AN ACT Relating to long-term care; amending RCW 74.08.541, 74.08.545, 74.08.550, 11.94.050, 74.09.510, 74.09.700, 74.46.020, 74.46.410, and 74.46.430; reenacting and amending RCW 74.46.360; adding new sections to chapter 74.09 RCW; creating a new section; repealing RCW 74.09.532, 74.09.534, and 74.09.536; providing effective dates; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1. Section 17, chapter 6, Laws of 1981 1st ex. sess. as last amended by section 1, chapter 222, Laws of 1986 and RCW 74.08.541 are each amended to read as follows:

(1) "Chore services," as used in this chapter, means services in performing ((~~light work and household and other~~)) personal care and related tasks, as defined by the department, which eligible persons are unable to do for themselves because of frailty or handicapping conditions.

(2) Persons eligible for chore services are adult ((~~individuals~~)) persons having resources less than a level determined by the department, and whose need for chore services and risk of being placed in a residential care facility have been determined by the department, and who are not eligible to receive medicaid personal care services as authorized under section 4 of this act.

(a) Persons are eligible for the level ((~~or amount~~)) of services determined by the department under RCW 74.08.545 if the persons ((~~are~~)): (i) ((~~Adult recipients of supplemental security income or state supplementation; (ii)~~)) Are eligible at the time their eligibility for chore services is determined or redetermined, for limited casualty program medical care as defined by RCW 74.09.010; or ((~~(iii)~~)) (ii) have an income at or below thirty percent of the state median income.

(b) For other persons, the department shall develop a scale which progressively reduces the level ((~~or amount~~)) of chore services provided by the department based on the ability of applicants and ((~~recipients~~)) clients to purchase ((~~the~~)) chore services. ((~~To determine the ability of applicants and recipients to purchase chore services,~~)) The department shall not consider income below thirty percent of the state median income.

(c) ((Effort shall be made to obtain chore services from volunteer chore service providers under the senior citizens services act, chapter 74.38 RCW, for those individuals at risk of being placed in a residential care facility and who are age sixty or over but eligible for five hours of chore services per month or less, rather than have those services provided by paid providers.)) Any ((~~individual~~)) person who is age sixty or over and who is at risk of being placed in a residential care facility and ((~~who is age sixty or over but not eligible for chore services or~~)) is:

(i) Eligible for five hours or less of chore services a month; or

(ii) Eligible for a reduced ((~~amount~~)) level of service as defined in (b) of this subsection; or

(iii) Not eligible for chore services;

!ixshall be referred to a volunteer chore service program, where available, under the senior citizens services act, chapter 74.38 RCW((~~, where available for needed services not authorized by the department~~)).

(d) ((~~Individuals~~)) Persons determined by the department to be eligible for adult protective services are eligible to receive emergency chore services without regard to income or resources if the services are essential to, and a subordinate part of, the adult protective services plan. Emergency chore services under adult protective services shall be provided only until the situation necessitating the services has stabilized, not to exceed ninety days.

(3) The department shall establish a monthly dollar lid on chore services expenditures as necessary to maintain such expenditures within the legislative appropriation. To maintain expenditures for chore services within the limits of funds appropriated for this purpose, the department may reduce the level ((~~or amount~~)) of services authorized below the level of need assessed pursuant to RCW 74.08.545 for some or all ((~~recipients, but~~)) clients. The reductions shall be done in a manner which maintains state-wide uniformity of eligibility and service authorization standards and which considers the level of need for services and the degree of risk of being placed in a residential care facility of all applicants for, and ((~~recipients of,~~)) clients receiving chore services. The department may implement a ratable reduction of hours or payment for some or all clients receiving chore services.

(4) The department may continue providing chore services for those clients who were eligible for and receiving assistance only with household tasks prior to December 14, 1987, provided that those clients were receiving this same service as of June 1989.

(5) The department may continue providing chore services to clients, who were eligible for and receiving attendant care services prior to April 1, 1988, provided that those clients were receiving this same service as of June 1989.

Sec. 2. Section 16, chapter 6, Laws of 1981 1st ex. sess. and RCW 74.08.545 are each amended to read as follows:

It is the intent of the legislature that chore services be provided to eligible persons within the limits of funds appropriated for that purpose. Therefore, the department shall provide services only to those persons identified as at risk of being placed in a residential care facility in the absence of such services. ((~~Chore services shall be provided only to the extent necessary to maintain a safe and healthful living environment.~~)) In determining ((~~an individual's~~)) eligibility for chore services, the department shall consider the following:

(1) ((~~The kind of services needed;~~

~~(2)~~)) The degree of service need((~~, and~~));

(2) The extent to which ((~~an individual~~)) a person is dependent upon such services to remain in his or her home or return to his or her home; and

(3) ((~~The availability of personal or community resources which may be utilized to meet the individual's need; and~~

~~(4)~~)) Such other factors as the department considers necessary to insure service is provided only to those persons whose chore service needs ((~~cannot be~~)) are not met by relatives, friends, ((~~nonprofit organizations,~~)) or other ((~~persons~~)) community resources.

In determining the level of services to be provided under this chapter, the client shall be assessed by the department ((~~shall utilize a client review questionnaire designed~~)) to determine ((~~both~~)) the ((~~degree and level of service~~)) need for service and the ((~~individual's~~)) person's risk of ((~~institutionalization if such needs are not met by this chapter~~)) residential care placement.

Sec. 3. Section 3, chapter 51, Laws of 1973 1st ex. sess. as last amended by section 189, chapter 3, Laws of 1983 and RCW 74.08.550 are each amended to read as follows:

(1) The department of social and health services is authorized to develop a program to provide for those services enumerated in RCW 74.08.541.

(2) The department shall endeavor to assure ((~~that, for each individual receiving in-home services, a single caseworker is responsible for coordinating the delivery of all necessary in-home~~)) the coordination of all necessary services for which the ((~~recipient~~)) client is eligible.

(3) The department may provide assistance in the recruiting of providers of the services enumerated in RCW 74.08.541 and seek to assure the timely provision of services in emergency situations.

(4) The department shall assure that all providers of the services enumerated in RCW 74.08.541 are compensated for the delivery of the services on a prompt and regular basis.

NEW SECTION. Sec. 4. A new section is added to chapter 74.09 RCW to read as follows:

The department shall amend the state plan for medical assistance under Title XIX of the federal social security act to include personal care services, as defined in 42 C.F.R. 440.170(f), in the categorically needy program.

The department shall adopt, amend, and rescind such administrative rules as are necessary to ensure that Title XIX personal care services are provided to eligible persons in conformance with federal regulations.

Sec. 5. Section 29, chapter 30, Laws of 1985 and RCW 11.94.050 are each amended to read as follows:

(1) Although a designated attorney in fact or agent has all powers of absolute ownership of the principal, or the document has language to indicate that the attorney in fact or agent shall have all the powers the principal would have if alive and competent, the attorney in fact or agent shall not have the power, unless specifically provided otherwise in the document: To make, amend, alter, or revoke any of the principal's wills, codicils, life insurance beneficiary designations, employee benefit plan beneficiary designations, trust agreements, community property agreements; to make any gifts of property owned by the principal; to make transfers of property to any trust (whether or not created by the principal) unless the trust benefits the principal alone and does not have dispositive provisions which are different from those which would have governed the property had it not been transferred into the trust, or to disclaim property.

(2) Nothing in subsection (1) of this section prohibits an attorney in fact or agent from making any transfer of resources ((~~not prohibited under RCW 74.09.532~~)) when the transfer is for the purpose of qualifying the principal for medical assistance or the limited casualty program for the medically needy.

Sec. 6. Section 4, chapter 30, Laws of 1967 ex. sess. as last amended by section 2, chapter 5, Laws of 1985 and RCW 74.09.510 are each amended to read as follows:

Medical assistance may be provided in accordance with eligibility requirements established by the department of social and health services, ((~~including the prohibition under RCW 74.09.532 through 74.09.536 against the knowing and wilful assignment of property or cash for the purpose of qualifying for such assistance,~~)) as defined in the social security Title XIX state plan for mandatory categorically needy persons and: (1) Individuals who would be eligible for cash assistance except for their institutional status; (2) individuals who are under twenty-one years of age, who would be eligible for aid to families with dependent children, but do not qualify as dependent children and who are in (a) foster care, (b) subsidized adoption, (c) an intermediate care facility or an intermediate care facility for the mentally retarded, or (d) inpatient psychiatric facilities; (3) the aged, blind, and disabled who: (a) Receive only a state supplement, or (b) would not be eligible for cash assistance if they were not institutionalized; (4) individuals who would be eligible for but choose not to receive cash assistance; (5) pregnant women who would be eligible for aid to families with dependent children if the child had been born and was living with the mother during the month of the payment, and the pregnancy has been medically verified; (6) individuals who are enrolled in managed health care systems, who have otherwise lost eligibility for medical assistance, but who have not completed a current six-month enrollment in a managed health care system, and who are eligible for federal financial participation under Title XIX of the social security act; and (7) other individuals eligible for medical services under RCW 74.09.035 and 74.09.700 for whom federal financial participation is available under Title XIX of the social security act.

Sec. 7. Section 22, chapter 6, Laws of 1981 1st ex. sess. as last amended by section 4, chapter 5, Laws of 1985 and RCW 74.09.700 are each amended to read as follows:

(1) To the extent of available funds, medical care may be provided under the limited casualty program to persons not otherwise eligible for medical assistance or medical care services who are medically needy as defined in the social security Title XIX state plan and medical indigents in accordance with medical eligibility requirements established by the department. This includes residents of skilled nursing homes, intermediate care facilities, and intermediate care facilities for the mentally retarded who are aged, blind, or disabled as defined in Title XVI of the federal social security act and whose income exceeds three hundred percent of the federal supplement security income benefit level.

(2) Determination of the amount, scope, and duration of medical coverage under the limited casualty program shall be the responsibility of the department, subject to the following:

(a) Only inpatient hospital services; outpatient hospital and rural health clinic services; physicians' and clinic services; prescribed drugs, dentures, prosthetic devices, and eyeglasses; skilled nursing home services, intermediate care facility services, and intermediate care facility services for the mentally retarded; home health services; other laboratory and x-ray services; rehabilitative services; medically necessary transportation; and other services for which funds are specifically provided in the omnibus appropriations act shall be covered;

(b) Persons who are medically indigent and are not eligible for a federal aid program shall satisfy a deductible of not less than one hundred dollars nor more than five hundred dollars in any twelve-month period;

(c) Medical care services provided to the medically indigent and received no more than seven days prior to the date of application shall be retroactively certified and approved for payment on behalf of a person who was otherwise eligible at the time the medical services were furnished: PROVIDED, That eligible persons who fail to apply within the seven-day time period for medical reasons or other good cause may be retroactively certified and approved for payment.

(3) The department shall establish standards of assistance and resource and income exemptions. All nonexempt income and resources of limited casualty program recipients shall be applied against the cost of their medical care services. ((In addition, the department shall include a prohibition against the knowing and wilful assignment of property or cash for the purpose of qualifying for assistance under RCW 74.09.532 through 74.09.536.))

NEW SECTION. Sec. 8. A new section is added to chapter 74.09 RCW to read as follows:

MEDICAL ASSISTANCE FOR INSTITUTIONALIZED PERSONS‑-TREATMENT OF INCOME BETWEEN SPOUSES. (1) An agreement between spouses transferring or assigning rights to future income from one spouse to the other shall be invalid for purposes of determining eligibility for medical assistance or the limited casualty program for the medically needy, but this subsection does not affect agreements between spouses transferring or assigning resources, and income produced by transferred or assigned resources shall continue to be recognized as the separate income of the transferee.

(2) In determining eligibility for medical assistance or the limited casualty program for the medically needy for a married person in need of institutional care, or care under home and community-based waivers as defined in Title XIX of the social security act, if the community income received in the name of the nonapplicant spouse exceeds the community income received in the name of the applicant spouse, the applicant's interest in that excess shall be considered unavailable to the applicant.

(3) The department shall adopt rules consistent with the provisions of section 1924 of the social security act entitled "Treatment of Income and Resources for Certain Institutionalized Spouses," in determining the allocation of income between an institutionalized and community spouse.

(4) The department shall establish the monthly maintenance needs allowance for the community spouse at the minimum amount permitted in section 1924 of the social security act.

NEW SECTION. Sec. 9. A new section is added to chapter 74.09 RCW to read as follows:

MEDICAL ASSISTANCE FOR INSTITUTIONALIZED PERSONS‑-TREATMENT OF RESOURCES. (1) The department shall promulgate rules consistent with the treatment of resources provisions of section 1924 of the social security act entitled "Treatment of Income and Resources for Certain Institutionalized Spouses," in determining the allocation of resources between the institutionalized and community spouse.

(2) In the interest of supporting the community spouse the department shall allow the maximum resource allowance amount permissible under the social security act for the community spouse.

NEW SECTION. Sec. 10. A new section is added to chapter 74.09 RCW to read as follows:

MEDICAL ASSISTANCE FOR INSTITUTIONALIZED PERSONS‑-PERIOD OF INELIGIBILITY FOR TRANSFER OF RESOURCES. (1) The department shall establish standards consistent with section 1924 of the social security act entitled "Treatment of Income and Resources for Certain Institutionalized Spouses," in determining the period of ineligibility for medical assistance due to the transfer of resources.

(2) The department may waive a period of ineligibility if the department determines that denial of eligibility would work an undue hardship.

NEW SECTION. Sec. 11. A new section is added to chapter 74.09 RCW to read as follows:

MEDICAL ASSISTANCE‑-DUE PROCESS PROCEDURES. The department shall in compliance with section 1924 of the social security act adopt procedures which provide due process for institutionalized or community spouses who request a fair hearing as to the valuation of resources, the amount of the community spouse resource allowance, or the monthly maintenance needs allowance.

Sec. 12. Section 2, chapter 177, Laws of 1980 as last amended by section 6, chapter 476, Laws of 1987 and RCW 74.46.020 are each amended to read as follows:

Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Accrual method of accounting" means a method of accounting in which revenues are reported in the period when they are earned, regardless of when they are collected, and expenses are reported in the period in which they are incurred, regardless of when they are paid.

(2) "Ancillary care" means those services required by the individual, comprehensive plan of care provided by qualified therapists.

(3) "Appraisal‑-Personal property" means the process of estimating the fair market value or reconstructing the historical cost of personal property assets or equipment acquired in a past period and used in patient care as performed by an individual generally qualified by reason of experience, education, or other background to estimate fair market value or reconstruct historical cost of nursing home equipment and who has no pecuniary interest in the property to be appraised. It includes a systematic, analytic determination and the recording and analyzing of property facts, rights, investments, and values performed by such an individual based upon an inspection and inventory of the property performed by such individual personally or by an assistant: PROVIDED, That adequate safeguards to ensure accuracy must be employed if some or all of the inspection and inventory is performed by an assistant.

(4) "Appraisal--Real property" means the process of estimating the fair market value or reconstructing the historical cost of ((~~an asset~~)) land, buildings, or other land improvements acquired in a past period as performed by a professionally designated real estate appraiser with no pecuniary interest in the property to be appraised. It includes a systematic, analytic determination and the recording and analyzing of property facts, rights, investments, and values based on a personal inspection ((~~and inventory~~)) of the property.

((~~(4)~~)) (5) "Arm's-length transaction" means a transaction resulting from good-faith bargaining between a buyer and seller who are not related organizations and have adverse positions in the market place. Sales or exchanges of nursing home facilities among two or more parties in which all parties subsequently continue to own one or more of the facilities involved in the transactions shall not be considered as arm's-length transactions for purposes of this chapter. Sale of a nursing home facility which is subsequently leased back to the seller within five years of the date of sale shall not be considered as an arm's-length transaction for purposes of this chapter.

((~~(5)~~)) (6) "Assets" means economic resources of the contractor, recognized and measured in conformity with generally accepted accounting principles.

((~~(6)~~)) (7) "Bad debts" means amounts considered to be uncollectable from accounts and notes receivable.

((~~(7)~~)) (8) "Beds" means the number of set-up beds in the facility, not to exceed the number of licensed beds.

((~~(8)~~)) (9) "Beneficial owner" means:

(a) Any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares:

(i) Voting power which includes the power to vote, or to direct the voting of such ownership interest; and/or

(ii) Investment power which includes the power to dispose, or to direct the disposition of such ownership interest;

(b) Any person who, directly or indirectly, creates or uses a trust, proxy, power of attorney, pooling arrangement, or any other contract, arrangement, or device with the purpose or effect of divesting himself of beneficial ownership of an ownership interest or preventing the vesting of such beneficial ownership as part of a plan or scheme to evade the reporting requirements of this chapter;

(c) Any person who, subject to subparagraph (b) of this subsection, has the right to acquire beneficial ownership of such ownership interest within sixty days, including but not limited to any right to acquire:

(i) Through the exercise of any option, warrant, or right;

(ii) Through the conversion of an ownership interest;

(iii) Pursuant to the power to revoke a trust, discretionary account, or similar arrangement; or

(iv) Pursuant to the automatic termination of a trust, discretionary account, or similar arrangement;

except that, any person who acquires an ownership interest or power specified in subparagraphs (i), (ii), or (iii) of this subparagraph (c) with the purpose or effect of changing or influencing the control of the contractor, or in connection with or as a participant in any transaction having such purpose or effect, immediately upon such acquisition shall be deemed to be the beneficial owner of the ownership interest which may be acquired through the exercise or conversion of such ownership interest or power;

(d) Any person who in the ordinary course of business is a pledgee of ownership interest under a written pledge agreement shall not be deemed to be the beneficial owner of such pledged ownership interest until the pledgee has taken all formal steps necessary which are required to declare a default and determines that the power to vote or to direct the vote or to dispose or to direct the disposition of such pledged ownership interest will be exercised; except that:

(i) The pledgee agreement is bona fide and was not entered into with the purpose nor with the effect of changing or influencing the control of the contractor, nor in connection with any transaction having such purpose or effect, including persons meeting the conditions set forth in subparagraph (b) of this subsection; and

(ii) The pledgee agreement, prior to default, does not grant to the pledgee:

(A) The power to vote or to direct the vote of the pledged ownership interest; or

(B) The power to dispose or direct the disposition of the pledged ownership interest, other than the grant of such power(s) pursuant to a pledge agreement under which credit is extended and in which the pledgee is a broker or dealer.

((~~(9)~~)) (10) "Capitalization" means the recording of an expenditure as an asset.

((~~(10)~~)) (11) "Contractor" means an entity which contracts with the department to provide services to medical care recipients in a facility and which entity is responsible for operational decisions.

((~~(11)~~)) (12) "Department" means the department of social and health services (DSHS) and its employees.

((~~(12)~~)) (13) "Depreciation" means the systematic distribution of the cost or other basis of tangible assets, less salvage, over the estimated useful life of the assets.

((~~(13)~~)) (14) "Direct care supplies" means medical, pharmaceutical, and other supplies required for the direct nursing and ancillary care of medical care recipients.

((~~(14)~~)) (15) "Entity" means an individual, partnership, corporation, or any other association of individuals capable of entering enforceable contracts.

((~~(15)~~)) (16) "Equity" means the net book value of all tangible and intangible assets less the recorded value of all liabilities, as recognized and measured in conformity with generally accepted accounting principles.

((~~(16)~~)) (17) "Facility" means a nursing home licensed in accordance with chapter 18.51 RCW, or that portion of a hospital licensed in accordance with chapter 70.41 RCW which operates as a nursing home.

((~~(17)~~)) (18) "Fair market value" means the replacement cost of an asset less ((~~observed physical~~)) depreciation from all sources, including but not limited to physical, functional, and economic obsolescence or depreciation on the date for which the market value is being determined.

((~~(18)~~)) (19) "Financial statements" means statements prepared and presented in conformity with generally accepted accounting principles including, but not limited to, balance sheet, statement of operations, statement of changes in financial position, and related notes.

((~~(19)~~)) (20) "Generally accepted accounting principles" means accounting principles approved by the financial accounting standards board (FASB).

((~~(20)~~)) (21) "Generally accepted auditing standards" means auditing standards approved by the American institute of certified public accountants (AICPA).

((~~(21)~~)) (22) "Goodwill" means the excess of the price paid for a business over the fair market value of all other identifiable, tangible, and intangible assets acquired.

((~~(22)~~)) (23) "Historical cost" means the actual cost incurred in acquiring and preparing an asset for use, including feasibility studies, architect's fees, and engineering studies.

((~~(23)~~)) (24) "Imprest fund" means a fund which is regularly replenished in exactly the amount expended from it.

((~~(24)~~)) (25) "Joint facility costs" means any costs which represent resources which benefit more than one facility, or one facility and any other entity.

((~~(25)~~)) (26) "Lease agreement" means a contract between two parties for the possession and use of real or personal property or assets for a specified period of time in exchange for specified periodic payments. Elimination (due to any cause other than death or divorce) or addition of any party to the contract, expiration, or modification of any lease term in effect on January 1, 1980, or termination of the lease by either party by any means shall constitute a termination of the lease agreement. An extension or renewal of a lease agreement made subsequent to April 1, 1985, whether or not pursuant to a renewal provision in the lease agreement, shall be considered a new lease agreement. An extension or renewal made subsequent to January 1, 1980, and on or before April 1, 1985, which is not pursuant to a renewal provision in the lease agreement shall be considered a new lease agreement. A strictly formal change in the lease agreement which modifies the method, frequency, or manner in which the lease payments are made, but does not increase the total lease payment obligation of the lessee, shall not be considered modification of a lease term.

((~~(26)~~)) (27) "Medical care program" means medical assistance provided under RCW 74.09.500 or authorized state medical care services.

((~~(27)~~)) (28) "Medical care recipient" or "recipient" means an individual determined eligible by the department for the services provided in chapter 74.09 RCW.

((~~(28)~~)) (29) "Net book value" means the historical cost of an asset less accumulated depreciation.

((~~(29)~~)) (30) "Net invested funds" means the net book value of tangible fixed assets employed by a contractor to provide services under the medical care program, including land, buildings, and equipment as recognized and measured in conformity with generally accepted accounting principles, plus an allowance for working capital which shall be five percent of the allowable costs of each contractor for the previous calendar year.

((~~(30)~~)) (31) "Operating lease" means a lease under which rental or lease expenses are included in current expenses in accordance with generally accepted accounting principles.

((~~(31)~~)) (32) "Owner" means a sole proprietor, general or limited partners, and beneficial interest holders of five percent or more of a corporation's outstanding stock.

((~~(32)~~)) (33) "Ownership interest" means all interests beneficially owned by a person, calculated in the aggregate, regardless of the form which such beneficial ownership takes.

((~~(33)~~)) (34) "Patient day" or "client day" means a calendar day of care which will include the day of admission and exclude the day of discharge; except that, when admission and discharge occur on the same day, one day of care shall be deemed to exist.

((~~(34)~~)) (35) "Professionally designated real estate appraiser" means an individual who is regularly engaged in the business of providing real estate valuation services for a fee, and who is deemed qualified by a nationally recognized real estate appraisal educational organization on the basis of extensive practical appraisal experience, including the writing of real estate valuation reports as well as the passing of written examinations on valuation practice and theory, and who by virtue of membership in such organization is required to subscribe and adhere to certain standards of professional practice as such organization prescribes.

((~~(35)~~)) (36) "Qualified therapist" means:

(a) An activities specialist who has specialized education, training, or experience as specified by the department;

(b) An audiologist who is eligible for a certificate of clinical competence in audiology or who has the equivalent education and clinical experience;

(d) A mental retardation professional who is either a qualified therapist or a therapist approved by the department who has had specialized training or one year's experience in treating or working with the mentally retarded or developmentally disabled;

(e) A social worker who is a graduate of a school of social work;

(f) A speech pathologist who is eligible for a certificate of clinical competence in speech pathology or who has the equivalent education and clinical experience;

(g) A physical therapist as defined by chapter 18.74 RCW; and

(h) An occupational therapist who is a graduate of a program in occupational therapy, or who has the equivalent of such education or training.

((~~(36)~~)) (37) "Questioned costs" means those costs which have been determined in accordance with generally accepted accounting principles but which may constitute disallowed costs or departures from the provisions of this chapter or rules and regulations adopted by the department.

((~~(37)~~)) (38) "Records" means those data supporting all financial statements and cost reports including, but not limited to, all general and subsidiary ledgers, books of original entry, and transaction documentation, however such data are maintained.

((~~(38)~~)) (39) "Related organization" means an entity which is under common ownership and/or control with, or has control of, or is controlled by, the contractor.

(a) "Common ownership" exists when an entity is the beneficial owner of five percent or more ownership interest in the contractor and any other entity.

(b) "Control" exists where an entity has the power, directly or indirectly, significantly to influence or direct the actions or policies of an organization or institution, whether or not it is legally enforceable and however it is exercisable or exercised.

((~~(39)~~)) (40) "Restricted fund" means those funds the principal and/or income of which is limited by agreement with or direction of the donor to a specific purpose.

((~~(40)~~)) (41) "Secretary" means the secretary of the department of social and health services.

((~~(41)~~)) (42) "Title XIX" or "Medicaid" means the 1965 amendments to the social security act, P.L. 89-07, as amended.

((~~(42)~~)) (43) "Physical plant capital improvement" means a capitalized improvement that is limited to an improvement to the building or the related physical plant.

Sec. 13. Section 36, chapter 177, Laws of 1980 as last amended by section 1, chapter 208, Laws of 1988 and by section 1, chapter 221, Laws of 1988 and RCW 74.46.360 are each reenacted and amended to read as follows:

(1) The depreciation base or cost basis of an asset shall be the historical cost of the contractor or lessor, when the assets are leased by the contractor, in acquiring ownership of the asset by purchase in an arm's-length transaction and preparing it for use, less goodwill, and less accumulated depreciation 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) 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 and they cannot be determined by the department from other sources, 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 depreciation base or cost basis of the assets will not exceed such fair market value.

(2) The historical cost of donated assets, or of 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) 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) (a) Where depreciable assets are acquired that were used in the medical care program subsequent to January 1, 1980, the 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 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. This subsection is inoperative for any transfer of ownership of any asset 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 agreement for the purchase of a nursing home dated prior to August 1, 1984, and submitted to the department prior to January 1, 1988, the depreciation base of the nursing home 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.

(c) In the case of 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)]~~)) 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) Where depreciable assets are acquired from a related organization, the contractor's depreciation base shall not exceed the base the related organization had or would have had under a contract with the department.

(e) Where the depreciable asset is a donation or distribution between related organizations, the base shall be the lesser of (i) fair market value, less salvage value, or (ii) the depreciation base the related organization had or would have had for the asset under a contract with the department.

Sec. 14. Section 41, chapter 177, Laws of 1980 as last amended by section 3, chapter 175, Laws of 1986 and RCW 74.46.410 are each amended to read as follows:

(1) Costs will be unallowable if they are not documented, necessary, ordinary, and related to the provision of care services to authorized patients.

(2) Unallowable costs include, but are not limited to, the following:

(a) Costs of items or services not covered by the medical care program. Costs of such items or services will be unallowable even if they are indirectly reimbursed by the department as the result of an authorized reduction in patient contribution;

(b) Costs of services and items provided to recipients which are covered by the department's medical care program but not included in care services established by the department under this chapter;

(c) Costs associated with a capital expenditure subject to section 1122 approval (part 100, Title 42 C.F.R.) if the department found it was not consistent with applicable standards, criteria, or plans. If the department was not given timely notice of a proposed capital expenditure, all associated costs will be unallowable up to the date they are determined to be reimbursable under applicable federal regulations;

(d) Costs associated with a construction or acquisition project requiring certificate of need approval pursuant to chapter 70.38 RCW if such approval was not obtained;

(e) Interest costs other than those provided by RCW 74.46.290 on and after the effective date of RCW 74.46.530;

(f) Salaries or other compensation of owners, officers, directors, stockholders, and others associated with the contractor or home office, except compensation paid for service related to patient care;

(g) Costs in excess of limits or in violation of principles set forth in this chapter;

(h) Costs resulting from transactions or the application of accounting methods which circumvent the principles of the cost-related reimbursement system set forth in this chapter;

(i) Costs applicable to services, facilities, and supplies furnished by a related organization in excess of the lower of the cost to the related organization or the price of comparable services, facilities, or supplies purchased elsewhere;

(j) Bad debts of non-Title XIX recipients. Bad debts of Title XIX recipients are allowable if the debt is related to covered services, it arises from the recipient's required contribution toward the cost of care, the provider can establish that reasonable collection efforts were made, the debt was actually uncollectible when claimed as worthless, and sound business judgment established that there was no likelihood of recovery at any time in the future;

(k) Charity and courtesy allowances;

(l) Cash, assessments, or other contributions, excluding dues, to charitable organizations, professional organizations, trade associations, or political parties, and costs incurred to improve community or public relations;

(m) Vending machine expenses;

(n) Expenses for barber or beautician services not included in routine care;

(o) Funeral and burial expenses;

(p) Costs of gift shop operations and inventory;

(q) Personal items such as cosmetics, smoking materials, newspapers and magazines, and clothing, except those used in patient activity programs;

(r) Fund-raising expenses, except those directly related to the patient activity program;

(s) Penalties and fines;

(t) Expenses related to telephones, televisions, radios, and similar appliances in patients' private accommodations;

(u) Federal, state, and other income taxes;

(v) Costs of special care services except where authorized by the department;

(w) Expenses of key-man insurance and other insurance or retirement plans not made available to all employees;

(x) Expenses of profit-sharing plans;

(y) Expenses related to the purchase and/or use of private or commercial airplanes which are in excess of what a prudent contractor would expend for the ordinary and economic provision of such a transportation need related to patient care;

(z) Personal expenses and allowances of owners or relatives;

(aa) All expenses of maintaining professional licenses or membership in professional organizations;

(bb) Costs related to agreements not to compete;

(cc) Amortization of goodwill;

(dd) Expenses related to vehicles which are in excess of what a prudent contractor would expend for the ordinary and economic provision of transportation needs related to patient care;

(ee) Legal and consultant fees in connection with a fair hearing against the department where a decision is rendered in favor of the department or where otherwise the determination of the department stands;

(ff) Legal and consultant fees of a contractor or contractors in connection with a lawsuit against the department;

(gg) Lease acquisition costs and other intangibles not related to patient care;

(hh) All rental or lease costs other than those provided in RCW 74.46.300 on and after the effective date of RCW 74.46.510 and 74.46.530;

(ii) Costs and fees otherwise allowable for legal services, whether purchased, allocated by a home office, regional office or management company, or performed by the contractor or employees of the contractor, in excess of the eighty-fifth percentile of such costs reported by all contractors for the most recent cost report period: PROVIDED, That this limit shall not apply if a contractor has not exceeded this percentile in any of the preceding three annual cost report periods;

(jj) Costs and fees otherwise allowable for accounting and bookkeeping services, whether purchased, allocated by a home office, regional office or management company, or performed by the contractor or employees of the contractor, in excess of the eighty-fifth percentile of such costs reported by all contractors for the most recent cost report period: PROVIDED, That this limit shall not apply if a contractor has not exceeded this percentile in any of the preceding three annual cost report periods.

Sec. 15. Section 43, chapter 177, Laws of 1980 as last amended by section 2, chapter 1, Laws of 1987 2nd ex. sess. and RCW 74.46.430 are each amended to read as follows:

(1) The department, as provided by this chapter, will determine prospective cost-related reimbursement rates for services provided to medical care recipients. Each rate so determined shall represent the contractor's maximum compensation within each cost center for each patient day for such medical care recipient.

(2) As required, the department may modify such maximum per patient day rates pursuant to the administrative review provisions of RCW 74.46.780.

(3) Until the effective date of RCW 74.46.510 and 74.46.530, the maximum prospective reimbursement rates for the administration and operations and the property cost centers shall be established based upon a minimum facility occupancy level of eighty-five percent.

(4) On and after the effective date of RCW 74.46.510 and 74.46.530, the maximum prospective reimbursement rates for the administration and operations and the property cost centers and the return on investment allowance shall be established based upon a minimum facility occupancy level of eighty-five percent. Effective July 1, 1989, the maximum prospective reimbursement rates for administration and operations and property cost centers and the return on investment allowance shall be established on a minimum facility occupancy level of ninety-two percent.

(5) All contractors shall be required to adjust and maintain wages for all employees to a minimum hourly wage established by the legislature in the biennial appropriations act, if the legislature appropriates moneys to fund prospectively the portion of the minimum wage attributable to services to medicaid patients. Prospective rate revisions to fund any minimum wage increases shall be made only on the dates authorized in the appropriation act. The department shall by regulation limit reimbursement to the amount appropriated for legislatively authorized enhancement for nonadministrative wages and benefits above the moneys necessary to fund minimum wages specified in this section. The department in considering reimbursement for legislatively authorized wage enhancements will take into consideration facility wage history over the past three cost report periods.

NEW SECTION. Sec. 16. (1) Sections 9 and 12 through 15 of this act are necessary for the immediate preservation of the public peace, health, and safety, the support of the state government and its existing public institutions, and shall take effect July 1, 1989.

(2) Sections 7, 8, 10, and 11 of this act shall take effect October 1, 1989.

NEW SECTION. Sec. 17. Section captions, as found in sections 7 through 10 of this act, constitute no part of the law.

NEW SECTION. Sec. 18. The following acts or parts of acts are each repealed:

(1) Section 1, chapter 3, Laws of 1981 2nd ex. sess. and RCW 74.09.532;

(2) Section 2, chapter 3, Laws of 1981 2nd ex. sess. and RCW 74.09.534; and

(3) Section 3, chapter 3, Laws of 1981 2nd ex. sess. and RCW 74.09.536.