H-0596.1 _______________________________________________
HOUSE BILL 1134
_______________________________________________
State of Washington 57th Legislature 2001 Regular Session
By Representatives Skinner, Edmonds, Alexander, Cody, Campbell, Ruderman, Edwards, Van Luven, Schoesler, Wood, O'Brien, Schual‑Berke, Pflug, Tokuda, Esser and Haigh
Read first time 01/18/2001. Referred to Committee on Health Care.
AN ACT Relating to the medicaid related payment of property costs in licensed nursing facilities; amending RCW 74.46.020, 74.46.370, 74.46.421, 74.46.433, and 74.46.435; adding new sections to chapter 74.46 RCW; repealing RCW 74.46.908; and declaring an emergency.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
Sec. 1. RCW 74.46.020 and 1999 c 353 s 1 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) "Appraisal" means the process of estimating the fair market value or reconstructing the historical cost of an asset 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.
(3) "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.
(4) "Assets" means economic resources of the contractor, recognized and measured in conformity with generally accepted accounting principles.
(5) "Audit" or "department audit" means an examination of the records of a nursing facility participating in the medicaid payment system, including but not limited to: The contractor's financial and statistical records, cost reports and all supporting documentation and schedules, receivables, and resident trust funds, to be performed as deemed necessary by the department and according to department rule.
(6) "Bad debts" means amounts considered to be uncollectible from accounts and notes receivable.
(7) "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 or herself 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 (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 (c)(i), (ii), or (iii) of this subsection 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 (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.
(8) "Capital portion of the rate" means the sum of the property and financing allowance rate allocations, as established in part E of this chapter.
(9) "Capitalization" means the recording of an expenditure as an asset.
(10) "Case mix" means a measure of the intensity of care and services needed by the residents of a nursing facility or a group of residents in the facility.
(11) "Case mix index" means a number representing the average case mix of a nursing facility.
(12) "Case mix weight" means a numeric score that identifies the relative resources used by a particular group of a nursing facility's residents.
(13) "Certificate of capital authorization" means a certification from the department for an allocation from the biennial capital financing authorization for all new or replacement building construction, or for major renovation projects, receiving a certificate of need or a certificate of need exemption under chapter 70.38 RCW after July 1, 2001.
(14) "Contractor" means a person or entity licensed under chapter 18.51 RCW to operate a medicare and medicaid certified nursing facility, responsible for operational decisions, and contracting with the department to provide services to medicaid recipients residing in the facility.
(((14))) (15)
"Default case" means no initial assessment has been completed for a
resident and transmitted to the department by the cut‑off date, or an
assessment is otherwise past due for the resident, under state and federal
requirements.
(((15))) (16)
"Department" means the department of social and health services
(DSHS) and its employees.
(((16))) (17)
"Depreciation" means the systematic distribution of the cost or other
basis of tangible assets, less salvage, over the estimated useful life of the
assets.
(((17))) (18)
"Direct care" means nursing care and related care provided to nursing
facility residents. Therapy care shall not be considered part of direct care.
(((18))) (19)
"Direct care supplies" means medical, pharmaceutical, and other
supplies required for the direct care of a nursing facility's residents.
(((19))) (20)
"Entity" means an individual, partnership, corporation, limited
liability company, or any other association of individuals capable of entering
enforceable contracts.
(((20))) (21)
"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.
(((21))) (22)
"Facility" or "nursing facility" means a nursing home
licensed in accordance with chapter 18.51 RCW, excepting nursing homes
certified as institutions for mental diseases, or that portion of a
multiservice facility licensed as a nursing home, or that portion of a hospital
licensed in accordance with chapter 70.41 RCW which operates as a nursing home.
(((22))) (23)
"Fair market value" means the replacement cost of an asset less
observed physical depreciation on the date for which the market value is being
determined.
(((23))) (24)
"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.
(((24))) (25)
"Generally accepted accounting principles" means accounting
principles approved by the financial accounting standards board (FASB).
(((25))) (26)
"Goodwill" means the excess of the price paid for a nursing facility
business over the fair market value of all net identifiable tangible and
intangible assets acquired, as measured in accordance with generally accepted
accounting principles.
(((26))) (27)
"Grouper" means a computer software product that groups individual
nursing facility residents into case mix classification groups based on
specific resident assessment data and computer logic.
(((27))) (28)
"Historical cost" means the actual cost incurred in acquiring and
preparing an asset for use, including feasibility studies, architect's fees,
and engineering studies.
(((28))) (29)
"Imprest fund" means a fund which is regularly replenished in exactly
the amount expended from it.
(((29))) (30)
"Joint facility costs" means any costs which represent resources
which benefit more than one facility, or one facility and any other entity.
(((30))) (31)
"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, whether or 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.
(((31))) (32)
"Medical care program" or "medicaid program" means medical
assistance, including nursing care, provided under RCW 74.09.500 or authorized
state medical care services.
(((32))) (33)
"Medical care recipient," "medicaid recipient," or
"recipient" means an individual determined eligible by the department
for the services provided under chapter 74.09 RCW.
(((33))) (34)
"Minimum data set" means the overall data component of the resident
assessment instrument, indicating the strengths, needs, and preferences of an
individual nursing facility resident.
(((34))) (35)
"Net book value" means the historical cost of an asset less
accumulated depreciation.
(((35))) (36)
"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 product of the
per-patient-day rate multiplied by the prior calendar year adjusted total
patient days of each contractor.
(((36))) (37)
"Noncapital portion of the rate" means the sum of the direct care,
therapy care, operations, support services, and variable return rate
allocations, as established in part E of this chapter.
(((37))) (38)
"Operating lease" means a lease under which rental or lease expenses
are included in current expenses in accordance with generally accepted
accounting principles.
(((38))) (39)
"Owner" means a sole proprietor, general or limited partners, members
of a limited liability company, and beneficial interest holders of five percent
or more of a corporation's outstanding stock.
(((39))) (40)
"Ownership interest" means all interests beneficially owned by a
person, calculated in the aggregate, regardless of the form which such
beneficial ownership takes.
(((40))) (41)
"Patient day" or "resident day" means a calendar day of
care provided to a nursing facility resident, regardless of payment source,
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. A "medicaid day" or "recipient
day" means a calendar day of care provided to a medicaid recipient
determined eligible by the department for services provided under chapter 74.09
RCW, subject to the same conditions regarding admission and discharge
applicable to a patient day or resident day of care.
(((41))) (42)
"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.
(((42))) (43)
"Qualified therapist" means:
(a) A mental health professional as defined by chapter 71.05 RCW;
(b) A mental retardation professional who is 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;
(c) A speech pathologist who is eligible for a certificate of clinical competence in speech pathology or who has the equivalent education and clinical experience;
(d) A physical therapist as defined by chapter 18.74 RCW;
(e) An occupational therapist who is a graduate of a program in occupational therapy, or who has the equivalent of such education or training; and
(f) A respiratory care practitioner certified under chapter 18.89 RCW.
(((43))) (44)
"Rate" or "rate allocation" means the medicaid
per-patient-day payment amount for medicaid patients calculated in accordance
with the allocation methodology set forth in part E of this chapter.
(((44))) (45)
"Real property," whether leased or owned by the contractor, means the
building, allowable land, land improvements, and building improvements
associated with a nursing facility.
(((45))) (46)
"Rebased rate" or "cost-rebased rate" means a
facility-specific component rate assigned to a nursing facility for a
particular rate period established on desk-reviewed, adjusted costs reported
for that facility covering at least six months of a prior calendar year
designated as a year to be used for cost-rebasing payment rate allocations
under the provisions of this chapter.
(((46))) (47)
"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.
(((47))) (48)
"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.
(((48))) (49)
"Related care" means only those services that are directly related to
providing direct care to nursing facility residents. These services include,
but are not limited to, nursing direction and supervision, medical direction,
medical records, pharmacy services, activities, and social services.
(((49))) (50)
"Resident assessment instrument," including federally approved
modifications for use in this state, means a federally mandated, comprehensive
nursing facility resident care planning and assessment tool, consisting of the
minimum data set and resident assessment protocols.
(((50))) (51)
"Resident assessment protocols" means those components of the
resident assessment instrument that use the minimum data set to trigger or flag
a resident's potential problems and risk areas.
(((51))) (52)
"Resource utilization groups" means a case mix classification system
that identifies relative resources needed to care for an individual nursing
facility resident.
(((52))) (53)
"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.
(((53))) (54)
"Secretary" means the secretary of the department of social and
health services.
(((54))) (55)
"Support services" means food, food preparation, dietary,
housekeeping, and laundry services provided to nursing facility residents.
(((55))) (56)
"Therapy care" means those services required by a nursing facility
resident's comprehensive assessment and plan of care, that are provided by qualified
therapists, or support personnel under their supervision, including related
costs as designated by the department.
(((56))) (57)
"Title XIX" or "medicaid" means the 1965 amendments to the
social security act, P.L. 89‑07, as amended and the medicaid program
administered by the department.
Sec. 2. RCW 74.46.370 and 1999 c 353 s 14 are each amended to read as follows:
(1) Except for new buildings, major remodels, and major repair projects, as defined in subsection (2) of this section, the contractor shall use lives which reflect the estimated actual useful life of the asset and which shall be no shorter than guideline lives as established by the department. Lives shall be measured from the date on which the assets were first used in the medical care program or from the date of the most recent arm's-length acquisition of the asset, whichever is more recent. In cases where RCW 74.46.360(6)(a) does apply, the shortest life that may be used for buildings is the remaining useful life under the prior contract. In all cases, lives shall be extended to reflect periods, if any, when assets were not used in or as a facility.
(2) Effective July 1,
1997, for asset acquisitions and new facilities, major remodels, and major
repair projects that begin operations on or after July 1, 1997, the department
shall use the most current edition of Estimated Useful Lives of Depreciable
Hospital Assets, or as it may be renamed, published by the American Hospital
Publishing, Inc., an American hospital association company, for determining the
useful life of new buildings, major remodels, and major repair projects,
however, the shortest life that may be used for new buildings receiving
certificate of need approval or certificate of need exemptions under chapter
70.38 RCW on or after July 1, ((1999)) 2001, is ((forty)) thirty
years. New buildings, major remodels, and major repair projects include those
projects that meet or exceed the expenditure minimum established by the
department of health pursuant to chapter 70.38 RCW.
(3) Building improvements, other than major remodels and major repairs, shall be depreciated over the remaining useful life of the building, as modified by the improvement.
(4) Improvements to leased property which are the responsibility of the contractor under the terms of the lease shall be depreciated over the useful life of the improvement.
(5) A contractor may change the estimate of an asset's useful life to a longer life for purposes of depreciation.
(6) For new or replacement building construction or for major renovations, either of which receives certificate of need approval or certificate of need exemption under chapter 70.38 RCW on or after July 1, 1999, the number of years used to depreciate fixed equipment shall be the same number of years as the life of the building to which it is affixed.
Sec. 3. RCW 74.46.421 and 1999 c 353 s 3 are each amended to read as follows:
(1) The purpose of part E of this chapter is to determine nursing facility medicaid payment rates that, in the aggregate for all participating nursing facilities, are in accordance with the biennial appropriations act.
(2)(a) The department shall use the nursing facility medicaid payment rate methodologies described in this chapter to determine initial component rate allocations for each medicaid nursing facility.
(b) The initial component rate allocations shall be subject to adjustment as provided in this section in order to assure that the statewide average payment rate to nursing facilities is less than or equal to the statewide average payment rate specified in the biennial appropriations act.
(3) Nothing in this chapter shall be construed as creating a legal right or entitlement to any payment that (a) has not been adjusted under this section or (b) would cause the statewide average payment rate to exceed the statewide average payment rate specified in the biennial appropriations act.
(4)(((a) The
state-wide average payment rate for the capital portion of the rate for any
state fiscal year under the nursing facility medicaid payment system, weighted
by patient days, shall not exceed the annual state-wide weighted average
nursing facility payment rate for the capital portion of the rate identified
for that fiscal year in the biennial appropriations act.
(b) If the
department determines that the weighted average nursing facility payment rate
for the capital portion of the rate calculated in accordance with this chapter
is likely to exceed the weighted average nursing facility payment rate for the
capital portion of the rate identified in the biennial appropriations act, then
the department shall adjust all nursing facility property and financing
allowance payment rates proportional to the amount by which the weighted
average rate allocations would otherwise exceed the budgeted capital portion of
the rate amount. Any such adjustments shall only be made prospectively, not
retrospectively, and shall be applied proportionately to each component rate allocation
for each facility.
(5)))(a) The statewide average payment rate for the
noncapital portion of the rate for any state fiscal year under the nursing
facility payment system, weighted by patient days, shall not exceed the annual
statewide weighted average nursing facility payment rate for the noncapital
portion of the rate identified for that fiscal year in the biennial
appropriations act.
(b) If the department determines that the weighted average nursing facility payment rate for the noncapital portion of the rate calculated in accordance with this chapter is likely to exceed the weighted average nursing facility payment rate for the noncapital portion of the rate identified in the biennial appropriations act, then the department shall adjust all nursing facility direct care, therapy care, support services, operations, and variable return payment rates proportional to the amount by which the weighted average rate allocations would otherwise exceed the budgeted noncapital portion of the rate amount. Any such adjustments shall only be made prospectively, not retrospectively, and shall be applied proportionately to each direct care, therapy care, support services, operations, and variable return rate allocation for each facility.
Sec. 4. RCW 74.46.433 and 1999 c 353 s 9 are each amended to read as follows:
(1) The department shall establish for each medicaid nursing facility a variable return component rate allocation. In determining the variable return allowance:
(a) The variable return
array and percentage ((assigned at the October 1, 1998, rate setting shall
remain in effect until June 30, 2001)) shall be assigned whenever
rebasing occurs consistent with RCW 74.46.435(2).
(b) The department shall then compute the variable return allowance by multiplying the appropriate percentage amounts, which shall not be less than one percent and not greater than four percent, by the sum of the facility's direct care, therapy care, support services, and operations rate components. The percentage amounts will be based on groupings of facilities according to the rankings prescribed in (a) of this subsection, as applicable. Those groups of facilities with lower per diem costs shall receive higher percentage amounts than those with higher per diem costs.
(2) The variable return rate allocation calculated in accordance with this section shall be adjusted to the extent necessary to comply with RCW 74.46.421.
Sec. 5. RCW 74.46.435 and 1999 c 353 s 10 are each amended to read as follows:
(1) The property component rate allocation for each facility shall be determined by dividing the sum of the reported allowable prior period actual depreciation, subject to RCW 74.46.310 through 74.46.380, adjusted for any capitalized additions or replacements approved by the department, and the retained savings from such cost center, by the greater of a facility's total resident days for the facility in the prior period or resident days as calculated on eighty-five percent facility occupancy. If a capitalized addition or retirement of an asset will result in a different licensed bed capacity during the ensuing period, the prior period total resident days used in computing the property component rate shall be adjusted to anticipated resident day level.
(2) A nursing
facility's property component rate allocation shall be rebased annually,
effective July 1st ((or October 1st as applicable)), in accordance with
this section and this chapter.
(3) When a certificate of need for a new facility is requested, the department, in reaching its decision, shall take into consideration per-bed land and building construction costs for the facility which shall not exceed a maximum to be established by the secretary.
(4) For the purpose of calculating a nursing facility's property component rate, if a contractor elects to bank licensed beds or to convert banked beds to active service, under chapter 70.38 RCW, the department shall use the facility's anticipated resident occupancy level subsequent to the decrease or increase in licensed bed capacity. However, in no case shall the department use less than eighty-five percent occupancy of the facility's licensed bed capacity after banking or conversion.
(5) The property component rate allocations calculated in accordance with this section shall be adjusted to the extent necessary to comply with RCW 74.46.421.
NEW SECTION. Sec. 6. A new section is added to chapter 74.46 RCW to read as follows:
The total capital authorization available for any biennial period shall be determined by multiplying the actual cost of per-bed replacement by the bed replacement percentage multiplier. The bed replacement percentage multiplier shall be the number of licensed nursing facility beds as of June 30th of the previous year multiplied by five percent. The actual cost of bed replacement shall be determined by the following calculation: Multiplying the projected per-bed cost data derived from the current edition of a national valuation guide commonly used in the building industry by the quotient resulting from dividing the actual per-bed costs of replacement over a previous five-year period, as determined by the department using cost reports, by the respective per-bed cost data over that five-year period from previous editions of the national valuation guide used by the department during that five-year period. The actual cost of bed replacement, as determined by the department, shall include the costs not reflected in national valuation guides commonly used in the building industry. The total capital authorization shall be calculated on a biennial basis.
NEW SECTION. Sec. 7. A new section is added to chapter 74.46 RCW to read as follows:
The department shall establish rules for issuing a certificate of capital authorization. Applications for a certificate of capital authorization shall be submitted and approved on a biennial basis. The rules for a certificate of capital authorization shall be consistent with the following principles:
(1) The certificate of capital authorization shall be approved on a first-come, first-served basis.
(2) Those projects that do not receive approval in one authorization period shall have priority the following biennium should the project be resubmitted.
(3) The department shall have the authority to give priority for a project that is necessitated by an emergency situation even if the project is not submitted in a timely fashion. The department shall establish rules for determining what constitutes an emergency.
(4) The department shall establish deadlines for progress and the department shall have the authority to withdraw the certificate of capital authorization where the holder of the certificate has not complied with those deadlines in a good faith manner.
NEW SECTION. Sec. 8. RCW 74.46.908 (Repealer) and 1999 c 353 s 17 are each repealed.
NEW SECTION. Sec. 9. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.
NEW SECTION. Sec. 10. Section 8 of this act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect immediately.
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