AN ACT Relating to quality of care in nursing homes; and amending RCW 18.51.050, 74.46.410, 18.51.430, 18.51.500, 74.42.240, 74.42.380, 18.51.054, 18.51.060, 18.51.065, 18.51.410, 18.51.440, 18.51.460, 74.42.580, and 74.46.481; reenacting and amending RCW 74.46.360; adding a new section to chapter 74.46 RCW; and creating a new section.

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

Sec. 1. Section 6, chapter 117, Laws of 1951 as last amended by section 4, chapter 284, Laws of 1985 and RCW 18.51.050 are each amended to read as follows:

Upon receipt of an application for license, the department shall issue a license if the applicant and the nursing home facilities meet the requirements established under this chapter, except that the department shall issue a temporary license to a court-appointed receiver for a period not to exceed six months from the date of appointment. Prior to the issuance or renewal of the license, the licensee shall pay a license fee as established by the department. No fee shall be required of government operated institutions or court-appointed receivers. All licenses issued under the provisions of this chapter shall expire on a date to be set by the department, but no license issued pursuant to this chapter shall exceed thirty-six months in duration. When a change of ownership occurs, the entity becoming the licensed operating entity of the facility shall pay a fee established by the department at the time of application for the license. The previously determined date of license expiration shall not change. Nursing homes shall pay to the department an inspection fee of twelve dollars per licensed bed for the second and any subsequent survey or postsurvey required beyond the nursing home's annual licensing and certification survey. The inspection fee shall be due within thirty days of the completion date of the additional survey or postsurvey.

All applications and fees for renewal of the license shall be submitted to the department not later than thirty days prior to the date of expiration of the license. All applications and fees for change of ownership licenses shall be submitted to the department not later than sixty days before the date of the proposed change of ownership. Each license shall be issued only to the operating entity and those persons named in the license application. The license is valid only for the operation of the facility at the location specified in the license application. Licenses are not transferable or assignable. Licenses shall be posted in a conspicuous place on the licensed premises.

Sec. 2. 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) Inspection fees imposed by the department for additional surveys and postsurveys beyond one annual licensing and certification survey per calendar year or postsurvey.

Sec. 3. Section 12, chapter 476, Laws of 1987 and RCW 18.51.430 are each amended to read as follows:

A petition for receivership shall include the name of the candidate for receiver. The department shall maintain a list of qualified persons to act as receivers, however, no person may be considered to be qualified to be a receiver who:

(1) Is the owner, licensee, or administrator of the facility;

(2) Is affiliated with the facility;

(3) Has a financial interest in the facility at the time the receiver is appointed; or

(4) Has owned or operated a nursing home that has been ordered into receivership.

If a receiver is appointed, he or she may be drawn from the list but need not be, but an appointee shall have experience in providing long-term health care and a history of satisfactory operation of a nursing home. Preference may be granted to persons expressing an interest in permanent operation of the facility.

Sec. 4. Section 19, chapter 476, Laws of 1987 and RCW 18.51.500 are each amended to read as follows:

Upon order of the court, the department shall provide emergency or transitional financial assistance to a receiver not to exceed thirty thousand dollars. The receiver shall file with the court an accounting for any money expended. Any emergency or transitional expenditure made by the department on behalf of a nursing home not certified to participate in the Medicaid Title XIX program shall be recovered from revenue generated by the facility which revenue is not obligated to the operation of the facility. ((~~If such funds are not fully recovered at the termination of the receivership,~~)) An action to recover such sums may be filed by the department against the former licensee or owner at the time the expenditure is made, regardless of whether the facility is certified to participate in the Medicaid Title XIX program or not.

In lieu of filing an action, the department may file a lien on the facility or on the proceeds of the sale of the facility. Such a lien shall take priority over all other liens except for liens for wages to employees. The owner of the facility shall be entitled to the proceeds of the facility or the sale of the facility to the extent that these exceed the liabilities of the facility, including liabilities to the state, receiver, employees, and contractors, at the termination of the receivership.

Revenues relating to services provided by the current or former licensee, operator, or owner and available operating funds belonging to such licensee, operator, or owner shall be under the control of the receiver. The receiver shall consult the court in cases of extraordinary or questionable debts incurred prior to his or her appointment and shall not have the power to close the home or sell any assets of the home without prior court approval.

Priority shall be given to debts and expenditures directly related to providing care and meeting the needs of patients. Any payment made to the receiver shall discharge the obligation of the payor to the owner of the facility.

Sec. 5. Section 24, chapter 211, Laws of 1979 ex. sess. and RCW 74.42.240 are each amended to read as follows:

(1) No staff member may administer any medication to a resident unless the staff member is licensed to administer medication: PROVIDED, That nothing herein shall be construed as prohibiting graduate nurses or student nurses from administering medications when permitted to do so under chapter 18.88 or 18.78 RCW and rules adopted thereunder.

(2) The facility may only allow a resident to give himself or herself medication with the attending physician's permission.

(3) Medication shall only be administered to or used by the resident for whom it is ordered.

Sec. 6. Section 38, chapter 211, Laws of 1979 ex. sess. as amended by section 2, chapter 284, Laws of 1985 and RCW 74.42.380 are each amended to read as follows:

(1) The facility shall have a director of nursing services. The director of nursing services shall be a registered nurse.

(2) The director of nursing services is responsible for:

(a) Coordinating the plan of care for each resident;

(b) Permitting only licensed personnel to administer medications: PROVIDED, That nothing herein shall be construed as prohibiting graduate nurses((~~, and student nurses under the supervision of their clinical instructor,~~)) or student nurses from administering medications when permitted to do so under chapters 18.88 or 18.78 RCW and rules promulgated pursuant thereto: PROVIDED FURTHER, That nothing herein shall be construed as prohibiting persons certified under chapter 18.135 RCW from practicing pursuant to the delegation and supervision requirements of chapter 18.135 RCW and rules promulgated pursuant thereto; and

(c) Insuring that the licensed practical nurses comply with chapter 18.78 RCW, the registered nurses comply with chapter 18.88 RCW, and persons certified under chapter 18.135 RCW comply with the provisions of that chapter and rules promulgated pursuant thereto.

Sec. 7. Section 1, chapter 284, Laws of 1985 and RCW 18.51.054 are each amended to read as follows:

The department may deny a license to any applicant ((~~who~~)) if the department finds that the applicant or any partner, officer, director, managerial employee, or owner of five percent or more of the applicant:

(1) Operated a nursing home without a license or under a revoked or suspended license; or

(2) Knowingly or with reason to know made a false statement of a material fact (a) in an application for license or any data attached thereto, or (b) in any matter under investigation by the department; or

(3) Refused to allow representatives or agents of the department to inspect (a) all books, records, and files required to be maintained or (b) any portion of the premises of the nursing home; or

(4) Willfully prevented, interfered with, or attempted to impede in any way (a) the work of any authorized representative of the department or (b) the lawful enforcement of any provision of this chapter or chapter 74.42 RCW; or

(5) Has a history of significant noncompliance with federal or state regulations in providing nursing home care. In deciding whether to deny a license under this section, the factors the department considers shall include the gravity and frequency of the noncompliance.

Sec. 8. Section 7, chapter 117, Laws of 1951 as last amended by section 23, chapter 476, Laws of 1987 and RCW 18.51.060 are each amended to read as follows:

(1) ((The department is authorized to deny, suspend, or revoke a license or, in lieu thereof or in addition thereto, assess monetary penalties of a civil nature not to exceed three thousand dollars per violation)) In any case in which ((it)) the department finds that ((~~the applicant, or~~)) a licensee, or any partner, officer, director, owner of five percent or more of the assets of the nursing home, or managing employee((:

~~(a)~~)) failed or refused to comply with the requirements of this chapter or of chapter 74.42 RCW, or the standards, rules and regulations established under them((;)) or, in the case of a Medicaid contractor, failed or refused to comply with the Medicaid requirements of Title XIX of the social security act, as amended, and regulations promulgated thereunder, the department may take any or all of the following actions:

(a) Suspend, revoke, or refuse to renew a license;

(b) Order stop placement;

(d) Deny payment to a nursing home for any Medicaid resident admitted after notice to deny payment. Residents who are Medicaid recipients shall not be responsible for payment when the department takes action under this subsection;

(e) Appoint temporary management as provided in subsection (7) of this section.

(2) The department may suspend, revoke, or refuse to renew a license, assess monetary penalties of a civil nature, or both, in any case in which it finds that the licensee, or any partner, officer, director, owner of five percent or more of the assets of the nursing home, or managing employee:

((~~(b)~~)) (a) Operated a nursing home without a license or under a revoked or suspended license; or

((~~(c) Has~~)) (b) Knowingly or with reason to know made a false statement of a material fact in his application for license or any data attached thereto, or in any matter under investigation by the department; or

((~~(d)~~)) (c) Refused to allow representatives or agents of the department to inspect all books, records, and files required to be maintained or any portion of the premises of the nursing home; or

((~~(e)~~)) (d) Willfully prevented, interfered with, or attempted to impede in any way the work of any duly authorized representative of the department and the lawful enforcement of any provision of this chapter or of chapter 74.42 RCW; or

((~~(f)~~)) (e) Willfully prevented or interfered with any representative of the department in the preservation of evidence of any violation of any of the provisions of this chapter or of chapter 74.42 RCW or the standards, rules, and regulations adopted under them; or

((~~(g)~~)) (f) Failed to report patient abuse or neglect in violation of chapter 70.124 RCW; or

((~~(h)~~)) (g) Fails to pay any civil monetary penalty assessed by the department pursuant to this chapter within ten days after such assessment becomes final((: PROVIDED, That in no event shall the department assess a civil monetary penalty authorized pursuant to this section or post the said premises as provided in RCW 18.51.260 or include in the report required pursuant to RCW 18.51.270 during any period in which it has not reasonably implemented and funded its cost-related reimbursement system for public patients.

(2) A contractor subject to civil penalty under subsection (1)(a) of this section shall have a reasonable opportunity, not to exceed sixty days from notification of the violation, to correct the violation before being assessed a civil monetary penalty under this section. However, if the department determines that the violation resulted in serious harm to or death of a patient, constitutes a serious threat to patient life, health, or safety, or substantially limits the nursing home's capacity to render adequate care, the violator shall be so notified and a penalty may be assessed without prior opportunity to correct. Each day the violation continues may constitute a separate violation subject to assessment of a separate penalty.

The correction of a standard or condition level deficiency, as defined by the authority of Title XVIII of the social security act and 42 C.F.R. 405-110 subpart K, shall be maintained for a period of at least one year. Failure to maintain such correction shall constitute a separate violation for each day the deficiency is not corrected and may be subject to the assessment of a separate penalty not to exceed three thousand dollars without a prior opportunity to correct the violation.

(3) A person subject to civil penalty under subsection (1)(b) through (h) of this section shall not have a prior opportunity to correct the violation before being assessed a civil monetary penalty under this section.

Following the notification of a violation of subsection (1)(b) through (h) of this section, each day upon which the same or a substantially similar action occurs shall constitute a separate violation subject to the assessment of a separate penalty.

(4) Any civil penalty assessed under this section or chapter 74.46 RCW shall bear a reasonable rate of interest from the date of notification of the violation. The department may administer civil fines under this section or chapter 74.46 RCW by:

~~(a) Requiring payment in full; or~~

~~(b) Permitting installment payments; or~~

~~(c) Requiring that the full amount or a portion of the assessed civil penalty be expended to ameliorate the violation or to improve nonadministrative services within the facility; or~~

(d) Defer the penalty or a portion thereof until one year after corrective action has been completed to assure maintenance of such action: PROVIDED, That the penalty may be reduced all or in part at the end of such year: PROVIDED FURTHER, That the penalty may be trebled if such corrective action is not maintained for one year)).

((~~(5)~~)) (3) The department shall deny payment to a nursing home having a Medicaid contract with respect to any Medicaid-eligible individual admitted to the nursing home when:

(a) The department finds the nursing home not in compliance with the requirements of Title XIX of the social security act, as amended, and regulations promulgated thereunder, and the facility has not complied with such requirements within three months; in such case, the department shall deny payment until correction has been achieved; or

(b) The department finds on three consecutive standard surveys that the nursing home provided substandard quality of care; in such case, the department shall deny payment for new admissions until the facility has demonstrated to the satisfaction of the department that it is in compliance with Medicaid requirements and that it will remain in compliance with such requirements.

(4) (a) Civil penalties collected under this section or under chapter 74.42 RCW shall be deposited into a special fund administered by the department to be applied to the protection of the health or property of residents of nursing homes found to be deficient, including payment for the costs of relocation of residents to other facilities, maintenance of operation of a facility pending correction of deficiencies or closure, and reimbursement of residents for personal funds lost.

(b) Civil monetary penalties, if imposed, may be assessed and collected, with interest, for each day a nursing home is or was out of compliance. Civil monetary penalties shall not exceed three thousand dollars per violation. Each day upon which the same or a substantially similar action occurs is a separate violation subject to the assessment of a separate penalty.

(c) Any civil penalty assessed under this section or chapter 74.46 RCW shall be a nonreimbursable item under chapter 74.46 RCW.

(5)(a) The department shall order stop placement on a nursing home, effective upon oral or written notice, when the department determines:

(i) The nursing home no longer substantially meets the requirements of chapter 18.51 RCW, chapter 74.42 RCW, or in the case of medicaid contractors, the requirements of Title XIX of the social security act, as amended, and any regulations promulgated under such statutes; and

(ii) The deficiency or deficiencies in the nursing home:

(A) Jeopardize the health and safety of the residents, or

(B) Seriously limit the nursing home's capacity to provide adequate care.

(b) When the department has ordered a stop placement, the department may approve a readmission to the nursing home from a hospital when the department determines the readmission would be in the best interest of the individual seeking readmission.

(i) The provider states in writing that the deficiencies necessitating the stop placement action have been corrected; and

(ii) The department staff confirms in a timely fashion not to exceed fifteen working days that:

(A) The deficiencies necessitating stop placement action have been corrected, and

(B) The provider exhibits the capacity to maintain adequate care and service.

(d) A nursing home provider shall have the right to an informal review to present written evidence to refute the deficiencies cited as the basis for the stop placement. A request for an informal review must be made in writing within ten days of the effective date of the stop placement.

(e) A stop placement shall not be delayed or suspended because the nursing home requests a hearing pursuant to chapter 34.05 RCW or an informal review. The stop placement shall remain in effect until:

(i) The department terminates the stop placement; or

(ii) The stop placement is terminated by a final agency order, after a hearing, pursuant to chapter 34.05 RCW.

(6) If the department determines that an emergency exists as a result of a nursing home's failure or refusal to comply with requirements of this chapter or, in the case of a Medicaid contractor, its failure or refusal to comply with Medicaid requirements of Title XIX of the social security act, as amended, and rules adopted thereunder, the department may suspend the nursing home's license and order the immediate closure of the nursing home, the immediate transfer of residents, or both.

(7) If the department determines that the health or safety of residents is immediately jeopardized as a result of a nursing home's failure or refusal to comply with requirements of this chapter or, in the case of a medicaid contractor, its failure or refusal to comply with medicaid requirements of Title XIX of the social security act, as amended, and rules adopted thereunder, the department may appoint temporary management to:

(a) Oversee the operation of the facility; and

(b) Ensure the health and safety of the facilities residents while:

(i) Orderly closure of the facility occurs; or

(ii) The deficiencies necessitating temporary management are corrected.

(8) The department shall by rule specify criteria as to when and how the sanctions specified in this section shall be applied. Such criteria shall provide for the imposition of incrementally more severe penalties for deficiencies that are repeated, uncorrected, pervasive, or present a threat to the health, safety, or welfare of the residents.

Sec. 9. Section 16, chapter 99, Laws of 1975 1st ex. sess. as amended by section 19, chapter 2, Laws of 1981 1st ex. sess. and RCW 18.51.065 are each amended to read as follows:

(1) All orders of the department denying, suspending, or revoking the license or assessing a monetary penalty shall become final twenty days after the same has been served upon the applicant or licensee unless a hearing is requested. All orders of the department imposing stop placement, temporary management, emergency closure, emergency transfer, or license suspension, shall be effective immediately upon notice. Orders of the department imposing denial of payment shall become final twenty days after the same has been served, unless a hearing is requested, except that such orders shall be effective immediately upon notice and pending any hearing when the department determines the deficiencies jeopardize the health and safety of the residents or seriously limit the nursing home's capacity to provide adequate care. All hearings hereunder and judicial review of such determinations shall be in accordance with the administrative procedure act, chapter ((~~34.04~~)) 34.05 RCW, except that all orders of the department imposing stop placement, temporary management, emergency closure, emergency transfer, or license suspension shall be effective pending any hearing, and except that chapter 34.05 RCW shall have no application to receivership, which is instituted by direct petition to superior court as provided for in RCW 18.51.410 through 18.51.520.

Sec. 10. Section 10, chapter 476, Laws of 1987 and RCW 18.51.410 are each amended to read as follows:

A petition to establish a receivership shall allege that one or more of the following conditions exist and that the current operator has demonstrated an inability or unwillingness to take actions necessary to immediately correct the conditions alleged:

(1) The facility is operating without a license;

(2) The facility has not given the department prior written notice of its intent to close and has not made arrangements within thirty days before closure for the orderly transfer of its residents: PROVIDED, That if the facility has given the department prior written notice but the department has not acted with all deliberate speed to transfer the facility's residents, this shall bar the filing of a petition under this ((~~section~~)) subsection;

(3) ((~~An emergency exists that specifically demonstrates an immediate and serious threat of harm to~~)) The health, ((~~security~~)) safety, or welfare of the facility's residents((~~, including, but not limited to, abandonment of the facility by the owner~~)) is immediately jeopardized;

(4) ((A condition exists in the facility in violation of a licensing statute or regulation that specifically demonstrates an immediate and serious threat of harm to the health, safety, or welfare of the residents of the facility;

~~(5)~~)) The facility demonstrates a pattern and practice of violating chapter 18.51 or 74.42 RCW((~~, or other statutes or regulations adopted by the department designed to safeguard the health, security, or welfare of residents~~)) and rules adopted thereunder such that the facility has demonstrated a repeated inability to maintain minimum patient care standards; or

((~~(6)~~)) (5) The facility demonstrates a pattern or practice of violating a condition level as defined by the federal government under the authority of Title XIX of the social security act.

The department may file a petition in the superior court in the county in which the nursing home is located or in the superior court of Thurston county. The current or former operator or licensee and the owner of the nursing home, if different than the operator or licensee, shall be made a party to the action. The court shall grant the petition if it finds, by a preponderance of the evidence, that one or more of the conditions listed in subsections (1) through (6) of this section exists and, subject to RCW 18.51.420, that the current operator is unable or unwilling to take actions necessary to immediately correct the conditions.

Sec. 11. Section 13, chapter 476, Laws of 1987 and RCW 18.51.440 are each amended to read as follows:

Upon receipt of a petition for receivership, the court shall hear the matter within fourteen days. Temporary relief may be obtained under chapter 7.40 RCW and other applicable laws. In all actions arising under RCW 18.51.410 through 18.51.530, the posting of a certified copy of the summons and petition in a conspicuous place in the nursing home shall constitute service of those documents upon the respondent.

((~~In considering the petition, the court shall consider the following factors, among others:~~

~~(1) The history of the provider, including any prior history of deficiencies and corrective action taken; and~~

~~(2) Whether the circumstances alleged in the petition occurred for reasons that were beyond the control of the facility's current or former operator, licensee, or owner.~~))

Sec. 12. Section 15, chapter 476, Laws of 1987 and RCW 18.51.460 are each amended to read as follows:

(1) The receivership shall terminate:

((~~(1) At the end of the appointed term;~~

~~(2)~~)) (a) When all deficiencies have been eliminated and the court determines that the facility has the management capability to ensure continued compliance with all requirements; or

(b) When all residents have been transferred and the facility closed((;

(3) When all deficiencies have been eliminated and the facility has been sold or returned to its former owner: PROVIDED, That when a rehabilitated facility is returned to its former owner, the court may impose conditions to assure the continued compliance with chapters 18.51 and 74.42 RCW, and other applicable laws and regulations; or

~~(4) Upon possession and control of the nursing home by a licensed replacement operator~~)).

(2) Upon the termination of a receivership, the court may impose conditions to assure the continued compliance with chapter 18.51 RCW, chapter 74.42 RCW, and, in the case of medicaid contractors, continued compliance with Title XIX of the social security act, as amended, and regulations promulgated thereunder.

Sec. 13. Section 58, chapter 211, Laws of 1979 ex. sess. as last amended by section 27, chapter 476, Laws of 1987 and RCW 74.42.580 are each amended to read as follows:

The department may deny, suspend, ((or)) revoke, or refuse to renew a license or provisional license ((~~or, in lieu thereof or in addition thereto~~)), assess monetary penalties of a civil nature, deny payment, seek receivership, order stop placement, appoint temporary management, order emergency closure, or order emergency transfer as provided in RCW 18.51.054 and 18.51.060 for violations of requirements of this chapter or, in the case of medicaid contractors, the requirements of Title XIX of the social security act, as amended, or rules adopted thereunder. Chapter ((~~34.04~~)) 34.05 RCW shall apply to any such actions, except for receivership, and except that stop placement, appointment of temporary management, emergency closure, emergency transfer, and summary license suspension shall be effective pending any hearing, and except that denial of payment shall be effective pending any hearing when the department determines deficiencies jeopardize the health and safety of the residents or seriously limit the nursing home's capacity to provide adequate care.

NEW SECTION. Sec. 14. A new section is added to chapter 74.46 RCW to read as follows:

The department shall require nursing homes to hold a hospitalized Medicaid resident's bed for five days beyond the day of transfer for each hospitalization. The department shall reimburse the nursing home, if required to hold a Medicaid resident bed, at the facility's per diem Medicaid rate, for all allowable costs except the cost of dietary services, laundry services, and nursing supplies if the facility is at or above ninety-two percent occupancy for the month in which the hospital stay begins. Medical leave days for both public and private residents shall be included in calculating the facility's occupancy level.

NEW SECTION. Sec. 15. The aging and adult services administration, within the department of social and health services, shall conduct a study of the special needs of the Medicaid nursing home population. The study shall include, but not be limited to, a survey of the current levels of patient acuity, trends in patient acuity levels since 1984, a full profile of heavy-care patients indicating the number of total patients, full demographic profiles (age, sex, race), their special care needs, and the ability of nursing homes to provide adequate staffing levels to meet special care needs. Recommendations should address, in an action step format, the types of solutions, if any, for addressing the concerns regarding special care populations. Challenges in obtaining adequate and accurate data should also be addressed.

The department of social and health services shall provide preliminary findings to the house of representatives health care committee by November 1, 1989, and a final report, with action step recommendations, by December 1, 1989.

Sec. 16. Section 24, chapter 67, Laws of 1983 1st ex. sess. as amended by section 5, chapter 476, Laws of 1987 and RCW 74.46.481 are each amended to read as follows:

(1) The nursing services cost center shall include all costs related to the direct provision of nursing and related care, including fringe benefits and payroll taxes for the nursing and related care personnel. For rates effective for state fiscal year 1984, the department shall adopt by administrative rule a definition of "related care" which shall incorporate, but not exceed services reimbursable as of June 30, 1983. For rates effective for state fiscal year 1985, the definition of related care shall include ancillary care.

(2) The department shall adopt by administrative rules a method for establishing a nursing services cost center rate consistent with the principles stated in this section.

(3) Utilizing regression or other statistical technique, the department shall determine a reasonable limit on facility nursing staff taking into account facility patient characteristics. For purposes of this section, facility nursing staff refers to registered nurses, licensed practical nurses and nursing assistants‑-registered employed by the facility or obtained through temporary labor contract arrangements. Effective January 1, 1988, the hours associated with the training of nursing assistants‑-registered and directors-of-nursing-services-in-training and the supervision of that training for nursing assistants‑-registered and directors-of-nursing-services-in-training shall not be included in the calculation of facility nursing staff. In selecting a measure of patient characteristics, the department shall take into account:

(a) The correlation between alternative measures and facility nursing staff; and

(b) The cost of collecting information for and computation of a measure.

If regression is used, the limit shall be set at predicted nursing staff plus 1.75 regression standard errors. If another statistical method is utilized, the limit shall be set at a level corresponding to 1.75 standard errors above predicted staffing computed according to a regression procedure.

(4) No facility shall receive reimbursement for nursing staff levels in excess of the limit, except that, if a facility was reimbursed for a nursing staff level in excess of the limit as of June 30, 1983, the facility may chose to continue to receive its June, 1983 nursing services rate plus any adjustments in rates, such as adjustments for economic trends, made available to all facilities. The reasonableness limit established pursuant to this subsection shall remain in effect for the period July 1, 1983 through June 30, 1985. At that time the department may revise the measure of patient characteristics or method used to establish the limit.

(5) (a) In the event a sufficient appropriation is made by the legislature as set forth in this section, a Medicaid rate enhancement may be granted in the nursing and related services cost area. Authorization or appropriation, if any, for such enhancement is not based upon any legislative finding that Medicaid reimbursement rates, in any cost area or in any rate period, are or have been inadequate without such enhancement in meeting costs which must be incurred by economically and efficiently operated nursing homes in order to provide quality skilled or intermediate nursing care in compliance with all state and federal health and safety standards. Any such enhancement for any rate period shall be computed as follows:

(i) The total wages, benefits, and payroll taxes for registered nurses and licensed practical nurses at each facility shall be computed based on the 1988 cost report, except that the total wages, benefits, and payroll taxes for overtime and contract labor shall be calculated at the average compensation rate for registered nurses and licensed practical nurses at the facility;

(ii) The amount shall be increased by any percentage inflation adjustment granted under RCW 74.46.495; and

(iii) Twelve and one-half percent or such percentage as established by the legislature in the biennial appropriations act, if the legislature appropriates moneys to fund prospectively the portion of this percentage attributable to services to Medicaid patients. Such enhancement to the prospective rate shall be made only on the dates authorized in the appropriations act, and shall be used to fund recruitment and retention of registered nurses and licensed practical nurses, and may not be used to pay for temporary staff or nurse pool staff. Any such increase to the prospective rate shall be excluded from all reimbursement limitations cited in this section.

(b) Each contractor shall spend the amount specified in this subsection on wages, benefits, and payroll taxes for registered nurses and licensed practical nurses.

(d) If the contractor does not spend the amount as required by (b) of this subsection, then the amounts not so spent shall be recouped at preliminary or final settlement pursuant to RCW 74.46.160.

(6) The department shall select an index of cost increase relevant to the nursing and related services cost area. In the absence of a more representative index, the department shall use the medical care component index as maintained by the United States bureau of labor statistics.

((~~(6)~~)) (7) If a facility's nursing staff level is below the limit specified in subsection (3) of this section, the department shall determine the percentage increase for all items included in the nursing services cost center between the facility's most recent cost reporting period and the next prior cost reporting period.

(a) If the percentage cost increase for a facility is below the increase in the selected index for the same time period, the facility's reimbursement rate in the nursing services cost center shall equal the facility's cost from the most recent cost reporting period plus any allowance for inflation provided by legislative appropriation.

((~~(7)~~)) (8) If the facility's nursing staff level exceeds the reasonableness limit established in subsection (3) of this section, the department shall determine the increase for all items included in the nursing services cost center between the facility's most recent cost reporting period and the next prior cost reporting period.

(a) If the percentage cost increase for a facility is below the increase in the index selected pursuant to subsection ((~~(5)~~)) (6) of this section, the facility's reimbursement rate in the nursing cost center shall equal the facility's cost from the most recent cost reporting period adjusted downward to reflect the limit on nursing staff, plus any allowance for inflation provided by legislative appropriation subject to the provisions of subsection (4) of this section.

(b) If the percentage cost increase for a facility exceeds the increase in the selected index, the department shall limit the cost used for setting the facility's rate in the nursing services cost center to a level reflecting the nursing staff limit and the cost increase limit, subject to the provisions of subsection (4) of this section, plus any allowance for inflation provided by legislative appropriation.

((~~(8)~~)) (9) The department is authorized to determine on a systematic basis facilities with unmet patient care service needs. The department may increase the nursing services cost center prospective rate for a facility beyond the level determined in accordance with subsection ((~~(6)~~)) (7) of this section if the facility's actual and reported nursing staffing is one standard error or more below predicted staffing as determined according to the method selected pursuant to subsection (3) of this section and the facility has unmet patient care service needs: PROVIDED, That prospective rate increases authorized by this subsection shall be funded only from legislative appropriations made for this purpose and the increases shall be conditioned on specified improvements in patient care at such facilities.

((~~(9)~~)) (10) The department shall establish a method for identifying patients with exceptional care requirements and a method for establishing or negotiating on a consistent basis rates for such patients.

((~~(10)~~)) (11) The department, in consultation with interested parties, shall adopt rules to establish the criteria the department will use in reviewing any requests by a contractor for a prospective rate adjustment to be used to increase the number of nursing staff. These rules shall also specify the time period for submission and review of staffing requests: PROVIDED, That a decision on a staffing request shall not take longer than sixty days from the date the department receives such a complete request. In establishing the criteria, the department may consider, but is not limited to, the following:

(a) Increases in acuity levels of contractors' residents;

(b) Staffing patterns for similar facilities;

(d) Survey, inspection of care, and department consultation results.

Sec. 17. 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 shall be the historical cost of the contractor or lessor, when the assets are leased by the contractor, in acquiring the asset 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, 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 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 enforceable agreement for the purchase of a nursing home dated prior to ((~~August 1~~)) July 18, 1984, and submitted to the department prior to January 1, 1988, the depreciation base of the nursing home, for rates established subsequent to July 18, 1984, 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. For medicaid cost reimbursement purposes, an agreement to purchase a nursing home prior to July 18, 1984, is enforceable, even though such agreement contains no legal description of the real property involved, notwithstanding the statute of frauds or any other provision of law.

(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)] (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.