate funds in its direct care, therapy care, and support services component rates under ((authority of)) WAC 388-96-211, the following rules ((shall)) apply:

(a) Federal or state survey officials ((shall)) must determine when a facility is not in substantial compliance or is providing substandard care, according to federal and state nursing facility survey regulations;

(b) Correspondence from state or federal survey officials notifying a facility of its compliance status ((shall)) must be used to determine the beginning and ending dates of any period(((s))) of noncompliance; and

(c) Forfeiture ((shall)) must occur if the facility was out of substantial compliance more than ninety days during the settlement period. The ninety-day period need not be continuous if the number of days of noncompliance exceed ninety days during the settlement period regardless of the length of the settlement period. Also, forfeiture ((shall)) must occur if the nursing facility was determined to have provided substandard quality of care at any time during the settlement period.

Subject to the provisions of this chapter and chapter 74.46 RCW, when a contractor provides goods or services that are not reimbursable, any ((indirect)) secondary or overhead costs associated with their provision must be allocated to such goods or services on a reasonable basis approved by the department and must not be reported as allowable costs.

(1) The methodology in (a) through (d) of this subsection is effective for services provided on or before June 30, 2016.

(a) The contractor ((shall)) must reduce allowable costs whenever the item, service, or activity covered by such costs generates revenue or financial benefits (((e.g.,)) such as purchase discounts, refunds of allowable costs or rebates) other than through the contractor's normal billing for care services((; except)). However, the department ((shall)) must not deduct from the allowable costs of a nonprofit facility unrestricted grants, gifts, and endowments, and interest therefrom.

(((2))) (b) The contractor ((shall)) must reduce allowable costs for hold-bed revenue in the support services, operations, and property rate components only. In the support services rate component, the amount of reduction ((shall)) must be determined by dividing a facility's allowable housekeeping costs by total adjusted patient days and multiplying the result by total hold-room days. In the operations rate component, the amount of the reduction ((shall)) must be determined by dividing a facility's allowable operation costs by total adjusted patient days and multiplying the result by total hold-room days. In the property rate component, the amount of reduction ((shall)) must be determined by dividing allowable property costs by the total adjusted patient days and multiplying the result by total hold-room days.

(((3))) (c) Where goods or services are sold, the amount of the reduction ((shall be)) is the actual cost relating to the item, service, or activity. In the absence of adequate documentation of cost, ((it shall be)) the amount of the reduction is the full amount of the revenue received. Where financial benefits such as purchase discounts, refunds of allowable costs, or rebates are received, the amount of the reduction ((shall be)) is the amount of the discount or rebate. Financial benefits such as purchase discounts, refunds of allowable costs and rebates, including industrial insurance rebates, ((shall)) must be offset against allowable costs in the year the contractor actually receives the benefits.

(((4))) (d) Only allowable costs ((shall)) may be recovered under this ((section)) subsection. Costs allocable to activities or services not included in nursing facility services((, e.g.,)) (such as costs of vending machines and services specified in chapter 388-86 WAC not included in nursing facility services((,))) are nonallowable costs.

(1) Necessary and ordinary expenses of on-the-job training and in-service training required for employee orientation and certification training directly related to the performance of duties assigned will be allowable costs. Cost of training for which the nursing facility is reimbursed outside the payment rate is an unallowable cost.

(2) Necessary and ordinary expenses of recreational and social activity training conducted by the contractor for volunteers will be allowable costs. Expenses of training programs for other nonemployees will not be allowable costs.

(3) Expenses for travel, lodging, and meals associated with education and training ((in the states of Idaho, Oregon, and Washington and the province of British Columbia)) are allowable if the expenses meet the requirements of this chapter.

(4) ((Except travel, lodging, and meal expenses, education and training expenses at sites outside of the states of Idaho, Oregon, and Washington and the province of British Columbia are allowable costs if the expenses meet the requirements of this chapter.

(5))) Costs designated by this section as allowable ((shall be)) are subject to any applicable cost center limit established by this chapter.

(1) ((When calculating the median lid on home and central office costs and determining which home and central office costs to test against the median lid,)) The department will include all allowable((,)) reported home((/)) or central office costs including all costs that are ((nonduplicative,)) documented, ordinary, necessary, and related to the provision of medical and personal care services to authorized patients.

(((c) The)) Allocated costs ((of (b) of this subsection)) may be included in the cost of services in such cost centers where such services and related costs are appropriately reported.

(((3))) (2) Home office or central office costs must be allocated and reported ((in conformity with the department-approved JCAD methodology as required by WAC 388-96-534)).

(1) The contractor must expense the following equipment costs to indirect care:

(a) Expenditures for ((depreciable assets)) equipment with a historical cost of seven hundred fifty dollars or less per unit ((or a useful life of one year or less from the date of purchase)) and a useful life of one year or less from the date of purchase; and

(b) Expenditures for and costs of repairs necessary to maintain the useful life of equipment including furniture and furnishings and real property items, components, or improvements that cost less than seven hundred fifty dollars.

(2) Subsection (1) of this section ((shall)) does not apply if:

(a) The ((depreciable asset)) equipment was acquired in a group purchase where the total cost exceeded seven hundred fifty dollars; or

(b) The ((depreciable asset)) equipment was part of the initial equipment or stock of the nursing home.

(1) The necessary and ordinary one-time expenses directly incident to the preparation of a newly constructed or purchased building by a contractor for operation as a licensed facility ((shall be)) are allowable costs. These expenses ((shall be)) are limited to start-up and organizational costs incurred prior to the admission of the first patient.

(2) Start-up costs ((shall)) include, but ((not be)) are not limited to, administrative and nursing salaries, utility costs, taxes, insurance, repairs and maintenance, and training((; except, that they shall exclude)). Start-up costs do not include expenditures for capital assets. ((These)) Start-up costs ((will be)) are allowable in the ((operations)) indirect care cost center if they are amortized over a period of not less than sixty months beginning with the month in which the first patient is admitted for care.

(3) Organizational costs are those necessary, ordinary, and directly incident to the creation of a corporation or other form of business of the contractor including, but not limited to, legal fees incurred in establishing the corporation or other organization and fees paid to states for incorporation((; except, that they)). However, organizational costs do not include costs relating to the issuance and sale of shares of capital stock or other securities. Such organizational costs will be allowable in the ((operations)) indirect care cost center if they are amortized over a period of not less than sixty months beginning with the month in which the first patient is admitted for care.

Land is not depreciable. The cost of)) Land includes but is not limited to, off-site sewer and water lines, public utility charges necessary to service the land, governmental assessments for street paving and sewers, the cost of permanent roadways and grading(( of a nondepreciable nature)), and the cost of curbs and sidewalks, replacement of which is not the responsibility of the contractor.

(1) Rental costs of office equipment under arm's-length operating leases ((shall be)) are allowable to the extent such costs are necessary, ordinary, and related to patient care.

(2) The department ((shall)) must pay office equipment rental costs in the ((operations)) indirect component rate allocation. Office equipment may include items typically used in administrative or clerical functions such as telephones, copy machines, desks and chairs, calculators and adding machines, file cabinets, typewriters, and computers.

(1) Unallowable costs listed in subsection (2) of this section represent a partial summary of such costs, in addition to those unallowable under chapter 74.46 RCW and this chapter.

(2) Unallowable costs include but are not limited to the following:

(a) Costs of items or services not covered by the medical care program. Costs of such items or services ((will be)) are unallowable even if they are indirectly reimbursed by the department as the result of an authorized reduction in patient contribution((;)).

(b) Costs of services and items provided to recipients ((which are)) covered by the medical care program but not included in the medicaid per-resident day payment rate established under this chapter and chapter 74.46 RCW((;)).

(c) Costs associated with a capital expenditure ((subject to section 1122 approval (part 100, Title 42 C.F.R.))) if the department found it was not consistent with applicable standards, criteria, or plans. If the department was not given timely notice of a proposed capital expenditure, all associated costs will be unallowable up to the date they are determined to be reimbursable under applicable federal regulations((;)).

(d) Costs associated with a construction or acquisition project requiring certificate of need approval((,)) or exemption from the requirements for certificate of need for the replacement of existing nursing home beds, pursuant to chapter 70.38 RCW if such approval or exemption was not obtained((;)).

(e) Interest costs other than those provided by WAC 388-96-556(4) on and after January 1, 1985((;)).

(f) Salaries or other compensation of owners, officers, directors, stockholders, partners, principals, participants, and others associated with the contractor or its home office, including all board of directors' fees for any purpose, except reasonable compensation paid for service related to patient care((;)).

(g) Costs in excess of limits or in violation of principles set forth in this chapter((;)).

(h) Costs resulting from transactions or the application of accounting methods ((which)) that circumvent the principles of the payment system set forth in this chapter and chapter 74.46 RCW((;)).

(i) Costs applicable to services, facilities, and supplies furnished by a related organization in excess of the lower of the cost to the related organization or the price of comparable services, facilities, or supplies purchased elsewhere((;)).

(j) Bad debts of ((non-))Title XIX recipients((. Bad debts of Title XIX recipients are allowable only when)) are unallowable unless all the following applies:

(i) The debt is related to covered services((;)).

(ii) ((It)) The debt arises from the recipient's required contribution toward the cost of care((;)).

(iii) The provider can establish reasonable collection efforts were made. Reasonable collection efforts ((shall)) consist of at least three documented attempts by the contractor to obtain payment demonstrating that the effort devoted to collecting the bad debts of Title XIX recipients is the same devoted by the contractor to collect the bad debts of non-Title XIX recipients((;)).

(iv) The debt was actually uncollectible when claimed as worthless((; and)).

(v) Sound business judgment established there was no likelihood of recovery at any time in the future.

(k) Charity and courtesy allowances((;)).

(l) Cash, assessments, or other contributions((, excluding dues,)) to charitable organizations, professional organizations, trade associations, or political parties, and costs incurred to improve community or public relations((;)).

(m) Vending machine expenses((;)). This does not include membership dues.

(n) Expenses for barber or beautician services not included in routine care((;)).

(o) Funeral and burial expenses((;)).

(p) Costs of gift shop operations and inventory((;)).

(q) Personal items such as cosmetics, smoking materials, newspapers and magazines, and clothing, except those used in patient activity programs((;)).

(r) Fund-raising expenses, except those directly related to the patient activity program((;)).

(s) Penalties and fines((;)).

(t) Expenses related to telephones, radios, and similar appliances in patients' private accommodations((;)).

(u) ((Televisions acquired prior to July 1, 2001;

(v))) Federal, state, and other income taxes((;)).

(((w))) (v) Costs of special care services except where authorized by the department;

(((x))) (w) Expenses of an employee benefit not in fact made available to all employees on an equal or fair basis((,)). For example, key-man insurance and other insurance or retirement plans((;)).

(((y))) (x) Expenses of profit-sharing plans((;)).

(((z))) (y) Expenses related to the purchase ((and/or)) or use of private or commercial airplanes ((which)) that are in excess of what a prudent contractor would expend for the ordinary and economic provision of such a transportation need related to patient care((;)).

(((aa))) (z) Personal expenses and allowances of any nursing home employees or owners or relatives of any nursing home employees or owners((;)).

(((bb))) (aa) All expenses of maintaining professional licenses or membership in professional organizations((;)).

(((cc))) (bb) Costs related to agreements not to compete((;)).

(((dd))) (cc) Amortization of goodwill, lease acquisition, or any other intangible asset, whether related to resident care or not((,)) and whether recognized under generally accepted accounting principles or not((;)).

(((ff))) (dd) Legal and consultant fees in connection with a fair hearing against the department when the department's board of appeals upholds the department's actions in an administrative review decision. When the administrative review decision is pending, reported legal and consultant fees ((will be)) are unallowable. To be allowable, the contractor must report legal and consultant fees related to an administrative review decision issued in the contractor's favor in the cost report period in which the board of appeals issues its decision irrespective of when the legal and consultant fees related to the administrative review were incurred((;)).

(((gg))) (ee) Legal and consultant fees of a contractor or contractors in connection with a lawsuit against the department. Judicial review is a lawsuit against the department((;)).

(((hh))) (ff) Lease acquisition costs, goodwill, the cost of bed rights, or any other intangible assets((;)).

(((ii))) (gg) All rental or lease costs other than those provided for in WAC 388-96-580((;)).

(((jj))) (hh) Post-survey charges incurred by the facility ((as a result of subsequent inspections)) under ((RCW 18.51.050 which occur beyond the first postsurvey visit during the certification survey calendar year)) RCW 18.51.060((;)).

(((kk))) (ii) Compensation paid for any purchased nursing care services, including registered nurse, licensed practical nurse, and nurse assistant services, obtained through a service contract arrangement in excess of the amount of compensation paid for such hours of nursing care service had ((they)) the purchased nursing care staff been paid at the average hourly wage((, including related taxes and benefits,)) for in-house nursing care staff of like classification at the same nursing facility, including related taxes and benefits, as reported in the most recent cost report period((;)).

(((mm))) (jj) Costs reported by the contractor for a prior period to the extent such costs, due to statutory exemption, will not be incurred by the contractor in the period to be covered by the rate((;)).

(((nn))) (kk) Costs of outside activities, for example, costs allocated to the use of a vehicle for personal purposes or related to the part of a facility leased out for office space((;)).

(((oo))) (ll) Travel expenses that are not necessary, ordinary, and related to resident care((;)).

(((pp))) (mm) Moving expenses of employees in the absence a of demonstrated, good-faith effort to recruit within the states of Idaho, Oregon, and Washington, and the province of British Columbia((;)).

(rr))) (nn) Costs for temporary health care personnel from a nursing pool not registered with the secretary of the department of health((;)).

(((ss))) (oo) Payroll taxes associated with compensation in excess of allowable compensation of owners, relatives, and administrative personnel((;)).

(((tt))) (pp) Costs and fees associated with filing a petition for bankruptcy((;)).

(((uu))) (qq) All advertising or promotional costs, except reasonable costs of help wanted advertising((;)).

(((vv))) (rr) Interest charges assessed by any department or agency of this state for failure to make a timely refund of overpayments and interest expenses incurred for loans obtained to make the refunds((;)).

(xx))) (ss) Tax expenses that a nursing facility has never incurred((;)).

(((zz))) (tt) Any portion of trade association dues attributable to legal and consultant fees and costs in connection with lawsuits against the department ((shall be unallowable; and)).

(((aaa))) (uu) Increased costs resulting from a series of transactions between the same parties and involving the same assets (((e.g.,)) such as sale and lease back((,)) and successive sales or leases of a single facility or piece of equipment).

(1) The department will establish an initial prospective medicaid payment rate for a new contractor as defined under WAC 388-96-026 within sixty days following the new contractor's application and approval for a license to operate the facility under chapter 18.51 RCW. The rate will take effect as of the effective date of the contract, except as provided in this section, and will comply with all the provisions of rate setting contained in chapter 74.46 RCW and in this chapter, including all lids and maximums set forth.

(2) ((Except for quarterly updates per RCW 74.46.501 (7)(c), the rate established for a new contractor as defined in WAC 388-96-026 (1)(a) or (b) will remain in effect for the nursing facility until the rate can be reset effective July 1 using the first cost report for that facility under the new contractor's operation containing at least six months' data from the prior calendar year, regardless of whether reported costs for facilities operated by other contractors for the prior calendar year in question will be used to cost rebase their July 1 rates. The new contractor's rate thereafter will be cost rebased only as provided in this chapter and chapter 74.46 RCW.

(3))) To set the initial prospective medicaid payment rate for a new contractor as defined in WAC 388-96-026 (1)(a) and (b), the department will:

(a) Determine ((whether the new contractor nursing facility belongs to the metropolitan statistical area (MSA) peer group or the non-MSA peer group using the latest information received from the office of management and budget or the appropriate federal agency)) the direct care rate by multiplying the current direct care industry median per RCW 74.46.561(8) by the appropriate county wage index by the appropriate industry medicaid average case mix index (MACMI);

(b) ((Select all nursing facilities from the department's records of all the current medicaid nursing facilities in the new contractor's peer group with the same bed capacity plus or minus ten beds. If the selection does not result in at least seven facilities, then the department will increase the bed capacity by plus or minus five bed increments until a sample of at least seven nursing facilities is obtained)) Assign the new provider the indirect price based rate per RCW 74.46.561(8);

(c) ((Based on the information for the nursing facilities selected under subsection (3)(b) of this section and available to the department on the day the new contractor began participating in the medicaid payment rate system at the facility, rank from the highest to the lowest the component rate allocation in direct care, therapy care, support services, and operations cost centers and based on this ranking:

(7))) Determine a capital rate once the facility has submitted square footage and facility age information per RCW 74.46.561(5) and the department accepts it; and

(3) A prospective payment rate set for all new contractors will be subject to adjustments for economic trends and conditions as authorized and provided in this chapter and in chapter 74.46 RCW.

(1) Each nursing facility's medicaid payment rate for services provided to medical care recipients will be determined, adjusted, and updated prospectively as provided in this chapter and in chapter 74.46 RCW. The department will calculate any limit, ((lid, and/or)) median, or both only when it rebases each nursing facility's July 1st medicaid payment rate in accordance with chapter 74.46 RCW and this chapter.

(2) If the contractor participated in the program for less than six months of the prior calendar year, its rates will be determined by procedures set forth in WAC 388-96-710.

(3) Contractors ((submitting)) that submit correct and complete cost reports by March 31st, ((shall)) must be notified of their rates by July 1st, unless circumstances beyond the control of the department interfere.

(4) In setting rates, the department will use the greater of actual days from the cost report period on which the rate is based or days calculated at minimum occupancy pursuant to chapter 74.46 RCW.

(1) ((The department will grant a low wage add-on payment not to exceed one dollar and fifty-seven cents per resident day to any nursing home provider that has indicated a desire to receive the add-on pursuant to subsection (7) of this section.)) A nursing home may use the low-wage worker add-on only for in-house staff and not for allocated, home office, or purchased service increases. A nursing home may use the add-on to:

(a) Increase wages, benefits, ((and/or)) or staffing levels for certified nurse aides;

(b) Increase wages ((and/or)) or benefits but not staffing levels for dietary aides, housekeepers, laundry aides, or any other category of worker whose statewide average dollars-per-hour wage was less than fifteen dollars in calendar year 2008, according to cost report data((. The department has determined that the additional categories of workers qualifying under this standard are)), including:

(i) Activities directors and assistants;

(ii) Patient choices coordinators;

(iii) Central supply/ward clerks;

(iv) Expanded community service workers; and

(v) Social workers; and

(c) Address wage compression for related job classes immediately affected by wage increases to low-wage workers.

(2) A nursing home that receives a low-wage add-on ((shall)) must report to the department its expenditure of that add-on by:

(a) Completing cost report schedule L 1; and

(b) Returning it to the department by January 31st.

(3) By examining cost report schedule L 1, the department will determine whether the nursing home complied with the statutory requirements for distribution of the low wage add-on. When the department is unable to determine or unsure that the statutory requirements have been met, it will conduct an on-site audit.

(4) When the department determines that the statutory requirements have been met, the low wage add-on will be reconciled at the same time as the regular settlement process but as a separate reconciliation. The reconciliation process will compare gross dollars received in the add-on to gross dollars spent.

(5) When the department determines that the low wage add-on has not been spent in compliance with the statutory requirements, then it will recoup the noncomplying amount as an overpayment.

(6) The department also will require the completing of cost report schedule L 1 for any calendar year in which the low wage add-on is paid for six months or more. Subsections (1) through (5) of this section will apply to all completions of cost report schedule L 1 irrespective of the calendar year in which it is paid.

(1) In accordance with WAC 388-96-758, the low-wage worker add-on must be used to provide increases in wages or benefits, or to address resulting wage compression beginning on or after the date on which the add-on is first included in the rate. The low-wage worker add-on may be used to increase staffing levels for certified nurse aides only. Nursing home contractors receiving the low-wage add-on may not use it to pay for increases for time periods that they were not receiving the low wage worker add-on.

(2) Any type of traditional employee benefit is allowable. Such benefits typically fall in one of two categories: retirement((,)) and life or health insurance. However, nontraditional benefits are also allowable (for example, wellness benefits, subsidized meals, or assistance with daycare).

(3) The employer's share of payroll taxes associated with wages and benefits may be covered with the add-on.

(4) For purposes of wage compression, an "immediately affected" job class is one that is related to the low-wage worker category, either in the organizational structure (for example, it supervises the low-wage worker category) or by existing practice (for example, the facility has a benchmark of paying that job class a certain percentage more than the low-wage worker category). Facilities must be able to explain the basis of the relationship if requested. Because the statute refers to "resulting wage compression," a facility must use a portion of the add-on to increase wages or benefits before it may use any of the add-on to address any wage compression caused by such increase.

(5) A facility may use the add-on in relation to any of the job categories listed in WAC 388-96-758, regardless of whether the average wage it pays to its own employees is above fifteen dollars per hour, either before or after including the additional wages funded by the add-on.

(6) Wages or benefits, including employee bonuses, otherwise properly paid with the add on will not be considered as unallowable costs ((per)) under RCW 74.46.410 (2)(x).

(7) The low-wage worker add-on payments calculated in accordance with WAC 388-96-758 and this section ((shall)) must be adjusted to the extent necessary to comply with RCW 74.46.421.

A nursing facility (NF) may receive an increase in its direct care ((and/or therapy component)) rate allocations for providing exceptional care to a medicaid resident who:

(1) Receives specialized services to meet chronic complex medical conditions and neurodevelopment needs of medically fragile children and resides in a NF where all residents are under age twenty-one with at least fifty percent of the residents entering the facility before the age of fourteen;

(2) Receives expanded community services (ECS);

(3) Is admitted to ((the)) a NF as an extraordinary medical placement (EMP) and the department of corrections (DOC) has approved the exceptional direct care ((and/or therapy payment));

(4) Is ventilator or tracheotomy (VT) dependent and resides in a NF that the department has designated as active ventilator-weaning center;

(5) Has a traumatic brain injury (TBI) established by a comprehensive assessment reporting evaluation (CARE) assessment administered by department staff and resides in a NF that the department has designated as capable for TBI patients;

(6) Has a TBI and currently resides in nursing facility specializing in the care of TBI residents where more than fifty percent of residents are classified with TBIs based on the federal minimum data set assessment (MDS ((2)) 3.0 or its successor); or

(7) Is admitted to a NF from a hospital with an exceptional care need and medicaid purchasing administration (MPA) or a successor administration has approved the exceptional direct care ((and/or therapy)) payment.

(1) For WAC 388-96-781(1) residents, the department will pay the Oregon medicaid rate.

(2) For WAC 388-96-781 (4), (5)(( and)), (6), and (7) residents, the department may establish a rate add-on that when added to the nursing facility's per diem medicaid rate does not exceed the cost of caring for the client in a hospital.

(3)(((a))) Costs related to payments resulting from increases in direct care component rates under subsection (2) of this section ((shall)) must be offset against the facility's examined, allowable direct care costs, for each report year or partial period such increases are paid. Such reductions in allowable direct care ((shall)) must be for rate setting, settlement, and other purposes deemed appropriate by the department((; or

(b) Costs related to payments resulting from increases in therapy care component rates under subsection (2) of this section shall not be offset against the facility's examined, allowable therapy care costs, for each report year or partial period such increases are paid)).

(1) When a contractor wishes to contest the way in which the department applied a statute or department rule to the contractor's circumstances, the contractor ((shall)) must pursue the administrative review process prescribed in WAC 388-96-904.

(a) Adverse actions taken under the authority of this chapter or chapter 74.46 RCW subject to administrative review under WAC 388-96-904 include but are not limited to the following:

(i) Determining a nursing facility payment rate;

(ii) Calculating a nursing facility settlement;

(iii) Imposing a civil fine on the nursing facility;

(iv) Suspending payment to a nursing facility; ((or)) and

(v) Conducting trust fund and accounts receivable audits.

(b) Adverse actions taken under the authority of this chapter or chapter 74.46 RCW not subject to administrative review under WAC 388-96-904 include but are not limited to:

(i) Actions taken under the authority of RCW 74.46.421 and sections of this chapter implementing RCW 74.46.421;

(ii) Case mix accuracy review of minimum data set (MDS) nursing facility resident assessments((, which shall be)) that are limited to separate administrative review under ((the provisions of)) WAC 388-96-905;

(iii) ((Quarterly and)) Semiannual rate updates to reflect changes in a facility's resident case mix including contractor errors made in the MDSs used to update the facility's resident case mix;

(iv) Actions taken under the exceptional direct ((and therapy)) care program codified at WAC 388-96-781 and 388-96-782; and

(v) Actions taken under WAC 388-96-218 (2)(c)((; and

(vi) Actions taken under WAC 388-96-786)).

(2) The administrative review process prescribed in WAC 388-96-904 ((shall)) must not be used to contest or review unrelated or ancillary department actions, whether review is sought to obtain a ruling on the merits(( of a claim or to)), make a record for subsequent judicial review, or other purpose. If an issue is raised that is not subject to review under WAC 388-96-904, the presiding officer ((shall)) must dismiss such issue with prejudice to further review under the provisions of WAC 388-96-904, but without prejudice to other administrative or judicial review as may be provided by law. Unrelated or ancillary actions not eligible for administrative review under WAC 388-96-904 include but are not limited to:

(a) Challenges to the adequacy or validity of the public process followed by the department in proposing or making a change to the nursing facility medicaid payment rate methodology, as required by Title 42 U.S.C. Sec. 1396a (a)(13)(A) and WAC 388-96-718;

(b) Challenges to the nursing facility medicaid payment system that are based in whole or in part on federal laws, regulations, or policies;

(c) Challenges to a contractor's rate that are based in whole or in part on federal laws, regulations, or policies;

(d) Challenges to the legal validity of a statute or regulation; and

(e) Actions of the department affecting a medicaid beneficiary or provider that were not commenced by the office of rates management, aging and ((disability services)) long-term support administration((, for example, entitlement to or payment for durable medical equipment or other services)).

(3) If a contractor wishes to challenge the legal validity of a statute, rule, or contract provision relating to the nursing facility medicaid payment system or ((wishes to)) bring a challenge based in whole or in part on federal law, it must bring such action de novo in a court of proper jurisdiction as may be provided by law. The contractor ((may)) must not use this section or WAC 388-96-904 for such purposes. This prohibition ((shall apply)) applies irrespective of whether the contractor wishes to obtain a decision or ruling on an issue of validity or federal compliance or wishes only to make a record for the purpose of subsequent judicial review.

(1) Allowable nursing home square footage is the external dimensions of the building utilized and licensed as a nursing home less all unallowable square footage as outlined in subsection (2) of this section. Allowable nursing home square footage includes the following:

(a) All necessary, ordinary, and reasonable space on the campus or adjacent to the campus utilized by the residents and staff of the nursing home including in administrative and support capacities; and

(b) Basements to the extent they are utilized for administrative or support functions including the storage of equipment and records.

(2) Unallowable nursing home square footage includes, but is not limited to:

(a) Courtyards or other areas not surrounded by four walls and a contiguous roof;

(b) Patios and decks; and

(c) Off-site storage space.

(3) Off-site administrative square footage is allowable to the extent it is:

(a) Allocated on the cost report, if appropriate;

(b) Not otherwise unallowable under subsection (2) of this section; and

(c) Used for administrative purposes.

(4) Off-site administrative square footage is allowable up to ten percent of the combined total allowable square footage. Any square footage over ten percent of the combined total allowable square footage in unallowable.

(5) In order to be allowable, all space must be identified on a site plan, blueprint, or county assessment identifying the gross external square footage.

(1) The average age of a facility is the actual facility age reduced for significant renovations.

(2) For the rate beginning July 1, 2016, the department must use renovations data back to 1994 as submitted on facility cost reports to determine an initial age.

(3) Beginning July 1, 2016:

(a) Facilities must all be re-aged to one year older on December 31st of each year.

(b) Facility ages must be reduced during review of the cost report if the value of the renovation completed in any calendar year exceeds two thousand dollars times the number of licensed beds. In order to calculate the new age, the cost of the renovation must be divided by the accumulated depreciation per bed in the year of the renovation to determine the equivalent number of new replacement beds. The new age for the facility is a weighted average with the replacement bed equivalents reflecting an age of zero and the existing licensed beds, minus the new bed equivalents, reflecting their age in the year of the renovation.

(4) At no time may the depreciated age be less than zero or greater than forty-four years.

(1) The department must calculate a county wide wage index each rebase year by utilizing the most recent average wage data available from the federal bureau of labor statistics for registered nurses, licensed practical nurses, and certified nursing assistants.

(2) For each county, the department must calculate an average combined wage for all three disciplines based on the percentage of total wages by discipline from the prior year cost report. Each wage must be multiplied by the relative utilization percentage for that discipline. The total of all three disciplines is the average wage in that county.

(3) The department must calculate the statewide average combined wage for all three disciplines based on the average percentage of total wages by discipline from the prior year cost report.

(4) The county index is determined by dividing the county average wage in a given county by the statewide average wage.