HOUSE BILL REPORT
HB 1484
As Reported By House Committee On:
Health Care
Title: An act relating to the medicaid related payment of property costs in licensed nursing facilities.
Brief Description: Modifying property valuation methods for reimbursing nursing facilities.
Sponsors: Representatives Parlette, Cody, Alexander, Conway and Edwards.
Brief History:
Committee Activity:
Health Care: 2/4/99, 3/2/99 [DPS].
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Brief Summary of Substitute Bill
$The current method for determining variable return on investment which establishes an incentive for efficiency in facility operations is retained.
$The current financing allowance for existing facilities and projects (set at 10 percent for all existing facilities) is maintained and the financing allowance for all new assets acquired after March 15,1999, is set at 8.5 percent.
$Clarification is made to insure that those facilities that have received certificate of need approval for new construction or major renovation prior to March 15, 1999, receive a financing allowance at 10 percent.
$For new construction or major renovation projects, fixed equipment (wiring, plumbing , heating and air conditioning systems etc.) will be depreciated using the same life as the building to which it is affixed.
$A bed to population ratio of 40 beds per 1,000 persons 65 or older is placed into statute. The Certificate of Need (CON) process is valid for five years and must be reviewed prior to any continuation.
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HOUSE COMMITTEE ON HEALTH CARE
Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. Signed by 11 members: Representatives Cody, Democratic Co-Chair; Parlette, Republican Co-Chair; Pflug, Republican Vice Chair; Alexander; Boldt; Campbell; Conway; Edmonds; Edwards; Mulliken and Ruderman.
Staff: Antonio Sanchez (786-7383).
Background:
The capital reimbursement rate refers to the cost of capital, building, and equipment for each nursing home facility. It is a unique cost-based rate for each nursing facility paid through three components of the overall nursing home rate:
! Property;
! Financing allowance; and
! Variable return.
These three components make up 11 percent of the total average daily Medicaid payment to a nursing home facility. This amounts to $13 of the average daily nursing home rate of $114.74.
Property Cost: The property cost rate covers the allowable cost of depreciation on assets. Payment for property is calculated as depreciation from the prior year divided by total resident days, or resident days at minimum occupancy, which is 85 percent of the increased beds.
Financing Allowance: A financing allowance provides for interest expense on debt used to finance capital purchases as well as working capital. It funds nursing home expenses that are of a nature that warrants financing of the purchases over some period of time. Payment for interest and other financing expenses is not based on actual interest expense; instead, a financing allowance is computed. The financing allowance pays for the financing of improvements to facilities and equipment purchases. The financing allowance is calculated as ten percent of fixed assets minus depreciation divided by total resident days or 85 percent occupancy, whichever is greater.
Variable Return: The variable return component of the capital payment rewards facilities that provide services to residents efficiently and allows for some profit or to cover other expenses not covered by the reimbursement. This payment is determined by comparing a home's costs to those of other homes. Homes are then divided into four different categories, or quartiles, according to their level of costs. Each facility is eligible to receive an additional one-fourth percent of their rate, based on its comparative efficiency. Efficiency is defined as the lowest cost per resident day:
!One percent for facilities in the highest cost quartile;
!Two to three percent for facilities with costs that fall between the highest and lowest cost facilities;
!Four percent for facilities in the lowest cost quartile.
Last year the Legislature mandated that the Department of Social and Health Services (DSHS) study and recommend options for the payment of nursing facility capital and property related expenses. The department contracted with an independent consulting company, Myers and Stauffer LC, to conduct the study. The study compared the advantages and disadvantages of the systems used in other states and identified an alternative system that might be used in the state of Washington.
Certificate of Need: The CON process was initiated in Washington State by law in 1971. It was designed to allow the development of new services and facilities in an orderly way that allows for competition to occur within a specific defined planning area, yet does so without destabilizing the existing system. The CON process is administered by the Department of Health (DOH). Currently any nursing facility that wants to initiate a remodel or new construction project exceeding $1.2 million must have the proposed project approved by the certificate on need process prior to any construction. The DOH has established, as part of its needs formula, in rule a statewide ratio of 45 beds to 1,000 persons over the age of 65 as a threshold for considering construction of new nursing facility beds.
Summary of Substitute Bill:
Establishing Depreciation: The depreciation rate for fixed equipment in nursing home facilities, which is used to establish the property rate component reimbursement amount, is prospectively extended to be the same as the depreciation rate established for the life of the building for all new or replacement building construction, or for major renovations receiving CON approval or exemption approval from the DOH beyond March 15, 1999. Fixed equipment includes elevators, electrical wiring and fixtures, plumbing, heating and air conditioning systems, and other equipment that is affixed to the building and not subject to transfer.
Variable Return: The current method for determining variable return on investment which establishes an incentive for efficiency in facility operations is retained.
A variable return rate is established for each July 1 rebase period that rewards facilities for efficiency. The variable return portion of the return on investment component combines for each facility the direct care, support services, therapy care, and operations per patient day, adjusted and allowable costs, and then rates them from highest to lowest. Each combined rate is divided into quartiles. Nursing home facilities that have a combined rate in the lowest (first) quartile must have their combined rate multiplied by a factor of four percent, the highest percentage possible (most efficient). Those facilities in the next lowest (second) quartile will have their combined rate multiplied by a factor of three percent, facilities in the next lowest tier (third) quartile must have their combined rate multiplied by a factor of two percent, and finally, those facilities in the highest (fourth) quartile will have their combined rate multiplied by a factor of one percent, which is the lowest efficiency adjustment rate.
Financing Allowance: The current financing allowance for existing facilities and projects (set at 10 percent for all existing facilities) is maintained and the financing allowance for all new assets acquired after March 15,1999, is set at 8.5 percent.
New Construction: Clarification is made to insure that those facilities that have received CON approval for new construction or major renovation prior to March 15, 1999, receive a financing allowance at 10 percent. This clarification also applies to projects not requiring CON approval as long as the working drawings are submitted to the DOH prior to March 15, 1999.
Certificate of Need: A bed to population ratio of 40 beds per 1,000 persons 65 or older is placed into statute. The process provides bed planning criteria in statute consistent with DOH rule. (Current bed to population ratio is 45 per 1,000 defined in rule.) The CON process allows for the redistribution of beds within a planning area that is under the established ratio and restricts the redistribution of beds within a planning area that is over the established ratio. The CON process is valid for five years and must be reviewed prior to any continuation.
Substitute Bill Compared to Original Bill: Budget Dial: The department's ability to allow a proportional adjustment for both the property component and the return on investment component if the department determines that weighted average rates will exceed the average total rates specified in the state biennial budget, is eliminated.
Annual Rebasing: The system for determining the property rate value of a nursing home facility is eliminated. Under this system, the property and return on investment component rates must be rebased annually beginning July 1, 1999, and is based on the costs incurred by the nursing home facility during the previous year.
Valuation Criteria: The requirement that the DSHS be directed to use the Marshall and Swift valuation service in determining the value of land and building costs used in the rate formula and the base construction cost limits for new construction, remodeling, or expansion is removed. Also removed is criteria established for how to determine the valuation of allowable land and common-use areas situated in basements.
Bed Banking: Requirement that the DSHS use a residency level of 85 percent in determining the property component rate for nursing home facilities that choose to bank beds or converts banked beds to actual use is removed.
Return on Investment: The mandate that the DSHS is required to establish a return on investment (ROI) rate component existing of two parts, a financing allowance and a variable return on investment, is removed.
The new capital financing rate beginning on July 1, 1999, for a construction or renovation project in excess of $5 million set at a nine percent capital financing rate is removed in addition to the projects with costs less than $5 million that were to receive a ten percent rate.
Appropriation: None.
Fiscal Note: Available.
Effective Date of Substitute Bill: The bill contains an emergency clause and takes effect immediately.
Testimony For: (Original bill) This measure will be fair to patients who need and deserve a good place to live and to receive good quality of care. It is also fair to existing facilities that have renovated or rebuilt under terms of the current system. Older facilities will benefit.
Testimony Against: (Original bill) This measure will cost additional tax dollars and is not in the Governor's budget.
Testified: (Original bill) (Support) Karen Tynes, Washington Association of Housing Services Assistance; Chuck Hawley, Sisters of Providence; Jerry Reilly, Washington Health Care Association; Robert Ogden, Providence Mount St. Vincent; and Sam Wan, Kin On Health Care.
(Oppose) Denise Gaither, Department of Social & Health Services; and Bruce Reeves, Senior Citizen Lobby.