SENATE BILL REPORT

SB 6465

BYSenators Craswell, Madsen, Smith and Wojahn

Concerning medicaid cost reimbursement.

Senate Committee on Health & Long-Term Care

Senate Hearing Date(s):January 30, 1990

Senate Staff:Scott Plack (786-7409)

AS OF JANUARY 29, 1990

BACKGROUND:

The Medicaid nursing home cost reimbursement system provides for five reimbursable components or cost centers.  They are nursing services, food, administration and operations, property costs and return on investment.  The last two are calculated based upon the depreciation base of assets such as the nursing home building, equipment and land.

The federal Deficit Reduction Act of 1984 (DEFRA) required that the reimbursement methodologies of the state Medicaid programs not increase rates solely because of an upward reevaluation of the property due to a change in ownership.  This was done to prevent "churning over," which involves the continual resale of a home at higher prices to increase the depreciation base and Medicaid reimbursement.  For nursing homes sold after July 18, 1984 the actual depreciation bases were set based upon the acquisition cost or net book value of the previous owner.

Prior to DEFRA, if a facility changed ownership the depreciation base was the historical cost of the asset, less accumulated depreciation, when first put into use as a nursing home.  However, there is an exception to the general rule.  The depreciation base of an acquired facility could be updated to the facility's current fair market value if:  (1) no ownership change had occurred in the previous ten years, or (2) the ownership change was the first to occur after January 1, 1980.  In September 1985, the Department amended WAC to comply with the federal requirement.  In 1986 the Legislature amended the statutes to comply.  The amendments prohibited the upward reevaluation.

During the period between enactment of DEFRA and the legislative amendment of the statutes a number of nursing homes in the state changed ownership.  The new owners may have assumed that the depreciation base would be calculated using the methodology in existing law at that time.  However, the department calculated the base using the new WAC.

These homes challenge the department's authority to implement the federal changes through WAC, and argue that the depreciation base should be based upon the law at the time of the sale.

SUMMARY:

An agreement to purchase a nursing home is defined as having been enforceable on July 18, 1984 if:  (1) the certificate of need unit at the Department of Social and Health Services received notice of the purchase by the new owner and authorized the purchase agreement in 1983; (2) the purchaser took possession and operated the home in 1984; and (3) the legal closing of the purchase and sales transaction occurred before January 1, 1985.  These nursing homes will be depreciated based on a fair market value determination at the time of sale.  This provision would not apply if the sale involved fraud or violated other provisions of law.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested