AN
ACT Relating to nursing facility reimbursement; amending RCW 74.46.360,
74.46.370, 74.46.430, 74.46.465, 74.46.510, and 74.46.530; and adding new
sections to chapter 74.46 RCW.
BE IT
ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
Sec.
1. RCW
74.46.360 and 1991 sp.s. c 8 s 18 are each amended to read as follows:
(1)
For all partial or whole rate periods after December 31, 1984, the cost basis
of land and depreciation base of depreciable assets shall be the historical
cost of the contractor or lessor, when the assets are leased by the contractor,
in acquiring the asset in an arm's-length transaction and preparing it for use,
less goodwill, and less accumulated depreciation, if applicable, which has been
incurred during periods that the assets have been used in or as a facility by
any contractor, such accumulated depreciation to be measured in accordance with
subsections (((2), (3), and)) (4), (5), and (6) of this section
and RCW 74.46.350 and 74.46.370. If the department challenges the historical
cost of an asset, or if the contractor cannot or will not provide the
historical costs, the department will have the department of general
administration, through an appraisal procedure, determine the fair market value
of the assets at the time of purchase. The cost basis of land and depreciation
base of depreciable assets will not exceed such fair market value.
(2)
For new or replacement building construction or for substantial building
additions requiring the acquisition of land and which commenced to operate on
or after July 1, 1997, the department shall determine allowable land costs of
the additional land acquired for the replacement construction or building
additions to be the lesser of:
(a)
The contractor's or lessor's actual cost per square foot; or
(b)
The square foot land value as established by an appraisal that meets the latest
publication of the Uniform Standards of Professional Appraisal Practice (USPAP)
and the financial institutions reform, recovery, and enhancement act (FIRREA).
(3)
Subject to the provisions of subsection (2) of this section, if, in the course
of financing a project, an arm's-length lender has ordered a Uniform Standards
of Professional Appraisal Practice appraisal on the land that meets financial
institutions reform, recovery, and enhancement act standards and the
arm's-length lender has accepted the ordered appraisal, the department shall
accept the appraisal value as allowable land costs for calculation of payment.
If
the contractor or lessor is unable or unwilling to provide or cause to be
provided to the department, or the department is unable to obtain from the
arm's-length lender, a lender-approved appraisal that meets the standards of
the Uniform Standards of Professional Appraisal Practice and financial institutions
reform, recovery, and enhancement act, the department shall order such an
appraisal and accept the appraisal as the allowable land costs. If the
department orders the Uniform Standards of Professional Appraisal Practice and
financial institutions reform, recovery, and enhancement act appraisal, the
contractor shall immediately reimburse the department for the costs incurred.
(4)
The historical cost of depreciable and nondepreciable donated assets, or of
depreciable and nondepreciable assets received through testate or intestate
distribution, shall be the lesser of:
(a)
Fair market value at the date of donation or death; or
(b)
The historical cost base of the owner last contracting with the department, if
any.
(((3)))
(5) Estimated salvage value of acquired, donated, or inherited assets
shall be deducted from historical cost where the straight-line or
sum-of-the-years' digits method of depreciation is used.
(((4)))
(6)(a) For facilities, other than those described under subsection
(2) of this section, operating prior to July 1, 1997, where land or
depreciable assets are acquired that were used in the medical care program
subsequent to January 1, 1980, the cost basis or depreciation base of the
assets will not exceed the net book value which did exist or would have existed
had the assets continued in use under the previous contract with the
department; except that depreciation shall not be assumed to accumulate during
periods when the assets were not in use in or as a facility.
(b)
The provisions of (a) of this subsection shall not apply to the most recent
arm's-length acquisition if it occurs at least ten years after the ownership of
the assets has been previously transferred in an arm's-length transaction nor
to the first arm's-length acquisition that occurs after January 1, 1980, for
facilities participating in the medical care program prior to January 1, 1980.
The new cost basis or depreciation base for such acquisitions shall not exceed
the fair market value of the assets as determined by the department of general
administration through an appraisal procedure. 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.
For all partial or whole rate periods after July 17, 1984, this subsection is
inoperative for any transfer of ownership of any asset, depreciable or
nondepreciable, occurring on or after July 18, 1984, leaving (a) of this
subsection to apply alone to such transfers: PROVIDED, HOWEVER, That this
subsection shall apply to transfers of ownership of assets occurring prior to
January 1, 1985, if the costs of such assets have never been reimbursed under
medicaid cost reimbursement on an owner-operated basis or as a related-party
lease: PROVIDED FURTHER, That for any contractor that can document in writing
an enforceable agreement for the purchase of a nursing home dated prior to July
18, 1984, and submitted to the department prior to January 1, 1988, the cost
basis of allowable land and the depreciation base of the nursing home, for
rates established after July 18, 1984, shall not exceed the fair market value
of the assets at the date of purchase as determined by the department of
general administration through an appraisal procedure. For medicaid cost
reimbursement purposes, an agreement to purchase a nursing home dated prior to
July 18, 1984, is enforceable, even though such agreement contains no legal
description of the real property involved, notwithstanding the statute of
frauds or any other provision of law.
(c)
In the case of land or depreciable assets leased by the same contractor since
January 1, 1980, in an arm's-length lease, and purchased by the
lessee/contractor, the lessee/contractor shall have the option:
(i)
To have the provisions of subsection (b) of this section apply to the purchase;
or
(ii)
To have the reimbursement for property and return on investment continue to be
calculated pursuant to the provisions contained in RCW 74.46.530(1) (e) and (f)
based upon the provisions of the lease in existence on the date of the
purchase, but only if the purchase date meets one of the following criteria:
(A)
The purchase date is after the lessor has declared bankruptcy or has defaulted
in any loan or mortgage held against the leased property;
(B)
The purchase date is within one year of the lease expiration or renewal date
contained in the lease;
(C)
The purchase date is after a rate setting for the facility in which the
reimbursement rate set pursuant to this chapter no longer is equal to or
greater than the actual cost of the lease; or
(D)
The purchase date is within one year of any purchase option in existence on
January 1, 1988.
(d)
For all rate periods past or future where land or depreciable assets are
acquired from a related organization, the contractor's cost basis and
depreciation base shall not exceed the base the related organization had or
would have had under a contract with the department.
(e)
Where the land or depreciable asset is a donation or distribution between
related organizations, the cost basis or depreciation base shall be the lesser
of (i) fair market value, less salvage value, or (ii) the cost basis or
depreciation base the related organization had or would have had for the asset
under a contract with the department.
Sec.
2. RCW
74.46.370 and 1980 c 177 s 37 are each amended to read as follows:
(1)
Except for new buildings, major remodels, and major repair projects, as
defined in subsection (2) of this section, 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))) (6)(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)
Effective July 1, 1997, for asset acquisitions and new facilities, major
remodels, and major repair projects that begin operations on or after July 1,
1997, the department shall use the most current edition of Estimated Useful
Lives of Depreciable Hospital Assets, or as it may be renamed, published by the
American Hospital Publishing, Inc., an American hospital association company,
for determining the useful life of new buildings, major remodels, and major
repair projects, however, the shortest life that may be used for new buildings
is thirty years. New buildings, major remodels, and major repair projects
include those projects that meet or exceed the expenditure minimum established
by the department of health pursuant to chapter 70.38 RCW.
(3)
Building improvements, other than major remodels and major repairs,
shall be depreciated over the remaining useful life of the building, as
modified by the improvement.
(((3)))
(4) Improvements to leased property which are the responsibility of the
contractor under the terms of the lease shall be depreciated over the useful
life of the improvement.
(((4)))
(5) A contractor may change the estimate of an asset's useful life to a
longer life for purposes of depreciation.
Sec.
3. RCW
74.46.430 and 1995 1st sp.s. c 18 s 100 are each amended to read as follows:
(1)
The department, as provided by this chapter, will determine prospective payment
rates for services provided to medical care recipients. Each rate so
determined shall represent the contractor's maximum compensation within each
cost center and for return on investment for each resident day for such medical
care recipient.
(2)
The department may modify such maximum per resident day rates, consistent with
this chapter, pursuant to the administrative appeals or exception procedure
authorized by RCW 74.46.780.
(3)
For July 1, 1995, and all following rates, the maximum prospective component
payment rates for the nursing services, food, administrative, operational, and
property cost centers, and the return on investment (ROI) component rate for
each nursing facility shall be established based upon a minimum licensed bed
facility occupancy level of ninety percent, except for rate adjustments as
provided for in RCW 74.46.460(6), and except for entirely new facilities
that commenced operation between January 1, 1994, and June 30, 1994, and were
impacted by the ninety percent minimum occupancy factor, shall have their
nursing services, food, administrative, and operational component rates revised
based upon a minimum licensed bed facility occupancy level of eighty-five
percent, effective May 1, 1997.
(4)
The minimum ninety percent facility occupancy shall be used to calculate
individual rates, to calculate the median cost limits (MCLs) for the
metropolitan statistical area (MSA) and nonmetropolitan statistical area
(non-MSA) peer groups, and to array facilities by costs in calculating the
variable return portion of the return on investment rate component (ROI).
(5)
All contractors shall be required to adjust and maintain wages for all
employees to a minimum hourly wage of four dollars and seventy-six cents per
hour beginning January 1, 1988, and five dollars and fifteen cents per hour
beginning January 1, 1989.
Sec.
4. RCW
74.46.465 and 1987 c 476 s 8 are each amended to read as follows:
(1)
The department, in consultation with interested parties, shall adopt rules to
establish criteria the department will use in reviewing any request by a
contractor for a prospective rate adjustment for a physical plant capital
improvement. The rules shall also specify the time periods for submission and
review of proposed physical plant capital improvements. In establishing the
criteria, the department may consider, but is not limited to, the following:
(a)
The remaining functional life of the facility and the length of time since the
facility's last significant improvement;
(b)
The amount and scope of renovation or remodel to the facility and whether the
facility will be able to serve better the needs of its residents;
(c)
Whether the proposed improvement improves the quality of the living conditions
of the residents;
(d)
Whether the proposed improvement might eliminate life safety, building code, or
construction standard waivers;
(e)
The percentage of public-pay residents in the facility.
(2)
If a contractor experiences an increase in property taxes relating to
construction qualifying under RCW 74.46.360(2), the department shall adjust
rates to cover state and county increases in real estate taxes, effective the
first day on which the increased tax payment is due, related to construction
qualifying for reimbursement under RCW 74.46.360(2).
(3)
Rate adjustments under this section may be provided only if funds are
appropriated for this purpose.
Sec.
5. RCW
74.46.510 and 1995 1st sp.s. c 18 s 108 are each amended to read as follows:
(1)
The property cost center rate for each facility shall be determined by dividing
the sum of the reported allowable prior period actual depreciation, subject to
RCW 74.46.310 through 74.46.380, adjusted for any capitalized additions or
replacements approved by the department, and the retained savings from such
cost center, as provided in RCW 74.46.180, by the greater of a facility's total
resident days for the facility in the prior period or resident days as
calculated on ninety or eighty-five percent facility occupancy as applicable.
If a capitalized addition or retirement of an asset will result in a different
licensed bed capacity during the ensuing period, the prior period total
resident days used in computing the property cost center rate shall be adjusted
to anticipated resident day level.
(2)
A nursing facility's property rate shall be rebased annually, effective July 1,
in accordance with this section and this chapter.
(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.
(4)
For the purpose of calculating a nursing facility's property component rate, if
a contractor elects to bank licensed beds or to convert banked beds to active
service, pursuant to chapter 70.38 RCW, the department shall use the facility's
anticipated resident occupancy level subsequent to the decrease or increase in
licensed bed capacity; however, in no case shall the department use less than
ninety percent occupancy of the facility's licensed bed capacity after banking
or conversion.
Sec.
6. RCW
74.46.530 and 1995 1st sp.s. c 18 s 109 are each amended to read as follows:
(1)
The department shall establish for each medicaid nursing facility a return on
investment (ROI) rate composed of two parts: A financing allowance and a
variable return allowance. The financing allowance part of a facility's return
on investment component rate shall be rebased annually, effective July 1, in
accordance with the provisions of this section and this chapter.
(a)
The financing allowance shall be determined by multiplying the net invested
funds of each facility by .10, and dividing by the greater of a nursing
facility's total resident days from the most recent cost report period or
resident days calculated on ninety percent or eighty-five percent facility
occupancy as applicable. If a capitalized addition or retirement of an asset
will result in a different licensed bed capacity during the ensuing period, the
prior period total resident days used in computing the financing and variable
return allowances shall be adjusted to the anticipated resident day level.
(b)
In computing the portion of net invested funds representing the net book value
of tangible fixed assets, the same assets, depreciation bases, lives, and
methods referred to in RCW 74.46.330, 74.46.350, 74.46.360, 74.46.370, ((and))
74.46.380, and section 8 of this act, 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 resident care shall also
be included. Subject to provisions and limitations contained in this chapter,
for land purchased by owners or lessors before July 18, 1984, capitalized cost
of land shall be the buyer's capitalized cost. For all partial or whole rate
periods after July 17, 1984, if the land is purchased after July 17, 1984,
capitalized cost shall be that of the owner of record on July 17, 1984, or
buyer's capitalized cost, whichever is lower, except that section 8 of this
act shall be applied if the nursing facility meets all of the criteria
specified therein. 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).
(c)
In determining the variable return allowance:
(i)
For July 1, 1995, rate setting only, the department, without utilizing peer
groups, shall first rank all facilities in numerical order from highest to
lowest according to their per resident day adjusted or audited, or both,
allowable costs for nursing services, food, administrative, and operational
costs combined for the 1994 calendar year cost report period.
(ii)
The department shall then compute the variable return allowance by multiplying
the appropriate percentage amounts, which shall not be less than one percent
and not greater than four percent, by the sum of the facility's nursing
services, food, administrative, and operational rate components. The
percentage amounts will be based on groupings of facilities according to the
rankings prescribed in (i) of this subsection (1)(c). The percentages
calculated and assigned will remain the same for the variable return allowance
paid in all July 1, 1996, and July 1, 1997, rates as well. Those groups of
facilities with lower per diem costs shall receive higher percentage amounts
than those with higher per diem costs.
(d)
The sum of the financing allowance and the variable return allowance shall be
the return on investment rate for each facility, and shall be added to the
prospective rates of each contractor as determined in RCW 74.46.450 through
74.46.510.
(e)
In the case of a facility which was leased by the contractor as of January 1,
1980, in an arm's-length agreement, which continues to be leased under the same
lease agreement, and for which the annualized lease payment, plus any interest
and depreciation expenses associated with contractor-owned assets, for the
period covered by the prospective rates, divided by the contractor's total
resident days, minus the property cost center determined according to RCW
74.46.510, is more than the return on investment rate determined according to
subsection (1)(d) of this section, the following shall apply:
(i)
The financing allowance shall be recomputed substituting the fair market value
of the assets as of January 1, 1982, as determined by the department of general
administration through an appraisal procedure, less accumulated depreciation on
the lessor's assets since January 1, 1982, for the net book value of the assets
in determining net invested funds for the facility. A determination by the
department of general administration of fair market value shall be final unless
the procedure used to make such determination is shown to be arbitrary and
capricious.
(ii)
The sum of the financing allowance computed under subsection (1)(e)(i) of this
section and the variable allowance shall be compared to the annualized lease
payment, plus any interest and depreciation associated with contractor-owned
assets, for the period covered by the prospective rates, divided by the
contractor's total resident days, minus the property cost center rate determined
according to RCW 74.46.510. The lesser of the two amounts shall be called the
alternate return on investment rate.
(iii)
The return on investment rate determined according to subsection (1)(d) of this
section or the alternate return on investment rate, whichever is greater, shall
be the return on investment rate for the facility and shall be added to the
prospective rates of the contractor as determined in RCW 74.46.450 through
74.46.510.
(f)
In the case of a facility which was leased by the contractor as of January 1,
1980, in an arm's-length agreement, if the lease is renewed or extended
pursuant to a provision of the lease, the treatment provided in subsection
(1)(e) of this section shall be applied except that in the case of renewals or
extensions made subsequent to April 1, 1985, reimbursement for the annualized
lease payment shall be no greater than the reimbursement for the annualized
lease payment for the last year prior to the renewal or extension of the lease.
(2)
For the purpose of calculating a nursing facility's return on investment
component rate, if a contractor elects to bank beds or to convert banked beds
to active service, pursuant to chapter 70.38 RCW, the department shall use the
facility's anticipated resident occupancy level subsequent to the decrease or
increase in licensed bed capacity; however, in no case shall the department use
less than ninety percent occupancy of the facility's licensed bed capacity
after banking or conversion.
(3)
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.
*NEW
SECTION. Sec. 7.
A new section is added to chapter 74.46 RCW to read as follows:
(1)
A prospective per resident day rate enhancement shall be provided annually,
using state general funds, for nursing homes that meet the following
conditions:
(a)
The nursing home entered into an arm's-length agreement for a facility lease
prior to January 1, 1980;
(b)
The lessee purchased the leased nursing home after January 1, 1980; and
(c)
The lessor defaulted on its loan or mortgage for the assets of the home after
January 1, 1991, and prior to January 1, 1992.
(2)
The rate enhancement provided under this section is effective on July 1, 1997,
and shall be calculated by multiplying the nursing home's July 1, 1996, total
per resident day rate by four and eight-tenths percent. The enhancement rate
established on July 1, 1997, shall continue to be the rate enhancement amount
paid for each subsequent July 1 rate period.
(3)
Any rate enhancement granted pursuant to this section shall not be subject to
the settlement, audit, or rate-setting requirements contained in this chapter.
*Sec. 7 was vetoed. See message at end of chapter.
*NEW
SECTION. Sec. 8.
A new section is added to chapter 74.46 RCW to read as follows:
(1)(a)
Notwithstanding any provision to the contrary in this chapter, including RCW
74.46.360 and 74.46.410, for nursing facilities meeting the criteria in (b) of
this subsection, the allowable cost of real and personal property assets shall
be the lower of the actual cost to the purchaser or the amount allowed under
the COBRA asset cost increase limitation for nursing facilities pursuant to 42
C.F.R. 447.253 (d)(2); however, if federally permitted, the department shall
use the consumer price index for all urban consumers (CPI-U) (United States
city average).
(b)
Subsection (1)(a) of this section is applicable only to nursing facilities
which satisfy all of the following criteria: (i) The original facility and any
major renovations or remodeling, exceeding the expenditure minimum established
by the department of health pursuant to chapter 70.38 RCW, is at least twenty
years old on January 1, 1997; (ii) the facility has a licensed bed capacity of
one hundred sixty beds or greater on January 1, 1997; (iii) the facility's
licensee voluntarily banked licensed nursing facility beds during 1995 and
1996, pursuant to chapter 70.38 RCW; (iv) the contractor has been the lessee
for a period of ten or more consecutive years by January 1, 1997; and (v) the
contractor lessee enters into a duly executed purchase agreement with the
arm's-length lessor after January 1, 1997, but prior to January 1, 1998.
(2)
The rate adjustment provided in subsection (1) of this section shall be
effective upon the completion of the nursing facility's renovation project and
only if the costs exceed four million dollars.
*Sec. 8 was vetoed. See message at end of chapter.
