Background: Skilled nursing facilities (nursing homes) are licensed by the Department of Social and Health Services (DSHS) and provide 24-hour supervised nursing care, personal care, therapy, nutrition management, organized activities, social services, laundry services and room and board to three or more residents. Currently, there are 240 licensed facilities in the state with an average of 91 beds. Medicaid rates for nursing facilities are generally based on a facility's costs, its occupancy level, and the individual care needs of its residents.

The current nursing home rate methodology is specified in statute (RCW 74.46) and is based on calculations for seven different components: direct care, therapy care, support services, operations, variable return, property (essentially a depreciation allowance), and a financing allowance. The rate calculation for these seven components are based on actual facility cost reports and are updated either annually or biennially, depending on the specific component. Additional factors that enter into the rate calculations are resident days (the total of the days in residence for all eligible residents), certain median lids (a percent of the median costs for all facilities in a peer group), and geographical location.

Finally, RCW 74.46.421 imposes a rate ceiling, commonly referred to as the "budget dial." The budget dial is a single daily rate amount calculated as the statewide weighted average maximum payment rate for a fiscal year. This amount is specified in the Appropriations Act (for example, the budget dial for fiscal year 2009 is $163.72) and DSHS must manage all facility specific rates so the budget dial is not exceeded.

Payments to nursing facilities is the second largest budget unit within the Aging and Disability Services Program, and payments for in-home care is the largest. The Fiscal Year 2009 nursing home payments are estimated to total nearly $520 million from all funds with approximately $256 million coming from general fund-state sources.

Summary of Bill: The specific details of the nursing facility payment methodology is removed from statute, leaving intent language, general guidance to DSHS, and a structural description of the components to be considered in the rate methodology. DSHS is directed to establish a rate methodology in rule that must be revenue neutral when compared to the current methodology. The budget dial restriction remains in statute and DSHS's rule making authority is amended to provide specific authority for establishing rules regarding the nursing facility Medicaid payment system.