SENATE BILL REPORT

SB 6437

BYSenators Deccio, Kreidler, Sellar, Fleming and Johnson

Changing provisions relating to the investment allowance for nursing homes.

Senate Committee on Health Care & Corrections

Senate Hearing Date(s):February 2, 1988

Majority Report:  Do pass and refer to Committee on Ways & Means.

      Signed by Senators Deccio, Chairman; Johnson, Vice Chairman; Kreidler, Smith, West, Wojahn.

Senate Staff:Dee Knapp (786-7452)

                  February 4, 1988

Senate Committee on Ways & Means

Senate Hearing Date(s):February 8, 1988

Majority Report:  That Substitute Senate Bill No. 6437 be substituted therefor, and the substitute bill do pass.

      Signed by Senators McDonald, Chairman; Craswell, Vice Chairman; Bauer, Bluechel, Cantu, Deccio, Fleming, Gaspard, Hayner, Johnson, Lee, Moore, Newhouse, Saling, Smith, Talmadge, Vognild, Warnke, Williams, Wojahn, Zimmerman.

Senate Staff:Randy Hodgins (786-7438)

                  February 11, 1988

AS REPORTED BY COMMITTEE ON WAYS & MEANS, FEBRUARY 8, 1988

BACKGROUND:

In 1980 the Legislature enacted the Nursing Home Auditing and Cost Reimbursement Act authorizing the state to purchase nursing home care for Medicaid patients through a system of cost reimbursement. A system developed whereby lessees, as of the date of the act, were to be reimbursed on property costs and return on their investment based on the net book value of assets in the facility.  If they purchased those assets, a re-evaluation was done (permitted only once every 10 years) and reimbursement increased to reflect the increased value due to the new purchase price.

A subgroup of lessees became known as "grandfathered lessees".  Their leases existed on January 1, 1980 and could not be renegotiated.  Many of them faced a potential shortfall in reimbursement which would not cover their lease costs. Therefore, they were grandfathered into the system by continuing to reimburse them in full for lease costs instead of basing the reimbursement on property and investment costs.

In 1986, the reimbursement system was changed to bring the law into conformance with federal legislation which prohibited any upward re-evaluation of property due to change of ownership.

Under this system, some of the "grandfathered lessees" who choose to purchase their facility face a potentially substantial decrease in the reimbursement rate.

New federal legislation brought about yet another change which now allows a limited upward re-evaluation on property when ownership changes.

SUMMARY:

Nursing home lessees that held a lease as of January 1, 1980 and who subsequently purchase the leased assets may use the January 1, 1982 fair market value as the date of purchase asset depreciation base when the purchase date meets any one of the following criteria:  (1) it is after the lessor's bankruptcy or default on the facility's loan or mortgage, (2) it is within two years of the lease expiration or renewal date, (3) it is after the actual cost of the lease has become greater than the reimbursement rate, and (4) it is within one year of any purchase option in existence on January 1, 1988.

EFFECT OF PROPOSED SUBSTITUTE:

Nursing home lessees that held a lease as of January 1, 1980 who subsequently purchase the leased assets may continue to be reimbursed for property and return on their investment costs at the rate which they currently receive as lessees when the purchase date meets any one of the four criteria in the original bill, except that the criteria which requires the purchase date to be within two years of the lease expiration or renewal date is changed to one year.

Appropriation:    none

Revenue:    none

Fiscal Note:      requested February 9, 1988

Senate Committee - Testified: HEALTH CARE & CORRECTIONS:  Mike Wills, Department of Social and Health Services (against); Jerry Tretwold, Harmony House Nursing Home (for); Craig LeVee, Reulon Health Care Center (for)

Senate Committee - Testified: WAYS & MEANS:  Kathy Marshall, Department of Social and Health Services