1908-S2.E

AN ACT Relating to long-term care; amending RCW 74.39.005, 74.39.040, 74.39A.010, 70.128.007, 70.128.057, 70.128.070, 70.128.080, 70.128.090, 70.128.140, 70.128.150, 70.128.160, 70.128.175, 43.190.020, 43.190.060, 74.08.545, 74.09.520, 74.08.550, 74.08.570, 18.51.091, 18.51.140, 18.51.300, 18.79.040, 18.79.260, 18.88A.030, 11.40.010, 11.42.020, 11.62.010, 11.28.120, 18.39.250, 18.39.255, 74.42.450, 68.46.050, 70.129.040, 43.20B.080, 74.42.020, 74.46.450, 70.38.111, 70.38.115, 70.38.125, 48.85.010, 48.85.020, 48.85.030, 48.85.040, 48.85.050, 74.09.585, 74.34.010, 74.34.100, 74.34.020, 74.34.070, 74.34.030, 74.46.020, 74.46.105, 74.46.115, 74.46.160, 74.46.170, 74.46.180, 74.46.190, 74.46.410, 74.46.420, 74.46.430, 74.46.450, 74.46.460, 74.46.470, 74.46.481, 74.46.490, 74.46.500, 74.46.505, 74.46.510, 74.46.530, 74.46.560, 74.46.570, 74.46.640, 74.46.690, 74.46.770, 74.46.780, and 70.128.120; amending 1995 c 260 s 12 (uncodified); adding new sections to chapter 74.39A RCW; adding new sections to chapter 70.41 RCW; adding new sections to chapter 74.42 RCW; adding a new section to chapter 18.20 RCW; adding new sections to chapter 70.128 RCW; adding new sections to chapter 18.88A RCW; adding new sections to chapter 74.46 RCW; adding new sections to chapter 74.34 RCW; creating new sections; recodifying RCW 74.08.530, 74.08.560, 74.08.570, 74.08.545, 74.08.550, and 74.34.100; repealing RCW 70.128.180, 74.08.541, 74.46.420, 74.46.430, 74.46.440, 74.46.450, 74.46.460, 74.46.465, 74.46.470, 74.46.481, 74.46.490, 74.46.500, 74.46.505, 74.46.510, 74.46.530, 74.46.540, 74.46.550, 74.46.560, 74.46.570, 74.46.580, and 74.46.590; prescribing penalties; providing an effective date; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. A new section is added to chapter 74.39A RCW to read as follows:

Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Adult family home" means a facility licensed under chapter 70.128 RCW.

(2) "Adult residential care" means personal care services provided by a boarding home that is licensed under chapter 18.20 RCW and that has a contract with the department under section 15 of this act.

(3) "Aging and adult services administration" means the aging and adult services administration of the department.

(4) "Assisted living services" means services provided by a boarding home that has a contract with the department under RCW 74.39A.010 and the resident is housed in a private apartment-like unit.

(5) "Boarding home" means a facility licensed under chapter 18.20 RCW.

(6) "Cost-effective care" means care provided in a setting of an individual's choice that is necessary to promote the most appropriate level of physical, mental, and psychosocial well-being consistent with client choice, in an environment that is appropriate to the care and safety needs of the individual, and such care cannot be provided at a lower cost in any other setting. But this in no way precludes an individual from choosing a different residential setting to achieve his or her desired quality of life.

(7) "Department" means the department of social and health services.

(8) "Home and community services" means assisted living services, enhanced adult residential care, adult residential care, adult family homes, in-home services, and other services administered by the aging and adult services administration of the department directly or through contract with area agencies on aging.

(9) "Long-term care services" means the services administered directly or through contract by the aging and adult services administration of the department, including but not limited to nursing facility care and home and community services.

(10) "Enhanced adult residential care" means personal care services and limited nursing services, as defined by the department of health in rule, which services are provided by a boarding home that is licensed under chapter 18.20 RCW and that has a contract with the department under section 15 of this act.

(11) "Nursing facility" means a nursing facility as defined in section 1919(a) of the federal social security act and regulations adopted thereunder.

(12) "Nursing home" means a facility licensed under chapter 18.51 RCW.

(13) "Tribally licensed boarding home" means a boarding home licensed by a federally recognized Indian tribe which home provides services similar to boarding homes licensed under chapter 18.20 RCW.

NEW SECTION. Sec. 2. A new section is added to chapter 74.39A RCW to read as follows:

(1) To the extent of available funding, the department shall expand cost-effective options for home and community services for consumers for whom the state participates in the cost of their care.

(2) In expanding home and community services, the department shall: (a) Take full advantage of federal funding available under Title XVIII and Title XIX of the federal social security act, including home health, adult day care, waiver options, and state plan services; and (b) be authorized to use funds available under its community options program entry system waiver granted under section 1915(c) of the federal social security act to expand the availability of in-home, adult residential care, adult family homes, enhanced adult residential care, and assisted living services. By June 30, 1997, the department shall undertake to reduce the nursing home medicaid census by at least one thousand six hundred by assisting individuals who would otherwise require nursing facility services to obtain services of their choice, including assisted living services, enhanced adult residential care, and other home and community services. If a resident, or his or her legal representative, objects to a discharge decision initiated by the department, the resident shall not be discharged if the resident has been assessed and determined to require nursing facility services. In contracting with nursing homes and boarding homes for enhanced adult residential care placements, the department shall not require, by contract or through other means, structural modifications to existing building construction.

(3)(a) The department shall by rule establish payment rates for home and community services that support the provision of cost-effective care.

(b) The department may authorize an enhanced adult residential care rate for nursing homes that temporarily or permanently convert their bed use for the purpose of providing enhanced adult residential care under chapter 70.38 RCW, when the department determines that payment of an enhanced rate is cost-effective and necessary to foster expansion of contracted enhanced adult residential care services. As an incentive for nursing homes to permanently convert a portion of its nursing home bed capacity for the purpose of providing enhanced adult residential care, the department may authorize a supplemental add-on to the enhanced adult residential care rate.

(c) The department may authorize a supplemental assisted living services rate for up to four years for facilities that convert from nursing home use and do not retain rights to the converted nursing home beds under chapter 70.38 RCW, if the department determines that payment of a supplemental rate is cost-effective and necessary to foster expansion of contracted assisted living services.

NEW SECTION. Sec. 3. A new section is added to chapter 70.41 RCW to read as follows:

(1)(a) The department of social and health services, in consultation with hospitals and acute care facilities, shall promote the most appropriate and cost-effective use of long-term care services by developing and distributing to hospitals and other appropriate health care settings information on the various chronic long-term care programs that it administers directly or through contract. The information developed by the department of social and health services shall, at a minimum, include the following:

(i) An identification and detailed description of each long-term care service available in the state;

(ii) Functional, cognitive, and medicaid eligibility criteria that may be required for placement or admission to each long-term care service; and

(iii) A long-term care services resource manual for each hospital, that identifies the long-term care services operating within each hospital's patient service area. The long-term care services resource manual shall, at a minimum, identify the name, address, and telephone number of each entity known to be providing long-term care services; a brief description of the programs or services provided by each of the identified entities; and the name or names of a person or persons who may be contacted for further information or assistance in accessing the programs or services at each of the identified entities.

(b) The information required in (a) of this subsection shall be periodically updated and distributed to hospitals by the department of social and health services so that the information reflects current long-term care service options available within each hospital's patient service area.

(2) To the extent that a patient will have continuing care needs, once discharged from the hospital setting, hospitals shall, during the course of the patient's hospital stay, promote each patient's family member's and/or legal representative's understanding of available long-term care service discharge options by, at a minimum:

(a) Discussing the various and relevant long-term care services available, including eligibility criteria;

(b) Making available, to patients, their family members, and/or legal representative, a copy of the most current long-term care services resource manual;

(d) Assisting the patient, their family members, and/or legal representative in contacting appropriate persons or entities to respond to the question or questions posed; and

(e) Linking the patient and family to the local, state-designated aging and long-term care network to ensure effective transitions to appropriate levels of care and ongoing support.

NEW SECTION. Sec. 4. A new section is added to chapter 70.41 RCW to read as follows:

"Cost-effective care" and "long-term care services," where used in sections 3 and 5 of this act, shall have the same meaning as that given in section 1 of this act.

NEW SECTION. Sec. 5. A new section is added to chapter 70.41 RCW to read as follows:

(1) Hospitals and acute care facilities shall:

(a) Work cooperatively with the department of social and health services, area agencies on aging, and local long-term care information and assistance organizations in the planning and implementation of patient discharges to long-term care services.

(b) Establish and maintain a system for discharge planning and designate a person responsible for system management and implementation.

(i) Identify patients needing further nursing, therapy, or supportive care following discharge from the hospital;

(ii) Develop a documented discharge plan for each identified patient, including relevant patient history, specific care requirements, and date such follow-up care is to be initiated;

(iii) Coordinate with patient, family, caregiver, and appropriate members of the health care team;

(iv) Provide any patient, regardless of income status, written information and verbal consultation regarding the array of long-term care options available in the community, including the relative cost, eligibility criteria, location, and contact persons;

(v) Promote an informed choice of long-term care services on the part of patients, family members, and legal representatives; and

(vi) Coordinate with the department and specialized case management agencies, including area agencies on aging and other appropriate long-term care providers, as necessary, to ensure timely transition to appropriate home, community residential, or nursing facility care.

(d) Work in cooperation with the department which is responsible for ensuring that patients eligible for medicaid long-term care receive prompt assessment and appropriate service authorization.

(2) In partnership with selected hospitals, the department of social and health services shall develop and implement pilot projects in up to three areas of the state with the goal of providing information about appropriate in-home and community services to individuals and their families early during the individual's hospital stay.

The department shall not delay hospital discharges but shall assist and support the activities of hospital discharge planners. The department also shall coordinate with home health and hospice agencies whenever appropriate. The role of the department is to assist the hospital and to assist patients and their families in making informed choices by providing information regarding home and community options.

The department shall by December 12, 1995, report to the house of representatives health care committee and the senate health and long-term care committee regarding the progress and results of the pilot projects along with recommendations regarding continuation or modification of the pilot projects.

In conducting the pilot projects, the department shall:

(a) Assess and offer information regarding appropriate in-home and community services to individuals who are medicaid clients or applicants; and

(b) Offer assessment and information regarding appropriate in-home and community services to individuals who are reasonably expected to become medicaid recipients within one hundred eighty days of admission to a nursing facility.

NEW SECTION. Sec. 6. A new section is added to chapter 74.39A RCW to read as follows:

The department shall work in partnership with hospitals in assisting patients and their families to find long-term care services of their choice. The department shall not delay hospital discharges but shall assist and support the activities of hospital discharge planners. The department also shall coordinate with home health and hospice agencies whenever appropriate. The role of the department is to assist the hospital and to assist patients and their families in making informed choices by providing information regarding home and community options to individuals who are hospitalized and likely to need long-term care.

(1) To the extent of available funds, the department shall assess individuals who:

(a) Are medicaid clients, medicaid applicants, or eligible for both medicare and medicaid; and

(b) Apply or are likely to apply for admission to a nursing facility.

(2) For individuals who are reasonably expected to become medicaid recipients within one hundred eighty days of admission to a nursing facility, the department shall, to the extent of available funds, offer an assessment and information regarding appropriate in-home and community services.

(3) When the department finds, based on assessment, that the individual prefers and could live appropriately and cost-effectively at home or in some other community-based setting, the department shall:

(a) Advise the individual that an in-home or other community service is appropriate;

(b) Develop, with the individual or the individual's representative, a comprehensive community service plan;

(c) Inform the individual regarding the availability of services that could meet the applicant's needs as set forth in the community service plan and explain the cost to the applicant of the available in-home and community services relative to nursing facility care; and

(d) Discuss and evaluate the need for on-going involvement with the individual or the individual's representative.

(4) When the department finds, based on assessment, that the individual prefers and needs nursing facility care, the department shall:

(a) Advise the individual that nursing facility care is appropriate and inform the individual of the available nursing facility vacancies;

(b) If appropriate, advise the individual that the stay in the nursing facility may be short term; and

NEW SECTION. Sec. 7. A new section is added to chapter 74.42 RCW to read as follows:

A nursing facility shall not admit any individual who is medicaid eligible unless that individual has been assessed by the department. Appropriate hospital discharge shall not be delayed pending the assessment.

To ensure timely hospital discharge of medicaid eligible persons, the date of the request for a department long-term care assessment, or the date that nursing home care actually begins, whichever is later, shall be deemed the effective date of the initial service and payment authorization. The department shall respond promptly to such requests.

A nursing facility admitting an individual without a request for a department assessment shall not be reimbursed by the department and shall not be allowed to collect payment from a medicaid eligible individual for any care rendered before the date the facility makes a request to the department for an assessment. The date on which a nursing facility makes a request for a department long-term care assessment, or the date that nursing home care actually begins, whichever is later, shall be deemed the effective date of initial service and payment authorization for admissions regardless of the source of referral.

A medicaid eligible individual residing in a nursing facility who is transferred to an acute care hospital shall not be required to have a department assessment under this section prior to returning to the same or another nursing facility.

NEW SECTION. Sec. 8. A new section is added to chapter 74.42 RCW to read as follows:

If a nursing facility has reason to know that a resident is likely to become financially eligible for medicaid benefits within one hundred eighty days, the nursing facility shall notify the patient or his or her representative and the department. The department may:

(1) Assess any such resident to determine if the resident prefers and could live appropriately at home or in some other community-based setting; and

(2) Provide case management services to the resident.

NEW SECTION. Sec. 9. A new section is added to chapter 74.42 RCW to read as follows:

(1) To the extent of available funding, the department shall provide case management services to assist nursing facility residents, in conjunction and partnership with nursing facility staff. The purpose of the case management services is to assist residents and their families to assess the appropriateness and availability of home and community services that could meet the resident's needs so that the resident and family can make informed choices.

(2) To the extent of available funding, the department shall provide case management services to nursing facility residents who are:

(a) Medicaid funded;

(b) Dually medicaid and medicare eligible;

(d) Likely to become financially eligible for medicaid within one hundred eighty days, pursuant to section 8 of this act.

Sec. 10. RCW 74.39.005 and 1989 c 427 s 2 are each amended to read as follows:

The purpose of this chapter is to:

(1) Establish a balanced range of ((~~community-based~~)) health, social, and supportive services that deliver long-term care services to chronically, functionally disabled persons of all ages;

(2) Ensure that functional ((~~disability~~)) ability shall be the determining factor in defining long-term care service needs and that these needs will be determined by a uniform system for comprehensively assessing functional disability;

(3) Ensure that services are provided in the most independent living situation consistent with individual needs;

(4) Ensure that long-term care service options shall be developed and made available that enable functionally disabled persons to continue to live in their homes or other community residential facilities while in the care of their families or other volunteer support persons;

(5) Ensure that long-term care services are coordinated in a way that minimizes administrative cost, eliminates unnecessarily complex organization, minimizes program and service duplication, and maximizes the use of financial resources in directly meeting the needs of persons with functional limitations;

(6) Develop a systematic plan for the coordination, planning, budgeting, and administration of long-term care services now fragmented between the division of developmental disabilities, division of mental health, aging and adult services administration, division of children and family services, division of vocational rehabilitation, office on AIDS, division of health, and bureau of alcohol and substance abuse;

(7) Encourage the development of a state-wide long-term care case management system that effectively coordinates the plan of care and services provided to eligible clients;

(8) Ensure that individuals and organizations affected by or interested in long-term care programs have an opportunity to participate in identification of needs and priorities, policy development, planning, and development, implementation, and monitoring of state supported long-term care programs;

(9) Support educational institutions in Washington state to assist in the procurement of federal support for expanded research and training in long-term care; and

(10) Facilitate the development of a coordinated system of long-term care education that is clearly articulated between all levels of higher education and reflective of both in-home care needs and institutional care needs of functionally disabled persons.

Sec. 11. RCW 74.39.040 and 1989 c 427 s 13 are each amended to read as follows:

((~~(1) A long-term care commission is created. It shall consist of:~~

(a) Four legislators who shall serve on the executive committee, one from each of the two largest caucuses in the house of representatives and the senate who shall be selected by the president of the senate and the speaker of the house of representatives;

(b) Six members, to be selected by the executive committee, who shall be authorities in gerontology, developmental disabilities, neurological impairments, physical disabilities, mental illness, nursing, long-term care service delivery, long-term care service financing, systems development, or systems analysis;

~~(c) Three members, to be selected by the executive committee, who represent long-term care consumers, services providers, or advocates;~~

~~(d) Two members, to be selected by the executive committee, who represent county government;~~

(e) One member, to be selected by the secretary of social and health services, to represent the department of social and health services long-term care programs, including at least developmental disabilities, mental health, aging and adult services, AIDS, children's services, alcohol and substance abuse, and vocational rehabilitation; and

~~(f) Two members, to represent the governor, who shall serve on the executive committee.~~

~~The legislative members shall select a chair from the membership of the commission.~~

~~The commission shall be staffed, to the extent possible, by staff from the appropriate senate and house of representatives committees.~~

~~The commission may form technical advisory committees to assist it with any particular matters deemed necessary by the commission.~~

The commission and technical advisory committee members shall receive no compensation, but except for publicly funded agency staff, shall, to the extent funds are available, be reimbursed for their expenses while attending any meetings in the same manner as legislators engaged in interim committee business as specified in RCW 44.04.120.

The commission may receive appropriations, grants, gifts, and other payments from any governmental or other public or private entity or person which it may use to defray the cost of its operations or to contract for technical assistance, with the approval of the senate committee on facilities and operations and the house of representatives executive rules committee.

~~(2) The long-term care commission shall develop legislation and recommend administrative actions necessary to achieve the following long-term care reforms:~~

(a) The systematic coordination, planning, budgeting, and administration of long-term care services currently administered by the department of social and health services, division of developmental disabilities, aging and adult services administration, division of vocational rehabilitation, office on AIDS, division of health, and the bureau of alcohol and substance abuse;

~~(b)~~)) The legislature finds the intent of the 1989 legislature to reform statutory provisions of long-term care for persons of all ages with chronic functional disability, although not enacted, continues to be applicable. The need to streamline the current bureaucratic fragmentation of chronic health services for the person with functional disabilities and facilitate the development of client centered, accessible, high quality, cost-effective, and appropriate long-term care services options for persons with functional disabilities is even more pressing today. The legislature further finds that if we are going to meet the significant and growing chronic care needs in the next two decades, rapid fundamental changes will need to take place in the way we finance, organize, and provide long-term care services to the functionally disabled. The public demands, and it is the intent of the legislature to reduce the cost and size of government and provide efficient and effective public service to the persons most impaired by chronic functional disability.

To realize the need for a cost-effective, uniform, and fully integrated long-term care system while simultaneously reducing the size and cost of government, the legislative budget committee, in coordination with the Washington health care policy board, shall develop a working plan for long-term care reform, including recommendations and statutory changes, by December 12, 1995, to accomplish the following:

(1) Reorganize and consolidate, on a noncategorical basis, all disease or age-specific (categorical) organizational entities of state administration and their regional elements pertaining to chronic care services to persons with functional mental and physical disabilities, including but not limited to: In the department of social and health services: Health and rehabilitative services and aging and adult services; in the department of health: Aids chronic care and boarding homes; the department of services to the blind; in the department of veterans affairs: Nursing facilities; and in all other state agencies that provide chronic long-term health care services;

(2) Implement a streamlined client centered administrative and delivery system for long-term care services state-wide that incorporates all long-term care services for the person with functional disabilities to include the functionally disabled, developmentally disabled, mentally ill, traumatically brain injured, and others with chronic functional disabilities. The system shall be a single point entry system administered at the local level that allows the person with functional disabilities to obtain needs determination, eligibility screening, priority setting, and services information and assistance. The system shall be designed so that acute health care services are effectively coordinated with long-term care services. The system shall recognize and respect the individuality and dignity of all functionally disabled individuals and promote self-reliance and the preference for the assistance and comfort provided by families, friends, and community volunteers. It shall also recognize the importance of community organizations and the public and private infrastructure in the delivery of care and support. All major points of access into the long-term care system shall be identified and integrated into the system to insure that clients are fully informed of the most appropriate least expensive care options;

(3) Provision of long-term care services to persons based on their functional disabilities noncategorically and in the most independent living situation consistent with the person's needs and preferences;

((~~(c)~~)) (4) A consistent definition of appropriate roles and responsibilities for state and local government, regional organizations, and private organizations in the planning, administration, financing, and delivery of long-term care services;

((~~(d)~~)) (5) Technical assistance to enable local communities to have greater participation and control in the planning, administration, and provision of long-term care services;

((~~(e)~~)) (6) A case management system that coordinates an appropriate and cost-effective plan of care and services for eligible functionally disabled persons based on their individual needs and preferences;

((~~(f)~~)) (7) A sufficient supply of quality institutional and noninstitutional residential alternatives for functionally disabled persons, and supports for the providers of such services;

((~~(g)~~)) (8) Public and private alternative funding for long-term care services, ((~~such as federal Title XIX funding of personal care services through the limited casualty program for the medically needy and other optional services~~)) that includes the promotion of affordable stand alone long-term care insurance options or as part of overall health care insurance benefits, a uniform fee copayment scale for client participation in state-funded, long-term care programs, and private, long-term care insurance;

((~~(h)~~)) (9) A systematic and balanced long-term care services payment and reimbursement system, including a case mix nursing home reimbursement, that will provide access to needed services while controlling the rate of cost increases for such services;

((~~(i)~~)) (10) Active involvement of volunteers and advocacy groups;

((~~(j)~~)) (11) An integrated data base that provides long-term care client tracking;

((~~(k)~~)) (12) A coordinated education system for long-term care to insure client safety and quality of services; ((~~and~~

~~(l)~~)) (13) Administratively separate the nonmeans tested economic and social welfare and advocacy programs of the older Americans act, 42 U.S.C. Chap 35 and 45 C.F.R. 1321 et seq. from the need and means tested programs for persons with functional disabilities;

(14) Review all activities mandated and expenditures authorized by the senior citizens services act, chapter 74.38 RCW; and identify which funds are being used for functionally disabled seniors and identify how these senior citizens services act funds can be directed to programs serving the most disabled elderly; and

(15) Other issues deemed appropriate by the ((~~implementation team~~)) joint committee on health systems oversight.

The ((~~commission~~)) legislative budget committee shall report to the legislature with its findings, recommendations, and proposed legislation by December ((~~1, 1990~~)) 12, 1995.

NEW SECTION. Sec. 12. A new section is added to chapter 74.39A RCW to read as follows:

The department's system of quality improvement for long-term care services shall be guided by the following principles, consistent with applicable federal laws and regulations:

(1) The system shall be consumer centered and promote privacy, independence, dignity, choice, and a home or home-like environment for consumers.

(2) The goal of the system is continuous quality improvement with the focus on consumer satisfaction and outcomes for consumers.

(3) Providers should be supported in their efforts to improve quality through training, technical assistance, and case management.

(4) The emphasis should be on problem prevention both in monitoring and in screening potential providers of service.

(5) Monitoring should be outcome based and responsive to consumer complaints.

(6) Providers generally should be assisted in addressing identified problems initially through consultation and technical assistance. Enforcement remedies shall be available for problems that are serious, recurring, or that have been uncorrected.

NEW SECTION. Sec. 13. A new section is added to chapter 74.39A RCW to read as follows:

(1) The aging and adult services administration of the department shall establish and maintain a toll-free telephone number for receiving complaints regarding a facility that the administration licenses or with which it contracts for long-term care services.

(2) All facilities that are licensed by, or that contract with the aging and adult services administration to provide long-term care services shall post in a place and manner clearly visible to residents and visitors the department's toll-free complaint telephone number.

(3) The aging and adult services administration shall investigate complaints if the subject of the complaint is within its authority unless the department determines that: (a) The complaint is intended to willfully harass a licensee or employee of the licensee; (b) there is no reasonable basis for investigation; or (c) corrective action has been taken.

(4) The aging and adult services administration shall refer complaints to appropriate state agencies, law enforcement agencies, the attorney general, the long-term care ombudsman, or other entities if the department lacks authority to investigate.

(5) The department may not provide the substance of the complaint to the licensee or contractor before the completion of the investigation by the department. Neither the substance of the complaint provided to the licensee or contractor nor any copy of the complaint or related report published, released, or made otherwise available shall disclose the name, title, or identity of any complainant, or other person mentioned in the complaint, except that the department may disclose the identity of the complainant if such disclosure is requested in writing by the complainant.

(6) A facility that provides long-term care services shall not discriminate or retaliate in any manner against a resident on the basis or for the reason that such resident or any other person made a complaint to the department or the long-term care ombudsman or cooperated with the investigation of such a complaint. The department may impose a civil penalty of not more than three thousand dollars for a violation of this subsection and require the facility to mitigate any damages incurred by the resident.

Sec. 14. RCW 74.39A.010 and 1993 c 508 s 3 are each amended to read as follows:

(1) To the extent of available funding, the department of social and health services may contract with licensed boarding homes under chapter 18.20 RCW and tribally licensed boarding homes for assisted living services and enhanced adult residential care. The department shall develop rules for facilities that contract with the department for assisted living services or enhanced adult residential care to establish:

(a) Facility service standards consistent with the principles in section 12 of this act and consistent with chapter 70.129 RCW;

(b) Standards for resident living areas consistent with section 2 of this act;

(2) The department's rules shall provide that ((~~ensure that the contracted~~)) services in assisted living and enhanced adult residential care:

((~~(1)~~)) (a) Recognize individual needs, privacy, and autonomy;

((~~(2)~~)) (b) Include, but not be limited to, personal care, nursing services, medication administration, and supportive services that promote independence and self-sufficiency;

((~~(3)~~)) (c) Are of sufficient scope to assure that each resident who chooses to remain in the assisted living or enhanced adult residential care may do so, ((~~unless nursing care needs exceed the level of care defined by the department~~)) to the extent that the care provided continues to be cost-effective and safe and promote the most appropriate level of physical, mental, and psychosocial well-being consistent with client choice;

((~~(4)~~)) (d) Are directed first to those persons most likely, in the absence of enhanced adult residential care or assisted living services, to need hospital, nursing facility, or other out-of-home placement; and

((~~(5)~~)) (e) Are provided in compliance with applicable ((~~department of health~~)) facility and professional licensing laws and rules.

(3) When a facility contracts with the department for assisted living services or enhanced adult residential care, only services and facility standards that are provided to or in behalf of the assisted living services or enhanced adult residential care client shall be subject to the department's rules.

NEW SECTION. Sec. 15. A new section is added to chapter 74.39A RCW to read as follows:

(1) To the extent of available funding, the department of social and health services may contract for adult residential care and enhanced adult residential care.

(2) The department shall, by rule, develop terms and conditions for facilities that contract with the department for adult residential care and enhanced adult residential care to establish:

(a) Facility service standards consistent with the principles in section 12 of this act and consistent with chapter 70.129 RCW; and

(b) Training requirements for providers and their staff.

(3) The department shall, by rule, provide that services in adult residential care and enhanced adult residential care facilities:

(a) Recognize individual needs, privacy, and autonomy;

(b) Include personal care and limited nursing services and other services that promote independence and self-sufficiency and aging in place;

(c) Are directed first to those persons most likely, in the absence of adult residential care and enhanced adult residential care services, to need hospital, nursing facility, or other out-of-home placement; and

(d) Are provided in compliance with applicable facility and professional licensing laws and rules.

(4) When a facility contracts with the department for adult residential care and enhanced adult residential care, only services and facility standards that are provided to or in behalf of the adult residential care or the enhanced adult residential care client shall be subject to the adult residential care or enhanced adult residential care rules.

(5) To the extent of available funding, the department may also contract under this section with a tribally licensed boarding home for the provision of services of the same nature as the services provided by adult residential care facilities. The provisions of subsections (2) (a) and (b) and (3) (a) through (d) of this section apply to such a contract.

NEW SECTION. Sec. 16. A new section is added to chapter 74.39A RCW to read as follows:

(1) The department shall, by rule, establish reasonable minimum qualifications and training requirements to assure that assisted living service, enhanced adult residential care service, and adult residential care providers with whom the department contracts are capable of providing services consistent with this chapter. The rules shall apply only to residential capacity for which the state contracts.

(2) The department shall not contract for assisted living, enhanced adult residential care, or adult residential care services with a provider if the department finds that the provider or any partner, officer, director, managerial employee, or owner of five percent or more of the provider has a history of significant noncompliance with federal or state regulations, rules, or laws in providing care or services to vulnerable adults or to children.

NEW SECTION. Sec. 17. A new section is added to chapter 74.39A RCW to read as follows:

(1) The department is authorized to take one or more of the actions listed in subsection (2) of this section in any case in which the department finds that a provider of assisted living services or enhanced adult residential care services has:

(a) Failed or refused to comply with the requirements of this chapter or the rules adopted under this chapter;

(b) Operated without a license or under a revoked license;

(c) Knowingly, or with reason to know, made a false statement of material fact on his or her application for license or any data attached thereto, or in any matter under investigation by the department; or

(d) Willfully prevented or interfered with any inspection or investigation by the department.

(2) When authorized by subsection (1) of this section, the department may take one or more of the following actions:

(a) Refuse to issue a contract;

(b) Impose reasonable conditions on a contract, such as correction within a specified time, training, and limits on the type of clients the provider may admit or serve;

(d) Suspend, revoke, or refuse to renew a contract; or

(e) Suspend admissions to the facility by imposing stop placement on contracted services.

(3) When the department orders stop placement, the facility shall not admit any person admitted by contract until the stop placement order is terminated. The department may approve readmission of a resident to the facility from a hospital or nursing home during the stop placement. The department shall terminate the stop placement when: (a) The violations necessitating the stop placement have been corrected; and (b) the provider exhibits the capacity to maintain adequate care and service.

(4) Chapter 34.05 RCW applies to department actions under this section, except that orders of the department imposing contracts suspension, stop placement, or conditions for continuation of a contract are effective immediately upon notice and shall continue pending any hearing.

NEW SECTION. Sec. 18. A new section is added to chapter 18.20 RCW to read as follows:

(1) The department of health is authorized to take one or more of the actions listed in subsection (2) of this section in any case in which the department finds that a boarding home provider has:

(a) Failed or refused to comply with the requirements of this chapter or the rules adopted under this chapter;

(b) Operated a boarding home without a license or under a revoked license;

(d) Willfully prevented or interfered with any inspection or investigation by the department.

(2) When authorized by subsection (1) of this section, the department may take one or more of the following actions:

(a) Refuse to issue a license;

(b) Impose reasonable conditions on a license, such as correction within a specified time, training, and limits on the type of clients the provider may admit or serve;

(d) Suspend, revoke, or refuse to renew a license; or

(e) Suspend admissions to the boarding home by imposing stop placement.

(3) When the department orders stop placement, the facility shall not admit any new resident until the stop placement order is terminated. The department may approve readmission of a resident to the facility from a hospital or nursing home during the stop placement. The department shall terminate the stop placement when: (a) The violations necessitating the stop placement have been corrected; and (b) the provider exhibits the capacity to maintain adequate care and service.

(4) Chapter 34.05 RCW applies to department actions under this section, except that orders of the department imposing license suspension, stop placement, or conditions for continuation of a license are effective immediately upon notice and shall continue pending any hearing.

Sec. 19. RCW 70.128.007 and 1989 c 427 s 15 are each amended to read as follows:

The purposes of this chapter are to:

(1) Encourage the establishment and maintenance of adult family homes that provide a humane, safe, and homelike environment for persons with functional limitations who need personal and special care;

(2) Establish standards for regulating adult family homes that adequately protect residents((~~, but are consistent with the abilities and resources of an adult family home so as not to discourage individuals from serving as adult family home providers; and~~));

(3) Encourage consumers, families, providers, and the public to become active in assuring their full participation in development of adult family homes that provide high quality and cost-effective care;

(4) Provide for appropriate care of residents in adult family homes by requiring that each resident have a care plan that promotes the most appropriate level of physical, mental, and psychosocial well-being consistent with client choice; and

(5) Accord each resident the right to participate in the development of the care plan and in other major decisions involving the resident and their care.

Sec. 20. RCW 70.128.057 and 1991 c 40 s 2 are each amended to read as follows:

Notwithstanding the existence or use of any other remedy, the department may, in the manner provided by law, upon the advice of the attorney general who shall represent the department in the proceedings, maintain an action in the name of the state for an injunction, civil penalty, or other process against a person to restrain or prevent the operation or maintenance of an adult family home without a license under this chapter.

NEW SECTION. Sec. 21. A new section is added to chapter 70.128 RCW to read as follows:

The legislature finds that the operation of an adult family home without a license in violation of this chapter is a matter vitally affecting the public interest for the purpose of applying the consumer protection act, chapter 19.86 RCW. Operation of an adult family home without a license in violation of this chapter is not reasonable in relation to the development and preservation of business. Such a violation is an unfair or deceptive act in trade or commerce and an unfair method of competition for the purpose of applying the consumer protection act, chapter 19.86 RCW.

Sec. 22. RCW 70.128.070 and 1989 c 427 s 22 are each amended to read as follows:

(1) A license shall be valid for one year.

(2) At least ((~~ninety~~)) sixty days prior to expiration of the license, the provider shall submit an application for renewal of a license. The department shall send the provider an application for renewal prior to this time. The department shall have the authority to investigate any information included in the application for renewal of a license.

(3)(a) Homes applying for a license shall be inspected at the time of licensure.

(b) Homes licensed by the department shall be inspected at least every eighteen months, subject to available funds.

(c) ((~~Licensed homes where a complaint has been received by the department may be inspected at any time.~~)) The department may make an unannounced inspection of a licensed home at any time to assure that the home and provider are in compliance with this chapter and the rules adopted under this chapter.

(4) If the department finds that the home is not in compliance with this chapter, it shall require the home to correct any violations as provided in this chapter. If the department finds that the home is in compliance with this chapter and the rules adopted under this chapter, the department shall renew the license of the home.

Sec. 23. RCW 70.128.080 and 1989 c 427 s 21 are each amended to read as follows:

An adult family home shall have readily available for review by the department, residents, and the public:

(1) Its license to operate; and

(2) A copy of each inspection report received by the home from the department for the past three years.

Sec. 24. RCW 70.128.090 and 1989 c 427 s 30 are each amended to read as follows:

(1) During inspections of an adult family home, the department shall have access and authority to examine areas and articles in the home used to provide care or support to residents, including residents' records, accounts, and the physical premises, including the buildings, grounds, and equipment. The department also shall have the authority to interview the provider and residents of an adult family home.

(2) Whenever an inspection is conducted, the department shall prepare a written report that summarizes all information obtained during the inspection, and if the home is in violation of this chapter, serve a copy of the inspection report upon the provider at the same time as a notice of violation. If the home is not in violation of this chapter, a copy of the inspection report shall be mailed to the provider within ten days of the inspection of the home. All inspection reports shall be made available to the public at the department during business hours.

(3) ((The inspection report shall describe any corrective measures on the part of the provider necessary to pass a reinspection. If the department finds upon reinspection of the home that the corrective measures have been satisfactorily implemented, the department shall cease any actions taken against the home. Nothing in this section shall require the department to license or renew the license of a home where serious physical harm or death has occurred to a resident)) The provider shall develop corrective measures for any violations found by the department's inspection. The department may provide consultation and technical assistance to assist the provider in developing effective corrective measures. The department shall include a statement of the provider's corrective measures in the department's inspection report.

NEW SECTION. Sec. 25. A new section is added to chapter 70.128 RCW to read as follows:

The legislature recognizes that adult family homes located within the boundaries of a federally recognized Indian reservation may be licensed by the Indian tribe. The department may pay for care for persons residing in such homes, if there has been a tribal or state criminal background check of the provider and any staff, and the client is otherwise eligible for services administered by the department.

Sec. 26. RCW 70.128.140 and 1989 c 427 s 27 are each amended to read as follows:

Each adult family home shall meet applicable local licensing, zoning, building, and housing codes, and state and local fire safety regulations as they pertain to a single-family residence. It is the responsibility of the home to check with local authorities to ensure all local codes are met.

Sec. 27. RCW 70.128.150 and 1989 c 427 s 28 are each amended to read as follows:

Whenever possible adult family homes are encouraged to contact and work with local quality assurance projects such as the volunteer ombudsman with the goal of assuring high quality care is provided in the home.

An adult family home may not willfully interfere with a representative of the long-term care ombudsman program in the performance of official duties. The department shall impose a penalty of not more than one thousand dollars for any such willful interference.

Sec. 28. RCW 70.128.160 and 1989 c 427 s 31 are each amended to read as follows:

(1) The department is authorized to take one or more of the actions listed in subsection (2) of this section in any case in which the department finds that an adult family home provider has:

(a) Failed or refused to comply with the requirements of this chapter or the rules adopted under this chapter;

(b) Operated an adult family home without a license or under a revoked license;

(c) Knowingly or with reason to know made a false statement of material fact on his or her application for license or any data attached thereto, or in any matter under investigation by the department; or

(d) Willfully prevented or interfered with any inspection or investigation by the department.

(2) When authorized by subsection (1) of this section, the department may take one or more of the following actions:

(a) Refuse to issue a license;

(b) Impose reasonable conditions on a license, such as correction within a specified time, training, and limits on the type of clients the provider may admit or serve;

(d) Suspend, revoke, or refuse to renew a license; or

((~~(c)~~)) (e) Suspend admissions to the adult family home by imposing stop placement.

(3) When the department orders stop placement, the facility shall not admit any person until the stop placement order is terminated. The department may approve readmission of a resident to the facility from a hospital or nursing home during the stop placement. The department shall terminate the stop placement when: (a) The violations necessitating the stop placement have been corrected; and (b) the provider exhibits the capacity to maintain adequate care and service.

Sec. 29. RCW 70.128.175 and 1989 1st ex.s. c 9 s 815 are each amended to read as follows:

(1) Unless the context clearly requires otherwise, these definitions shall apply throughout this section and RCW 35.63.140, 35A.63.149, 36.70.755, 35.22.680, and 36.32.560((~~, and 70.128.180~~)):

(a) "Adult family home" means a ((~~facility licensed pursuant to chapter 70.128 RCW or the~~)) regular family abode of a person or persons ((~~who are~~)) providing personal care, special care, room, and board to more than one but not more than six adults who are not related by blood or marriage to the person or persons providing the services.

(b) "Residential care facility" means a facility that cares for at least five, but not more than fifteen functionally disabled persons, that is not licensed pursuant to chapter 70.128 RCW.

(2) An adult family home shall be considered a residential use of property for zoning purposes. Adult family homes shall be a permitted use in all areas zoned for residential or commercial purposes, including areas zoned for single family dwellings.

NEW SECTION. Sec. 30. A new section is added to chapter 70.128 RCW to read as follows:

(1) The department shall maintain a toll-free telephone number for receiving complaints regarding adult family homes.

(2) An adult family home shall post in a place and manner clearly visible to residents and visitors the department's toll-free complaint telephone number.

(3) No adult family home shall discriminate or retaliate in any manner against a resident on the basis or for the reason that such resident or any other person made a complaint to the department or the long-term care ombudsman or cooperated with the investigation of such a complaint.

NEW SECTION. Sec. 31. RCW 70.128.180 and 1989 c 427 s 41 are each repealed.

Sec. 32. RCW 43.190.020 and 1991 sp.s. c 8 s 3 are each amended to read as follows:

As used in this chapter, "long-term care facility" means any of the following ((~~which provide services to persons sixty years of age and older and is~~)):

(1) A facility which:

(a) Maintains and operates twenty-four hour skilled nursing services for the care and treatment of chronically ill or convalescent patients, including mental, emotional, or behavioral problems, mental retardation, or alcoholism;

(b) Provides supportive, restorative, and preventive health services in conjunction with a socially oriented program to its residents, and which maintains and operates twenty-four hour services including board, room, personal care, and intermittent nursing care. "Long-term health care facility" includes nursing homes and nursing facilities, but does not include acute care hospital or other licensed facilities except for that distinct part of the hospital or facility which provides nursing facility services.

(2) Any family home, group care facility, or similar facility determined by the secretary, for twenty-four hour nonmedical care of persons in need of personal services, supervision, or assistance essential for sustaining the activities of daily living or for the protection of the individual.

(3) Any swing bed in an acute care facility.

Sec. 33. RCW 43.190.060 and 1987 c 158 s 3 are each amended to read as follows:

A long-term care ombudsman shall:

(1) Investigate and resolve complaints made by or on behalf of ((~~older individuals who are~~)) residents of long-term care facilities relating to administrative action which may adversely affect the health, safety, welfare, and rights of these individuals;

(2) Monitor the development and implementation of federal, state, and local laws, rules, regulations, and policies with respect to long-term care facilities in this state;

(3) Provide information as appropriate to public agencies regarding the problems of individuals residing in long-term care facilities; and

(4) Provide for training volunteers and promoting the development of citizen organizations to participate in the ombudsman program. A volunteer long-term care ombudsman shall be able to identify and resolve problems regarding the care of residents in long-term care facilities and to assist such residents in the assertion of their civil and human rights. However, volunteers shall not be used for complaint investigations but may engage in fact-finding activities to determine whether a formal complaint should be submitted to the department.

NEW SECTION. Sec. 34. RCW 74.08.530, 74.08.560, 74.08.570, 74.08.545, and 74.08.550 are each recodified in chapter 74.39A RCW.

NEW SECTION. Sec. 35. RCW 74.08.541 and 1989 c 427 s 4, 1986 c 222 s 1, 1983 1st ex.s. c 41 s 39, & 1981 1st ex.s. c 6 s 17 are each repealed.

Sec. 36. RCW 74.08.545 and 1989 c 427 s 5 are each amended to read as follows:

It is the intent of the legislature that chore services be provided to eligible persons within the limits of funds appropriated for that purpose. Therefore, the department shall provide services only to those persons identified as at risk of being placed in a long-term care facility in the absence of such services. The department shall not provide chore services to any individual who is eligible for, and whose needs can be met by another community service administered by the department. Chore services shall be provided to the extent necessary to maintain a safe and healthful living environment. It is the policy of the state to encourage the development of volunteer chore services in local communities as a means of meeting chore care service needs and directing financial resources. In determining eligibility for chore services, the department shall consider the following:

(1) The kind of services needed;

(2) The degree of service need, and the extent to which an individual is dependent upon such services to remain in his or her home or return to his or her home;

(3) The availability of personal or community resources which may be utilized to meet the individual's need; and

(4) Such other factors as the department considers necessary to insure service is provided only to those persons whose chore service needs cannot be met by relatives, friends, nonprofit organizations, ((or)) other persons, or by other programs or resources.

In determining the level of services to be provided under this chapter, ((~~[the]~~)) the client shall be assessed using an instrument designed by the department to determine the level of functional disability, the need for service and the person's risk of long-term care facility placement.

NEW SECTION. Sec. 37. A new section is added to chapter 74.39A RCW to read as follows:

(1) The department shall establish a monthly dollar lid for each region on chore services expenditures within the legislative appropriation. Priority for services shall be given to the following situations:

(a) People who were receiving chore personal care services as of June 30, 1995;

(b) People for whom chore personal care services are necessary to return to the community from a nursing home;

(d) People for whom chore personal care services are necessary as a protective measure based on referrals resulting from an adult protective services investigation.

(2) The department shall require a client to participate in the cost of chore services as a necessary precondition to receiving chore services paid for by the state. The client shall retain an amount equal to one hundred percent of the federal poverty level, adjusted for household size, for maintenance needs. The department shall consider the remaining income as the client participation amount for chore services except for those persons whose participation is established under RCW 74.08.570.

(3) The department shall establish, by rule, the maximum amount of resources a person may retain and be eligible for chore services.

NEW SECTION. Sec. 38. A new section is added to chapter 74.39A RCW to read as follows:

(1) The legislature intends that any staff reassigned by the department as a result of shifting of the reauthorization responsibilities by contract outlined in this section shall be dedicated for discharge planning and assisting with discharge planning and information on existing discharge planning cases. Discharge planning, as directed in this section, is intended for residents and patients identified for discharge to long-term care pursuant to sections 5, 6, and 9 of this act. The purpose of discharge planning is to protect residents and patients from the financial incentives inherent in keeping residents or patients in a more expensive higher level of care and shall focus on care options that are in the best interest of the patient or resident.

(2) The department shall contract with area agencies on aging:

(a) To provide case management services to individuals receiving home and community services in their own home; and

(b) To reassess and reauthorize home and community services in home or in other settings for individuals consistent with the intent of this section:

(i) Who have been initially authorized by the department to receive home and community services; and

(ii) Who, at the time of reassessment and reauthorization, are receiving home and community services in their own home.

(3) In the event that an area agency on aging is unwilling to enter into or satisfactorily fulfill a contract to provide these services, the department is authorized to:

(a) Obtain the services through competitive bid; and

(b) Provide the services directly until a qualified contractor can be found.

Sec. 39. RCW 74.09.520 and 1994 c 21 s 4 are each amended to read as follows:

(1) The term "medical assistance" may include the following care and services: (a) Inpatient hospital services; (b) outpatient hospital services; (c) other laboratory and x-ray services; (d) nursing facility services; (e) physicians' services, which shall include prescribed medication and instruction on birth control devices; (f) medical care, or any other type of remedial care as may be established by the secretary; (g) home health care services; (h) private duty nursing services; (i) dental services; (j) physical and occupational therapy and related services; (k) prescribed drugs, dentures, and prosthetic devices; and eyeglasses prescribed by a physician skilled in diseases of the eye or by an optometrist, whichever the individual may select; (l) personal care services, as provided in this section; (m) hospice services; (n) other diagnostic, screening, preventive, and rehabilitative services; and (o) like services when furnished to a child by a school district in a manner consistent with the requirements of this chapter. For the purposes of this section, the department may not cut off any prescription medications, oxygen supplies, respiratory services, or other life-sustaining medical services or supplies.

"Medical assistance," notwithstanding any other provision of law, shall not include routine foot care, or dental services delivered by any health care provider, that are not mandated by Title XIX of the social security act unless there is a specific appropriation for these services.

(2) The department shall amend the state plan for medical assistance under Title XIX of the federal social security act to include personal care services, as defined in 42 C.F.R. 440.170(f), in the categorically needy program.

(3) The department shall adopt, amend, or rescind such administrative rules as are necessary to ensure that Title XIX personal care services are provided to eligible persons in conformance with federal regulations.

(a) These administrative rules shall include financial eligibility indexed according to the requirements of the social security act providing for medicaid eligibility.

(b) The rules shall require clients be assessed as having a medical condition requiring assistance with personal care tasks. Plans of care must be ((~~approved and~~)) reviewed by a nurse.

(4) The department shall design and implement a means to assess the level of functional disability of persons eligible for personal care services under this section. The personal care services benefit shall be provided to the extent funding is available according to the assessed level of functional disability. Any reductions in services made necessary for funding reasons should be accomplished in a manner that assures that priority for maintaining services is given to persons with the greatest need as determined by the assessment of functional disability.

(5) The department shall report to the appropriate fiscal committees of the legislature on the utilization and associated costs of the personal care option under Title XIX of the federal social security act, as defined in 42 C.F.R. 440.170(f), in the categorically needy program. This report shall be submitted by January 1, 1990, and submitted on a yearly basis thereafter.

(6) Effective July 1, 1989, the department shall offer hospice services in accordance with available funds.

(7) For Title XIX personal care services administered by aging and adult services administration of the department, the department shall contract with area agencies on aging:

(a) To provide case management services to individuals receiving Title XIX personal care services in their own home; and

(b) To reassess and reauthorize Title XIX personal care services or other home and community services as defined in section 1 of this act in home or in other settings for individuals consistent with the intent of this section:

(i) Who have been initially authorized by the department to receive Title XIX personal care services or other home and community services as defined in section 1 of this act; and

(ii) Who, at the time of reassessment and reauthorization, are receiving such services in their own home.

(8) In the event that an area agency on aging is unwilling to enter into or satisfactorily fulfill a contract to provide these services, the department is authorized to:

(a) Obtain the services through competitive bid; and

(b) Provide the services directly until a qualified contractor can be found.

Sec. 40. RCW 74.08.550 and 1989 c 427 s 6 are each amended to read as follows:

(1) The department is authorized to develop a program to provide for ((~~those~~)) chore services ((~~enumerated in RCW 74.08.541~~)) under this chapter.

(2) The department may provide assistance in the recruiting of providers of the services enumerated in ((~~RCW 74.08.541~~)) section 37 of this act and seek to assure the timely provision of services in emergency situations.

(3) The department shall assure that all providers of the chore services ((~~enumerated in RCW 74.08.541~~)) under this chapter are compensated for the delivery of the services on a prompt and regular basis.

Sec. 41. RCW 74.08.570 and 1989 c 427 s 7 are each amended to read as follows:

(1) An otherwise eligible disabled person shall not be deemed ineligible for chore services under this chapter if the person's gross income from employment, adjusted downward by the cost of the chore services to be provided and the disabled person's work expenses, does not exceed the maximum eligibility standard established by the department for such chore services. The department shall establish a ((~~sliding scale fee schedule for~~)) methodology for client participation that allows such disabled persons((~~, taking into consideration the person's ability to pay and work expenses~~)) to be employed.

(2) If a disabled person arranges for chore services through an individual provider arrangement, the client's contribution shall be counted as first dollar toward the total amount owed to the provider for chore services rendered.

(3) As used in this section:

(a) "Gross income" means total earned wages, commissions, salary, and any bonus;

(b) "Work expenses" includes:

(i) Payroll deductions required by law or as a condition of employment, in amounts actually withheld;

(ii) The necessary cost of transportation to and from the place of employment by the most economical means, except rental cars; and

(iii) Expenses of employment necessary for continued employment, such as tools, materials, union dues, transportation to service customers if not furnished by the employer, and uniforms and clothing needed on the job and not suitable for wear away from the job;

(d) "Disabled" means:

(i) Permanently and totally disabled as defined by the department and as such definition is approved by the federal social security administration for federal matching funds;

(ii) Eighteen years of age or older;

(iii) A resident of the state of Washington; and

(iv) Willing to submit to such examinations as are deemed necessary by the department to establish the extent and nature of the disability.

Sec. 42. RCW 18.51.091 and 1987 c 476 s 24 are each amended to read as follows:

The department shall make or cause to be made at least one inspection of each nursing home ((~~prior to license renewal and shall inspect community-based services as part of the licensing renewal survey~~)) at least every eighteen months, except that the department may not inspect a facility that was citation-free at the previous inspection sooner than twelve months after the date of the previous inspection. The inspection shall be made without providing advance notice of it. Every inspection may include an inspection of every part of the premises and an examination of all records, methods of administration, the general and special dietary and the stores and methods of supply. Those nursing homes that provide community-based care shall establish and maintain separate and distinct accounting and other essential records for the purpose of appropriately allocating costs of the providing of such care: PROVIDED, That such costs shall not be considered allowable costs for reimbursement purposes under chapter 74.46 RCW. Following such inspection or inspections, written notice of any violation of this law or the rules and regulations promulgated hereunder, shall be given the applicant or licensee and the department. The notice shall describe the reasons for the facility's noncompliance. The department may prescribe by regulations that any licensee or applicant desiring to make specified types of alterations or additions to its facilities or to construct new facilities shall, before commencing such alteration, addition or new construction, submit its plans and specifications therefor to the department for preliminary inspection and approval or recommendations with respect to compliance with the regulations and standards herein authorized.

Sec. 43. RCW 18.51.140 and 1995 c . . . s 6 (Engrossed Substitute Senate Bill No. 5093) are each amended to read as follows:

Standards for fire protection and the enforcement thereof, with respect to all nursing homes to be licensed hereunder, shall be the responsibility of the chief of the Washington state patrol, through the director of fire protection, who shall adopt such recognized standards as may be applicable to nursing homes for the protection of life against the cause and spread of fire and fire hazards. The department upon receipt of an application for a license, shall submit to the chief of the Washington state patrol, through the director of fire protection, in writing, a request for an inspection, giving the applicant's name and the location of the premises to be licensed. Upon receipt of such a request, the chief of the Washington state patrol, through the director of fire protection, or his or her deputy, shall make an inspection of the nursing home to be licensed, and if it is found that the premises do not comply with the required safety standards and fire regulations as promulgated by the chief of the Washington state patrol, through the director of fire protection, he or she shall promptly make a written report to the nursing home and the department as to the manner and time allowed in which the premises must qualify for a license and set forth the conditions to be remedied with respect to fire regulations. The department, applicant or licensee shall notify the chief of the Washington state patrol, through the director of fire protection, upon completion of any requirements made by him or her, and the chief of the Washington state patrol, through the director of fire protection, or his or her deputy, shall make a reinspection of such premises. Whenever the nursing home to be licensed meets with the approval of the chief of the Washington state patrol, through the director of fire protection, he or she shall submit to the department, a written report approving same with respect to fire protection before a full license can be issued. The chief of the Washington state patrol, through the director of fire protection, shall make or cause to be made inspections of such nursing homes at least ((~~annually~~)) every eighteen months.

In cities which have in force a comprehensive building code, the provisions of which are determined by the chief of the Washington state patrol, through the director of fire protection, to be equal to the minimum standards of the code for nursing homes adopted by the chief of the Washington state patrol, through the director of fire protection, the chief of the fire department, provided the latter is a paid chief of a paid fire department, shall make the inspection with the chief of the Washington state patrol, through the director of fire protection, or his or her deputy and they shall jointly approve the premises before a full license can be issued.

Sec. 44. RCW 18.51.300 and 1981 1st ex.s. c 2 s 24 are each amended to read as follows:

Unless specified otherwise by the department, a nursing home shall retain and preserve all records which relate directly to the care and treatment of a patient for a period of no less than ((~~ten~~)) eight years following the most recent discharge of the patient; except the records of minors, which shall be retained and preserved for a period of no less than three years following attainment of the age of eighteen years, or ten years following such discharge, whichever is longer.

If a nursing home ceases operations, it shall make immediate arrangements, as approved by the department, for preservation of its records.

The department shall by regulation define the type of records and the information required to be included in the records to be retained and preserved under this section; which records may be retained in photographic form pursuant to chapter 5.46 RCW.

NEW SECTION. Sec. 45. A new section is added to chapter 18.88A RCW to read as follows:

The legislature recognizes that nurses have been successfully delegating nursing care tasks to family members and auxiliary staff for many years. The opportunity for a nurse to delegate to nursing assistants qualifying under section 46 of this act may enhance the viability and quality of care in community health settings for long-term care services and to allow citizens to live as independently as possible with maximum safeguards.

NEW SECTION. Sec. 46. A new section is added to chapter 18.88A RCW to read as follows:

(1) A nurse may delegate specific care tasks to nursing assistants meeting the requirements of this section and who provide care to individuals in community residential programs for the developmentally disabled certified by the department of social and health services under chapter 71A.12 RCW, to individuals residing in adult family homes licensed under chapter 70.128 RCW, and to individuals residing in boarding homes licensed under chapter 18.20 RCW contracting with the department of social and health services to provide assisted living services pursuant to RCW 74.39A.010.

(2) For the purposes of this section, "nursing assistant" means a nursing assistant-registered or a nursing assistant-certified. Nothing in this section may be construed to affect the authority of nurses to delegate nursing tasks to other persons, including licensed practical nurses, as authorized by law.

(3) Before commencing any specific nursing care tasks authorized under this chapter, the nursing assistant must (a) provide to the delegating nurse a certificate of completion issued by the department of social and health services indicating the completion of basic core training as provided in this section, (b) be regulated by the department of health pursuant to this chapter, subject to the uniform disciplinary act under chapter 18.130 RCW, and (c) meet any additional training requirements identified by the nursing care quality assurance commission and authorized by this section.

(4) A nurse may delegate the following care tasks:

(a) Oral and topical medications and ointments;

(b) Nose, ear, eye drops, and ointments;

(c) Dressing changes and catheterization using clean techniques as defined by the nursing care quality assurance commission;

(d) Suppositories, enemas, ostomy care;

(e) Blood glucose monitoring;

(f) Gastrostomy feedings in established and healed condition.

(5) On or before September 1, 1995, the nursing care quality assurance commission, in conjunction with the professional nursing organizations, shall develop rules for nurse delegation protocols and by December 5, 1995, identify training beyond the core training that is deemed necessary for the delegation of complex tasks and patient care.

(6) Nursing task delegation protocols are not intended to regulate the settings in which delegation may occur but are intended to ensure that nursing care services have a consistent standard of practice upon which the public and profession may rely and to safeguard the authority of the nurse to make independent professional decisions regarding the delegation of a task. Protocols shall include at least the following:

(a) Ensure that determination of the appropriateness of delegation of a nursing task is at the discretion of the nurse;

(b) Allow delegation of a nursing care task only for patients who have a stable and predictable condition. "Stable and predictable condition" means a situation, as defined by rule by the nursing care quality assurance commission, in which the patient's clinical and behavioral status is known and does not require frequent presence and evaluation of a registered nurse;

(c) Assure that the delegations of nursing tasks pursuant to this chapter have the written informed consent of the patient consistent with the provisions for informed consent under chapter 7.70 RCW, as well as with the consent of the delegating nurse and nursing assistant. The delegating nurse shall inform patients of the level of training of all care providers in the setting;

(d) Verify that the nursing assistant has completed the core training;

(e) Require assessment by the nurse of the ability and willingness of the nursing assistant to perform the delegated nursing task in the absence of direct nurse supervision and to refrain from delegation if the nursing assistant is not able or willing to perform the task;

(f) Require the nurse to analyze the complexity of the nursing task that is considered for delegation and determine the appropriate level of training and any need of additional training for the nursing assistant;

(g) Require the teaching of the nursing care task to the nursing assistant including return demonstration under observation while performing the task;

(h) Require a plan of nursing supervision and reevaluation of the delegated nursing task. "Nursing supervision" means that the registered nurse monitors by direct observation the skill and ability of the nursing assistant to perform delegated nursing tasks. Frequency of supervision is at the discretion of the registered nurse but shall occur at least every sixty days;

(i) Require instruction to the nursing assistant that the delegated nursing task is specific to a patient and is not transferable;

(j) Require documentation and written instruction related to the delegated nursing task be provided to the nursing assistant and a copy maintained in the patient record;

(k) Ensure that the nursing assistant is prepared to effectively deal with the predictable outcomes of performing the nursing task;

(l) Include in the delegation of tasks an awareness of the nature of the condition requiring treatment, risks of the treatment, side effects, and interaction of prescribed medications;

(m) Require documentation in the patient's record of the rationale for delegating or not delegating nursing tasks.

(7) A basic core training curriculum on providing care for individuals in community residential programs for the developmentally disabled certified by the department of social and health services under chapter 71A.12 RCW shall be in addition to the training requirements specified in subsection (5) of this section. Basic core training shall be developed and adopted by rule by the secretary of the department of social and health services. The department of social and health services shall appoint an advisory panel to assist in the development of core training comprised of representatives of the following:

(a) The division of developmental disabilities;

(b) The nursing care quality assurance commission;

(d) A state-wide organization of community residential service providers whose members are programs certified by the department under chapter 71A.12 RCW.

(8) A basic core training curriculum on providing care to residents in residential settings licensed under chapter 70.128 RCW, or in assisted living pursuant to RCW 74.39A.010 shall be mandatory for nursing assistants prior to assessment by a nurse regarding the ability and willingness to perform a delegated nursing task. Core training shall be developed and adopted by rule by the secretary of the department of social and health services, in conjunction with an advisory panel. The advisory panel shall be comprised of representatives from, at a minimum, the following:

(a) The nursing care quality assurance commission;

(b) Professional nurse organizations;

(c) A state-wide association of community residential service providers whose members are programs certified by the department under chapter 71A.12 RCW;

(d) Aging consumer groups;

(e) Associations representing homes licensed under chapters 70.128 and 18.20 RCW; and

(f) Associations representing home health, hospice, and home care agencies licensed under chapter 70.127 RCW.

NEW SECTION. Sec. 47. A new section is added to chapter 18.88A RCW to read as follows:

On or before December 1, 1995, the department of health and the department of social and health services, in consultation with the nursing care quality assurance commission, shall develop and clarify program and reimbursement policies, as well as clarify barriers to current delegation, relating to the ability and authority of a nurse to delegate care tasks in the programs and services operating under their authority.

The nursing care quality assurance commission shall develop model forms that will assist in standardizing the practice of delegation.

NEW SECTION. Sec. 48. A new section is added to chapter 18.88A RCW to read as follows:

(1) The nurse and nursing assistant shall be accountable for their own individual actions in the delegation process. Nurses acting within the protocols of their delegation authority shall be immune from liability for any action performed in the course of their delegation duties. Nursing assistants following written delegation instructions from registered nurses performed in the course of their accurately written, delegated duties shall be immune from liability.

(2) No person may coerce a nurse into compromising patient safety by requiring the nurse to delegate if the nurse determines it is inappropriate to do so. Nurses shall not be subject to any employer reprisal or disciplinary action by the Washington nursing care quality assurance commission for refusing to delegate tasks or refusing to provide the required training for delegation if the nurse determines delegation may compromise patient safety. Nursing assistants shall not be subject to any employer reprisal or disciplinary action by the nursing care quality assurance commission for refusing to accept delegation of a nursing task. No community residential program, adult family home, or boarding home contracting to provide assisted-living services may discriminate or retaliate in any manner against a person because the person made a complaint or cooperated in the investigation of a complaint.

(3) The department of social and health services shall impose a civil fine of not less than two hundred fifty dollars nor more than one thousand dollars on a community residential program, adult family home, or boarding home under this act that knowingly permits an employee to perform a nursing task except as delegated by a nurse pursuant to this act.

NEW SECTION. Sec. 49. A new section is added to chapter 18.88A RCW to read as follows:

The aging and adult services administration of the department of social and health services shall establish a toll-free telephone number for receiving complaints regarding delegation of specific nursing tasks to nursing assistants, in conjunction with any other such system maintained for long-term care services. Complaints specifically related to nurse-delegation shall be referred to the nursing care quality assurance commission for appropriate disposition in accordance with established procedures.

Sec. 50. RCW 18.79.040 and 1994 sp.s. c 9 s 404 are each amended to read as follows:

(1) "Registered nursing practice" means the performance of acts requiring substantial specialized knowledge, judgment, and skill based on the principles of the biological, physiological, behavioral, and sociological sciences in either:

(a) The observation, assessment, diagnosis, care or counsel, and health teaching of the ill, injured, or infirm, or in the maintenance of health or prevention of illness of others;

(b) The performance of such additional acts requiring education and training and that are recognized by the medical and nursing professions as proper and recognized by the commission to be performed by registered nurses licensed under this chapter and that are authorized by the commission through its rules;

(c) The administration, supervision, delegation, and evaluation of nursing practice. However, nothing in this subsection affects the authority of a hospital, hospital district, medical clinic, or office, concerning its administration and supervision;

(d) The teaching of nursing;

(e) The executing of medical regimen as prescribed by a licensed physician and surgeon, dentist, osteopathic physician and surgeon, podiatric physician and surgeon, physician assistant, osteopathic physician assistant, or advanced registered nurse practitioner.

(2) Nothing in this section prohibits a person from practicing a profession for which a license has been issued under the laws of this state or specifically authorized by any other law of the state of Washington.

(3) This section does not prohibit (a) the nursing care of the sick, without compensation, by an unlicensed person who does not hold himself or herself out to be a registered nurse, ((or)) (b) the practice of licensed practical nursing by a licensed practical nurse, or (c) the practice of a nursing assistant, providing delegated nursing tasks under chapter 18.88A RCW.

Sec. 51. RCW 18.79.260 and 1995 c 295 s 1 are each amended to read as follows:

A registered nurse under his or her license may perform for compensation nursing care, as that term is usually understood, of the ill, injured, or infirm, and in the course thereof, she or he may do the following things that shall not be done by a person not so licensed, except as provided in RCW 18.79.270 and section 46 of this act:

(1) At or under the general direction of a licensed physician and surgeon, dentist, osteopathic physician and surgeon, naturopathic physician, podiatric physician and surgeon, physician assistant, osteopathic physician assistant, or advanced registered nurse practitioner acting within the scope of his or her license, administer medications, treatments, tests, and inoculations, whether or not the severing or penetrating of tissues is involved and whether or not a degree of independent judgment and skill is required. Such direction must be for acts which are within the scope of registered nursing practice;

(2) Delegate to other persons ((~~engaged in nursing,~~)) the functions outlined in subsection (1) of this section in accordance with chapter 18.88A RCW;

(3) Instruct nurses in technical subjects pertaining to nursing;

(4) Hold herself or himself out to the public or designate herself or himself as a registered nurse.

Sec. 52. RCW 18.88A.030 and 1994 sp.s. c 9 s 709 are each amended to read as follows:

(1) A nursing assistant may assist in the care of individuals as delegated by and under the direction and supervision of a licensed (registered) nurse or licensed practical nurse.

(2) A health care facility shall not assign a nursing assistant-registered to provide care until the nursing assistant-registered has demonstrated skills necessary to perform competently all assigned duties and responsibilities.

(3) Nothing in this chapter shall be construed to confer on a nursing assistant the authority to administer medication unless delegated as a specific nursing task pursuant to this chapter or to practice as a licensed (registered) nurse or licensed practical nurse as defined in chapter 18.79 RCW.

(4) Certification is voluntary for nursing assistants working in health care facilities other than nursing homes unless otherwise required by state or federal law or regulation.

(5) The commission may adopt rules to implement the provisions of this chapter.

NEW SECTION. Sec. 53. The secretary of health in consultation with the Washington nursing care quality assurance commission and the department of social and health services shall monitor the implementation of sections 45 through 54 of this act and shall make an interim report by December 31, 1996, and a final report by December 31, 1997, to the legislature with any recommendations for improvements. As part of the monitoring process, the secretary of health and the secretary of social and health services, in consultation with the University of Washington school of nursing, shall conduct a study to be completed by September 30, 1997, which shall be a part of the final report to be submitted to the legislature by December 31, 1997. The study shall include consideration of the protection of health and safety of persons with developmental disabilities and residents of adult family homes and boarding homes providing assisted living services, including the appropriateness of the tasks allowed for delegation, level and type of training and regulation of nursing assistants. The report shall include direct observation, documentation, and interviews, and shall specifically include data on the following:

(1) Patient, nurse, and nursing assistant satisfaction;

(2) Medication errors, including those resulting in hospitalization;

(3) Compliance with required training;

(4) Compliance with nurse delegation protocols;

(5) Incidence of harm to patients, including abuse and neglect;

(6) Impact on access to care;

(7) Impact on patient quality of life; and

(8) Incidence of coercion in the nurse-delegation process.

NEW SECTION. Sec. 54. A special legislative task force is established to monitor implementation of sections 45 through 53 of this act. The task force shall consist of four members from the house of representatives, no more than two of whom shall be members of the same caucus, who shall be appointed by the speaker of the house of representatives, and four members from the senate, no more than two of whom shall be members of the same caucus, who shall be appointed by the president of the senate. The task force shall:

(1) Review the proposed nurse delegation protocols developed by the nursing care quality assurance commission;

(2) Review the proposed core and specialized training curricula developed by the department of social and health services and by the nursing care quality assurance commission;

(3) Review the program and reimbursement policies, and the identified barriers to nurse delegation, developed by the department of health and department of social and health services;

(4) Submit an interim report of its findings and recommendations on the above actions to the legislature by January 1, 1996;

(5) During 1996, conduct hearings to assess the effectiveness with which the delegation protocols, the core training, and nurse oversight are being implemented, and their impact on patient care and quality of life;

(6) Review and approve the proposed study designs;

(7) By February 1, 1997, recommend to the legislature a mechanism and time frame for extending nurse delegation provisions similar to those described in this act to persons residing in their own homes;

(8) During 1997, receive interim reports on the findings of the studies conducted in accordance with this act, and conduct additional fact-finding hearings on the implementation and impact of the nurse delegation provisions of sections 45 through 53 of this act.

The office of program research and senate committee services shall provide staff support to the task force. The department of health, the department of social and health services, and the nursing care quality assurance commission shall provide technical support as needed. The task force shall cease to exist on January 1, 1998, unless extended by act of the legislature.

NEW SECTION. Sec. 55. A new section is added to chapter 74.39A RCW to read as follows:

(1) A person who receives an asset from an applicant for or recipient of long-term care services for less than fair market value shall be subject to a civil fine payable to the department if:

(a) The applicant for or recipient of long-term care services transferred the asset for the purpose of qualifying for state or federal coverage for long-term care services and the person who received the asset was aware, or should have been aware, of this purpose;

(b) Such transfer establishes a period of ineligibility for such service under state or federal laws or regulations; and

(c) The department provides coverage for such services during the period of ineligibility because the failure to provide such coverage would result in an undue hardship for the applicant or recipient.

(2) The civil fine imposed under this section shall be imposed in a judicial proceeding initiated by the department and shall equal (a) up to one hundred fifty percent of the amount the department expends for the care of the applicant or recipient during the period of ineligibility attributable to the amount transferred to the person subject to the civil fine plus (b) the department's court costs and legal fees.

(3) Transfers subject to a civil fine under this section shall be considered null and void and a fraudulent conveyance as to the department. The department shall have the right to petition a court to set aside such transfers and require all assets transferred returned to the applicant or recipient.

NEW SECTION. Sec. 56. A new section is added to chapter 74.39A RCW to read as follows:

(1) All payments made in state-funded long-term care shall be recoverable as if they were medical assistance payments subject to recovery under 42 U.S.C. Sec. 1396p and chapter 43.20B RCW, but without regard to the recipient's age.

(2) In determining eligibility for state-funded long-term care services programs, the department shall impose the same rules with respect to the transfer of assets for less than fair market value as are imposed under 42 U.S.C. 1396p with respect to nursing home and home and community services.

NEW SECTION. Sec. 57. A new section is added to chapter 74.39A RCW to read as follows:

Notwithstanding any other provision of law:

(1) In order to facilitate and ensure compliance with the federal social security act, Title XIX, as now existing or hereafter amended, later enactment to be adopted by reference by the director by rule, and other state laws mandating recovery of assets from estates of persons receiving long-term care services, the secretary of the department, with the approval of the office of the attorney general, may pay the reasonable and proper fees of attorneys admitted to practice before courts of this state, and associated professionals such as guardians, who are engaged in probate practice for the purpose of maintaining actions under Title 11 RCW, to the end that assets are not wasted, but are rather collected and preserved, and used for the care of the client or the reimbursement of the department pursuant to this chapter or chapter 43.20B RCW.

(2) The department may hire such other agencies and professionals on a contingency basis or otherwise as are necessary and cost-effective to collect bad debts owed to the department for long-term care services.

Sec. 58. RCW 11.40.010 and 1994 c 221 s 25 are each amended to read as follows:

Every personal representative shall, after appointment and qualification, give a notice to the creditors of the deceased, stating such appointment and qualification as personal representative and requiring all persons having claims against the deceased to serve the same on the personal representative or the estate's attorney of record, and file an executed copy thereof with the clerk of the court, within four months after the date of the first publication of such notice described in this section or within four months after the date of the filing of the copy of such notice with the clerk of the court, whichever is the later, or within the time otherwise provided in RCW 11.40.013. The four-month time period after the later of the date of the first publication of the notice to creditors or the date of the filing of such notice with the clerk of the court is referred to in this chapter as the "four-month time limitation." Such notice shall be given as follows:

(1) The personal representative shall give actual notice, as provided in RCW 11.40.013, to such creditors who become known to the personal representative within such four-month time limitation;

(2) The personal representative shall cause such notice to be published once in each week for three successive weeks in the county in which the estate is being administered; ((~~and~~))

(3) The personal representative shall file a copy of such notice with the clerk of the court; and

(4) The personal representative shall mail a copy of the notice, including the decedent's social security number, to the state of Washington, department of social and health services, office of financial recovery.

Except as otherwise provided in RCW 11.40.011 or 11.40.013, any claim not filed within the four-month time limitation shall be forever barred, if not already barred by any otherwise applicable statute of limitations. This bar is effective as to claims against both the decedent's probate assets and nonprobate assets as described in RCW 11.18.200. Proof by affidavit of the giving and publication of such notice shall be filed with the court by the personal representative.

Acts of a notice agent in complying with chapter 221, Laws of 1994 may be adopted and ratified by the personal representative as if done by the personal representative in complying with this chapter, except that if at the time of the appointment and qualification of the personal representative a notice agent had commenced nonprobate notice to creditors under chapter 11.42 RCW, the personal representative shall give published notice as provided in RCW 11.42.180.

Sec. 59. RCW 11.42.020 and 1994 c 221 s 32 are each amended to read as follows:

(1) The notice agent may give nonprobate notice to the creditors of the decedent if:

(a) As of the date of the filing of a copy of the notice with the clerk of the superior court for the notice county, the notice agent has no knowledge of the appointment and qualification of a personal representative in the decedent's estate in the state of Washington or of another person becoming a notice agent; and

(b) According to the records of the clerk of the superior court for the notice county as of 8:00 a.m. on the date of the filing, no personal representative of the decedent's estate had been appointed and qualified and no cause number regarding the decedent had been issued to any other notice agent by the clerk under RCW 11.42.010.

(2) The notice must state that all persons having claims against the decedent shall: (a) Serve the same on the notice agent if the notice agent is a resident of the state of Washington upon whom service of all papers may be made, or on the nonprobate resident agent for the notice agent, if any, or on the attorneys of record of the notice agent at their respective address in the state of Washington; and (b) file an executed copy of the notice with the clerk of the superior court for the notice county, within: (i)(A) Four months after the date of the first publication of the notice described in this section; or (B) four months after the date of the filing of the copy of the notice with the clerk of the superior court for the notice county, whichever is later; or (ii) the time otherwise provided in RCW 11.42.050. The four-month time period after the later of the date of the first publication of the notice to creditors or the date of the filing of the notice with the clerk of the court is referred to in this chapter as the "four-month time limitation."

(3) The notice agent shall declare in the notice in affidavit form or under the penalty of perjury under the laws of the state of Washington as provided in RCW 9A.72.085 that: (a) The notice agent is entitled to give the nonprobate notice under subsection (1) of this section; and (b) the notice is being given by the notice agent as permitted by this section.

(4) The notice agent shall sign the notice and file it with the clerk of the superior court for the notice county. The notice must be given as follows:

(a) The notice agent shall give actual notice as to creditors of the decedent who become known to the notice agent within the four-month time limitation as required in RCW 11.42.050;

(b) The notice agent shall cause the notice to be published once in each week for three successive weeks in the notice county; ((~~and~~))

(d) The notice agent shall mail a copy of the notice, including the decedent's social security number, to the state of Washington, department of social and health services, office of financial recovery.

(5) A claim not filed within the four-month time limitation is forever barred, if not already barred by an otherwise applicable statute of limitations, except as provided in RCW 11.42.030 or 11.42.050. The bar is effective to bar claims against both the probate estate of the decedent and nonprobate assets that were subject to satisfaction of the decedent's general liabilities immediately before the decedent's death. If a notice to the creditors of a decedent is published by more than one notice agent and the notice agents are not acting jointly, the four-month time limitation means the four-month time limitation that applies to the notice agent who first publishes the notice. Proof by affidavit or perjury declaration made under RCW 9A.72.085 of the giving and publication of the notice must be filed with the clerk of the superior court for the notice county by the notice agent.

Sec. 60. RCW 11.62.010 and 1993 c 291 s 1 are each amended to read as follows:

(1) At any time after forty days from the date of a decedent's death, any person who is indebted to or who has possession of any personal property belonging to the decedent or to the decedent and his or her surviving spouse as a community, which debt or personal property is an asset which is subject to probate, shall pay such indebtedness or deliver such personal property, or so much of either as is claimed, to a person claiming to be a successor of the decedent upon receipt of proof of death and of an affidavit made by said person which meets the requirements of subsection (2) of this section.

(2) An affidavit which is to be made pursuant to this section shall state:

(a) The claiming successor's name and address, and that the claiming successor is a "successor" as defined in RCW 11.62.005;

(b) That the decedent was a resident of the state of Washington on the date of his or her death;

(c) That the value of the decedent's entire estate subject to probate, not including the surviving spouse's community property interest in any assets which are subject to probate in the decedent's estate, wherever located, less liens and encumbrances, does not exceed sixty thousand dollars;

(d) That forty days have elapsed since the death of the decedent;

(e) That no application or petition for the appointment of a personal representative is pending or has been granted in any jurisdiction;

(f) That all debts of the decedent including funeral and burial expenses have been paid or provided for;

(g) A description of the personal property and the portion thereof claimed, together with a statement that such personal property is subject to probate;

(h) That the claiming successor has given written notice, either by personal service or by mail, identifying his or her claim, and describing the property claimed, to all other successors of the decedent, and that at least ten days have elapsed since the service or mailing of such notice; and

(i) That the claiming successor is either personally entitled to full payment or delivery of the property claimed or is entitled to full payment or delivery thereof on the behalf and with the written authority of all other successors who have an interest therein.

(3) A transfer agent of any security shall change the registered ownership of the security claimed from the decedent to the person claiming to be the successor with respect to such security upon the presentation of proof of death and of an affidavit made by such person which meets the requirements of subsection (2) of this section. Any governmental agency required to issue certificates of ownership or of license registration to personal property shall issue a new certificate of ownership or of license registration to a person claiming to be a successor of the decedent upon receipt of proof of death and of an affidavit made by such person which meets the requirements of subsection (2) of this section.

(4) No release from any Washington state or local taxing authority may be required before any assets or debts are paid or delivered to a successor of a decedent as required under this section.

(5) A copy of the affidavit, including the decedent's social security number, shall be mailed to the state of Washington, department of social and health services, office of financial recovery.

Sec. 61. RCW 11.28.120 and 1994 c 221 s 23 are each amended to read as follows:

Administration of an estate if the decedent died intestate or if the personal representative or representatives named in the will declined or were unable to serve shall be granted to some one or more of the persons hereinafter mentioned, and they shall be respectively entitled in the following order:

(1) The surviving spouse, or such person as he or she may request to have appointed.

(2) The next of kin in the following order: (a) Child or children; (b) father or mother; (c) brothers or sisters; (d) grandchildren; (e) nephews or nieces.

(3) The trustee named by the decedent in an inter vivos trust instrument, testamentary trustee named in the will, guardian of the person or estate of the decedent, or attorney in fact appointed by the decedent, if any such a fiduciary controlled or potentially controlled substantially all of the decedent's probate and nonprobate assets.

(4) One or more of the beneficiaries or transferees of the decedent's probate or nonprobate assets.

(5)(a) The director of revenue, or the director's designee, for those estates having property subject to the provisions of chapter 11.08 RCW; however, the director may waive this right.

(b) The secretary of the department of social and health services for those estates owing debts for long-term care services as defined in section 1 of this act; however the secretary may waive this right.

(6) One or more of the principal creditors.

(7) If the persons so entitled shall fail for more than forty days after the death of the decedent to present a petition for letters of administration, or if it appears to the satisfaction of the court that there is no next of kin, as above specified eligible to appointment, or they waive their right, and there are no principal creditor or creditors, or such creditor or creditors waive their right, then the court may appoint any suitable person to administer such estate.

Sec. 62. RCW 18.39.250 and 1989 c 390 s 3 are each amended to read as follows:

(1) Any funeral establishment selling funeral merchandise or services by prearrangement funeral service contract and accepting moneys therefore shall establish and maintain one or more prearrangement funeral service trusts under Washington state law with two or more designated trustees, for the benefit of the beneficiary of the prearrangement funeral service contract or may join with one or more other Washington state licensed funeral establishments in a "master trust" provided that each member of the "master trust" shall comply individually with the requirements of this chapter.

(2) Up to ten percent of the cash purchase price of each prearrangement funeral service contract, excluding sales tax, may be retained by the funeral establishment unless otherwise provided in this chapter. If the prearrangement funeral service contract is canceled within thirty calendar days of its signing, then the purchaser shall receive a full refund of all moneys paid under the contract.

(3) At least ninety percent of the cash purchase price of each prearrangement funeral service contract, paid in advance, excluding sales tax, shall be placed in the trust established or utilized by the funeral establishment. Deposits to the prearrangement funeral service trust shall be made not later than the twentieth day of the month following receipt of each payment made on the last ninety percent of each prearrangement funeral service contract, excluding sales tax.

(4) All prearrangement funeral service trust moneys shall be deposited in an insured account in a qualified public depositary or shall be invested in instruments issued or insured by any agency of the federal government if these securities are held in a public depositary. The account shall be designated as the prearrangement funeral service trust of the funeral establishment for the benefit of the beneficiaries named in the prearrangement funeral service contracts. The prearrangement funeral service trust shall not be considered as, nor shall it be used as, an asset of the funeral establishment.

(5) After deduction of reasonable fees for the administration of the trust, taxes paid or withheld, or other expenses of the trust, all interest, dividends, increases, or accretions of whatever nature earned by a trust shall be kept unimpaired and shall become a part of the trust. Adequate records shall be maintained to allocate the share of principal and interest to each contract. Fees deducted for the administration of the trust shall not exceed one percent of the face amount of the prearrangement funeral service contract per annum. In no instance shall the administrative charges deducted from the prearrangement funeral service trust reduce, diminish, or in any other way lessen the value of the trust so that the services or merchandise provided for under the contract are reduced, diminished, or in any other way lessened.

(6) Except as otherwise provided in this chapter, the trustees of a prearrangement funeral service trust shall permit withdrawal of all funds deposited under a prearrangement funeral service contract, plus accruals thereon, under the following circumstances and conditions:

(a) If the funeral establishment files a verified statement with the trustees that the prearrangement funeral merchandise and services covered by the contract have been furnished and delivered in accordance therewith; or

(b) If the funeral establishment files a verified statement with the trustees that the prearrangement funeral merchandise and services covered by the contract have been canceled in accordance with its terms.

(7) Subsequent to the thirty calendar day cancellation period provided for in this chapter, any purchaser or beneficiary who has a revocable prearrangement funeral service contract has the right to demand a refund of the amount in trust.

(8) Prearrangement funeral service contracts which have or should have an account in a prearrangement funeral service trust may be terminated by the board if the funeral establishment goes out of business, becomes insolvent or bankrupt, makes an assignment for the benefit of creditors, has its prearrangement funeral service certificate of registration revoked, or for any other reason is unable to fulfill the obligations under the contract. In such event, or upon demand by the purchaser or beneficiary of the prearrangement funeral service contract, the funeral establishment shall refund to the purchaser or beneficiary all moneys deposited in the trust and allocated to the contract unless otherwise ordered by a court of competent jurisdiction. The purchaser or beneficiary may, in lieu of a refund, elect to transfer the prearrangement funeral service contract and all amounts in trust to another funeral establishment licensed under this chapter which will agree, by endorsement to the contract, to be bound by the contract and to provide the funeral merchandise or services. Election of this option shall not relieve the defaulting funeral establishment of its obligation to the purchaser or beneficiary for any amounts required to be, but not placed, in trust.

(9) Prior to the sale or transfer of ownership or control of any funeral establishment which has contracted for prearrangement funeral service contracts, any person, corporation, or other legal entity desiring to acquire such ownership or control shall apply to the director in accordance with RCW 18.39.145. Persons and business entities selling or relinquishing, and persons and business entities purchasing or acquiring ownership or control of such funeral establishments shall each verify and attest to a report showing the status of the prearrangement funeral service trust or trusts on the date of the sale. This report shall be on a form prescribed by the board and shall be considered part of the application for a funeral establishment license. In the event of failure to comply with this subsection, the funeral establishment shall be deemed to have gone out of business and the provisions of subsection (8) of this section shall apply.

(10) Prearrangement funeral service trust moneys shall not be used, directly or indirectly, for the benefit of the funeral establishment or any director, officer, agent, or employee of the funeral establishment including, but not limited to, any encumbrance, pledge, or other use of prearrangement funeral service trust moneys as collateral or other security.

(11)(a) If, at the time of the signing of the prearrangement funeral service contract, the beneficiary of the trust is a recipient of public assistance as defined in RCW 74.04.005, or reasonably anticipates being so defined, the contract may provide that the trust will be irrevocable. If after the contract is entered into, the beneficiary becomes eligible or seeks to become eligible for public assistance under Title 74 RCW, the contract may provide for an election by the beneficiary, or by the purchaser on behalf of the beneficiary, to make the trust irrevocable thereafter in order to become or remain eligible for such assistance.

(b) The department of social and health services shall notify the trustee of any prearrangement service trust that the department has a claim on the estate of a beneficiary for long-term care services. Such notice shall be renewed at least every three years. The trustees upon becoming aware of the death of a beneficiary shall give notice to the department of social and health services, office of financial recovery, who shall file any claim there may be within thirty days of the notice.

(12) Every prearrangement funeral service contract financed through a prearrangement funeral service trust shall contain language which:

(a) Informs the purchaser of the prearrangement funeral service trust and the amount to be deposited in the trust;

(b) Indicates if the contract is revocable or not in accordance with subsection (11) of this section;

(c) Specifies that a full refund of all moneys paid on the contract will be made if the contract is canceled within thirty calendar days of its signing;

(d) Specifies that, in the case of cancellation by a purchaser or beneficiary eligible to cancel under the contract or under this chapter, up to ten percent of the contract amount may be retained by the seller to cover the necessary expenses of selling and setting up the contract;

(e) Identifies the trust to be used and contains information as to how the trustees may be contacted.

Sec. 63. RCW 18.39.255 and 1989 c 390 s 4 are each amended to read as follows:

Prearranged funeral service contracts funded through insurance shall contain language which:

(1) States the amount of insurance;

(2) Informs the purchaser of the name and address of the insurance company through which the insurance will be provided, the policy number, and the name of the beneficiary; ((~~and~~))

(3) Informs the purchaser that amounts paid for insurance may not be refundable;

(4) Informs that any funds from the policy not used for services may be subject to a claim for reimbursement for long-term care services paid for by the state; and

(5) States that for purposes of the contract, the procedures in RCW 18.39.250(11)(b) shall control such recoupment.

Sec. 64. RCW 74.42.450 and 1979 ex.s. c 211 s 45 are each amended to read as follows:

(1) The facility shall admit as residents only those individuals whose needs can be met by:

(a) The facility;

(b) The facility cooperating with community resources; or

(2) The facility shall transfer a resident to a hospital or other appropriate facility when a change occurs in the resident's physical or mental condition that requires care or service that the facility cannot provide. The resident, the resident's guardian, if any, the resident's next of kin, the attending physician, and the department shall be consulted at least fifteen days before a transfer or discharge unless the resident is transferred under emergency circumstances. The department shall use casework services or other means to insure that adequate arrangements are made to meet the resident's needs.

(3) A resident shall be transferred or discharged only for medical reasons, the resident's welfare or request, the welfare of other residents, or nonpayment. A resident may not be discharged for nonpayment if the discharge would be prohibited by the medicaid program.

(4) If a resident chooses to remain in the nursing facility, the department shall respect that choice, provided that if the resident is a medicaid recipient, the resident continues to require a nursing facility level of care.

(5) If the department determines that a resident no longer requires a nursing facility level of care, the resident shall not be discharged from the nursing facility until at least thirty days after written notice is given to the resident, the resident's surrogate decision maker and, if appropriate, a family member or the resident's representative. A form for requesting a hearing to appeal the discharge decision shall be attached to the written notice. The written notice shall include at least the following:

(a) The reason for the discharge;

(b) A statement that the resident has the right to appeal the discharge; and

(6) If the resident appeals a department discharge decision, the resident shall not be discharged without the resident's consent until at least thirty days after a final order is entered upholding the decision to discharge the resident.

Sec. 65. RCW 68.46.050 and 1973 1st ex.s. c 68 s 5 are each amended to read as follows:

(1) A bank, trust company, or savings and loan association designated as the depository of prearrangement funds shall permit withdrawal by a cemetery authority of all funds deposited under any specific prearrangement contract plus interest accrued thereon, under the following circumstances and conditions:

((~~(1)~~)) (a) If the cemetery authority files a verified statement with the depository that the prearrangement merchandise and services covered by a contract have been furnished and delivered in accordance therewith; or

((~~(2)~~)) (b) If the cemetery authority files a verified statement that a specific prearrangement contract has been canceled in accordance with its terms.

(2) The department of social and health services shall notify the cemetery authority maintaining a prearrangement trust fund regulated by this chapter that the department has a claim on the estate of a beneficiary for long-term care services. Such notice shall be renewed at least every three years. The cemetery authority upon becoming aware of the death of a beneficiary shall give notice to the department of social and health services, office of financial recovery, who shall file any claim there may be within thirty days of the notice.

Sec. 66. RCW 70.129.040 and 1994 c 214 s 5 are each amended to read as follows:

(1) The resident has the right to manage his or her financial affairs, and the facility may not require residents to deposit their personal funds with the facility.

(2) Upon written authorization of a resident, if the facility agrees to manage the resident's personal funds, the facility must hold, safeguard, manage, and account for the personal funds of the resident deposited with the facility as specified in this section.

((~~(3)~~))(a) The facility must deposit a resident's personal funds in excess of one hundred dollars in an interest-bearing account or accounts that is separate from any of the facility's operating accounts, and that credits all interest earned on residents' funds to that account. In pooled accounts, there must be a separate accounting for each resident's share.

(b) The facility must maintain a resident's personal funds that do not exceed one hundred dollars in a noninterest-bearing account, interest-bearing account, or petty cash fund.

((~~(4)~~)) (3) The facility must establish and maintain a system that assures a full and complete and separate accounting of each resident's personal funds entrusted to the facility on the resident's behalf.

(a) The system must preclude any commingling of resident funds with facility funds or with the funds of any person other than another resident.

(b) The individual financial record must be available on request to the resident or his or her legal representative.

((~~(5)~~)) (4) Upon the death of a resident with a personal fund deposited with the facility the facility must convey within forty-five days the resident's funds, and a final accounting of those funds, to the individual or probate jurisdiction administering the resident's estate; but in the case of a resident who received long-term care services paid for by the state, the funds and accounting shall be sent to the state of Washington, department of social and health services, office of financial recovery. The department shall establish a release procedure for use for burial expenses.

Sec. 67. RCW 43.20B.080 and 1994 c 21 s 3 are each amended to read as follows:

(1) The department shall file liens, seek adjustment, or otherwise effect recovery for medical assistance correctly paid on behalf of an individual as required by this chapter and 42 U.S.C. Sec. 1396p.

(2) Liens may be adjusted by foreclosure in accordance with chapter 61.12 RCW.

(3) In the case of an individual who was fifty-five years ((~~or [of]~~)) of age or older when the individual received medical assistance, the department shall seek adjustment or recovery from the individual's estate, and from nonprobate assets of the individual as defined by RCW 11.02.005 except property passing through a community property agreement, but only for medical assistance consisting of nursing facility services, home and community-based services, other services that the department determines to be appropriate, and related hospital and prescription drug services. Recovery from the individual's estate, including foreclosure of liens imposed under this section, shall be undertaken as soon as practicable, consistent with the requirements of 42 U.S.C. Sec. 1396p.

((~~(3)~~)) (4)(a) The department shall establish procedures consistent with standards established by the federal department of health and human services and pursuant to 42 U.S.C. Sec. 1396p to waive recovery when such recovery would work an undue hardship.

((~~(4)~~)) (b) Recovery of medical assistance from a recipient's estate shall not include property made exempt from claims by federal law or treaty, including exemption for tribal artifacts that may be held by individual Native Americans.

(5) The department is authorized to adopt rules to effect recovery under this section. The department may adopt by rule later enactments of the federal laws referenced in this section.

Sec. 68. RCW 74.42.020 and 1982 c 120 s 1 are each amended to read as follows:

The standards in RCW 74.42.030 through 74.42.570 are the minimum standards for facilities licensed under chapter 18.51 RCW: PROVIDED, HOWEVER, That RCW 74.42.040, 74.42.140 through 74.42.280, 74.42.300, 74.42.360, 74.42.370, 74.42.380, 74.42.420 (2), (4), (5), (6) and (7), 74.42.430(3), 74.42.450 (2) and (3), 74.42.520, 74.42.530, 74.42.540, 74.42.570, and 74.42.580 shall not apply to ((~~Christian Science sanatoria facilities operated and listed or certified by The First Church of Christ, Scientist, in Boston, Massachusetts~~)) any nursing home or institution conducted for those who rely upon treatment by prayer or spiritual means in accordance with the creed or tenets of any well-recognized church or religious denomination, or for any nursing home or institution operated for the exclusive care of members of a convent as defined in RCW 84.36.800 or rectory, monastery, or other institution operated for the care of members of the clergy.

NEW SECTION. Sec. 69. A new section is added to chapter 74.46 RCW to read as follows:

Upon the death of a resident with a personal fund deposited with the facility, the facility must convey within forty-five days the resident's funds, and a final accounting of those funds, to the individual or probate jurisdiction administering the resident's estate; but in the case of a resident who received long-term care services, the funds and accounting shall be sent to the state of Washington, department of social and health services, office of financial recovery. The department shall establish a release procedure for use for burial expenses.

Sec. 70. RCW 74.46.450 and 1993 sp.s. c 13 s 9 are each amended to read as follows:

(1) Prospective reimbursement rates for a new contractor will be established within sixty days following receipt by the department of the properly completed projected budget required by RCW 74.46.670. Such reimbursement rates will become effective as of the effective date of the contract and shall remain in effect until adjusted or reset as provided in this chapter.

(2) Such reimbursement rates will be based on the contractor's projected cost of operations and on costs and payment rates of the prior contractor, if any, or of other contractors in comparable circumstances.

(3) For nursing facilities receiving original certificate of need approval prior to June 30, 1988, and commencing operations on or after January 1, 1995, the department shall base initial nursing services, food, administrative, and operational rate components on such component rates immediately above the median for facilities in the same county. Property and return on investment rate components shall be established as provided in this chapter.

(4) If a properly completed budget is not received at least sixty days prior to the effective date of the contract, the department will establish preliminary rates based on the other factors specified in subsection (2) of this section. These preliminary rates will remain in effect until adjusted or reset as provided in this chapter.

((~~(4)~~)) (5) The department is authorized to develop policies and procedures in rule to address the computation of rates for the first and second fiscal years of each biennium, including steps necessary to prorate rate adjustments for economic trends and conditions as authorized in RCW 74.46.420, for contractors having less than twelve months of cost report data for the prior calendar year.

Sec. 71. RCW 70.38.111 and 1993 c 508 s 5 are each amended to read as follows:

(1) The department shall not require a certificate of need for the offering of an inpatient tertiary health service by:

(a) A health maintenance organization or a combination of health maintenance organizations if (i) the organization or combination of organizations has, in the service area of the organization or the service areas of the organizations in the combination, an enrollment of at least fifty thousand individuals, (ii) the facility in which the service will be provided is or will be geographically located so that the service will be reasonably accessible to such enrolled individuals, and (iii) at least seventy-five percent of the patients who can reasonably be expected to receive the tertiary health service will be individuals enrolled with such organization or organizations in the combination;

(b) A health care facility if (i) the facility primarily provides or will provide inpatient health services, (ii) the facility is or will be controlled, directly or indirectly, by a health maintenance organization or a combination of health maintenance organizations which has, in the service area of the organization or service areas of the organizations in the combination, an enrollment of at least fifty thousand individuals, (iii) the facility is or will be geographically located so that the service will be reasonably accessible to such enrolled individuals, and (iv) at least seventy-five percent of the patients who can reasonably be expected to receive the tertiary health service will be individuals enrolled with such organization or organizations in the combination; or

(c) A health care facility (or portion thereof) if (i) the facility is or will be leased by a health maintenance organization or combination of health maintenance organizations which has, in the service area of the organization or the service areas of the organizations in the combination, an enrollment of at least fifty thousand individuals and, on the date the application is submitted under subsection (2) of this section, at least fifteen years remain in the term of the lease, (ii) the facility is or will be geographically located so that the service will be reasonably accessible to such enrolled individuals, and (iii) at least seventy-five percent of the patients who can reasonably be expected to receive the tertiary health service will be individuals enrolled with such organization;

if, with respect to such offering or obligation by a nursing home, the department has, upon application under subsection (2) of this section, granted an exemption from such requirement to the organization, combination of organizations, or facility.

(2) A health maintenance organization, combination of health maintenance organizations, or health care facility shall not be exempt under subsection (1) of this section from obtaining a certificate of need before offering a tertiary health service unless:

(a) It has submitted at least thirty days prior to the offering of services reviewable under RCW 70.38.105(4)(d) an application for such exemption; and

(b) The application contains such information respecting the organization, combination, or facility and the proposed offering or obligation by a nursing home as the department may require to determine if the organization or combination meets the requirements of subsection (1) of this section or the facility meets or will meet such requirements; and

(c) The department approves such application. The department shall approve or disapprove an application for exemption within thirty days of receipt of a completed application. In the case of a proposed health care facility (or portion thereof) which has not begun to provide tertiary health services on the date an application is submitted under this subsection with respect to such facility (or portion), the facility (or portion) shall meet the applicable requirements of subsection (1) of this section when the facility first provides such services. The department shall approve an application submitted under this subsection if it determines that the applicable requirements of subsection (1) of this section are met.

(3) A health care facility (or any part thereof) with respect to which an exemption was granted under subsection (1) of this section may not be sold or leased and a controlling interest in such facility or in a lease of such facility may not be acquired and a health care facility described in (1)(c) which was granted an exemption under subsection (1) of this section may not be used by any person other than the lessee described in (1)(c) unless:

(a) The department issues a certificate of need approving the sale, lease, acquisition, or use; or

(b) The department determines, upon application, that (i) the entity to which the facility is proposed to be sold or leased, which intends to acquire the controlling interest, or which intends to use the facility is a health maintenance organization or a combination of health maintenance organizations which meets the requirements of (1)(a)(i), and (ii) with respect to such facility, meets the requirements of (1)(a) (ii) or (iii) or the requirements of (1)(b) (i) and (ii).

(4) In the case of a health maintenance organization, an ambulatory care facility, or a health care facility, which ambulatory or health care facility is controlled, directly or indirectly, by a health maintenance organization or a combination of health maintenance organizations, the department may under the program apply its certificate of need requirements only to the offering of inpatient tertiary health services and then only to the extent that such offering is not exempt under the provisions of this section.

(5)(a) The department shall not require a certificate of need for the construction, development, or other establishment of a nursing home, or the addition of beds to an existing nursing home, that is owned and operated by a continuing care retirement community that:

(i) Offers services only to contractual members;

(ii) Provides its members a contractually guaranteed range of services from independent living through skilled nursing, including some assistance with daily living activities;

(iii) Contractually assumes responsibility for the cost of services exceeding the member's financial responsibility under the contract, so that no third party, with the exception of insurance purchased by the retirement community or its members, but including the medicaid program, is liable for costs of care even if the member depletes his or her personal resources;

(iv) Has offered continuing care contracts and operated a nursing home continuously since January 1, 1988, or has obtained a certificate of need to establish a nursing home;

(v) Maintains a binding agreement with the state assuring that financial liability for services to members, including nursing home services, will not fall upon the state;

(vi) Does not operate, and has not undertaken a project that would result in a number of nursing home beds in excess of one for every four living units operated by the continuing care retirement community, exclusive of nursing home beds; and

(vii) Has obtained a professional review of pricing and long-term solvency within the prior five years which was fully disclosed to members.

(b) A continuing care retirement community shall not be exempt under this subsection from obtaining a certificate of need unless:

(i) It has submitted an application for exemption at least thirty days prior to commencing construction of, is submitting an application for the licensure of, or is commencing operation of a nursing home, whichever comes first; and

(ii) The application documents to the department that the continuing care retirement community qualifies for exemption.

(c) The sale, lease, acquisition, or use of part or all of a continuing care retirement community nursing home that qualifies for exemption under this subsection shall require prior certificate of need approval to qualify for licensure as a nursing home unless the department determines such sale, lease, acquisition, or use is by a continuing care retirement community that meets the conditions of (a) of this subsection.

(6) A rural hospital, as defined by the department, reducing the number of licensed beds to become a rural primary care hospital under the provisions of Part A Title XVIII of the Social Security Act Section 1820, 42 U.S.C., 1395c et seq. may, within three years of the reduction of beds licensed under chapter 70.41 RCW, increase the number of licensed beds to no more than the previously licensed number without being subject to the provisions of this chapter.

(7) A rural health care facility licensed under RCW 70.175.100 formerly licensed as a hospital under chapter 70.41 RCW may, within three years of the effective date of the rural health care facility license, apply to the department for a hospital license and not be subject to the requirements of RCW 70.38.105(4)(a) as the construction, development, or other establishment of a new hospital, provided there is no increase in the number of beds previously licensed under chapter 70.41 RCW and there is no redistribution in the number of beds used for acute care or long-term care, the rural health care facility has been in continuous operation, and the rural health care facility has not been purchased or leased.

(8)(a) A nursing home that voluntarily reduces the number of its licensed beds to provide assisted living, licensed boarding home care, adult day care, adult day health, respite care, hospice, outpatient therapy services, congregate meals, home health, or senior wellness clinic, or to reduce to one or two the number of beds per room or to otherwise enhance the quality of life for residents in the nursing home, may convert the original facility or portion of the facility back, and thereby increase the number of nursing home beds to no more than the previously licensed number of nursing home beds without ((~~being subject to the provisions of this chapter except under RCW 70.38.105(4)(d)~~)) obtaining a certificate of need under this chapter, provided the facility has been in continuous operation and has not been purchased or leased. Any conversion to the original licensed bed capacity, or to any portion thereof, shall comply with the same life and safety code requirements as existed at the time the nursing home voluntarily reduced its licensed beds; unless waivers from such requirements were issued, in which case the converted beds shall reflect the conditions or standards that then existed pursuant to the approved waivers.

(b) To convert beds back to nursing home beds under this subsection, the nursing home must:

(i) Give notice of its intent to preserve conversion options to the department of health no later than thirty days after the effective date of the license reduction; and

(ii) Give notice to the department of health and to the department of social and health services of the intent to convert beds back. If construction is required for the conversion of beds back, the notice of intent to convert beds back must be given no later than two years prior to the effective date of license modification reflecting the restored beds; otherwise, the notice must be given no later than one year prior to the effective date of license modification reflecting the restored beds.

(c) Conversion of beds back under this subsection must be completed no later than four years after the effective date of the license reduction. However, for good cause shown, the four-year period for conversion may be extended by the department of health for one additional four-year period.

(d) Nursing home beds that have been voluntarily reduced under this section shall be counted as available nursing home beds for the purpose of evaluating need under RCW 70.38.115(2)(a) and (k) so long as the facility retains the ability to convert them back to nursing home use under the terms of this section.

(e) When a building owner has secured an interest in the nursing home beds, which are intended to be voluntarily reduced by the licensee under (a) of this subsection, the applicant shall provide the department with a written statement indicating the building owner's approval of the bed reduction.

Sec. 72. RCW 70.38.115 and 1993 c 508 s 6 are each amended to read as follows:

(1) Certificates of need shall be issued, denied, suspended, or revoked by the designee of the secretary in accord with the provisions of this chapter and rules of the department which establish review procedures and criteria for the certificate of need program.

(2) Criteria for the review of certificate of need applications, except as provided in subsection (3) of this section for health maintenance organizations, shall include but not be limited to consideration of the following:

(a) The need that the population served or to be served by such services has for such services;

(b) The availability of less costly or more effective alternative methods of providing such services;

(c) The financial feasibility and the probable impact of the proposal on the cost of and charges for providing health services in the community to be served;

(d) In the case of health services to be provided, (i) the availability of alternative uses of project resources for the provision of other health services, (ii) the extent to which such proposed services will be accessible to all residents of the area to be served, and (iii) the need for and the availability in the community of services and facilities for osteopathic and allopathic physicians and their patients. The department shall consider the application in terms of its impact on existing and proposed institutional training programs for doctors of osteopathy and medicine at the student, internship, and residency training levels;

(e) In the case of a construction project, the costs and methods of the proposed construction, including the cost and methods of energy provision, and the probable impact of the construction project reviewed (i) on the cost of providing health services by the person proposing such construction project and (ii) on the cost and charges to the public of providing health services by other persons;

(f) The special needs and circumstances of osteopathic hospitals, nonallopathic services and children's hospitals;

(g) Improvements or innovations in the financing and delivery of health services which foster cost containment and serve to promote quality assurance and cost-effectiveness;

(h) In the case of health services proposed to be provided, the efficiency and appropriateness of the use of existing services and facilities similar to those proposed;

(i) In the case of existing services or facilities, the quality of care provided by such services or facilities in the past;

(j) In the case of hospital certificate of need applications, whether the hospital meets or exceeds the regional average level of charity care, as determined by the secretary; and

(k) In the case of nursing home applications:

(i) The availability of other nursing home beds in the planning area to be served; and

(ii) The availability of other services in the community to be served. Data used to determine the availability of other services will include but not be limited to data provided by the department of social and health services.

(3) A certificate of need application of a health maintenance organization or a health care facility which is controlled, directly or indirectly, by a health maintenance organization, shall be approved by the department if the department finds:

(a) Approval of such application is required to meet the needs of the members of the health maintenance organization and of the new members which such organization can reasonably be expected to enroll; and

(b) The health maintenance organization is unable to provide, through services or facilities which can reasonably be expected to be available to the organization, its health services in a reasonable and cost-effective manner which is consistent with the basic method of operation of the organization and which makes such services available on a long-term basis through physicians and other health professionals associated with it.

A health care facility, or any part thereof, with respect to which a certificate of need was issued under this subsection may not be sold or leased and a controlling interest in such facility or in a lease of such facility may not be acquired unless the department issues a certificate of need approving the sale, acquisition, or lease.

(4) Until the final expiration of the state health plan as provided under RCW 70.38.919, the decision of the department on a certificate of need application shall be consistent with the state health plan in effect, except in emergency circumstances which pose a threat to the public health. The department in making its final decision may issue a conditional certificate of need if it finds that the project is justified only under specific circumstances. The conditions shall directly relate to the project being reviewed. The conditions may be released if it can be substantiated that the conditions are no longer valid and the release of such conditions would be consistent with the purposes of this chapter.

(5) Criteria adopted for review in accordance with subsection (2) of this section may vary according to the purpose for which the particular review is being conducted or the type of health service reviewed.

(6) The department shall specify information to be required for certificate of need applications. Within fifteen days of receipt of the application, the department shall request additional information considered necessary to the application or start the review process. Applicants may decline to submit requested information through written notice to the department, in which case review starts on the date of receipt of the notice. Applications may be denied or limited because of failure to submit required and necessary information.

(7) Concurrent review is for the purpose of comparative analysis and evaluation of competing or similar projects in order to determine which of the projects may best meet identified needs. Categories of projects subject to concurrent review include at least new health care facilities, new services, and expansion of existing health care facilities. The department shall specify time periods for the submission of applications for certificates of need subject to concurrent review, which shall not exceed ninety days. Review of concurrent applications shall start fifteen days after the conclusion of the time period for submission of applications subject to concurrent review. Concurrent review periods shall be limited to one hundred fifty days, except as provided for in rules adopted by the department authorizing and limiting amendment during the course of the review, or for an unresolved pivotal issue declared by the department.

(8) Review periods for certificate of need applications other than those subject to concurrent review shall be limited to ninety days. Review periods may be extended up to thirty days if needed by a review agency, and for unresolved pivotal issues the department may extend up to an additional thirty days. A review may be extended in any case if the applicant agrees to the extension.

(9) The department or its designee, shall conduct a public hearing on a certificate of need application if requested unless the review is expedited or subject to emergency review. The department by rule shall specify the period of time within which a public hearing must be requested and requirements related to public notice of the hearing, procedures, recordkeeping and related matters.

(10)(a) Any applicant denied a certificate of need or whose certificate of need has been suspended or revoked has the right to an adjudicative proceeding. The proceeding is governed by chapter 34.05 RCW, the Administrative Procedure Act.

(b) Any health care facility or health maintenance organization that: (i) Provides services similar to the services provided by the applicant and under review pursuant to this subsection; (ii) is located within the applicant's health service area; and (iii) testified or submitted evidence at a public hearing held pursuant to subsection (9) of this section, shall be provided an opportunity to present oral or written testimony and argument in a proceeding under this subsection: PROVIDED, That the health care facility or health maintenance organization had, in writing, requested to be informed of the department's decisions.

(c) If the department desires to settle with the applicant prior to the conclusion of the adjudicative proceeding, the department shall so inform the health care facility or health maintenance organization and afford them an opportunity to comment, in advance, on the proposed settlement.

(11) An amended certificate of need shall be required for the following modifications of an approved project:

(a) A new service requiring review under this chapter;

(b) An expansion of a service subject to review beyond that originally approved;

(d) A significant reduction in the scope of a nursing home project without a commensurate reduction in the cost of the nursing home project, or a cost increase (as represented in bids on a nursing home construction project or final cost estimates acceptable to the person to whom the certificate of need was issued) if the total of such increases exceeds twelve percent or fifty thousand dollars, whichever is greater, over the maximum capital expenditure approved. The review of reductions or cost increases shall be restricted to the continued conformance of the nursing home project with the review criteria pertaining to financial feasibility and cost containment.

(12) An application for a certificate of need for a nursing home capital expenditure which is determined by the department to be required to eliminate or prevent imminent safety hazards or correct violations of applicable licensure and accreditation standards shall be approved.

(13) ((In the case of an application for a certificate of need to replace existing nursing home beds, all criteria must be met on the same basis as an application for a certificate of need for a new nursing home, except that the need criteria shall be deemed met if the applicant is an existing licensee who proposes to replace existing beds that the licensee has operated for at least one year with the same or fewer number of beds in the same planning area)) (a) Replacement of existing nursing home beds in the same planning area by an existing licensee who has operated the beds for at least one year shall not require a certificate of need under this chapter. The licensee shall give written notice of its intent to replace the existing nursing home beds to the department and shall provide the department with information as may be required pursuant to rule. Replacement of the beds by a party other than the licensee is subject to certificate of need review under this chapter, except as otherwise permitted by subsection (14) of this section.

(b) When an entire nursing home ceases operation, ((~~its beds shall be treated as existing nursing home beds for purposes of replacement~~)) the licensee or any other party who has secured an interest in the beds may reserve his or her interest in the beds for eight years or until a certificate of need to replace them is issued, whichever occurs first. However, the nursing home, licensee, or any other party who has secured an interest in the beds must give notice of its intent to retain the beds to the department of health no later than thirty days after the effective date of the facility's closure. Certificate of need review shall be required for any party who has reserved the nursing home beds except that the need criteria shall be deemed met when the applicant is the licensee who had operated the beds for at least one year, who has operated the beds for at least one year immediately preceding the reservation of the beds, and who is replacing the beds in the same planning area.

(14) In the event that a licensee, who has provided the department with notice of his or her intent to replace nursing home beds under subsection (13)(a) of this section, engages in unprofessional conduct or becomes unable to practice with reasonable skill and safety by reason of mental or physical condition, pursuant to chapter 18.130 RCW, or dies, the building owner shall be permitted to complete the nursing home bed replacement project, provided the building owner has secured an interest in the beds.

Sec. 73. RCW 70.38.125 and 1989 1st ex.s. c 9 s 606 are each amended to read as follows:

(1) A certificate of need shall be valid for two years. One six-month extension may be made if it can be substantiated that substantial and continuing progress toward commencement of the project has been made as defined by regulations to be adopted pursuant to this chapter. An additional extension of up to sixty months shall be made if the project is located in an eligible area, as defined under RCW 82.60.020, or is located in an economically distressed area.

(2) A project for which a certificate of need has been issued shall be commenced during the validity period for the certificate of need.

(3) The department shall monitor the approved projects to assure conformance with certificates of need that have been issued. Rules and regulations adopted shall specify when changes in the project require reevaluation of the project. The department may require applicants to submit periodic progress reports on approved projects or other information as may be necessary to effectuate its monitoring responsibilities.

(4) The secretary, in the case of a new health facility, shall not issue any license unless and until a prior certificate of need shall have been issued by the department for the offering or development of such new health facility.

(5) Any person who engages in any undertaking which requires certificate of need review without first having received from the department either a certificate of need or an exception granted in accordance with this chapter shall be liable to the state in an amount not to exceed one hundred dollars a day for each day of such unauthorized offering or development. Such amounts of money shall be recoverable in an action brought by the attorney general on behalf of the state in the superior court of any county in which the unauthorized undertaking occurred. Any amounts of money so recovered by the attorney general shall be deposited in the state general fund.

(6) The department may bring any action to enjoin a violation or the threatened violation of the provisions of this chapter or any rules and regulations adopted pursuant to this chapter, or may bring any legal proceeding authorized by law, including but not limited to the special proceedings authorized in Title 7 RCW, in the superior court in the county in which such violation occurs or is about to occur, or in the superior court of Thurston county.

NEW SECTION. Sec. 74. If any part of this act is found to be in conflict with federal requirements that are a prescribed condition to the allocation of federal funds to the state, the conflicting part of this act is inoperative solely to the extent of the conflict and with respect to the agencies directly affected, and this finding does not affect the operation of the remainder of this act in its application to the agencies concerned. The rules under this act shall meet federal requirements that are a necessary condition to the receipt of federal funds by the state.

NEW SECTION. Sec. 75. The department of social and health services shall develop and pilot, for eighteen months, an on-line computer based information system consistent with the information needs outlined in section 3 of this act. The department shall, by December 1, 1996, report to the appropriations committee of the house of representatives and the ways and means committee of the senate on the success of the pilot in meeting the information requirements for hospitals outlined in this section.

Sec. 76. RCW 48.85.010 and 1993 c 492 s 458 are each amended to read as follows:

The department of social and health services shall ((~~from July 1, 1993, to July 1, 1998~~)), in conjunction with the office of the insurance commissioner, coordinate a ((~~pilot~~)) long-term care insurance program entitled the Washington long-term care partnership, whereby private insurance and medicaid funds shall be used to finance long-term care. ((This program must allow for the exclusion of an individual's assets, as approved by the federal health care financing administration, in a determination of the individual's eligibility for medicaid; the amount of any medicaid payment; or any subsequent recovery by the state for a payment for medicaid services to the extent such assets are protected by a long-term care insurance policy or contract governed by chapter 48.84 RCW and meeting the criteria prescribed in this chapter.)) For individuals purchasing a long-term care insurance policy or contract governed by chapter 48.84 RCW and meeting the criteria prescribed in this chapter, and any other terms as specified by the office of the insurance commissioner and the department of social and health services, this program shall allow for the exclusion of some or all of the individual's assets in determination of medicaid eligibility as approved by the federal health care financing administration.

Sec. 77. RCW 48.85.020 and 1993 c 492 s 459 are each amended to read as follows:

The department of social and health services shall seek approval ((~~and a waiver of appropriate federal medicaid regulations~~)) from the federal health care financing administration to allow the protection of an individual's assets as provided in this chapter. The department shall adopt all rules necessary to implement the Washington long-term care partnership program, which rules shall permit the exclusion of all or some of an individual's assets in a manner specified by the department in a determination of medicaid eligibility to the extent that private long-term care insurance provides payment or benefits for services ((~~that medicaid would approve or cover for medicaid recipients~~)).

Sec. 78. RCW 48.85.030 and 1993 c 492 s 460 are each amended to read as follows:

(1) The insurance commissioner shall adopt rules defining the criteria that long-term care insurance policies must meet to satisfy the requirements of this chapter. The rules shall provide that all long-term care insurance policies purchased for the purposes of this chapter:

(a) Be guaranteed renewable;

(b) Provide coverage for ((~~home and community-based services and~~)) nursing home care and provide coverage for an alternative plan of care benefit as defined by the commissioner;

(c) Provide optional coverage for home and community-based services. Such home and community-based services shall be included in the coverage unless rejected in writing by the applicant;

(d) Provide automatic inflation protection or similar coverage for any policyholder through the age of seventy-nine and made optional at age eighty to protect the policyholder from future increases in the cost of long-term care;

((~~(d)~~)) (e) Not require prior hospitalization or confinement in a nursing home as a prerequisite to receiving long-term care benefits; and

((~~(e)~~)) (f) Contain at least a six-month grace period that permits reinstatement of the policy or contract retroactive to the date of termination if the policy or contract holder's nonpayment of premiums arose as a result of a cognitive impairment suffered by the policy or contract holder as certified by a physician.

(2) Insurers offering long-term care policies for the purposes of this chapter shall demonstrate to the satisfaction of the insurance commissioner that they:

(a) Have procedures to provide notice to each purchaser of the long-term care consumer education program;

(b) Offer case management services;

(c) Have procedures that provide for the keeping of individual policy records and procedures for the explanation of coverage and benefits identifying those payments or services available under the policy that meet the purposes of this chapter;

(d) Agree to provide the insurance commissioner, on or before September 1 of each year, an annual report containing ((~~the following~~)) information((:

~~(i) The number of policies issued and of the policies issued, that number sorted by issue age;~~

~~(ii) To the extent possible, the financial circumstance of the individuals covered by such policies;~~

~~(iii) The total number of claims paid; and~~

~~(iv) Of the number of claims paid, the number paid for nursing home care, for home care services, and community-based services~~)) derived from the long-term care partnership long-term care insurance uniform data set as specified by the office of the insurance commissioner.

Sec. 79. RCW 48.85.040 and 1993 c 492 s 461 are each amended to read as follows:

The insurance commissioner((~~, in conjunction with~~)) shall, with the cooperation of the department of social and health services and members of the long-term care insurance industry, ((~~shall~~)) develop a consumer education program designed to educate consumers as to the need for long-term care, methods for financing long-term care, the availability of long-term care insurance, and the availability and eligibility requirements of the asset protection program provided under this chapter.

Sec. 80. RCW 48.85.050 and 1993 c 492 s 462 are each amended to read as follows:

By January 1 of each year until 1998, the insurance commissioner, in conjunction with the department of social and health services, shall report to the legislature on the progress of the asset protection program. The report shall include:

(1) The success of the agencies in implementing the program;

(2) The number of insurers offering long-term care policies meeting the criteria for asset protection;

(3) The number, age, and financial circumstances of individuals purchasing long-term care policies meeting the criteria for asset protection;

(4) The number of individuals seeking consumer information services;

(5) The extent and type of benefits paid by insurers offering policies meeting the criteria for asset protection;

(6) Estimates of the impact of the program on present and future medicaid expenditures;

(7) The cost-effectiveness of the program; and

(8) A determination regarding the appropriateness of continuing the program.

Sec. 81. RCW 74.09.585 and 1989 c 87 s 7 are each amended to read as follows:

(1) The department shall establish standards consistent with section 1917 of the social security act in determining the period of ineligibility for medical assistance due to the transfer of resources.

(2) There shall be no penalty imposed for the transfer of assets that are excluded in a determination of the individual's eligibility for medicaid to the extent such assets are protected by the long-term care insurance policy or contract pursuant to chapter 48.85 RCW.

(3) The department may waive a period of ineligibility if the department determines that denial of eligibility would work an undue hardship.

Sec. 82. RCW 74.34.010 and 1984 c 97 s 7 are each amended to read as follows:

The legislature finds that frail elders and vulnerable adults may be subjected to abuse, neglect, exploitation, or abandonment. The legislature finds that there are a number of adults sixty years of age or older who lack the ability to perform or obtain those services necessary to maintain or establish their well-being. The legislature finds that many frail elders and vulnerable adults have health problems that place them in a dependent position. The legislature further finds that a significant number of frail elders and vulnerable adults have mental and verbal limitations that leave them vulnerable and incapable of asking for help and protection.

It is the intent of the legislature to prevent or remedy the abuse, neglect, exploitation, or abandonment of persons sixty years of age or older who have a functional, mental, or physical inability to care for or protect themselves.

It is the intent of the legislature to assist frail elders and vulnerable adults by providing these persons with the protection of the courts and with the least-restrictive services, such as home care, and by preventing or reducing inappropriate institutional care. The legislature finds that it is in the interests of the public health, safety, and welfare of the people of the state to provide a procedure for identifying these vulnerable persons and providing the services and remedies necessary for their well-being.

Sec. 83. RCW 74.34.100 and 1986 c 187 s 4 are each amended to read as follows:

The legislature finds that frail elders and vulnerable adults((,)) who are ((~~physically or emotionally~~)) abused, neglected, abandoned, or ((~~financially~~)) exploited may need the protection of the courts. The legislature further finds that many of these elderly or vulnerable persons may be homebound or otherwise may be unable to represent themselves in court or to retain legal counsel in order to obtain the relief available to them under this chapter.

It is the intent of the legislature to improve access to the courts for victims of abuse, neglect, exploitation, and abandonment in order to better protect the state's frail elderly and vulnerable adults.

Sec. 84. RCW 74.34.020 and 1984 c 97 s 8 are each amended to read as follows:

Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Abandonment" means ((~~leaving a~~)) action or inaction by a person or entity with a duty of care for a frail elder or a vulnerable adult that leaves the vulnerable ((~~adult~~)) person without the means or ability to obtain necessary food, clothing, shelter, or health care.

(2) "Abuse" means ((an)) a nonaccidental act of physical or mental mistreatment or injury, or sexual mistreatment, which harms ((~~or threatens~~)) a person through action or inaction by another individual.

(3) "Consent" means express written consent granted after the person has been fully informed of the nature of the services to be offered and that the receipt of services is voluntary.

(4) "Department" means the department of social and health services.

(5) "Exploitation" means the illegal or improper use of a frail elder or vulnerable adult or that ((~~adult's~~)) person's income or resources, including trust funds, for another person's profit or advantage.

(6) "Neglect" means a pattern of conduct ((~~resulting~~)) or inaction by a person or entity with a duty of care for a frail elder or vulnerable adult that results in the deprivation of care necessary to maintain ((~~minimum~~)) the vulnerable person's physical ((~~and~~)) or mental health.

(7) "Secretary" means the secretary of social and health services.

(8) "Frail elder or vulnerable adult" means a person sixty years of age or older who has the functional, mental, or physical inability to care for himself or herself. "Frail elder or vulnerable adult" shall include persons found incapacitated under chapter 11.88 RCW, or a person who has a developmental disability under chapter 71A.10 RCW, and persons admitted to any long-term care facility that is licensed or required to be licensed under chapter 18.20, 18.51, 72.36, or 70.128 RCW, or persons receiving services from home health, hospice, or home care agencies licensed or required to be licensed under chapter 70.127 RCW.

NEW SECTION. Sec. 85. A new section is added to chapter 74.34 RCW to read as follows:

(1) In addition to other remedies available under the law, a frail elder or vulnerable adult or a person age eighteen or older who has been subjected to abuse, neglect, exploitation, or abandonment either while residing in a long-term care facility or in the case of a person in the care of a home health, hospice, or home care agency, residing at home, shall have a cause of action for damages on account of his or her injuries, pain and suffering, and loss of property sustained thereby. This action shall be available where the defendant is or was a corporation, trust, unincorporated association, partnership, administrator, employee, agent, officer, partner, or director of a long-term care facility, such as a nursing home or boarding home, that is licensed or required to be licensed under chapter 18.20, 18.51, 72.36, or 70.128 RCW, or of a home health, hospice, or home care agency licensed or required to be licensed under chapter 70.127 RCW, as now or subsequently designated.

(2) It is the intent of the legislature, however, that where there is a dispute about the care or treatment of a frail elder or vulnerable adult, the parties should use the least formal means available to try to resolve the dispute. Where feasible, parties are encouraged but not mandated to employ direct discussion with the health care provider, use of the long-term care ombudsman or other intermediaries, and, when necessary, recourse through licensing or other regulatory authorities.

(3) In an action brought under this section, a prevailing plaintiff shall be awarded his or her actual damages, together with the costs of the suit, including a reasonable attorney's fee. The term "costs" includes, but is not limited to, the reasonable fees for a guardian, guardian ad litem, and experts, if any, that may be necessary to the litigation of a claim brought under this section.

NEW SECTION. Sec. 86. A new section is added to chapter 74.34 RCW to read as follows:

A petition for an order for protection or an action for damages under this chapter may be brought by the plaintiff, or where necessary, by his or her family members and/or guardian or legal fiduciary, or as otherwise provided under this chapter. The death of the plaintiff shall not deprive the court of jurisdiction over a petition or claim brought under this chapter. Upon petition, after the death of the vulnerable person, the right to initiate or maintain the action shall be transferred to the executor or administrator of the deceased, for the benefit of the surviving spouse, child or children, or other heirs set forth in chapter 4.20 RCW.

Sec. 87. RCW 74.34.070 and 1984 c 97 s 13 are each amended to read as follows:

In responding to reports of abuse, exploitation, neglect, or abandonment under this chapter, the department shall provide information to the ((~~elderly person~~)) frail elder or vulnerable adult on protective services available to the person and inform the person of the right to refuse such services. The department shall develop cooperative agreements with community-based agencies servicing the abused elderly and vulnerable adults. The agreements shall cover such subjects as the appropriate roles and responsibilities of the department and community-based agencies in identifying and responding to reports of ((~~elderly~~)) abuse, the provision of case-management services, standardized data collection procedures, and related coordination activities.

Sec. 88. RCW 74.34.030 and 1986 c 187 s 1 are each amended to read as follows:

Any person, including but not limited to, financial institutions or attorneys, having reasonable cause to believe that a vulnerable adult has suffered abuse, exploitation, neglect, or abandonment, or is otherwise in need of protective services may report such information to the department. Any police officer, social worker, employee of the department, a social service, welfare, mental health, or health agency, including but not limited to home health, hospice, and home care agencies licensed under chapter 70.127 RCW, congregate long-term care facility, including but not limited to adult family homes licensed under chapter 70.128 RCW, boarding homes licensed under chapter 18.20 RCW, and nursing homes licensed under chapter 18.51 RCW, or assisted living services pursuant to RCW 74.39A.010, or health care provider licensed under Title 18 RCW, including but not limited to doctors, nurses, psychologists, and pharmacists, having reasonable cause to believe that a vulnerable adult has suffered abuse, exploitation, neglect, or abandonment, shall make an immediate oral report of such information to the department and shall report such information in writing to the department within ten calendar days of receiving the information.

NEW SECTION. Sec. 89. RCW 74.34.100 is recodified as RCW 74.34.015.

Sec. 90. RCW 74.46.020 and 1993 sp.s. c 13 s 1 are each amended to read as follows:

Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Accrual method of accounting" means 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.

(2) "Ancillary care" means those services required by the individual, comprehensive plan of care provided by qualified therapists.

(3) "Appraisal" means the process of estimating the fair market value or reconstructing the historical cost of an asset acquired in a past period as performed by a professionally designated real estate appraiser with no pecuniary interest in the property to be appraised. It includes a systematic, analytic determination and the recording and analyzing of property facts, rights, investments, and values based on a personal inspection and inventory of the property.

(4) "Arm's-length transaction" means a transaction resulting from good-faith bargaining between a buyer and seller who are not related organizations and have adverse positions in the market place. Sales or exchanges of nursing home facilities among two or more parties in which all parties subsequently continue to own one or more of the facilities involved in the transactions shall not be considered as arm's-length transactions for purposes of this chapter. Sale of a nursing home facility which is subsequently leased back to the seller within five years of the date of sale shall not be considered as an arm's-length transaction for purposes of this chapter.

(5) "Assets" means economic resources of the contractor, recognized and measured in conformity with generally accepted accounting principles.

(6) "Bad debts" means amounts considered to be uncollectable from accounts and notes receivable.

(7) "Beds" means the number of set-up beds in the facility, not to exceed the number of licensed beds.

(8) "Beneficial owner" means:

(a) Any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares:

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

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

(b) 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 or effect of divesting himself 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;

(c) Any person who, subject to subparagraph (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:

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

(ii) Through the conversion of an ownership interest;

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

(iv) 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 subparagraphs (i), (ii), or (iii) of this subparagraph (c) 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;

(d) 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:

(i) 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 subparagraph (b) of this subsection; and

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

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

(B) 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.

(9) "Capitalization" means the recording of an expenditure as an asset.

(10) "Contractor" means an entity which contracts with the department to provide services to medical care recipients in a facility and which entity is responsible for operational decisions.

(11) "Department" means the department of social and health services (DSHS) and its employees.

(12) "Depreciation" means the systematic distribution of the cost or other basis of tangible assets, less salvage, over the estimated useful life of the assets.

(13) "Direct care supplies" means medical, pharmaceutical, and other supplies required for the direct nursing and ancillary care of medical care recipients.

(14) "Entity" means an individual, partnership, corporation, or any other association of individuals capable of entering enforceable contracts.

(15) "Equity" means the net book value of all tangible and intangible assets less the recorded value of all liabilities, as recognized and measured in conformity with generally accepted accounting principles.

(16) "Facility" means a nursing home licensed in accordance with chapter 18.51 RCW, excepting nursing homes certified as institutions for mental diseases, or that portion of a hospital licensed in accordance with chapter 70.41 RCW which operates as a nursing home.

(17) "Fair market value" means the replacement cost of an asset less observed physical depreciation on the date for which the market value is being determined.

(18) "Financial statements" means statements prepared and presented in conformity with generally accepted accounting principles including, but not limited to, balance sheet, statement of operations, statement of changes in financial position, and related notes.

(19) "Generally accepted accounting principles" means accounting principles approved by the financial accounting standards board (FASB).

(20) "Generally accepted auditing standards" means auditing standards approved by the American institute of certified public accountants (AICPA).

(21) "Goodwill" means the excess of the price paid for a business over the fair market value of all other identifiable, tangible, and intangible assets acquired.

(22) "Historical cost" means the actual cost incurred in acquiring and preparing an asset for use, including feasibility studies, architect's fees, and engineering studies.

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

(24) "Joint facility costs" means any costs which represent resources which benefit more than one facility, or one facility and any other entity.

(25) "Lease agreement" means a contract between two parties for the possession and use of real or personal property or assets for a specified period of time in exchange for specified periodic payments. Elimination (due to any cause other than death or divorce) or addition of any party to the contract, expiration, or modification of any lease term in effect on January 1, 1980, or termination of the lease by either party by any means shall constitute a termination of the lease agreement. An extension or renewal of a lease agreement, whether or not pursuant to a renewal provision in the lease agreement, shall be considered a new lease agreement. A strictly formal change in the lease agreement which modifies the method, frequency, or manner in which the lease payments are made, but does not increase the total lease payment obligation of the lessee, shall not be considered modification of a lease term.

(26) "Medical care program" means medical assistance provided under RCW 74.09.500 or authorized state medical care services.

(27) "Medical care recipient" or "recipient" means an individual determined eligible by the department for the services provided in chapter 74.09 RCW.

(28) "Net book value" means the historical cost of an asset less accumulated depreciation.

(29) "Net invested funds" means the net book value of tangible fixed assets employed by a contractor to provide services under the medical care program, including land, buildings, and equipment as recognized and measured in conformity with generally accepted accounting principles, plus an allowance for working capital which shall be five percent of the product of the per patient day rate multiplied by the prior calendar year reported total patient days of each contractor.

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

(31) "Owner" means a sole proprietor, general or limited partners, and beneficial interest holders of five percent or more of a corporation's outstanding stock.

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

(33) "Patient day" or "((~~client~~)) resident day" means a calendar day of care provided to a nursing facility resident, which will include the day of admission and exclude the day of discharge; except that, when admission and discharge occur on the same day, one day of care shall be deemed to exist. A "client day" or "recipient day" means a calendar day of care provided to a medical care recipient determined eligible by the department for services provided under chapter 74.09 RCW, subject to the same conditions regarding admission and discharge applicable to a patient day or resident day of care.

(34) "Professionally designated real estate appraiser" means an individual who is regularly engaged in the business of providing real estate valuation services for a fee, and who is deemed qualified by a nationally recognized real estate appraisal educational organization on the basis of extensive practical appraisal experience, including the writing of real estate valuation reports as well as the passing of written examinations on valuation practice and theory, and who by virtue of membership in such organization is required to subscribe and adhere to certain standards of professional practice as such organization prescribes.

(35) "Qualified therapist" means:

(a) An activities specialist who has specialized education, training, or experience as specified by the department;

(b) An audiologist who is eligible for a certificate of clinical competence in audiology or who has the equivalent education and clinical experience;

(d) A mental retardation professional who is either a qualified therapist or a therapist approved by the department who has had specialized training or one year's experience in treating or working with the mentally retarded or developmentally disabled;

(e) A social worker who is a graduate of a school of social work;

(f) A speech pathologist who is eligible for a certificate of clinical competence in speech pathology or who has the equivalent education and clinical experience;

(g) A physical therapist as defined by chapter 18.74 RCW;

(h) An occupational therapist who is a graduate of a program in occupational therapy, or who has the equivalent of such education or training; and

(i) A respiratory care practitioner certified under chapter 18.89 RCW.

(36) "Questioned costs" means those costs which have been determined in accordance with generally accepted accounting principles but which may constitute disallowed costs or departures from the provisions of this chapter or rules and regulations adopted by the department.

(37) "Rebased rate" or "cost-rebased rate" means a facility-specific rate assigned to a nursing facility for a particular rate period established on desk-reviewed, adjusted costs reported for that facility covering at least six months of a prior calendar year.

(38) "Records" means those data supporting all financial statements and cost reports including, but not limited to, all general and subsidiary ledgers, books of original entry, and transaction documentation, however such data are maintained.

((~~(38)~~)) (39) "Related organization" means an entity which is under common ownership and/or control with, or has control of, or is controlled by, the contractor.

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

(b) "Control" exists where an entity 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 or exercised.

((~~(39)~~)) (40) "Restricted fund" means those funds the principal and/or income of which is limited by agreement with or direction of the donor to a specific purpose.

((~~(40)~~)) (41) "Secretary" means the secretary of the department of social and health services.

((~~(41)~~)) (42) "Title XIX" or "Medicaid" means the 1965 amendments to the social security act, P.L. 89‑07, as amended.

((~~(42)~~)) (43) "Physical plant capital improvement" means a capitalized improvement that is limited to an improvement to the building or the related physical plant.

Sec. 91. RCW 74.46.105 and 1985 c 361 s 10 are each amended to read as follows:

Cost reports and patient trust accounts of contractors shall be field audited by the department, either by department staff or by auditors under contract to the department, in accordance with the provisions of this chapter. The department when it deems necessary to assure the accuracy of cost reports may review any underlying financial statements or other records upon which the cost reports are based. The department shall have the authority to accept or reject audits which fail to satisfy the requirements of this section or which are performed by auditors who violate any of the rules of this section. Department audits of the cost reports and patient trust accounts shall be conducted as follows:

(1) Each year the department will provide for field audit of the cost report, statistical reports, and patient trust funds, as established by RCW 74.46.700, of all or a sample of reporting facilities selected by profiles of costs, exceptions, contract terminations, upon special requests or other factors determined by the department.

(2) Beginning with audits for calendar year ((1983, up to one hundred percent of contractors cost reports and patient care trust fund accounts shall be audited: PROVIDED, That each contractor shall be audited at least once in every three-year period)) 1993, contractors' cost reports and resident care trust fund accounts shall be audited periodically as determined necessary by the department.

(3) Facilities ((~~shall be selected for sample audits within one hundred twenty days of submission of a correct and complete cost report, and~~)) shall be ((so)) informed of the department's intent to audit at least ten working days before the commencement of an audit of a facility's cost report or resident trust fund accounts. ((~~Audits so scheduled shall be completed within one year of selection.~~))

(4) Where an audit for a recent reporting or trust fund period discloses material discrepancies, undocumented costs or mishandling of patient trust funds, auditors may examine prior unaudited periods, for indication of similar material discrepancies, undocumented costs or mishandling of patient trust funds for not more than two reporting periods preceding the facility reporting period selected in the sample.

(5) The audit will result in a schedule summarizing appropriate adjustments to the contractor's cost report. These adjustments will include an explanation for the adjustment, the general ledger account or account group, and the dollar amount. Patient trust fund audits shall be reported separately and in accordance with RCW 74.46.700.

(6) Audits shall meet generally accepted auditing standards as promulgated by the American institute of certified public accountants and the standards for audit of governmental organizations, programs, activities and functions as published by the comptroller general of the United States. Audits shall be supervised or reviewed by a certified public accountant.

(7) No auditor under contract with or employed by the department to perform audits in accordance with the provisions of this chapter shall:

(a) Have had direct or indirect financial interest in the ownership, financing or operation of a nursing home in this state during the period covered by the audits;

(b) Acquire or commit to acquire any direct or indirect financial interest in the ownership, financing or operation of a nursing home in this state during said auditor's employment or contract with the department;

(c) Accept as a client any nursing home in this state during or within two years of termination of said auditor's contract or employment with the department.

(8) Audits shall be conducted by auditors who are otherwise independent as determined by the standards of independence established by the American institute of certified public accountants.

(9) All audit rules adopted after March 31, 1984, shall be published before the beginning of the cost report year to which they apply.

Sec. 92. RCW 74.46.115 and 1983 1st ex.s. c 67 s 6 are each amended to read as follows:

The office of the state auditor shall ((~~annually~~)) at least once in every three state fiscal years commencing July 1, 1995, review the performance of the department to ensure that departmental audits are conducted in accordance with generally accepted ((~~accounting principles and~~)) auditing standards.

Sec. 93. RCW 74.46.160 and 1985 c 361 s 12 are each amended to read as follows:

(1) Within one hundred twenty days after receipt of the proposed preliminary settlement, the department shall verify the accuracy of the proposal and shall issue a preliminary settlement report by cost center to the contractor which fully substantiates disallowed costs, refunds, underpayments, or adjustments to the proposed preliminary settlement.

(2) After completion of the audit process, including exhaustion or mutual termination of ((~~reviews and~~)) any administrative appeals ((of)) or exception procedure used by the contractor to contest audit findings or determinations, but not including any judicial review available to and commenced by the contractor, the department will submit a final settlement report by cost center to the contractor which fully substantiates disallowed costs, refunds, underpayments, or adjustments to the contractor's cost report. ((Where the contractor is pursuing judicial or administrative review or appeal in good faith regarding audit findings or determinations, the department may issue a partial final settlement to recover overpayments based on audit adjustments not in dispute.))

Sec. 94. RCW 74.46.170 and 1983 1st ex.s. c 67 s 10 are each amended to read as follows:

(1) A contractor shall have ((~~thirty~~)) a period of days, to be established by the department in rule, after the date the preliminary or final settlement report is submitted to the contractor to contest a settlement determination under the administrative appeals or exception procedure established by the department pursuant to RCW 74.46.780. Any such administrative review of a settlement shall be limited to calculation of the settlement or the application of settlement principles and rules, or both, and shall not examine or reexamine payment rate or audit issues. After the ((~~thirty-day~~)) period established by the department in rule has expired, a preliminary or final settlement will not be subject to review.

(2) A preliminary settlement report as issued by the department will become the final settlement report if no audit has been scheduled within twelve calendar months following the department's issuance of a preliminary settlement report to the contractor.

(3) A settlement will be reopened if necessary to make adjustments for findings resulting from an audit performed pursuant to RCW 74.46.105(4).

Sec. 95. RCW 74.46.180 and 1993 sp.s. c 13 s 2 are each amended to read as follows:

(1) The ((~~state~~)) department shall make payment of any underpayments to which a contractor is entitled as determined by the department under the provisions of this chapter within ((~~thirty~~)) sixty days after the date the preliminary or final settlement report is submitted to the contractor and the department shall pay interest at the rate of one percent per month on any unpaid preliminary or final settlement balance still due the contractor after such time, accruing from sixty days after the preliminary or final settlement report is submitted to the contractor, and no interest shall accrue or be paid for any period prior to this date: PROVIDED, That any increase in a preliminary or final settlement amount due the contractor resulting from a final administrative or judicial decision shall also bear interest until paid at the rate of one percent per month, accruing from sixty days after the preliminary or final settlement was submitted to the contractor. The department shall pay no interest on amounts due a contractor other than amounts determined by preliminary or final settlement as provided in this subsection.

(2) A contractor found, under a preliminary or final settlement issued by the department, to have received either overpayments or erroneous payments ((~~under a preliminary or final settlement~~)), to which the contractor is not entitled as determined by the department under the provisions of this chapter, shall refund such erroneous payments or overpayments to the ((~~state~~)) department within ((~~thirty~~)) sixty days after the date the preliminary or final settlement report is submitted to the contractor, subject to the provisions of subsections (3), (4), and ((~~(7)~~)) (6) of this section, PROVIDED, That for all preliminary or final settlements issued on and after July 1, 1995, regardless of what period a settlement covers, neither a timely filed request to pursue the department's administrative appeals or exception procedure nor commencement of judicial review, as may be available to the contractor in law, contesting the settlement, erroneous payments or overpayments shall delay recovery. A contractor shall pay interest at the rate of one percent per month on any unpaid preliminary or final settlement balance still due the department sixty days after the preliminary or final settlement report is submitted to the contractor, accruing from this date: PROVIDED Further, That the department shall refund interest collected for preliminary and settlement amounts the contractor was entitled to retain as subsequently determined by final administrative or judicial decision.

(3) Within the cost centers of nursing services and food, all savings resulting from the respective allowable costs being lower than the respective reimbursement rate paid to the contractor during the report period shall be refunded to the department. However, in computing a preliminary or final settlement, savings in a cost center may be shifted to cover a deficit in another cost center up to the amount of any savings. Not more than twenty percent of the rate in a cost center may be shifted into that cost center and no shifting may be made into the property cost center. There shall be no shifting out of nursing services, and savings in food shall be shifted only to cover deficits in the nursing services cost center. There shall be no shifting from the operational to the administrative cost center.

(4) Within the administrative and property cost centers, the contractor shall retain at least fifty percent, but not more than seventy-five percent, of any savings resulting from the respective audited allowable costs being lower than the respective reimbursement rates paid to the contractor during the report period multiplied by the number of authorized medical care client days in which said rates were in effect, except that no savings may be retained if reported costs in the administrative and property cost centers exceed audited allowable costs in these cost areas by a total of ten cents or more per patient day. The secretary, by rule, shall establish the basis for the specific percentages of savings to the contractors. Such rules may provide for differences in the percentages allowed for each cost center to individual facilities based on performance measures related to administrative efficiency.

(5) All return on investment rate payments provided by RCW 74.46.530 shall be retained by the contractor to the extent net invested funds are substantiated by department field audit. Any industrial insurance dividend or premium discount under RCW 51.16.035 shall be retained by the contractor to the extent that such dividend or premium discount is attributable to the contractor's private patients.

(6) In the event the contractor fails to make repayment in the time provided in subsection (2) of this section, the department shall either:

(a) Deduct the amount of refund due the department, plus any interest accrued under ((~~RCW 43.20B.695~~)) subsection (2) of this section, from payment amounts due the contractor; or

(b) In the instance the contract has been terminated, (i) deduct the amount of refund due the department, plus interest assessed at the rate and in the manner provided in ((~~RCW 43.20B.695~~)) subsection (2) of this section, from any payments due; or (ii) recover the amount due, plus any interest assessed under ((~~RCW 43.20B.695,~~)) subsection (2) of this section from security posted with or otherwise obtained by the department or by any other lawful means.

(7) ((Where the facility is pursuing timely-filed judicial or administrative remedies in good faith regarding settlement issues, the contractor need not refund nor shall the department withhold from the facility current payment amounts the department claims to be due from the facility but which are specifically disputed by the contractor.)) For all erroneous payments and overpayments determined by preliminary or final settlements issued before July 1, 1995, and not yet recovered by the department because they are specifically disputed by the contractor in a timely filed administrative or judicial review, if the judicial or administrative remedy sought by the facility is not granted after all appeals are exhausted or mutually terminated, the facility shall make payment of such amounts due plus interest accrued from the date of filing of the appeal, as payable on judgments, within sixty days of the date such decision is made.

Sec. 96. RCW 74.46.190 and 1983 1st ex.s. c 67 s 12 are each amended to read as follows:

(1) The substance of a transaction will prevail over its form.

(2) All documented costs which are ordinary, necessary, related to care of medical care recipients, and not expressly unallowable, are to be allowable. Costs of providing ancillary care are allowable, subject to any applicable cost center limit contained in this chapter, provided documentation establishes the costs were incurred for medical care recipients and other sources of payment to which recipients may be legally entitled, such as private insurance or medicare, were first fully utilized.

(3) Costs applicable to services, facilities, and supplies furnished to the provider by related organizations are allowable but at the cost to the related organization, provided they do not exceed the price of comparable services, facilities, or supplies that could be purchased elsewhere.

(4) Beginning January 1, 1985, the payment for property usage is to be independent of ownership structure and financing arrangements.

(5) Beginning July 1, 1995, allowable costs shall not include costs reported by a nursing care provider for a prior period to the extent such costs, due to statutory exemption, will not be incurred by the nursing facility in the period to be covered by the rate.

Sec. 97. RCW 74.46.410 and 1993 sp.s. c 13 s 6 are each amended to read as follows:

(1) Costs will be unallowable if they are not documented, necessary, ordinary, and related to the provision of care services to authorized patients.

(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 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 department's medical care program but not included in care services established by the department under this chapter;

(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 pursuant to chapter 70.38 RCW if such approval was not obtained;

(e) Interest costs other than those provided by RCW 74.46.290 on and after January 1, 1985;

(f) Salaries or other compensation of owners, officers, directors, stockholders, and others associated with the contractor or home office, except 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 circumvent the principles of the cost-related reimbursement system set forth in this chapter;

(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 if the debt is related to covered services, it arises from the recipient's required contribution toward the cost of care, the provider can establish that reasonable collection efforts were made, the debt was actually uncollectible when claimed as worthless, and sound business judgment established that 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;

(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, televisions, radios, and similar appliances in patients' private accommodations;

(u) Federal, state, and other income taxes;

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

(w) Expenses of key-man insurance and other insurance or retirement plans not made available to all employees;

(x) Expenses of profit-sharing plans;

(y) Expenses related to the purchase and/or use of private or commercial airplanes which 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;

(z) Personal expenses and allowances of owners or relatives;

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

(bb) Costs related to agreements not to compete;

(cc) Amortization of goodwill;

(dd) Expenses related to vehicles which are in excess of what a prudent contractor would expend for the ordinary and economic provision of transportation needs related to patient care;

(ee) Legal and consultant fees in connection with a fair hearing against the department where a decision is rendered in favor of the department or where otherwise the determination of the department stands;

(ff) Legal and consultant fees of a contractor or contractors in connection with a lawsuit against the department;

(gg) Lease acquisition costs and other intangibles not related to patient care;

(hh) All rental or lease costs other than those provided in RCW 74.46.300 on and after January 1, 1985;

(ii) Postsurvey 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;

(jj) Compensation paid for any purchased nursing care services, including registered nurse, licensed practical nurse, and nurse assistant services, obtained through service contract arrangement in excess of the amount of compensation paid for such hours of nursing care service had they 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, as reported in the most recent cost report period;

(kk) For all partial or whole rate periods after July 17, 1984, costs of land and depreciable assets that cannot be reimbursed under the Deficit Reduction Act of 1984 and implementing state statutory and regulatory provisions;

(ll) 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.

NEW SECTION. Sec. 98. A new section is added to chapter 74.46 RCW to read as follows:

The legislature intends to adopt a new system for establishing nursing home payment rates no later than July 1, 1998. Any payments to nursing homes for services provided after June 30, 1998, shall be based on the new system. The system shall include case-mix reimbursement methods for paying for nursing services and shall match payments to patient care needs, while providing incentives for cost control and efficiency. To that end:

(1) In consultation with nursing facility provider associations, consumer groups, and the legislative budget committee, the department of social and health services shall design and develop alternative methods for matching nursing facility payments to patient care needs, while providing incentives for cost control and efficiency.

(2) The department shall report to the fiscal and health care policy committees of the legislature on the projected benefits and costs of these alternative methods by October 15th of 1995, 1996, and 1997. The October 1996 report shall additionally include a recommended time line for implementing the new payment system no later than July 1, 1998.

(3) The following acts or parts of acts, as now existing or hereafter amended, are each repealed, effective June 30, 1998:

(a) RCW 74.46.420 and 1993 sp.s. c 13 s 7, 1985 c 361 s 18, 1983 1st ex.s. c 67 s 18, & 1980 c 177 s 42;

(b) RCW 74.46.430 and 1993 sp.s. c 13 s 8, 1987 2nd ex.s. c 1 s 2, 1987 c 476 s 2, 1983 1st ex.s. c 67 s 19, & 1980 c 177 s 43;

(d) RCW 74.46.450 and 1993 sp.s. c 13 s 9, 1983 1st ex.s. c 67 s 20, & 1980 c 177 s 45;

(e) RCW 74.46.460 and 1993 sp.s. c 13 s 10, 1987 c 476 s 3, 1985 c 361 s 15, 1983 1st ex.s. c 67 s 21, 1981 1st ex.s. c 2 s 5, & 1980 c 177 s 46;

(f) RCW 74.46.465 and 1987 c 476 s 8;

(g) RCW 74.46.470 and 1993 sp.s. c 13 s 11, 1987 c 476 s 4, 1983 1st ex.s. c 67 s 22, & 1980 c 177 s 47;

(h) RCW 74.46.481 and 1993 sp.s. c 13 s 12, 1991 sp.s. c 8 s 16, 1990 c 207 s 1, 1987 c 476 s 5, & 1983 1st ex.s. c 67 s 24;

(i) RCW 74.46.490 and 1993 sp.s. c 13 s 13, 1983 1st ex.s. c 67 s 25, 1981 1st ex.s. c 2 s 6, & 1980 c 177 s 49;

(j) RCW 74.46.500 and 1993 sp.s. c 13 s 14, 1992 c 182 s 1, & 1980 c 177 s 50;

(k) RCW 74.46.505 and 1993 sp.s. c 13 s 15;

(l) RCW 74.46.510 and 1993 sp.s. c 13 s 16 & 1980 c 177 s 51;

(m) RCW 74.46.530 and 1993 sp.s. c 13 s 17, 1991 sp.s. c 8 s 17, 1985 c 361 s 17, 1983 1st ex.s. c 67 s 28, 1981 1st ex.s. c 2 s 7, & 1980 c 177 s 53;

(n) RCW 74.46.540 and 1980 c 177 s 54;

(o) RCW 74.46.550 and 1983 1st ex.s. c 67 s 29 & 1980 c 177 s 55;

(p) RCW 74.46.560 and 1983 1st ex.s. c 67 s 30 & 1980 c 177 s 56;

(q) RCW 74.46.570 and 1983 1st ex.s. c 67 s 31 & 1980 c 177 s 57;

(r) RCW 74.46.580 and 1983 1st ex.s. c 67 s 32 & 1980 c 177 s 58; and

(s) RCW 74.46.590 and 1980 c 177 s 59.

Sec. 99. RCW 74.46.420 and 1993 sp.s. c 13 s 7 are each amended to read as follows:

The following principles are inherent in RCW 74.46.430 through 74.46.590:

(1) ((~~Reimbursement~~)) Effective July 1, 1995, through June 30, 1998, nursing facility payment rates will be set or adjusted for economic trends and conditions annually and prospectively on a per ((~~patient~~)) resident day basis ((~~on a two-year cycle corresponding to each state biennium; and~~)), in accordance with the principles and methods set forth in this chapter, to take effect July 1st of each year.

(2) ((The rates, in the nursing services, food, administrative, and operational cost centers, shall be adjusted downward or upward when set effective July 1 of the first fiscal year of the two-year rate-setting cycle and adjusted again downward or upward effective July 1 of the second fiscal year of the rate-setting cycle for economic trends and conditions)) July 1, 1995, component rates in the nursing services, food, administrative, and operational cost centers shall be cost-rebased utilizing desk-reviewed and adjusted costs reported for calendar year 1994, for all nursing facilities submitting at least six months of cost data. Such component rates for July 1, 1995, shall also be adjusted downward or upward for economic trends and conditions as provided in this section. Component rates in property and return on investment (ROI) shall be reset annually as provided in this chapter.

(3) The July 1, 1995, component rates ((~~for the first year of each biennium~~)) in the nursing services, food, administrative, and operational cost centers shall be adjusted for economic trends and conditions by the change in the implicit price deflator for personal consumption expenditures index published by the bureau of labor statistics of the United States department of labor (IPD index). The period used to measure the IPD increase or decrease to be applied to these ((~~first year biennial~~)) July 1, 1995, rate((s)) components shall be ((~~the~~)) calendar year ((~~preceding the July 1 commencement of the state biennium~~)) 1994.

(4) ((~~The July 1 rates for the second year of each biennium shall be adjusted~~)) July 1, 1996, component rates in the nursing services, food, administrative, and operational cost centers shall not be cost-rebased, but shall be the component rates assigned to each nursing facility in effect on June 30, 1996, adjusted downward or upward for economic trends and conditions by the change in the nursing home input price index without capital costs published by the health care financing administration of the department of health and human services((,)) (HCFA index((~~, however, any increase shall be multiplied by one and one-half~~))). The period to be used to measure the HCFA index increase ((~~to be multiplied by one and one-half and applied~~)) or decrease to be applied to these ((~~second-year biennial~~)) June 30, 1996, component rates shall ((~~also~~)) be ((~~the~~)) calendar year ((preceding the July 1 commencement of the state biennium: PROVIDED, However, That in the event the change in the HCFA index measured over the following calendar year, the one terminating six months after the start of the state biennium, is twenty-five percent greater or less than the change in the HCFA index measured over the calendar year preceding commencement of the state biennium, the department shall use the HCFA index increase multiplied by one and one-half or decrease in such following calendar year to inflate or decrease nursing facilities' nursing services, food, administrative, and operational rates for July 1 of the second biennial year)) 1994.

(5) July 1, 1997, component rates in the nursing services, food, administrative, and operational cost centers shall not be cost-rebased, but shall be the component rates assigned to each nursing facility in effect on June 30, 1997, adjusted downward or upward for economic trends and conditions by the change in the nursing home input price index without capital costs published by the health care financing administration of the department of health and human services (HCFA index), multiplied by a factor of 1.25. The period to be used to measure the HCFA increase or decrease to be applied to these rate components for July 1, 1997, rate setting shall be calendar year 1996.

(6) If either the implicit price deflator (IPD) index or the health care financing administration (HCFA) index specified in this section ceases to be published in the future, the department shall select ((~~by rule~~)) and use in its place or their place one or more measures of change from the same or an alternate source or sources ((~~for~~)) utilizing the same or comparable time periods specified in this section.

Sec. 100. RCW 74.46.430 and 1993 sp.s. c 13 s 8 are each amended to read as follows:

(1) The department, as provided by this chapter, will determine prospective ((~~cost-related reimbursement~~)) payment rates for services provided to medical care recipients. Each rate so determined shall represent the contractor's maximum compensation within each cost center and for return on investment for each ((~~patient~~)) resident day for such medical care recipient.

(2) ((~~As required,~~)) The department may modify such maximum per ((~~patient~~)) resident day rates, consistent with this chapter, pursuant to the administrative ((~~review provisions of~~)) appeals or exception procedure authorized by RCW 74.46.780.

(3) For July 1, 1995, and all following rates, the maximum prospective ((~~reimbursement~~)) component payment rates for the nursing services, food, administrative, operational, and property cost centers, and the return on investment (ROI) component rate for each nursing facility shall be established based upon a minimum licensed bed facility occupancy level of ((~~eighty-five~~)) ninety percent, except for rate adjustments as provided for in RCW 74.46.460(6).

(4) The minimum ninety percent facility occupancy shall be used to calculate individual rates, to calculate the median cost limits (MCLs) for the metropolitan statistical area (MSA) and nonmetropolitan statistical area (non-MSA) peer groups, and to array facilities by costs in calculating the variable return portion of the return on investment rate component (ROI).

(5) All contractors shall be required to adjust and maintain wages for all employees to a minimum hourly wage of four dollars and seventy-six cents per hour beginning January 1, 1988, and five dollars and fifteen cents per hour beginning January 1, 1989.

Sec. 101. RCW 74.46.450 and 1993 sp.s. c 13 s 9 are each amended to read as follows:

(1) Prospective reimbursement rates for a new contractor, as defined by the department in rule, will be established within sixty days following receipt by the department of the properly completed projected budget required by RCW 74.46.670. Such reimbursement rates will become effective as of the effective date of the contract and shall remain in effect until ((~~adjusted or~~)) the new contractor's rate in all cost areas can be reset ((~~as provided in this chapter~~)) effective July 1st using a cost report of that contractor containing at least six months' data from the prior calendar year, regardless of whether reported costs for other contractors for the prior calendar year in question will be used to rebase their July 1st rates.

(2) Such reimbursement rates will be based on ((~~the contractor's projected cost of operations and on costs and~~)) payment rates of the prior contractor, if any, or of other contractors in comparable circumstances.

(3) ((~~If a properly completed budget is not received at least sixty days prior to the effective date of the contract,~~)) The department will establish ((~~preliminary~~)) a new contractor's initial component rates based on the ((~~other~~)) factors specified in subsections (2) and (4) of this section. These ((~~preliminary~~)) initial rates will remain in effect until adjusted or reset as provided in this chapter.

(4) The department is authorized to develop policies and procedures in rule ((to address the computation of rates for the first and second fiscal years of each biennium, including steps necessary to prorate rate adjustments for economic trends and conditions as authorized in RCW 74.46.420, for contractors having less than twelve months of cost report data for the prior calendar year)) that comply with the policies and purposes of this chapter to establish factors by which a new contractor's rate will be set, for example, occupancy level or proration of rate adjustments for economic trends and conditions as authorized in RCW 74.46.420. However, a new contractor, whose medicaid contract was effective in calendar year 1994; and whose nursing facility occupancy during calendar year 1994 increased by at least five percent over that of the prior owner, shall have its July 1995 rate for nursing services, food, administrative, operational, and property cost centers, and the return on investment (ROI) based upon a minimum facility occupancy of eighty-five percent.

Sec. 102. RCW 74.46.460 and 1993 sp.s. c 13 s 10 are each amended to read as follows:

(1) Each contractor's ((~~reimbursement~~)) nursing services, food, administrative, and operational component payment rates will be ((~~determined or~~)) adjusted for economic trends and conditions prospectively at least once during each calendar year, as provided in this chapter, to be effective July 1st((.)): PROVIDED, That except for the rates of new contractors as defined by the department, a ((~~contractor's~~)) nursing facility's cost-rebased rate for ((~~the first fiscal year of each biennium~~)) July 1, 1995, must be established upon ((~~its~~)) the facility's own ((~~prior calendar period~~)) cost report of at least six months of adjusted and/or audited cost data from the calendar year 1994.

(2) Subject to the provisions of subsections (3) through (6) of this section, rates may be adjusted ((~~as determined~~)) by the department at the request of the nursing facility to cover the medicaid share of incremental costs necessary to address and take into account variations in the distribution of all medicaid and nonmedicaid patient classifications or changes in all medicaid or nonmedicaid patient characteristics from the prior reporting year, program changes required by the department, or changes in staffing levels at a facility required by the department. Rates may also be adjusted to cover costs associated with placing a nursing home in receivership which costs are not covered by the rate of the former contractor, including: Compensation of the receiver, reasonable expenses of receivership and transition of control, and costs incurred by the receiver in carrying out court instructions or rectifying deficiencies found. Rates shall be adjusted as provided in this section for any capitalized additions or replacements made as a condition for licensure or certification. Rates shall be adjusted as provided in this section for capitalized improvements done under RCW 74.46.465.

(3) Except for rate adjustments granted for economic trends and conditions as authorized in this chapter to be effective each July 1st, all rate adjustments granted by the department for any other purpose, including those granted for capitalized additions or replacements or for staffing, whether made or not made as a condition of licensure or certification, shall be limited in total amount each fiscal year to the total current legislative appropriation, if any, specifically made to fund the medicaid share of such adjustments for the fiscal year.

(4) The department is authorized to adopt rules to ensure that funding granted for additional staffing will be cost-effective in providing increased quantity and quality of services to nursing facility residents and to ensure that spending limitations will not be exceeded.

(5) Funds disbursed representing rate adjustments granted under authority of this section and not spent by the contractor for the purposes granted are subject to immediate recovery by the department by means of recoupment from current contract payments or any other means authorized by law and contractors shall pay interest on such unused or misused funds at the rate of one percent per month from the date of disbursal to the date of recovery. If a contractor requests an administrative review of a department recovery action under rules established under RCW 74.46.780, such request shall not stay recoupment from current facility contract payments or other recovery.

(6) All rate component adjustments to fund the medicaid share of nursing facility new construction or refurbishing projects costing in excess of one million two hundred thousand dollars, or projects requiring state or federal approval, shall be based upon a minimum facility occupancy of eighty-five percent for the nursing services, food, administrative, operational, and property cost centers, and the return on investment (ROI), during the initial rate period in which the adjustment is granted, and shall be based upon a minimum facility occupancy of ninety percent for the nursing services, food, administrative, operational, and property cost centers, and the return on investment (ROI), for all rate periods thereafter.

Sec. 103. RCW 74.46.470 and 1993 sp.s. c 13 s 11 are each amended to read as follows:

(1) A contractor's ((~~reimbursement~~)) nursing facility per resident day component rates for medical care recipients ((~~will~~)) shall be determined as provided in this chapter utilizing net invested funds and desk-reviewed cost report data within the following cost centers:

(a) Nursing services;

(b) Food;

(d) Operational; and

(e) Property.

(2) There shall be for the time period January 1988 through June 1990 only an enhancement cost center established to reimburse contractors for specific legislatively authorized enhancements for nonadministrative wages and benefits to ensure that such enhancements are used exclusively for the legislatively authorized purposes. For purposes of settlement, funds appropriated to this cost center shall only be used for expenditures for which the legislative authorization is granted. Such funds may be used only in the following circumstances:

(a) The contractor has increased expenditures for which legislative authorization is granted to at least the highest level paid in any of the last three cost years, plus, beginning July 1, 1987, any percentage inflation adjustment as was granted each year under RCW 74.46.495; and

(b) All funds shifted from the enhancement cost center are shown to have been expended for legislatively authorized enhancements.

(3) If the contractor does not spend the amount appropriated to this cost center in the legislatively authorized manner, then the amounts not appropriately spent shall be recouped at preliminary or final settlement pursuant to RCW 74.46.160.

(4) For purposes of this section, "nonadministrative wages and benefits" means wages and payroll taxes paid with respect to, and the employer share of the cost of benefits provided to, employees in job classes specified in an appropriation, which may not include administrators, assistant administrators, or administrators in training.

(5) Amounts expended in the enhancement cost center in excess of the minimum wage established under RCW 74.46.430 are subject to all provisions contained in this chapter.

Sec. 104. RCW 74.46.481 and 1993 sp.s. c 13 s 12 are each amended to read as follows:

(1) The nursing services cost center shall include for reporting and audit purposes all costs related to the direct provision of nursing and related care, including fringe benefits and payroll taxes for the nursing and related care personnel, and the cost of nursing supplies. The department shall adopt by administrative rule a definition of "related care". For rates effective after June 30, 1991, nursing services costs, as reimbursed within this chapter, shall not include costs of any purchased nursing care services, including registered nurse, licensed practical nurse, and nurse assistant services, obtained through service contract arrangement in excess of the amount of compensation paid for such hours of nursing care service had they 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, as reported in the most recent cost report period.

(2) The department shall adopt through administrative rules a method for establishing a nursing services cost center rate consistent with the principles stated in this section.

(3) Utilizing regression or other statistical technique, the department shall determine a reasonable limit on facility nursing staff taking into account facility patient characteristics. For purposes of this section, facility nursing staff refers to registered nurses, licensed practical nurses and nursing assistants employed by the facility or obtained through temporary labor contract arrangements. Effective January 1, 1988, the hours associated with the training of nursing assistants and the supervision of that training for nursing assistants shall not be included in the calculation of facility nursing staff. In selecting a measure of patient characteristics, the department shall take into account:

(a) The correlation between alternative measures and facility nursing staff; and

(b) The cost of collecting information for and computation of a measure.

If regression is used, the limit shall be set at predicted nursing staff plus 1.75 regression standard errors. If another statistical method is utilized, the limit shall be set at a level corresponding to 1.75 standard errors above predicted staffing computed according to a regression procedure. A regression calculated shall be effective for the entire biennium.

(4) No facility shall receive reimbursement for nursing staff levels in excess of the limit. However, nursing staff levels established under subsection (3) of this section shall not apply to the nursing services cost center reimbursement rate only for the pilot facility especially designed to meet the needs of persons living with AIDS as defined by RCW 70.24.017 and specifically authorized for this purpose under the 1989 amendment to the Washington state health plan. (5) ((~~Every two years when rates are set at the beginning of each new biennium~~)) For July 1, 1995, rate setting only, the department shall divide into two peer groups nursing facilities located in the state of Washington providing services to medicaid residents: (a) Those facilities located within a metropolitan statistical area as defined and determined by the United States office of management and budget or other applicable federal office (MSA) and (b) those not located in such an area (non-MSA). The facilities in each peer group shall then be arrayed from lowest to highest by magnitude of per ((~~patient~~)) resident day desk-reviewed, adjusted nursing services cost from the ((~~prior~~)) 1994 calendar report year, regardless of whether any such adjustments are contested by the nursing facility, and the median or fiftieth percentile cost for each peer group shall be determined. Nursing services component rates for facilities within each peer group ((~~for the first year of the biennium~~)) shall be set at the lower of the facility's desk-reviewed, adjusted per ((~~patient~~)) resident day nursing services cost from the ((~~prior~~)) 1994 report period or the median cost for the facility's peer group, utilizing the same calendar year report data plus twenty-five percent. This rate shall be reduced or inflated as authorized by RCW 74.46.420. However, the per patient day peer group median cost plus twenty-five percent limit shall not apply to the nursing services cost center reimbursement rate only for the pilot facility especially designed to meet the needs of persons living with AIDS as defined by RCW 70.24.017 and specifically authorized for this purpose under the 1989 amendment to the Washington state health plan.

(6) ((If a nursing facility is impacted by the limit authorized in subsection (5) of this section, it shall not receive a prospective rate in nursing services for July 1, 1993, less than the same facility's prospective rate in nursing services as of June 30, 1993, adjusted by any increase in the implicit price deflator for personal consumption expenditures, IPD index, as measured over the period authorized by RCW 74.46.420(3).

~~(7)~~)) For rates effective July 1, 1996, a nursing facility's noncost-rebased component rate in nursing services ((~~for the second year of each biennium~~)) shall be that facility's nursing services component rate ((~~as of July 1 of the first year of that biennium~~)) existing on June 30, 1996, reduced or inflated as authorized by RCW 74.46.420. ((The alternating procedures prescribed in this section for a facility's two July 1 nursing services rates occurring within each biennium shall be followed in the same order for each succeeding biennium.)) The July 1, 1996, nursing services component rate used to calculate the return on investment (ROI) component rate shall be the inflated prospective nursing services rate as of June 30, 1996, excluding any rate increases granted pursuant to RCW 74.46.460.

(7) For rates effective July 1, 1997, a nursing facility's noncost-rebased component rate in nursing services shall be that facility's nursing services component rate existing on June 30, 1997, reduced or inflated as authorized by RCW 74.46.420. The July 1, 1997, nursing services component rate used to calculate the return on investment (ROI) component rate shall be the inflated prospective nursing services rate as of June 30, 1997, excluding any rate increases granted pursuant to RCW 74.46.460.

(8) Median cost((s)) limits for peer groups shall be calculated initially for July 1, 1995, rate setting as provided in this chapter on the basis of ((~~the most recent~~)) adjusted 1994 nursing services cost report information available to the department prior to the calculation of the new rates for July 1, 1995 ((~~of the first fiscal year of each biennium~~)), regardless of whether the adjustments are contested or subject to pending administrative or judicial review. Median costs for peer groups shall be recalculated as provided in this chapter on the basis of the most recent adjusted cost information available to the department on October 31, 1995 ((~~of the first fiscal year of each biennium~~)), and shall apply retroactively to ((~~the prior~~)) July 1, 1995, rates, regardless of whether the adjustments are contested or subject to pending administrative or judicial review. Median cost((s)) limits, once calculated using October 31, 1995, adjusted cost information shall not be adjusted to reflect subsequent administrative or judicial rulings, whether final or not.

(9) The department is authorized to determine on a systematic basis facilities with unmet patient care service needs. The department may increase the nursing services cost center prospective rate for a facility beyond the level determined in accordance with subsection (6) of this section if the facility's actual and reported nursing staffing is one standard error or more below predicted staffing as determined according to the method selected pursuant to subsection (3) of this section and the facility has unmet patient care service needs: PROVIDED, That prospective rate increases authorized by this subsection shall be funded only from legislative appropriations made for this purpose during the periods authorized by such appropriations or other laws and the increases shall be conditioned on specified improvements in patient care at such facilities.

(10) The department shall establish a method for identifying patients with exceptional care requirements and a method for establishing or negotiating on a consistent basis rates for such patients.

(11) The department, in consultation with interested parties, shall adopt rules to establish the criteria the department will use in reviewing any requests by a contractor for a prospective rate adjustment to be used to increase the number of nursing staff. These rules shall also specify the time period for submission and review of staffing requests: PROVIDED, That a decision on a staffing request shall not take longer than sixty days from the date the department receives such a complete request. In establishing the criteria, the department may consider, but is not limited to, the following:

(a) Increases in debility levels of contractors' residents determined in accordance with the department's assessment and reporting procedures and requirements utilizing the minimum data set;

(b) Staffing patterns for similar facilities in the same peer group;

(d) Survey, inspection of care, and department consultation results.

Sec. 105. RCW 74.46.490 and 1993 sp.s. c 13 s 13 are each amended to read as follows:

(1) The food cost center shall include for reporting purposes all costs for bulk and raw food and beverages purchased for the dietary needs of medical care recipients.

(2) ((~~Every two years when rates are set at the beginning of each new biennium~~)) For July 1, 1995, rate setting only, the department shall divide into two peer groups nursing facilities located in the state of Washington providing services to medicaid residents: (a) Those facilities located within a metropolitan statistical area as defined and determined by the United States office of management and budget or other applicable federal office (MSA) and (b) those not located in such an area (non-MSA). The facilities in each peer group shall then be arrayed from lowest to highest by magnitude of per ((~~patient~~)) resident day desk-reviewed, adjusted food cost from the ((~~prior~~)) 1994 calendar report year, regardless of whether any such adjustments are contested by the nursing facility, and the median or fiftieth percentile cost for each peer group shall be determined. Food component rates for facilities within each peer group ((~~for the first year of the biennium~~)) shall be set at the lower of the facility's desk-reviewed, adjusted per ((~~patient~~)) resident day food cost from the ((~~prior~~)) 1994 report period or the median cost for the facility's peer group, using the same calendar year report data, plus twenty-five percent. This rate shall be reduced or inflated as authorized by RCW 74.46.420.

(3) For rates effective July 1, 1996, a nursing facility's noncost-rebased food component rate ((~~for the second year of each biennium~~)) shall be that facility's food component rate ((~~as of July 1 of the first year of that biennium~~)) existing on June 30, 1996, reduced or inflated as authorized by RCW 74.46.420. ((~~The alternating procedures prescribed in this section for a facility's two July 1 food rates occurring within each biennium shall be followed in the same order for each succeeding biennium.~~)) The July 1, 1996, food component rate used to calculate the return on investment (ROI) component rate shall be the inflated prospective food component rate as of June 30, 1996, excluding any rate increases granted pursuant to RCW 74.46.460.

(4) For rates effective July 1, 1997, a nursing facility's noncost-rebased food component rate shall be that facility's food component rate existing on June 30, 1997, reduced or inflated as authorized by RCW 74.46.420. The July 1, 1997, food component rate used to calculate the return on investment (ROI) component rate shall be the inflated prospective food component rate as of June 30, 1997, excluding any rate increases granted pursuant to RCW 74.46.460.

((~~(4)~~)) (5) Median cost((s)) limits for peer groups shall be calculated initially for July 1, 1995, rate setting as provided in this chapter on the basis of ((~~the most recent~~)) adjusted 1994 food cost report information available to the department prior to the calculation of the new rates for July 1, 1995 ((~~of the first fiscal year of each biennium~~)), regardless of whether the adjustments are contested or subject to pending administrative or judicial review. Median costs for peer groups shall be recalculated as provided in this chapter on the basis of the most recent adjusted cost information available to the department on October 31, 1995 ((~~of the first fiscal year of each biennium~~)), and shall apply retroactively to ((~~the prior~~)) July 1, 1995, rates, regardless of whether the adjustments are contested or subject to pending administrative or judicial review. Median cost((s)) limits, once calculated utilizing October 31, 1995, adjusted cost information, shall not be adjusted to reflect subsequent administrative or judicial rulings, whether final or not.

Sec. 106. RCW 74.46.500 and 1993 sp.s. c 13 s 14 are each amended to read as follows:

(1) The administrative cost center shall include for cost reporting purposes all administrative, oversight, and management costs whether facility on-site or allocated in accordance with a department-approved joint-cost allocation methodology. Such costs shall be identical to the cost report line item costs categorized under "general and administrative" in the "administration and operations" combined cost center existing prior to January 1, 1993, except for nursing supplies and purchased medical records.

(2) ((~~Every two years when rates are set at the beginning of each new biennium~~)) For July 1, 1995, rate setting only, the department shall divide into two peer groups nursing facilities located in the state of Washington providing services to medicaid residents: (a) Those facilities located within a metropolitan statistical area as defined and determined by the United States office of management and budget or other applicable federal office (MSA) and (b) those not located in such an area (non-MSA). The facilities in each peer group shall then be arrayed from lowest to highest by magnitude of per ((~~patient~~)) resident day desk-reviewed, adjusted administrative cost from the ((~~prior~~)) 1994 calendar report year, regardless of whether any such adjustments are contested by the nursing facility, and the median or fiftieth percentile cost for each peer group shall be determined. Administrative component rates for facilities within each peer group ((~~for the first year of the biennium~~)) shall be set at the lower of the facility's desk-reviewed, adjusted per ((~~patient~~)) resident day administrative cost from the ((~~prior~~)) 1994 report period or the median cost for the facility's peer group, utilizing the same calendar year report data, plus ten percent. This rate shall be reduced or inflated as authorized by RCW 74.46.420.

(3) For rates effective July 1, 1996, a nursing facility's noncost-rebased administrative component rate ((~~for the second year of each biennium~~)) shall be that facility's administrative component rate ((~~as of July 1 of the first year of that biennium~~)) existing on June 30, 1996, reduced or inflated as authorized by RCW 74.46.420. ((~~The alternating procedures prescribed in this section for a facility's two July 1 administrative rates occurring within each biennium shall be followed in the same order for each succeeding biennium.~~)) The July 1, 1996, administrative component rate used to calculate the return on investment (ROI) component rate shall be the inflated prospective administrative component rate as of June 30, 1996, excluding any rate increases granted pursuant to RCW 74.46.460.

(4) For rates effective July 1, 1997, a nursing facility's noncost-rebased administrative component rate shall be that facility's administrative component rate existing on June 30, 1997, reduced or inflated as authorized by RCW 74.46.420. The July 1, 1997, administrative component rate used to calculate the return on investment (ROI) component rate shall be the inflated prospective administrative component rate as of June 30, 1997, excluding any rate increases granted pursuant to RCW 74.46.460.

((~~(4)~~)) (5) Median cost((s)) limits for peer groups shall be calculated initially for July 1, 1995, rate setting as provided in this chapter on the basis of ((~~the most recent~~)) adjusted 1994 administrative cost report information available to the department prior to the calculation of the new rates for July 1, 1995 ((~~of the first fiscal year of each biennium~~)), regardless of whether the adjustments are contested or subject to pending administrative or judicial review. Median costs for peer groups shall be recalculated as provided in this chapter on the basis of the most recent adjusted cost information available to the department on October 31, 1995 ((~~of the first fiscal year of each biennium~~)), and shall apply retroactively to ((~~the prior~~)) July 1, 1995, rates, regardless of whether the adjustments are contested or subject to pending administrative or judicial review. Median cost((s)) limits, once calculated utilizing October 31, 1995, adjusted cost information, shall not be adjusted to reflect subsequent administrative or judicial rulings, whether final or not.

Sec. 107. RCW 74.46.505 and 1993 sp.s. c 13 s 15 are each amended to read as follows:

(1) The operational cost center shall include for cost reporting purposes all allowable costs of the daily operation of the facility not included in nursing services and related care, food, administrative, or property costs, whether such costs are facility on-site or allocated in accordance with a department-approved joint-cost allocation methodology.

(2) ((~~Every two years when rates are set at the beginning of each new biennium~~)) For July 1, 1995, rate setting only, the department shall divide into two peer groups nursing facilities located in the state of Washington providing services to medicaid residents: (a) Those facilities located within a metropolitan statistical area as defined and determined by the United States office of management and budget or other applicable federal office (MSA) and (b) those not located in such an area (non-MSA). The facilities in each peer group shall then be arrayed from lowest to highest by magnitude of per ((~~patient~~)) resident day desk-reviewed, adjusted operational cost from the ((~~prior~~)) 1994 calendar report year, regardless of whether any such adjustments are contested by the nursing facility, and the median or fiftieth percentile cost for each peer group shall be determined. Operational component rates for facilities within each peer group ((~~for the first year of the biennium~~)) shall be set at the lower of the facility's desk-reviewed, adjusted per ((~~patient~~)) resident day operational cost from the ((~~prior~~)) 1994 report period or the median cost for the facility's peer group, utilizing the same calendar year report data, plus twenty-five percent. This rate shall be reduced or inflated as authorized by RCW 74.46.420.

(3) For rates effective July 1, 1996, a nursing facility's noncost-rebased operational component rate ((~~for the second year of each biennium~~)) shall be that facility's operational component rate ((~~as of July 1 of the first year of that biennium~~)) existing on June 30, 1996, reduced or inflated as authorized by RCW 74.46.420. ((~~The alternating procedures prescribed in this section for a facility's two July 1 operational rates occurring within each biennium shall be followed in the same order for each succeeding biennium.~~)) The July 1, 1996, operational component rate used to calculate the return on investment (ROI) component rate shall be the inflated prospective operational component rate as of June 30, 1996, excluding any rate increases granted pursuant to RCW 74.46.460.

(4) For rates effective July 1, 1997, a nursing facility's noncost-rebased operational component rate shall be that facility's operational component rate existing on June 30, 1997, reduced or inflated as authorized by RCW 74.46.420. The July 1, 1997, operational component rate used to calculate the return on investment (ROI) component rate shall be the inflated prospective operational component rate as of June 30, 1997, excluding any rate increases granted pursuant to RCW 74.46.460.

((~~(4)~~)) (5) Median cost((s)) limits for peer groups shall be calculated initially for July 1, 1995, rate setting as provided in this chapter on the basis of ((~~the most recent~~)) adjusted 1994 operational cost report information available to the department prior to the calculation of the new rate for July 1, 1995 ((~~of the first fiscal year of each biennium~~)), regardless of whether the adjustments are contested or subject to pending administrative or judicial review. Median costs for peer groups shall be recalculated as provided in this chapter on the basis of the most recent adjusted cost information available to the department on October 31, 1995 ((~~of the first fiscal year of each biennium~~)), and shall apply retroactively to ((~~the prior~~)) July 1, 1995, rates, regardless of whether the adjustments are contested or subject to pending administrative or judicial review. Median cost((s)) limits, once calculated utilizing October 31, 1995, adjusted cost information, shall not be adjusted to reflect subsequent administrative or judicial rulings, whether final or not.

Sec. 108. RCW 74.46.510 and 1993 sp.s. c 13 s 16 are each amended to read as follows:

(1) The property cost center rate for each facility shall be determined by dividing the sum of the reported allowable prior period actual depreciation, subject to RCW 74.46.310 through 74.46.380, adjusted for any capitalized additions or replacements approved by the department, and the retained savings from such cost center, as provided in RCW 74.46.180, by the greater of a facility's total ((~~patient~~)) resident days for the facility in the prior period or resident days as calculated on ninety or eighty-five percent facility occupancy as applicable. If a capitalized addition or retirement of an asset will result in a different licensed bed capacity during the ensuing period, the prior period total ((~~patient~~)) resident days used in computing the property cost center rate shall be adjusted to anticipated ((~~patient~~)) resident day level.

(2) A nursing facility's property rate shall be rebased annually, effective July 1, in accordance with this section and this chapter ((~~regardless of whether the rate is for the first or second year of the biennium~~)).

(3) When a certificate of need for a new facility is requested, the department, in reaching its decision, shall take into consideration per-bed land and building construction costs for the facility which shall not exceed a maximum to be established by the secretary.

Sec. 109. RCW 74.46.530 and 1993 sp.s. c 13 s 17 are each amended to read as follows:

(1) The department shall establish for each medicaid nursing facility a return on investment (ROI) rate composed of two parts: A financing allowance and a variable return allowance. The financing allowance part of a facility's return on investment component rate shall be rebased annually, effective July 1, in accordance with the provisions of this section and this chapter((~~, regardless of whether the rate is for the first or second year of the biennium~~)).

(a) The financing allowance shall be determined by multiplying the net invested funds of each facility by .10, and dividing by the ((~~contractor's~~)) greater of a nursing facility's total ((~~patient~~)) resident days from the most recent cost report period or resident days calculated on ninety percent or eighty-five percent facility occupancy as applicable. If a capitalized addition or retirement of an asset will result in a different licensed bed capacity during the ensuing period, the prior period total ((~~patient~~)) resident days used in computing the financing and variable return allowances shall be adjusted to the anticipated ((~~patient~~)) resident day level.

(b) In computing the portion of net invested funds representing the net book value of tangible fixed assets, the same assets, depreciation bases, lives, and methods referred to in RCW 74.46.330, 74.46.350, 74.46.360, 74.46.370, and 74.46.380, including owned and leased assets, shall be utilized, except that the capitalized cost of land upon which the facility is located and such other contiguous land which is reasonable and necessary for use in the regular course of providing ((~~patient~~)) resident care shall also be included. Subject to provisions and limitations contained in this chapter, for land purchased by owners or lessors before July 18, 1984, capitalized cost of land shall be the buyer's capitalized cost. For all partial or whole rate periods after July 17, 1984, if the land is purchased after July 17, 1984, capitalized cost shall be that of the owner of record on July 17, 1984, or buyer's capitalized cost, whichever is lower. In the case of leased facilities where the net invested funds are unknown or the contractor is unable to provide necessary information to determine net invested funds, the secretary shall have the authority to determine an amount for net invested funds based on an appraisal conducted according to RCW 74.46.360(1).

(i) ((~~Every two years at the start of each new biennium~~)) For July 1, 1995, rate setting only, the department, without utilizing peer groups, ((~~will~~)) shall first rank all facilities in numerical order from highest to lowest according to their per ((~~patient~~)) resident day adjusted or audited, or both, allowable costs for nursing services, food, administrative, and operational costs combined for the ((~~previous~~)) 1994 calendar year cost report period.

(ii) The department shall then compute the variable return allowance by multiplying the appropriate percentage amounts, which shall not be less than one percent and not greater than four percent, by the sum of the facility's nursing services, food, administrative, and operational rate components. The percentage amounts will be based on groupings of facilities according to the rankings prescribed in (i) of this subsection (1)(c). The percentages calculated and assigned will remain the same for the ((~~next~~)) variable return allowance paid in ((~~the second year of the biennium~~)) all July 1, 1996, and July 1, 1997, rates as well. Those groups of facilities with lower per diem costs shall receive higher percentage amounts than those with higher per diem costs.

(d) The sum of the financing allowance and the variable return allowance shall be the return on investment rate for each facility, and shall be added to the prospective rates of each contractor as determined in RCW 74.46.450 through 74.46.510.

(e) In the case of a facility which was leased by the contractor as of January 1, 1980, in an arm's-length agreement, which continues to be leased under the same lease agreement, and for which the annualized lease payment, plus any interest and depreciation expenses associated with contractor-owned assets, for the period covered by the prospective rates, divided by the contractor's total ((~~patient~~)) resident days, minus the property cost center determined according to RCW 74.46.510, is more than the return on investment rate determined according to subsection (1)(d) of this section, the following shall apply:

(i) The financing allowance shall be recomputed substituting the fair market value of the assets as of January 1, 1982, as determined by the department of general administration through an appraisal procedure, less accumulated depreciation on the lessor's assets since January 1, 1982, for the net book value of the assets in determining net invested funds for the facility. A determination by the department of general administration of fair market value shall be final unless the procedure used to make such determination is shown to be arbitrary and capricious.

(ii) The sum of the financing allowance computed under subsection (1)(e)(i) of this section and the variable allowance shall be compared to the annualized lease payment, plus any interest and depreciation associated with contractor-owned assets, for the period covered by the prospective rates, divided by the contractor's total ((~~patient~~)) resident days, minus the property cost center rate determined according to RCW 74.46.510. The lesser of the two amounts shall be called the alternate return on investment rate.

(iii) The return on investment rate determined according to subsection (1)(d) of this section or the alternate return on investment rate, whichever is greater, shall be the return on investment rate for the facility and shall be added to the prospective rates of the contractor as determined in RCW 74.46.450 through 74.46.510.

(f) In the case of a facility which was leased by the contractor as of January 1, 1980, in an arm's-length agreement, if the lease is renewed or extended pursuant to a provision of the lease, the treatment provided in subsection (1)(e) of this section shall be applied except that in the case of renewals or extensions made subsequent to April 1, 1985, reimbursement for the annualized lease payment shall be no greater than the reimbursement for the annualized lease payment for the last year prior to the renewal or extension of the lease.

(2) Each biennium, beginning in 1985, the secretary shall review the adequacy of return on investment rates in relation to anticipated requirements for maintaining, reducing, or expanding nursing care capacity. The secretary shall report the results of such review to the legislature and make recommendations for adjustments in the return on investment rates utilized in this section, if appropriate.

Sec. 110. RCW 74.46.560 and 1983 1st ex.s. c 67 s 30 are each amended to read as follows:

The department will notify each contractor in writing of its prospective ((~~reimbursement~~)) payment rates by the effective dates of the rates. Unless otherwise specified at the time it is issued, ((~~the~~)) a rate will be effective from the first day of the month in which it is issued until a new rate becomes effective. If a rate is changed as the result of an appeals or exception procedure established in accordance with RCW 74.46.780, it will be effective as of the date the appealed rate became effective.

Sec. 111. RCW 74.46.570 and 1983 1st ex.s. c 67 s 31 are each amended to read as follows:

(1) Prospective rates are subject to adjustment by the department as a result of errors or omissions by the department or by the contractor. The department will notify the contractor in writing of each adjustment and of the effective date of the adjustment, and of any amount due to the department or to the contractor as a result of the rate adjustment.

(2) If a contractor claims an error or omission based upon incorrect cost reporting, amended cost report pages shall be prepared and submitted by the contractor. Amended pages shall be accompanied by a certification signed by the licensed administrator of the nursing facility and a written justification explaining why the amendment is necessary. The certification and justification shall meet such criteria as are adopted by the department. Such amendments may be used to revise a prospective rate but shall not be used to revise a settlement if submitted after commencement of the field audit. All changes determined to be material by the department shall be subject to field audit. If changes are found to be incorrect or otherwise unacceptable, any rate adjustment based thereon shall be null and void and resulting payments or payment increases shall be subject to refund.

(3) The contractor shall pay an amount owed the department resulting from an error or omission as determined by the department on or after July 1, 1995, or commence repayment in accordance with a schedule determined and agreed to in writing by the department, within sixty days after receipt of notification of the rate adjustment((, unless the contractor contests the department's determination in accordance with the procedures set forth in RCW 74.46.780. If the determination is contested, the contractor shall pay or commence repayment within sixty days after completion of these proceedings)). If a refund as determined by the department is not paid when due, the amount thereof may be deducted from current payments by the department. However, neither a timely filed request to pursue the department's administrative appeals or exception procedure nor commencement of judicial review, as may be available to the contractor in law, shall delay recovery.

(4) The department shall pay any amount owed the contractor as a result of a rate adjustment within thirty days after the contractor is notified of the rate adjustment.

(5) No adjustments will be made to a rate more than one hundred twenty days after the final audit narrative and summary for the period the rate was effective is sent to the contractor or, if no audit is held, more than one hundred twenty days after the preliminary settlement becomes the final settlement, except when a settlement is reopened as provided in RCW 74.46.170(3).

Sec. 112. RCW 74.46.640 and 1983 1st ex.s. c 67 s 34 are each amended to read as follows:

(1) Payments to a contractor may be withheld by the department in each of the following circumstances:

(a) A required report is not properly completed and filed by the contractor within the appropriate time period, including any approved extension. Payments will be released as soon as a properly completed report is received;

(b) State auditors, department auditors, or authorized personnel in the course of their duties are refused access to a nursing ((~~home~~)) facility or are not provided with existing appropriate records. Payments will be released as soon as such access or records are provided;

(c) A refund in connection with a preliminary or final settlement or rate adjustment is not paid by the contractor when due. The amount withheld will be limited to the unpaid amount of the refund and any accumulated interest owed to the department as authorized by this chapter; ((~~and~~))

(d) Payment for the final ((~~thirty~~)) sixty days of service under a contract will be held in the absence of adequate alternate security acceptable to the department pending final settlement when the contract is terminated; and

(e) Payment for services at any time during the contract period in the absence of adequate alternate security acceptable to the department, if a contractor's net medicaid overpayment liability for one or more nursing facilities or other debt to the department, as determined by preliminary settlement, final settlement, civil fines imposed by the department, third-party liabilities or other source, reaches or exceeds fifty thousand dollars, whether subject to good faith dispute or not, and for each subsequent increase in liability reaching or exceeding twenty-five thousand dollars. Payments will be released as soon as practicable after acceptable security is provided or refund to the department is made.

(2) No payment will be withheld until written notification of the suspension is provided to the contractor, stating the reason ((~~therefor~~)) for the withholding, except that neither a request to pursue the administrative appeals or exception procedure established by the department in rule nor commencement of judicial review, as may be available to the contractor in law, shall delay suspension of payment.

Sec. 113. RCW 74.46.690 and 1985 c 361 s 3 are each amended to read as follows:

(1) When a facility contract is terminated for any reason, the old contractor shall submit final reports as required by RCW 74.46.040.

(2) Upon notification of a contract termination, the department shall determine by preliminary or final settlement calculations the amount of any overpayments made to the contractor, including overpayments disputed by the contractor. If preliminary or final settlements are unavailable for any period up to the date of contract termination, the department shall make a reasonable estimate of any overpayment or underpayments for such periods. The reasonable estimate shall be based upon prior period settlements, available audit findings, the projected impact of prospective rates, and other information available to the department. The department shall also determine and add in the total of all other debts owed to the department regardless of source, including, but not limited to, interest owed to the department as authorized by this chapter, civil fines imposed by the department, or third-party liabilities.

(3) The old contractor shall provide security, in a form deemed adequate by the department, ((in)) equal to the total amount of determined and estimated overpayments and all other debts from any source, whether or not the overpayments are the subject of good faith dispute. Security shall consist of:

(a) Withheld payments due the contractor; or

(b) A surety bond issued by a bonding company acceptable to the department; or

(d) Collateral acceptable to the department; or

(e) A purchaser's assumption of liability for the prior contractor's overpayment; ((or))

(f) A promissory note secured by a deed of trust; or

(g) Any combination of (a), (b), (c), (d), ((or)) (e), or (f) of this subsection.

(4) A surety bond or assignment of funds shall:

(a) Be at least equal in amount to determined or estimated overpayments, whether or not the subject of good faith dispute, minus withheld payments;

(b) Be issued or accepted by a bonding company or financial institution licensed to transact business in Washington state;

(c) Be for a term, as determined by the department, sufficient to ensure effectiveness after final settlement and the exhaustion of any administrative appeals or exception procedure and judicial remedies, as may be available to and sought by the contractor, regarding payment, settlement, civil fine, interest assessment, or other debt issues: PROVIDED, That the bond or assignment shall initially be for a term of at least five years, and shall be forfeited if not renewed thereafter in an amount equal to any remaining combined overpayment ((~~in dispute~~)) and debt liability as determined by the department;

(d) Provide that the full amount of the bond or assignment, or both, shall be paid to the department if a properly completed final cost report is not filed in accordance with this chapter, or if financial records supporting this report are not preserved and made available to the auditor; and

(e) Provide that an amount equal to any recovery the department determines is due from the contractor ((at)) from settlement or from any other source of debt to the department, but not exceeding the amount of the bond and assignment, shall be paid to the department if the contractor does not pay the refund and debt within sixty days following receipt of written demand ((~~or the conclusion of administrative or judicial proceedings to contest settlement issues~~)) for payment from the department to the contractor.

(5) The department shall release any payment withheld as security if alternate security is provided under subsection (3) of this section in an amount equivalent to determined and estimated overpayments.

(6) If the total of withheld payments, bonds, and assignments is less than the total of determined and estimated overpayments, the unsecured amount of such overpayments shall be a debt due the state and shall become a lien against the real and personal property of the contractor from the time of filing by the department with the county auditor of the county where the contractor resides or owns property, and the lien claim has preference over the claims of all unsecured creditors.

(7) The contractor shall file a properly completed final cost report in accordance with the requirements of this chapter, which shall be audited by the department. A final settlement shall be determined within ninety days following completion of the audit process, including completion of any administrative appeals or exception procedure review of the audit requested by the contractor, but not including completion of any judicial review available to and commenced by the contractor.

(8) Following determination of settlement for all periods, security held pursuant to this section shall be released to the contractor after all overpayments, erroneous payments, and debts determined in connection with final settlement, or otherwise, including accumulated interest owed the department, have been paid by the contractor. ((If the contractor contests the settlement determination in accordance with RCW 74.46.170, the department shall hold the security, not to exceed the amount of estimated unrecovered overpayments being contested, pending completion of the administrative appeal process.))

(9) If, after calculation of settlements for any periods, it is determined that overpayments exist in excess of the value of security held by the state, the department may seek recovery of these additional overpayments as provided by law.

(10) ((If a contract is terminated solely in order for the same owner to contract with the department to deliver services to another classification of medical care recipients at the same facility, the contractor is not required to submit final cost reports, and security shall not be required)) Regardless of whether a contractor intends to terminate its medicaid contracts, if a contractor's net medicaid overpayments and erroneous payments for one or more settlement periods, and for one or more nursing facilities, combined with debts due the department, reaches or exceeds a total of fifty thousand dollars, as determined by preliminary settlement, final settlement, civil fines imposed by the department, third-party liabilities or by any other source, whether such amounts are subject to good faith dispute or not, the department shall demand and obtain security equivalent to the total of such overpayments, erroneous payments, and debts and shall obtain security for each subsequent increase in liability reaching or exceeding twenty-five thousand dollars. Such security shall meet the criteria in subsections (3) and (4) of this section, except that the department shall not accept an assumption of liability. The department shall withhold all or portions of a contractor's current contract payments or impose liens, or both, if security acceptable to the department is not forthcoming. The department shall release a contractor's withheld payments or lift liens, or both, if the contractor subsequently provides security acceptable to the department. This subsection shall apply to all overpayments and erroneous payments determined by preliminary or final settlements issued on or after July 1, 1995, regardless of what payment periods the settlements may cover and shall apply to all debts owed the department from any source, including interest debts, which become due on or after July 1, 1995.

Sec. 114. RCW 74.46.770 and 1983 1st ex.s. c 67 s 39 are each amended to read as follows:

(1) For all nursing facility medicaid payment rates effective on or after July 1, 1995, and for all settlements and audits issued on or after July 1, 1995, regardless of what periods the settlements or audits may cover, if a contractor wishes to contest the way in which a rule ((~~or contract provision~~)) relating to the ((~~prospective cost-related reimbursement~~)) medicaid payment rate system was applied to the contractor by the department, it shall ((~~first~~)) pursue the ((~~administrative review process set forth in~~)) appeals or exception procedure established by the department in rule authorized by RCW 74.46.780.

(2) ((~~The administrative review and fair hearing process in RCW 74.46.780 need not be exhausted if a contractor wishes to challenge the legal validity of a statute, rule, or contract provision.~~)) If a contractor wishes to challenge the legal validity of a statute, rule, or contract provision or wishes to bring a challenge based in whole or in part on federal law, including but not limited to issues of procedural or substantive compliance with the federal medicaid minimum payment standard for long-term care facility services, the appeals or exception procedure established by the department in rule may not be used for these purposes. This prohibition shall apply regardless 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.

(3) If a contractor wishes to challenge the legal validity of a statute, rule, or contract provision relating to the medicaid payment rate 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.

Sec. 115. RCW 74.46.780 and 1989 c 175 s 159 are each amended to read as follows:

(((1) Within twenty-eight days after a contractor is notified of an action or determination it wishes to challenge, the contractor shall request in writing that the secretary review such determination. The request shall be signed by the contractor or the licensed administrator of the facility, shall identify the challenged determination and the date thereof, and shall state as specifically as practicable the grounds for its contention that the determination was erroneous. Copies of any documentation on which the contractor intends to rely to support its position shall be included with the request.

(2) After receiving a request meeting the above criteria, the secretary or his designee will contact the contractor to schedule a conference for the earliest mutually convenient time. The conference shall be scheduled for no later than ninety days after a properly completed request is received unless both parties agree in writing to a specified later date.

(3) The contractor and appropriate representatives of the department shall attend the conference. In addition, representatives selected by the contractor may attend and participate. The contractor shall provide to the department in advance of the conference any documentation on which it intends to rely to support its contentions. The parties shall clarify and attempt to resolve the issues at the conference. If additional documentation is needed to resolve the issues, a second session of the conference shall be scheduled for not later than twenty-eight days after the initial session unless both parties agree in writing to a specific later date.

~~(4) A written decision by the secretary will be furnished to the contractor within sixty days after the conclusion of the conference.~~

(5) If the contractor desires review of an adverse decision of the secretary, it shall within twenty-eight days following receipt of such decision file a written application for an adjudicative proceeding. The proceeding is governed by chapter 34.05 RCW, the Administrative Procedure Act.)) For all nursing facility medicaid payment rates effective on or after July 1, 1995, and for all audits completed and settlements issued on or after July 1, 1995, regardless of what periods the payment rates, audits, or settlements may cover, the department shall establish in rule, consistent with federal requirements for nursing facilities participating in the medicaid program, an appeals or exception procedure that allows individual nursing care providers an opportunity to submit additional evidence and receive prompt administrative review of payment rates with respect to such issues as the department deems appropriate.

Sec. 116. 1995 c 260 s 12 (uncodified) is amended to read as follows:

Sections 7 through 11 of this act shall take effect ((~~January~~)) July 1, 1996.

Sec. 117. RCW 70.128.120 and 1995 c 260 s 5 are each amended to read as follows:

An adult family home provider shall have the following minimum qualifications:

(1) Twenty-one years of age or older;

(2) Good moral and responsible character and reputation;

(3) Literacy;

(4) Management and administrative ability to carry out the requirements of this chapter;

(5) Satisfactory completion of department-approved initial training and continuing education training as specified by the department in rule;

(6) Satisfactory completion of department-approved, or equivalent, special care training before a provider may provide special care services to a resident;

(7) Not been convicted of any crime listed in RCW 43.43.830 and 43.43.842; and

(8) Effective July 1, 1996, registered with the department of health.

NEW SECTION. Sec. 118. If any part of this act is found to be in conflict with federal requirements that are a prescribed condition to the allocation of federal funds to the state, the conflicting part of this act is inoperative solely to the extent of the conflict and with respect to the agencies directly affected, and this finding does not affect the operation of the remainder of this act in its application to the agencies concerned. The rules under this act shall meet federal requirements that are a necessary condition to the receipt of federal funds by the state.

NEW SECTION. Sec. 119. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 120. This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and shall take effect July 1, 1995.