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 over 200 licensed facilities throughout the state. Medicaid rates for nursing facilities (i.e., payments for providing care and services to eligible, low-income residents) 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, including formula variables, allowable costs, and accounting/auditing procedures, 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, and a financing allowance. The rate calculations 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 (i.e., the budget dial for Fiscal Year 2010 is $156.37) and DSHS must manage all facility specific rates so the budget dial is not exceeded.

Payments to nursing facilities is one of the largest budget units within the Aging and Disability Services Program. The Fiscal Year 2010 nursing home payments are estimated to total about $476 million from all funds with approximately $179 million from general fund-state resources.

Summary of Bill: This bill makes several changes to the current nursing facility rate statute. However, the changes can be grouped into two major categories. First, the bill makes changes to shorten and update the current statutory sections (RCW 74.46) that deal with calculating nursing home Medicaid rates. Secondly, the bill makes changes to the methodology used to calculate nursing facility rates. These two categories of changes are described in detail below.

Changes to shorten and update RCW 74.46. Specifically, the bill would:

Add one new section specifying 11 broad principles – all consistent with the existing payment system – to guide in the implementation of a payment methodology in rule. It also includes a separate grant of rulemaking authority to DSHS.
Amend various sections – including the sections dealing with rate setting, commonly referred to as Part E. The majority of the Part E sections are retained but amended to reflect subsequent legislative changes and to remove unnecessary material and references. The bill also leaves in place references to the AIDS pilot nursing facility. This pilot facility refers to the Bailey-Boushay House in Seattle. A reference to an older three year rate-setting cycle is deleted. The present, unique status of Bailey-Boushay House is not changed.
Repeal 52 current sections.
Leave in place the current mechanisms surrounding the budget dial.

Changes to nursing home rate methodology. The current nursing facility rate methodology is modified so that the rate formula is based on six, not seven, components: direct care, therapy care, support services, operations, property, and a financing allowance – eliminating variable return. Additionally, the bill adjusts the percentage occupancy constants used in the formula and also adjusts the median lids.

Specifically, the bill would:

Provide rate allocations for direct care and support services at not more than 100 percent of the median for allowable costs of all facilities. The current methodology uses not more than 112 percent for direct care and not more than 110 percent for support services.
Provide rate allocations for therapy care, support services, operations, property, and a financing allowance assuming all facilities operate at 95 percent occupancy. The current methodology uses 90 percent occupancy for most facilities and 85 percent occupancy for essential community providers.
Provide a financing allowance of 4 percent of all assets acquired on or after May 17, 1999. The current methodology uses 8.5 percent.
Freeze the case mix index at the index as of the January 1, 2010, through March 31, 2010, calendar quarter. Currently case mix adjusts each quarter.
Eliminate variable return.