BP BHEAD INT S

AN ACT Relating to long-term care; amending RCW 74.39A.007, 74.39A.010, 70.128.005, 70.128.007, 70.128.010, 70.128.057, 70.128.060, 70.128.070, 70.128.120, 70.128.040, 70.128.050, 70.128.055, 70.128.080, 70.128.090, 70.128.105, 70.128.110, 70.128.170, 70.128.130, 70.128.140, 70.128.150, 70.128.160, 70.128.175, 43.190.020, 43.190.060, 74.08.545, 74.08.550, 74.08.570, 74.09.520, 18.79.020, 18.79.260, 18.51.091, 18.51.140, 18.51.300, 74.42.020, 74.09.120, 11.40.010, 11.42.020, 11.62.010, 11.28.120, 18.39.250, 18.39.255, 68.46.050, 70.129.040, 43.20B.080, 74.46.020, 74.46.105, 74.46.115, 74.46.160, 74.46.170, 74.46.180, 74.46.370, 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, 74.46.010, 34.05.010, and 34.05.030; adding new sections to chapter 74.39A RCW; adding new sections to chapter 70.128 RCW; adding new sections to chapter 18.79 RCW; adding a new section to chapter 70.127 RCW; adding new sections to chapter 74.42 RCW; adding a new section to chapter 74.09 RCW; adding a new section to chapter 74.46 RCW; creating new sections; recodifying RCW 74.08.530, 74.08.560, 74.08.570, 74.08.545, and 74.08.550; repealing RCW 70.128.180 and 74.08.541; 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. This act shall be known as the options in long-term care act of 1995.

Sec. 2. RCW 74.39A.007 and 1993 c 508 s 2 are each amended to read as follows:

It is the legislature's intent that:

(1) Home and community services, which generally are preferred by consumers and usually more cost-effective than other long-term care services, be greatly expanded and promoted;

(2) Consumers of long-term care services be informed of options available to them;

(3) A system of continuous quality improvement be developed for home and community services that will enhance the viability of such services for a greater number of consumers, especially the more vulnerable consumers, and lead to higher consumer confidence in and use of such services;

(4) Long-term care services administered by the department of social and health services include a balanced array of health, social, and supportive services that promote individual choice, dignity, privacy, and the highest practicable level of independence at home or in home-like settings;

((~~(2)~~)) (5) Home and community-based services be developed, expanded, or maintained in order to meet the needs of consumers and to maximize effective use of limited resources;

((~~(3)~~)) (6) The involvement of registered nurses and other health care professionals in community-based, long-term care settings be expanded in order to increase the opportunities for citizens to receive health and long-term care services in their homes and communities and to enhance the quality of those services;

(7) Long-term care services be responsive and appropriate to individual need and also cost-effective for the state;

((~~(4)~~)) (8) Nursing home care is provided in such a manner and in such an environment as will promote maintenance or enhancement of the quality of life of each resident and timely discharge to a less restrictive care setting when appropriate; ((~~and~~

~~(5)~~)) (9) State health planning for nursing home bed supply take into account increased availability of other home and community-based service options;

(10) Nursing facility contracts be managed to reduce contracted services as relative demand for them declines, to better control the escalating costs of the service consistent with maintaining quality and access, and to facilitate the integration of long-term care into health care reform; and

(11) Individuals be financially responsible for their own long-term care whenever possible, and therefore, public funds spent for such care should be recovered from the estates of deceased clients to the extent authorized by state and federal law.

NEW SECTION. Sec. 3. 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 care home" means a facility licensed under chapter 70.128 RCW.

(2) "Adult residential care" means services provided by a facility that has a contract with the department under section 8 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 facility that has a contract with the department under RCW 74.39A.010.

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

(6) "Home and community services" means assisted living, adult residential care, adult care 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.

(7) "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.

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

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

NEW SECTION. Sec. 4. 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, particularly for those consumers for whom the state participates in the cost of their care.

(2) In expanding home and community services, the department shall 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. The department is 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 home, and assisted living services.

(3)(a) The department shall by rule establish payment rates for home and community services that are cost-effective, based on client need and service availability, and support the diversion and relocation of clients from more expensive services.

(b) The department may authorize a supplemental assisted living rate for up to two 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. 5. A new section is added to chapter 74.39A RCW to read as follows:

The department shall have a system of quality improvement for long-term care services 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 or recurring, or that have been uncorrected.

NEW SECTION. Sec. 6. 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 or elects to coordinate the investigation with other entities.

(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 shall 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 a resident.

Sec. 7. 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~~)) for assisted living services. The department shall ((~~develop~~)) adopt rules for facilities that contract with the department for assisted living to establish:

(a) Facility service standards consistent with the principles in section 5 of this act and consistent with chapter 70.129 RCW;

(b) Standards for resident living areas that require private, apartment-like units;

(2) The department's rules shall provide that ((~~ensure that the contracted~~)) services in assisted living facilities:

((~~(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 assisted living may do so, unless nursing care needs exceed the level of care defined by the department;

((~~(4)~~)) (d) Are directed first to those persons most likely, in the absence of 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.

NEW SECTION. Sec. 8. 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.

(2) The department shall adopt rules for facilities that contract with the department for adult residential care to establish:

(a) Facility service standards consistent with the principles in section 5 of this act and consistent with chapter 70.129 RCW;

(b) Training requirements for providers and their staff;

(3) The department's rules shall provide that services in adult residential care facilities:

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

(b) Include personal care services and may include appropriately delegated nursing tasks 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 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.

NEW SECTION. Sec. 9. A new section is added to chapter 74.39A RCW to read as follows:

(1) The department shall establish by rule reasonable minimum qualifications and training requirements to assure that assisted living and adult residential care providers with which the department contracts are capable of providing services consistent with this chapter and rules adopted under this chapter.

(2) The department shall not contract for assisted living 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. 10. A new section is added to chapter 74.39A RCW to read as follows:

(1) In any case in which the department finds that an assisted living or adult residential care provider, or any partner, officer, director, owner of five percent or more of the assets of the provider entity, or managing employee failed or refused to comply with this chapter or chapter 70.129 RCW, or the standards, rules, and regulations established under them, the department may take any or all of the following actions:

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

(b) Assess civil monetary penalties of not more than five hundred dollars per day per violation;

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

(2) When the department orders stop placement, the facility shall not admit any person eligible to receive long-term care services 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.

(3) The department may adopt any rules necessary to implement this section, consistent with the principals set forth in section 5 of this act.

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

Sec. 11. RCW 70.128.005 and 1989 c 427 s 14 are each amended to read as follows:

The legislature finds that:

(1) Adult ((~~family~~)) care homes are an important part of the state's long-term care system. Adult ((~~family~~)) care homes provide an alternative to institutional care and promote a high degree of independent living for residents;

(2) Persons with functional limitations have broadly varying service needs. Adult care homes that can meet those needs are an essential component of a long-term system;

(3) The development and operation of adult care homes that can provide quality personal care and special care services should be encouraged.

Sec. 12. 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~~)) care 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~~)) care 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~~)) care homes that provide high quality care;

(4) Provide for appropriate care of residents in adult care homes; 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 his or her care.

Sec. 13. RCW 70.128.010 and 1989 c 427 s 16 are each amended to read as follows:

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

(1) "Adult ((~~family~~)) care home" means a regular family abode ((of)) in which a person or persons ((~~who are providing~~)) provides personal care, special care, room, and board to more than one but not more than ((~~four~~)) six adults who are not related by blood or marriage to the person or persons providing the services((; except that a maximum of six adults may be permitted if the department determines that the home is of adequate size and that the home and the provider are capable of meeting standards and qualifications as provided for in this act)).

(2) "Provider" means any person who is licensed under this chapter to operate an adult ((~~family~~)) care home. The provider shall reside at the adult ((~~family~~)) care home((~~, except that~~)). Exceptions may be authorized by the department ((~~for good cause,~~)) through standards as defined in rule.

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

(4) "Resident" means an adult in need of personal or special care in an adult ((~~family~~)) care home who is not related to the provider.

(5) "Adults" means persons who have attained the age of eighteen years.

(6) "Home" means an adult ((~~family~~)) care home.

(7) "Imminent danger" means serious physical harm to or death of a resident has occurred, or there is a serious threat to resident life, health, or safety.

(8) "Special care" means care beyond personal care as defined by the department, in rule.

(9) "Capacity" means the maximum number of persons in need of personal or special care permitted in an adult care home at a given time. This number shall include related children or adults living in the home and who receive full-time care.

Sec. 14. 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~~)) care home without a license under this chapter.

NEW SECTION. Sec. 15. A new section is added to chapter 70.128 RCW to read as follows:

The legislature finds that the operation of an adult care 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 care 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. 16. RCW 70.128.060 and 1989 c 427 s 20 are each amended to read as follows:

(1) An application for license shall be made to the department upon forms provided by it and shall contain such information as the department reasonably requires.

(2) The department shall issue a license to an adult ((~~family~~)) care home if the department finds that the applicant and the home are in compliance with this chapter and the rules adopted under this chapter; and that the applicant has no prior violations of this chapter relating to the adult ((~~family~~)) care home subject to the application or any other adult ((~~family~~)) care home, or of any other law regulating residential care facilities within the past five years that resulted in revocation or nonrenewal of a license.

(3) The department shall not issue a license to 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.

(4) The license fee shall be submitted with the application.

((~~(4)~~)) (5) The department shall license an adult care home for the maximum level of care that the adult care home may provide. The department shall define, in rule, license levels based upon the education, training, and caregiving experience of the licensed provider or staff.

(6) The department shall serve upon the applicant a copy of the decision granting or denying an application for a license. An applicant shall have the right to contest denial of his or her application for a license as provided in chapter 34.05 RCW by requesting a hearing in writing within ((~~ten~~)) twenty-eight days after receipt of the notice of denial.

(((5) A provider shall not be licensed for more than one adult family home. Exceptions may be authorized by the department for good cause, as defined in rule. The department shall submit to appropriate committees of the legislature, by December 1, 1991, a report on the number and type of good cause exceptions granted.

~~(6)~~)) (7) The department shall establish, by rule, standards used to license nonresident providers and multiple facility operators.

(8) The license fee shall be set at fifty dollars per year for each home. A fifty dollar processing fee shall also be charged each home when the home is initially licensed.

Sec. 17. 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. 18. RCW 70.128.120 and 1989 c 427 s 24 are each amended to read as follows:

An adult ((~~family~~)) care 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; ((~~and~~))

(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; and

(7) Not been convicted of any crime listed in RCW 43.43.830 and 43.43.842.

Sec. 19. RCW 70.128.040 and 1989 c 427 s 18 are each amended to read as follows:

(1) The department shall adopt rules and standards with respect to all adult ((~~family~~)) care homes and the operators thereof to be licensed under this chapter to carry out the purposes and requirements of this chapter. In developing rules and standards the department shall recognize the residential family-like nature of adult ((~~family~~)) care homes and not develop rules and standards which by their complexity serve as an overly restrictive barrier to the development of the adult ((~~family~~)) care homes in the state. Procedures and forms established by the department shall be developed so they are easy to understand and comply with. Paper work requirements shall be minimal. Easy to understand materials shall be developed for homes explaining licensure requirements and procedures.

(2) During the initial stages of development of proposed rules, the department shall provide notice of development of the rules to organizations representing adult ((~~family~~)) care homes and their residents, and other groups that the department finds appropriate. The notice shall state the subject of the rules under consideration and solicit written recommendations regarding their form and content.

(3) Except where provided otherwise, chapter 34.05 RCW shall govern all department rule-making and adjudicative activities under this chapter.

Sec. 20. RCW 70.128.050 and 1989 c 427 s 19 are each amended to read as follows:

After July 1, 1990, no person shall operate or maintain an adult ((~~family~~)) care home in this state without a license under this chapter.

Sec. 21. RCW 70.128.055 and 1991 c 40 s 1 are each amended to read as follows:

A person operating or maintaining an adult ((~~family~~)) care home without a license under this chapter is guilty of a misdemeanor. Each day of a continuing violation after conviction is considered a separate offense.

Sec. 22. RCW 70.128.080 and 1989 c 427 s 21 are each amended to read as follows:

An adult ((~~family~~)) care 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. 23. RCW 70.128.090 and 1989 c 427 s 30 are each amended to read as follows:

(1) During inspections of an adult ((~~family~~)) care 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~~)) care 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.

Sec. 24. RCW 70.128.105 and 1991 c 40 s 3 are each amended to read as follows:

The department may commence an action in superior court to enjoin the operation of an adult ((~~family~~)) care home if it finds that conditions there constitute an imminent danger to residents.

Sec. 25. RCW 70.128.110 and 1989 c 427 s 23 are each amended to read as follows:

(1) No public agency contractor or employee shall place, refer, or recommend placement of a person into an adult ((~~family~~)) care home that is operating without a license.

(2) Any public agency contractor or employee who knows that an adult ((~~family~~)) care home is operating without a license shall report the name and address of the home to the department. The department shall investigate any report filed under this section.

Sec. 26. RCW 70.128.170 and 1989 c 427 s 33 are each amended to read as follows:

Nothing in this chapter or the rules adopted under it may be construed as authorizing the supervision, regulation, or control of the remedial care or treatment of residents in any adult ((~~family~~)) care home conducted by and for the adherents of a church or religious denomination who rely upon spiritual means alone through prayer for healing in accordance with the tenets and practices of such church or religious denomination and the bona fide religious beliefs genuinely held by such adherents.

NEW SECTION. Sec. 27. A new section is added to chapter 70.128 RCW to read as follows:

The legislature recognizes that adult care 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. 28. RCW 70.128.130 and 1989 c 427 s 26 are each amended to read as follows:

(1) Providers must own, rent, or lease the home to be licensed. Exceptions may be granted by the department to churches, hospitals, nonprofit associations, or similar organizations.

(2) Adult ((~~family~~)) care homes shall be maintained internally and externally in good repair and condition. Such homes shall have safe and functioning systems for heating, cooling, hot and cold water, electricity, plumbing, garbage disposal, sewage, cooking, laundry, artificial and natural light, ventilation, and any other feature of the home.

((~~(2)~~)) (3) Adult ((~~family~~)) care homes shall be maintained in a clean and sanitary manner, including proper sewage disposal, food handling, and hygiene practices.

((~~(3)~~)) (4) Adult ((~~family~~)) care homes shall develop a fire drill plan for emergency evacuation of residents, shall have smoke detectors in each bedroom where a resident is located, shall have fire extinguishers on each floor of the home, and shall not keep nonambulatory patients above the first floor of the home.

((~~(4)~~)) (5) Adult ((~~family~~)) care homes shall have clean, functioning, and safe household items and furnishings.

((~~(5)~~)) (6) Adult ((~~family~~)) care homes shall provide a nutritious and balanced diet and shall recognize residents' needs for special diets.

((~~(6)~~)) (7) Adult care home providers shall ensure that all residents receive care consistent with the resident's plan of care.

(8) Adult ((~~family~~)) care homes shall establish health care procedures for the care of residents including medication administration and emergency medical care.

(a) Adult ((~~family~~)) care home residents shall be permitted to self-administer medications.

(b) Adult ((~~family~~)) care home providers may administer medications and deliver special care only to the extent ((~~that the provider is a licensed health care professional for whom the administration of medications is within the scope of practice under Washington~~)) authorized by law.

(9) A provider will ensure that any volunteer, student, employee, or person residing within the adult care home who will have unsupervised access to any resident shall not have been convicted of a crime listed under RCW 43.43.830 or 43.43.842. Except that a person may be conditionally employed pending the completion of a criminal conviction background inquiry.

(10) A provider shall offer activities to residents under care as defined by the department in rule.

(11) An adult care home provider shall ensure that staff are competent and receive necessary training to perform assigned tasks.

Sec. 29. RCW 70.128.140 and 1989 c 427 s 27 are each amended to read as follows:

Each adult ((~~family~~)) care 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. 30. RCW 70.128.150 and 1989 c 427 s 28 are each amended to read as follows:

Whenever possible adult ((~~family~~)) care 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 care 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 three thousand dollars for any such willful interference.

Sec. 31. 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~~)) care 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~~)) care 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~~)) care 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.

(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 pending any hearing.

Sec. 32. 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, 36.32.560, and 70.128.180:

(a) "Adult ((~~family~~)) care 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~~)) care home shall be considered a residential use of property for zoning purposes. Adult ((~~family~~)) care 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. 33. 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 care homes, as provided in section 6 of this act.

(2) An adult care 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 care 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. The department shall impose a civil penalty of not more than three thousand dollars for a violation of this subsection and require the provider to mitigate any damages incurred by a resident.

NEW SECTION. Sec. 34. RCW 70.128.180 and 1989 c 427 s 41 are each repealed.

Sec. 35. 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. 36. 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. 37. 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. 38. 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. 39. 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. 40. 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:

(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 section 42 of this act.

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

Sec. 41. 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 40 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. 42. 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.

NEW SECTION. Sec. 43. A new section is added to chapter 74.39A RCW to read as follows:

The department shall contract with area agencies on aging:

(1) To provide case management services to individuals receiving long-term care services in their own home; and

(2) To reassess and reauthorize long-term care services in home or in other settings for individuals:

(a) Who have been initially authorized by the department to receive long-term care services; and

(b) Who, at the time of reassessment and reauthorization, are receiving long-term care services in their own home.

Sec. 44. 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 long-term care services as defined in section 3 of this act in home or in other settings for individuals:

(i) Who have been initially authorized by the department to receive Title XIX personal care services or other long-term care services as defined in section 3 of this act; and

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

NEW SECTION. Sec. 45. A new section is added to chapter 18.79 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 other unlicensed persons is essential to enhancing the viability and quality of care in community health and long-term care services and to allow citizens to live as independently as possible.

(1) A nurse may not delegate the following tasks:

(a) The nursing process, including assessment or diagnosis;

(b) Sterile procedures as defined by the nursing care quality assurance commission;

(c) Procedures requiring crossing the barrier of the skin except for blood glucose monitoring and insulin administration;

(d) The management, manipulation, or care for intravenous devices, intravenous lines, or infusion of intravenous substances.

(2) A nurse may delegate specific care tasks to unlicensed persons providing care to a consumer in their home or place of abode or through agencies or facilities licensed under RCW 70.128.010, 18.20.020, or 74.15.020, Title 71A RCW, chapter 70.127 or 74.39A RCW.

(3) 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, colostomy care;

(e) Blood glucose monitoring and insulin administration;

(f) Gastronomy feedings in established and healed condition.

(4) On or before September 1, 1995, the nursing care quality assurance commission will, in consultation with health care professionals, the department of social and health services, and consumers, develop and make available to the public nurse delegation protocols that will facilitate and guide safe delegation of nursing tasks.

(5) 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 will 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 and is considered a serious responsibility of the nurse;

(b) Allow delegation of a nursing care task only for consumers who have a stable and predictable condition;

(c) Require the nurse to inform the consumer of their determination that a task can be safely delegated to an unlicensed person and to refrain from delegation of that task if the consumer does not consent to receiving the care task from the unlicensed person;

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

(e) Require the nurse to analyze the complexity of the nursing task that is considered for delegation;

(f) Require the teaching of the nursing care task to the unlicensed person including observation of the unlicensed person while performing the task;

(g) Require a plan of nursing supervision and reevaluation of the delegated nursing task;

(h) Require instruction to the unlicensed person that the delegated nursing task is specific to a consumer and is not transferable;

(i) Require documentation and written instruction related to the delegated nursing task be provided to the unlicensed person;

(j) Ensure that the unlicensed person is prepared to effectively deal with the predictable outcomes of performing the nursing task.

(6) On or before August 1, 1995, the department of health and the department of social and health services, in consultation with the nursing care quality assurance commission, shall each develop and clarify program and reimbursement policies relating to the ability and authority of a nurse to delegate care tasks in the programs and services operating under their authority.

(7) The legislative budget committee shall submit by December 1997, to the health care committees of the legislature a report that will review the consumer health outcomes of delegated tasks, impact on consumer access to care, impact on consumer independence, the appropriateness of tasks allowed for or prohibited from delegation, regulatory barriers to delegation, and level and type of training and regulation of nurses and unlicensed persons.

(8) The nursing care quality assurance commission shall develop model forms that will assist in standardizing the practice of delegation, including a form that indicates consent by the consumer, unlicensed person, and nurse for care to be provided by delegation.

NEW SECTION. Sec. 46. A new section is added to chapter 18.79 RCW to read as follows:

(1) A nurse who delegates the provision of a nursing care task to an unlicensed person according to delegation protocols developed by the nursing care quality assurance commission shall:

(a) Not be subject to an action for civil damages for the performance of an unlicensed person to whom a nursing care task is delegated unless the unlicensed person is acting pursuant to specific instructions from the nurse or the nurse fails to leave adequate written instructions when the nurse should have done so; and

(b) Not be subject to retaliation due to a determination regarding the appropriateness of task delegation.

(2) Nurses may report incidents of coercion or retaliation by employers to the nursing care quality assurance commission.

Sec. 47. RCW 18.79.020 and 1994 sp.s. c 9 s 402 are each amended to read as follows:

Unless a different meaning is plainly required by the context, the definitions set forth in this section apply throughout this chapter.

(1) "Commission" means the Washington state nursing care quality assurance commission.

(2) "Department" means the department of health.

(3) "Secretary" means the secretary of health or the secretary's designee.

(4) "Diagnosis," in the context of nursing practice, means the identification of, and discrimination between, the person's physical and psychosocial signs and symptoms that are essential to effective execution and management of the nursing care regimen.

(5) "Diploma" means written official verification of completion of an approved nursing education program.

(6) "Nurse" or "nursing," unless otherwise specified as a practical nurse or practical nursing, means a registered nurse or registered nursing.

(7) "Stable and predictable condition" means a situation in which the client's clinical and behavioral status is known and does not require frequent presence and evaluation of a registered nurse. This includes hospice clients whose deteriorating condition is predictable.

(8) "Supervision of unlicensed persons" means that the registered nurse monitors by direct observation the unlicensed person's skill and ability to perform delegated nursing tasks. Frequency of supervision is at the discretion of the registered nurse but shall occur at a minimum of every sixty days.

(9) "Unlicensed persons" means an individual who is not authorized to perform nursing acts as defined in chapter 18.79 RCW except pursuant to delegation by a nurse. An unlicensed person must be a registered nurse assistant as defined in chapter 18.88A RCW, and have knowledge of infectious disease control procedures, in order to perform a delegated task unless the unlicensed person is providing care to a family member or is acting without compensation, or is licensed in Washington as a health practitioner subject to the uniform disciplinary act.

Sec. 48. RCW 18.79.260 and 1994 sp.s. c 9 s 426 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 45 of this act:

(1) At or under the general direction of a licensed physician and surgeon, dentist, osteopathic physician and surgeon, 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;

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

(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.

NEW SECTION. Sec. 49. A new section is added to chapter 70.127 RCW to read as follows:

Notwithstanding the provisions of RCW 70.127.010(4), licensed home care agencies may deliver health care services that are delegated by a registered nurse pursuant to chapter 18.79 RCW who is not employed directly or by contract with the agency, if the department has approved the delivery of such services. The department shall approve the services and issue the agency a nurse delegation endorsement where:

(1) The licensed home care agency has requested the endorsement in writing from the department;

(2) The department has reviewed and approved the agency's relevant policies and procedures, including criteria for accepting and declining delegation and adequate safeguards to assure consumer safety that are consistent with chapter 18.79 RCW and related rules; and

(3) The licensed care agency has paid a fee to cover the cost of the department's review of the agency pursuant to this section except when this review is done simultaneously with other licensing reviews that are funded by the agency license fee.

Sec. 50. 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. 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. 51. RCW 18.51.140 and 1986 c 266 s 83 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 director of community, trade, and economic development, 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 director of community, trade, and economic development, 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 director of community, trade, and economic development, 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 director of community, trade, and economic development, 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 director of community, trade, and economic development, through the director of fire protection, upon completion of any requirements made by him or her, and the director of community, trade, and economic development, 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 director of community, trade, and economic development, 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 director of community, trade, and economic development, 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 director of community, trade, and economic development, through the director of fire protection, to be equal to the minimum standards of the code for nursing homes adopted by the director of community, trade, and economic development, 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 director of community, trade, and economic development, 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. 52. 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.

Sec. 53. 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~~)) this chapter 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)).

Nothing in this chapter or the rules and regulations adopted under this chapter shall be construed as authorizing the supervision, regulation, or control of the remedial care or treatment of residents or patients in 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. 54. A new section is added to chapter 74.39A RCW to read as follows:

The legislature finds that:

(1) A substantial proportion of individuals who are admitted to nursing facilities do so without first being given adequate information about other services that could meet their needs and that they may prefer;

(2) After entering a nursing facility, many residents become dependent on that facility, experiencing depletion of their financial resources and erosion of their social contacts in the community;

(3) Inappropriate placements of individuals in nursing facilities result in higher costs for those individuals and for the state and results in reduced access to available beds for those individuals whose needs can best be met in a nursing facility; and

(4) Providing information about appropriate in-home and community services to individuals and their families early during the individual's hospital stay would help the individual and family make informed choices regarding their long-term care options.

NEW SECTION. Sec. 55. 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) 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 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. 56. 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. A medicaid-eligible individual residing in a nursing facility who is transferred to an acute care hospital shall not require a department assessment under this section prior to returning to the same or another nursing facility.

If a nursing facility admits an individual who is medicaid eligible without assessment by the department, the effective date of the initial authorization will be the date of the request for a department assessment. A facility that admits such an individual without assessment by the department shall not be reimbursed by the department and shall not 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.

NEW SECTION. Sec. 57. 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 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. 58. A new section is added to chapter 74.42 RCW to read as follows:

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.

The department shall provide case management services to nursing facility residents who are:

(1) Medicaid funded;

(2) Dually medicaid and medicare eligible;

(3) Medicaid applicants; and

(4) Likely to become financially eligible for medicaid within one hundred eighty days.

NEW SECTION. Sec. 59. A new section is added to chapter 74.39A RCW to read as follows:

(1) The legislature finds that it is necessary to control and manage the cost and growth of the medicaid nursing facility care the state purchases by contract.

(2) The legislature finds that it is necessary to impose a moratorium on new medicaid nursing facility contracts and on expansion of existing medicaid nursing facility contracts while the department evaluates and, if appropriate, seeks any necessary federal approval to purchase nursing facility care either through selective contracting or through a capitated managed care program.

NEW SECTION. Sec. 60. A new section is added to chapter 74.39A RCW to read as follows:

(1) The department shall evaluate and determine whether selective contracting or capitated managed care would be effective in controlling the cost of medicaid nursing facility care while maintaining adequate access and quality. If the department determines that either selective contracting or capitated managed care would be cost-effective, the department shall submit its request for any necessary approvals for whichever one is more cost-effective to the appropriate federal agency by December 1, 1997.

(2) In making its determination of whether selective contracting or capitated managed care would be effective in controlling the cost of nursing facility care while maintaining adequate access and quality, the department shall consider at least the following:

(a) The fiscal impact of implementation;

(b) The effect of growing home and community services on the future need for nursing facility care; and

NEW SECTION. Sec. 61. A new section is added to chapter 74.09 RCW to read as follows:

The department shall impose, on the effective date of this act, a moratorium on new contracts and on expansion of existing contracts for medicaid nursing facility care, effective until December 31, 1998, or until selective contracting or capitated managed care is implemented, whichever is sooner. During the moratorium, the department shall enter into new contracts or expand the number of beds served under an existing contract only in the event the department determines there is a severe shortage of contracted beds in an area resulting in inadequate access of nursing facility care for medicaid recipients.

The department may adopt rules necessary to implement the moratorium.

Sec. 62. RCW 74.09.120 and 1993 sp.s. c 3 s 8 are each amended to read as follows:

The department shall purchase necessary physician and dentist services by contract or "fee for service." The department shall purchase nursing ((~~home~~)) facility care by contract as provided in sections 59 through 61 of this act. The department shall establish regulations for reasonable nursing home accounting and reimbursement systems, which shall provide that no payment shall be made to a nursing home ((~~which~~)) that does not permit inspection by the department of social and health services of every part of its premises and an examination of all records, including financial records, methods of administration, general and special dietary programs, the disbursement of drugs and methods of supply, and any other records the department deems relevant to the establishment of such a system.

The department may purchase nursing home care by contract in veterans' homes operated by the state department of veterans affairs. The department shall establish rules for reasonable accounting and reimbursement systems for such care.

The department may purchase care in institutions for the mentally retarded, also known as intermediate care facilities for the mentally retarded. The department shall establish rules for reasonable accounting and reimbursement systems for such care. Institutions for the mentally retarded include licensed nursing homes, public institutions, licensed boarding homes with fifteen beds or less, and hospital facilities certified as intermediate care facilities for the mentally retarded under the federal medicaid program to provide health, habilitative, or rehabilitative services and twenty-four hour supervision for mentally retarded individuals or persons with related conditions and includes in the program "active treatment" as federally defined.

The department may purchase care in institutions for mental diseases by contract. The department shall establish rules for reasonable accounting and reimbursement systems for such care. Institutions for mental diseases are certified under the federal medicaid program and primarily engaged in providing diagnosis, treatment, or care to persons with mental diseases, including medical attention, nursing care, and related services.

The department may purchase all other services provided under this chapter by contract or at rates established by the department.

NEW SECTION. Sec. 63. 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 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.

(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. 64. 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. 65. 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. 66. 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. 67. 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. 68. 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. 69. 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 3 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. 70. 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. 71. 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. 72. 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. 73. 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 may establish a release procedure for the costs of final disposition.

Sec. 74. 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 of 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.

NEW SECTION. Sec. 75. 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 may establish a release procedure for the costs of final disposition.

Sec. 76. 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 rates" or "cost-rebased rates" mean facility-specific rates commencing July 1 of the first fiscal year of the four-year rate cycle that are established on adjusted or audited, or both, costs reported for the calendar year ending eighteen months before July 1 of the first fiscal 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. 77. 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. 78. 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. 79. 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. 80. 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. 81. 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, 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. 82. RCW 74.46.370 and 1980 c 177 s 37 are each amended to read as follows:

(1) Except for new buildings, the contractor shall use lives which reflect the estimated actual useful life of the asset and which shall be no shorter than guideline lives as established by the department. The shortest life which may be used for new buildings is thirty years. Lives shall be measured from the date on which the assets were first used in the medical care program or from the date of the most recent arm's-length acquisition of the asset, whichever is more recent. In cases where RCW 74.46.360(4)(a) does apply, the shortest life that may be used for buildings is the remaining useful life under the prior contract. In all cases, lives shall be extended to reflect periods, if any, when assets were not used in or as a facility.

(2) Building improvements that extend the remaining useful life of a building shall be depreciated over the remaining useful life of the building, as modified by the improvement. Building improvements that do not extend the remaining useful life of a building shall be depreciated over the estimated useful life of the improvement or improved asset as promulgated by the current edition of Estimated Useful Lives of Depreciable Hospital Assets published by the American Hospital Association. Should the American Hospital Association cease to publish estimated useful lives of hospital assets in the future, the department may in regulation select similar guidelines from an alternate source.

(3) Improvements to leased property which are the responsibility of the contractor under the terms of the lease that extend the remaining useful life of a building shall be depreciated over the remaining useful life of the building as modified by the improvement, as authorized in subsection (2) of this section for nonleased property. Improvements to leased property which are the responsibility of the contractor under the terms of the lease that do not extend the remaining useful life of a building shall be depreciated over the estimated useful life of the improvement or improved asset utilizing the same American Hospital Association guidelines authorized in subsection (2) of this section for nonleased property.

(4) A contractor may change the estimate of an asset's useful life to a longer life for purposes of depreciation.

Sec. 83. 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, nursing facility payment rates will be set prospectively on a per ((~~patient~~)) resident day basis ((on)) utilizing a ((~~two-year~~)) four-year rate cycle system corresponding to ((~~each~~)) the four fiscal years within two consecutive state ((~~biennium; and~~)) biennia, however, the two state biennia extending from July 1, 1993, to June 30, 1997, shall be utilized as the chronological framework for the initial four-year rate cycle, as if the cycle had commenced July 1, 1993. Because the four-year system will commence July 1, 1995, at the mid-point of the initial cycle, rates commencing July 1, 1995, shall represent third fiscal year rates, and rates commencing July 1, 1996, shall represent fourth fiscal year rates.

(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.)) For the first fiscal year of each four-year rate cycle, beginning July 1, 1997, component rates in the nursing services, food, administrative, and operational cost centers will be cost-rebased utilizing desk-reviewed or audited, or both, costs reported for the calendar year ending eighteen months before the July 1 commencement of each such first fiscal year. Such first fiscal year component rates shall also be adjusted downward or upward for economic trends and conditions as provided in this section.

(3) ((The July 1 rates for the first year of each biennium shall be adjusted 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.

~~The period used to measure the increase or decrease to be applied to these first year biennial rates shall be the calendar year preceding the July 1 commencement of the state biennium.~~)) For the second, third, and fourth fiscal years of each four-year rate cycle, component rates in the nursing services, food, administrative, and operational cost centers, shall not be cost-rebased, but shall be adjusted downward or upward for economic trends and conditions as provided in this section.

(4) ((~~The July 1~~)) Cost-rebased rates ((~~for the second year of each biennium~~)) commencing July 1 of the first fiscal year of each four-year rate cycle, beginning July 1, 1997, shall be adjusted downward or upward in the nursing services, food, administrative, and operational cost centers by ((~~the~~)) a twenty-four-month 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, the HCFA index((~~, however, any increase shall be multiplied by one and one-half~~)). The period to be used to measure the HCFA index increase or decrease to be ((~~multiplied by one and one-half and~~)) applied ((~~or decrease to be applied~~)) to these ((~~second-year biennial~~)) first fiscal year rate((s)) components 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)) twenty-four-month period ending six months before July 1 of the first fiscal year of each four-year rate cycle.

(5) Rates not cost-rebased, commencing July 1 of the second, third, and fourth fiscal years of each four-year rate cycle, shall be increased or decreased in the nursing services, food, administrative, and operational cost center components by a twelve-month change in the HCFA index. The periods used to measure the HCFA index increase or decrease to be applied to the second, third, and fourth fiscal year rates shall be as follows:

(a) For second fiscal year rates, the HCFA index period shall be the twelve months ending eighteen months before the July 1 start of the second fiscal year. In the event the change in the index measured over the following twelve months, ending six months before the July 1 start of the second fiscal year, is twenty-five percent greater or less than the change in the HCFA index measured over the twelve months ending eighteen months before the second fiscal year, the department shall use the HCFA index increase or decrease in such following twelve-month period.

(b) For third fiscal year rates, the HCFA index period shall be the twelve months ending six months before the July 1 start of the third fiscal year.

(c) For fourth fiscal year rates, the HCFA index period shall be the twelve months ending eighteen months before the July 1 start of the fourth fiscal year. In the event the change in the HCFA index measured over the following twelve months, ending six months before the July 1 start of the fourth fiscal year, is twenty-five percent greater or less than the change in the HCFA index measured over the twelve months ending eighteen months before the fourth fiscal year, the department shall use the HCFA index increase or decrease in such following twelve-month period.

(6) Therefore, subject to the provisions contained in subsection (5) (a) and (c) of this section regarding possible changes in the HCFA index affecting the index periods to be used for second and fourth fiscal year rates, the HCFA index periods to be used for July 1 rates not cost-rebased, to adjust them for economic trends and conditions, shall be as follows:

(a) July 1, 1995 -- December 31, 1993, to December 31, 1994;

(b) July 1, 1996 -- December 31, 1993, to December 31, 1994;

(d) July 1, 1999 -- December 31, 1997, to December 31, 1998;

(e) July 1, 2000 -- December 31, 1997, to December 31, 1998; and

(f) July 1, 2002 -- December 31, 1999, to December 31, 2000.

(7) For all rates effective on and after July 1, 1995, the department shall follow the four-year cycle of rebasing and shall make adjustments for economic trends and conditions utilizing the principles and index periods set forth in this section. If ((~~either the implicit price deflator index or~~)) the health care financing administration index specified in this section ceases to be published in the future, the department shall select by rule and use in ((~~their~~)) its place ((~~one or more~~)) another measure((s)) of change from the same or an alternate source ((~~or sources for~~)) using the same or comparable time periods.

Sec. 84. 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 rates for services provided to medical care recipients. Each rate so determined shall represent the contractor's maximum compensation within each cost center for each patient day for such medical care recipient.

(2) ((~~As required,~~)) The department may modify such maximum per ((~~patient~~)) resident day rates pursuant to the administrative ((~~review provisions of~~)) appeals or exception procedure authorized by RCW 74.46.780.

(3) The maximum prospective reimbursement rates for the administrative, operational, and property cost centers, and the return on investment rate shall be established based upon a minimum facility occupancy level of eighty-five percent.

(4) 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. 85. 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) 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) The department is authorized to develop policies and procedures in rule to address the computation of rates and rate adjustments authorized by RCW 74.46.420 for economic trends and conditions for the first, second, third, and ((~~second~~)) fourth 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)) four-year rate cycle.

Sec. 86. RCW 74.46.460 and 1993 sp.s. c 13 s 10 are each amended to read as follows:

(1) Each contractor's ((~~reimbursement~~)) component payment rates ((~~will~~)) shall 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~~)) 1. Provided, that, except for the rates of new contractors as defined by the department, a contractor's cost-rebased rate for the first fiscal year of each ((~~biennium~~)) four-year rate cycle must be established upon its own ((~~prior calendar period~~)) cost report of at least six months of adjusted or audited, or both, cost data from the calendar year ending eighteen months prior to the July 1 commencement of the first fiscal year rebased rate.

(2) Rates may be adjusted as determined by the department to take into account variations in the distribution of patient classifications or changes in 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 for any capitalized additions or replacements made as a condition for licensure or certification. Rates shall be adjusted for capitalized improvements done under RCW 74.46.465.

Sec. 87. RCW 74.46.470 and 1993 sp.s. c 13 s 11 are each amended to read as follows:

(1) A contractor's ((~~reimbursement~~)) per resident day component payment rates for medical care recipients ((~~will~~)) shall be determined utilizing net invested funds and desk-reviewed or audited cost report data, or both, 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. 88. 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~~)) four years, beginning with July 1, 1997, rates, when rates are set at the beginning of each new ((~~biennium~~)) four-year rate cycle, 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 and (b) those not located in such an area. The facilities in each peer group shall then be arrayed from lowest to highest by magnitude of per ((~~patient~~)) resident day adjusted or audited, or both, nursing services cost from the ((~~prior~~)) calendar report year ending eighteen months before the July 1 commencement of the first fiscal year cost-rebased rates, 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 fiscal year of ((~~the biennium~~)) each four-year rate cycle shall be set at the lower of the facility's adjusted or audited, or both, per ((~~patient~~)) resident day nursing services cost from the ((~~prior~~)) report period for the calendar year ending eighteen months before the July 1 commencement of the first fiscal year rates or the median cost for the facility's peer group plus twenty-five percent utilizing the same calendar year report data. Therefore, for July 1, 1997, cost-rebased rates, the adjusted or audited, or both, cost report data utilized shall be from calendar year 1995 and for July 1, 2001, cost-rebased rates the adjusted or audited, or both, cost report data utilized shall be from calendar year 1999. 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)~~)) Beginning with July 1, 1995, rates, the third fiscal year rate of the initial four-year rate cycle, a nursing facility's nonrebased component rate in nursing services for the second, third, and fourth years of each ((~~biennium~~)) four-year rate cycle shall be that facility's nursing services component rate ((~~as of July 1 of the first year of that biennium~~)) existing on June 30 immediately before the July 1 commencement of each nonrebased fiscal year rate period, reduced or inflated as authorized by RCW 74.46.420. The ((~~alternating~~)) rebased and nonrebased rate-setting procedures ((~~prescribed~~)) described in this section and chapter for a facility's ((~~two~~)) four July 1 nursing services rates occurring within each ((~~biennium~~)) four-year rate period shall be followed in the same order for each succeeding ((~~biennium~~)) four-year period.

((~~(8)~~)) (7) Median cost((s)) limits for peer groups shall be calculated ((~~initially~~)) only once as provided in this chapter on the basis of the most recent adjusted cost information available to the department from the calendar cost report year ending eighteen months prior to ((~~the calculation of the new rate for~~)) July 1 of the first fiscal year of each ((~~biennium~~)) four-year rate cycle, 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 of the first fiscal year of each biennium, and shall apply retroactively to the prior July 1 rate, regardless of whether the adjustments are contested or subject to pending administrative or judicial review.)) Median cost((s)) limits, once calculated, 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)~~)) (8) 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)~~)) (9) 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. 89. 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~~)) four years, beginning with July 1, 1997, rates, when rates are set at the beginning of each new ((~~biennium~~)) four-year rate cycle, 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 and (b) those not located in such an area. The facilities in each peer group shall then be arrayed from lowest to highest by magnitude of per ((~~patient~~)) resident day adjusted or audited, or both, food cost from the ((~~prior~~)) calendar report year ending eighteen months before the July 1 commencement of the first fiscal year cost-rebased rates, 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 fiscal year of ((~~the biennium~~)) each four-year rate cycle shall be set at the lower of the facility's adjusted or audited, or both, per ((~~patient~~)) resident day food cost from the ((~~prior~~)) report period for the calendar year ending eighteen months before the July 1 commencement of the first fiscal year rates or the median cost for the facility's peer group plus twenty-five percent utilizing the same calendar year report data. Therefore, for July 1, 1997, cost-rebased rates the adjusted or audited, or both, cost report data utilized shall be from calendar year 1995 and for July 1, 2001, cost-rebased rates the adjusted or audited, or both, cost report data utilized shall be from calendar year 1999. This rate shall be reduced or inflated as authorized by RCW 74.46.420.

(3) Beginning with July 1, 1995, rates, the third fiscal year rate of the initial four-year rate cycle, a nursing facility's nonrebased food component rate for the second, third, and fourth years of each ((~~biennium~~)) four-year rate cycle shall be that facility's food component rate ((~~as of July 1 of the first year of that biennium~~)) existing on June 30 immediately before the July 1 commencement of each nonbased fiscal year rate period, reduced or inflated as authorized by RCW 74.46.420. The ((~~alternating~~)) rebase and nonrebase ratesetting procedures ((~~prescribed~~)) described in this section and chapter for a facility's ((~~two~~)) four July 1 food rates occurring within each ((~~biennium~~)) four-year rate period shall be followed in the same order for each succeeding ((~~biennium~~)) four-year period.

(4) Median cost((s)) limits for peer groups shall be calculated ((~~initially~~)) only once as provided in this chapter on the basis of the most recent adjusted cost information available to the department from the calendar cost report year ending eighteen months prior to ((~~the calculation of the new rate for~~)) July 1 of the first fiscal year of each ((~~biennium~~)) four-year rate cycle, 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 of the first fiscal year of each biennium, and shall apply retroactively to the prior July 1 rate, regardless of whether the adjustments are contested or subject to pending administrative or judicial review.)) Median cost((s)) limits, once calculated, shall not be adjusted to reflect subsequent administrative or judicial rulings, whether final or not.

Sec. 90. 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~~)) four years, beginning with July 1, 1997, rates, when rates are set at the beginning of each new ((~~biennium~~)) four-year rate cycle, 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 and (b) those not located in such an area. The facilities in each peer group shall then be arrayed from lowest to highest by magnitude of per ((~~patient~~)) resident day adjusted or audited, or both, administrative cost from the ((~~prior~~)) calendar report year ending eighteen months before the July 1 commencement of the first fiscal year cost-rebased rates, 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~~)) each four-year rate cycle shall be set at the lower of the facility's adjusted or audited, or both, per ((~~patient~~)) resident day administrative cost from the ((~~prior~~)) report period for the calendar year ending eighteen months before the July 1 commencement of the first fiscal year rates or the median cost for the facility's peer group plus ten percent utilizing the same calendar year report data. For July 1, 1997, cost-rebased rates the adjusted or audited, or both, cost report data utilized shall be from calendar year 1995 and for July 1, 2001, cost-rebased rates the adjusted or audited, or both, cost report data utilized shall be from calendar year 1999. This rate shall be reduced or inflated as authorized by RCW 74.46.420.

(3) Beginning with July 1, 1995, rates, the third fiscal year rate of the initial four-year rate cycle, a nursing facility's nonrebased administrative component rate for the second, third, and fourth years of each ((~~biennium~~)) four-year double biennial cycle shall be that facility's administrative component rate ((~~as of July 1 of the first year of that biennium~~)) existing on June 30 immediately before the July 1 commencement of each nonrebased fiscal year rate period, reduced or inflated as authorized by RCW 74.46.420. The ((~~alternating~~)) rebase and nonrebase ratesetting procedures ((~~prescribed~~)) described in this section and chapter for a facility's ((~~two~~)) four July 1 administrative rates occurring within each ((~~biennium~~)) four-year rate period shall be followed in the same order for each succeeding ((~~biennium~~)) four-year period.

Sec. 91. 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~~)) four years, beginning with July 1, 1997, rates, when rates are set at the beginning of each new ((~~biennium~~)) four-year rate cycle, 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 and (b) those not located in such an area. The facilities in each peer group shall then be arrayed from lowest to highest by magnitude of per ((~~patient~~)) resident day adjusted or audited, or both, operational cost from the ((~~prior~~)) calendar report year ending eighteen months before the July 1 commencement of the first fiscal year cost-rebased rates, 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 fiscal year of ((~~the biennium~~)) each four-year rate cycle shall be set at the lower of the facility's adjusted or audited, or both, per ((~~patient~~)) resident day operational cost from the ((~~prior~~)) report period for the calendar year ending eighteen months before the July 1 commencement of the first fiscal year rates or the median cost for the facility's peer group plus twenty-five percent utilizing the same calendar year report data. For July 1, 1997, cost-rebased rates then, the adjusted or audited, or both, cost report data utilized shall be from calendar year 1995 and for July 1, 2001, cost-rebased rates the adjusted or audited, or both, cost report data utilized shall be from calendar year 1999. This rate shall be reduced or inflated as authorized by RCW 74.46.420.

(3) Beginning with July 1, 1995, rates, the third fiscal year rate of the initial four-year rate cycle, a nursing facility's nonrebased operational component rate for the second, third, and fourth years of each ((~~biennium~~)) four-year rate cycle shall be that facility's operational component rate ((~~as of July 1 of the first year of that biennium~~)) existing on June 30 immediately before the July 1 commencement of each nonrebased fiscal year rate period, reduced or inflated as authorized by RCW 74.46.420. The ((~~alternating~~)) rebase and nonrebase ratesetting procedures ((~~prescribed~~)) described in this section and chapter for a facility's ((~~two~~)) four July 1 operational rates occurring within each ((~~biennium~~)) four-year rate period shall be followed in the same order for each succeeding ((~~biennium~~)) four-year period.

(4) Median cost((s)) limits for peer groups shall be calculated ((~~initially~~)) only once as provided in this chapter on the basis of the most recent adjusted cost information available to the department from the calendar cost report year ending eighteen months prior to ((~~the calculation of the new rate for~~)) July 1 of the first fiscal year of each ((~~biennium~~)) four-year double biennial rate cycle, 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 of the first fiscal year of each biennium, and shall apply retroactively to the prior July 1 rate, regardless of whether the adjustments are contested or subject to pending administrative or judicial review.)) Median cost((s)) limits, once calculated, shall not be adjusted to reflect subsequent administrative or judicial rulings, whether final or not.

Sec. 92. 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 total patient days for the facility in the prior period. 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 days used in computing the property cost center rate shall be adjusted to anticipated patient day level.

(2) A nursing facility's property rate shall be rebased annually, effective July 1, in accordance with this section and chapter regardless of whether the rate is for the first, second, third, or ((~~second~~)) fourth fiscal year of the ((~~biennium~~)) four-year rate cycle.

(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. 93. 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 this section and chapter, regardless of whether the rate is for the first, second, third, or ((~~second~~)) fourth fiscal year of the ((~~biennium~~)) four-year rate cycle.

(a) The financing allowance shall be determined by multiplying the net invested funds of each facility by .10, and dividing by the contractor's total patient days from the most recent cost report period. 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 days used in computing the financing and variable return allowances shall be adjusted to the anticipated patient 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 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~~)) four years at the start of each new ((~~biennium~~)) four-year rate cycle, beginning with rates for July 1, 1997, 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 as reported by the facility for the ((~~previous~~)) calendar year cost report period ending eighteen months before the July 1 commencement of the first fiscal year in the four-year rate cycle. Therefore, for rates extending from July 1, 1997, through June 30, 2001, the cost data utilized in calculating the variable returns shall be from calendar year 1995 and for rates extending from July 1, 2001, to June 30, 2005, the cost data utilized shall be from calendar year 1999.

(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, third, and fourth fiscal years of the ((~~biennium~~)) four-year rate cycle. 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 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 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. 94. 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. 95. 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. 96. 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. 97. 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. 98. 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. 99. 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. 100. RCW 74.46.010 and 1980 c 177 s 1 are each amended to read as follows:

This chapter may be known and cited as the "Nursing ((~~Homes~~)) Facility Auditing and ((~~Cost Reimbursement~~)) Medicaid Payment Rate Act ((~~of 1980~~))."

Sec. 101. RCW 34.05.010 and 1992 c 44 s 10 are each amended to read as follows:

The definitions set forth in this section shall apply throughout this chapter, unless the context clearly requires otherwise.

(1) "Adjudicative proceeding" means a proceeding before an agency in which an opportunity for hearing before that agency is required by statute or constitutional right before or after the entry of an order by the agency. Adjudicative proceedings also include all cases of licensing and rate making in which an application for a license or rate change is denied except as limited by RCW 66.08.150, or a license is revoked, suspended, or modified, or in which the granting of an application is contested by a person having standing to contest under the law. However, adjudicative proceedings do not include cases involving issues of rates, audits, settlements, or payments to nursing facility contractors or providers of long-term care under the joint state and federal medicaid program.

(2) "Agency" means any state board, commission, department, institution of higher education, or officer, authorized by law to make rules or to conduct adjudicative proceedings, except those in the legislative or judicial branches, the governor, or the attorney general except to the extent otherwise required by law and any local governmental entity that may request the appointment of an administrative law judge under chapter 42.41 RCW.

(3) "Agency action" means licensing, the implementation or enforcement of a statute, the adoption or application of an agency rule or order, the imposition of sanctions, or the granting or withholding of benefits.

Agency action does not include an agency decision regarding (a) contracting or procurement of goods, services, public works, and the purchase, lease, or acquisition by any other means, including eminent domain, of real estate, as well as all activities necessarily related to those functions, or (b) determinations as to the sufficiency of a showing of interest filed in support of a representation petition, or mediation or conciliation of labor disputes or arbitration of labor disputes under a collective bargaining law or similar statute, or (c) any sale, lease, contract, or other proprietary decision in the management of public lands or real property interests, or (d) the granting of a license, franchise, or permission for the use of trademarks, symbols, and similar property owned or controlled by the agency.

(4) "Agency head" means the individual or body of individuals in whom the ultimate legal authority of the agency is vested by any provision of law. If the agency head is a body of individuals, a majority of those individuals constitutes the agency head.

(5) "Entry" of an order means the signing of the order by all persons who are to sign the order, as an official act indicating that the order is to be effective.

(6) "Filing" of a document that is required to be filed with an agency means delivery of the document to a place designated by the agency by rule for receipt of official documents, or in the absence of such designation, at the office of the agency head.

(7) "Institutions of higher education" are the University of Washington, Washington State University, Central Washington University, Eastern Washington University, Western Washington University, The Evergreen State College, the various community colleges, and the governing boards of each of the above, and the various colleges, divisions, departments, or offices authorized by the governing board of the institution involved to act for the institution, all of which are sometimes referred to in this chapter as "institutions."

(8) "Interpretive statement" means a written expression of the opinion of an agency, entitled an interpretive statement by the agency head or its designee, as to the meaning of a statute or other provision of law, of a court decision, or of an agency order.

(9)(a) "License" means a franchise, permit, certification, approval, registration, charter, or similar form of authorization required by law, but does not include (i) a license required solely for revenue purposes, or (ii) a certification of an exclusive bargaining representative, or similar status, under a collective bargaining law or similar statute, or (iii) a license, franchise, or permission for use of trademarks, symbols, and similar property owned or controlled by the agency.

(b) "Licensing" includes the agency process respecting the issuance, denial, revocation, suspension, or modification of a license.

(10)(a) "Order," without further qualification, means a written statement of particular applicability that finally determines the legal rights, duties, privileges, immunities, or other legal interests of a specific person or persons.

(b) "Order of adoption" means the official written statement by which an agency adopts, amends, or repeals a rule.

(11) "Party to agency proceedings," or "party" in a context so indicating, means:

(a) A person to whom the agency action is specifically directed; or

(b) A person named as a party to the agency proceeding or allowed to intervene or participate as a party in the agency proceeding.

(12) "Party to judicial review or civil enforcement proceedings," or "party" in a context so indicating, means:

(a) A person who files a petition for a judicial review or civil enforcement proceeding; or

(b) A person named as a party in a judicial review or civil enforcement proceeding, or allowed to participate as a party in a judicial review or civil enforcement proceeding.

(13) "Person" means any individual, partnership, corporation, association, governmental subdivision or unit thereof, or public or private organization or entity of any character, and includes another agency.

(14) "Policy statement" means a written description of the current approach of an agency, entitled a policy statement by the agency head or its designee, to implementation of a statute or other provision of law, of a court decision, or of an agency order, including where appropriate the agency's current practice, procedure, or method of action based upon that approach.

(15) "Rule" means any agency order, directive, or regulation of general applicability (a) the violation of which subjects a person to a penalty or administrative sanction; (b) which establishes, alters, or revokes any procedure, practice, or requirement relating to agency hearings; (c) which establishes, alters, or revokes any qualification or requirement relating to the enjoyment of benefits or privileges conferred by law; (d) which establishes, alters, or revokes any qualifications or standards for the issuance, suspension, or revocation of licenses to pursue any commercial activity, trade, or profession; or (e) which establishes, alters, or revokes any mandatory standards for any product or material which must be met before distribution or sale. The term includes the amendment or repeal of a prior rule, but does not include (i) statements concerning only the internal management of an agency and not affecting private rights or procedures available to the public, (ii) declaratory rulings issued pursuant to RCW 34.05.240, (iii) traffic restrictions for motor vehicles, bicyclists, and pedestrians established by the secretary of transportation or his designee where notice of such restrictions is given by official traffic control devices, or (iv) rules of institutions of higher education involving standards of admission, academic advancement, academic credit, graduation and the granting of degrees, employment relationships, or fiscal processes.

(16) "Rules review committee" or "committee" means the joint administrative rules review committee created pursuant to RCW 34.05.610 for the purpose of selectively reviewing existing and proposed rules of state agencies.

(17) "Rule making" means the process for formulation and adoption of a rule.

(18) "Service," except as otherwise provided in this chapter, means posting in the United States mail, properly addressed, postage prepaid, or personal service. Service by mail is complete upon deposit in the United States mail. Agencies may, by rule, authorize service by electronic telefacsimile transmission, where copies are mailed simultaneously, or by commercial parcel delivery company.

Sec. 102. RCW 34.05.030 and 1994 c 39 s 1 are each amended to read as follows:

(1) This chapter shall not apply to:

(a) The state militia, or

(b) The board of clemency and pardons, or

(c) The department of corrections or the indeterminate sentencing review board with respect to persons who are in their custody or are subject to the jurisdiction of those agencies.

(2) The provisions of RCW 34.05.410 through 34.05.598 shall not apply:

(a) To adjudicative proceedings of the board of industrial insurance appeals except as provided in RCW 7.68.110 and 51.48.131;

(b) Except for actions pursuant to chapter 46.29 RCW, to the denial, suspension, or revocation of a driver's license by the department of licensing;

(c) To the department of labor and industries where another statute expressly provides for review of adjudicative proceedings of a department action, order, decision, or award before the board of industrial insurance appeals;

(d) To actions of the Washington personnel resources board, the director of personnel, or the personnel appeals board; or

(e) To the extent they are inconsistent with any provisions of chapter 43.43 RCW.

(3) Unless a party makes an election for a formal hearing pursuant to RCW 82.03.140 or 82.03.190, RCW 34.05.410 through 34.05.598 do not apply to a review hearing conducted by the board of tax appeals.

(4) The provisions of RCW 34.05.410 through 34.05.494 do not apply to administrative review of issues relating to rates, audits, settlements, or payments to nursing facility contractors or providers of long-term care under the joint state and federal medicaid program.

(5) The rule-making provisions of this chapter do not apply to reimbursement unit values, fee schedules, arithmetic conversion factors, and similar arithmetic factors used to determine payment rates that apply to goods and services purchased under contract for clients eligible under chapter 74.09 RCW.

((~~(5)~~)) (6) All other agencies, whether or not formerly specifically excluded from the provisions of all or any part of the Administrative Procedure Act, shall be subject to the entire act.

NEW SECTION. Sec. 103. On or before December 31, 1995, the department of social and health services shall complete an analysis and evaluation of the findings and recommendations contained in the 1994 legislative budget committee final report on "Nursing Home and Long-Term Care - Part 1: Nursing Home Reimbursement." The department shall report its recommendations for change, if any, to the house of representatives health care and appropriations committees and the senate health and human services and ways and means committees by such date.

NEW SECTION. Sec. 104. 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. 105. 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. 106. 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.