[32 Pa.B. 734]
[Continued from previous Web Page] § 1187.22. Ongoing Responsibilities of Nursing Facilities
The Department's focus on movable property has two distinct aspects. First, the Department has revised the manner in which per diem rates are computed and in which nursing facilities are otherwise reimbursed. Second, the Department will increase its scrutiny of nursing facility conduct involving the provision of DME to residents. To make that oversight more efficient and effective, the Department has added two new paragraphs to § 1187.22, which sets forth additional conditions of participation for MA nursing facility providers.
Under paragraph (16), a nursing facility must maintain a separate written record identifying all requests for, and all physician orders for exceptional DME or DME as is designated by the Department. This new requirement is intended to give the Department flexibility in monitoring the provision of various types of standard DME, like standard motorized wheelchairs, while, at the same time avoiding the situation when the nursing facility is required to maintain a record of all types of DME.
During the public process, the Department received a comment expressing concern that residents may be vulnerable to coercion and influence by the nursing facility to ''refuse'' DME that is costly to the facility. The comment suggested that the Department require nursing facilities to obtain an informed, written waiver from the resident, and to provide to the resident a written notice of their right to receive the DME and contact information for the PDA Ombudsman and DOH Division of Long-Term Care.
The Department is also concerned about situations when a nursing facility applies for an exceptional DME grant and the Department determines that, although the item is medically necessary, it does not qualify as exceptional DME. Unless the resident refuses the DME, the nursing facility must provide the equipment to the resident. Because these situations have the potential for substantial abuse to the detriment of residents, the Department has added paragraph (17), which requires the nursing facility to notify the Department of any these refusal. The purpose of this requirement is to give the Department notice that a purported refusal has been made, thus allowing the Department to investigate the matter on a timely basis. In these situations, the Department intends to have one or more persons contact the resident in person. If the Department finds that a nursing facility has improperly pressured the resident to refuse an item of DME, the Department will treat that conduct as a significant instance of noncompliance with State and Federal law and regulation.
The Department also received a comment recommending that the Department require nursing facilities to issue a notice whenever a request by a resident or resident's representative for DME is denied by the facility. The comment suggested that a requirement would be consistent with notice requirements of MA participating Managed Care Organizations (MCO) when they refuse to authorize services. While the Department agrees that monitoring is necessary to insure that the amendments achieve their intended purpose, the Department is not convinced that the functions performed by nursing facilities are analogous to those performed by MCOs, and therefore, it has not amended the regulations as suggested in the comment. The Department believes that nursing facility providers perform functions similar to other direct care providers, like physicians, hospitals, or other inpatient or outpatient providers. The Department does not require the providers to issue written notices when, in the course of providing treatment, they decline to provide a service or item requested by an MA recipient.
§ 1187.51. Scope.
§ 1187.51(c)(5).
As originally drafted, the amendments treated all costs of exceptional DME as nonallowable costs. Consistent with that treatment, the Department proposed to modify § 1187.51(c)(5) to provide that the case-mix per diem rate is only computed using costs associated with ''standard DME.'' However, after reviewing the comments, the Department has changed the treatment of exceptional DME costs and has decided to retain the original language.
During the public process, the Department was asked several questions regarding recognition and treatment of costs associated with DME approved or disapproved through the exceptional DME grant process. In response to these questions, the Department notes that, under § 1187.51(c)(5), which is unaffected by the amendments the costs incurred for both standard and exceptional DME may be reported on a nursing facility's cost report and, to the extent otherwise allowable, will be used to set a facility's prospective per diem rate. Costs related to DME which is not medically necessary or which is furnished for the convenience of a nursing facility or a resident are not allowable.
§ 1187.51(e).
A fundamental change effectuated by the amendments is to shift the costs of minor movable property from the capital cost component to the three net operating cost components. That change raises the question of how to determine the appropriate net operating cost center to which a particular cost should be assigned. The changes in § 1187.51(e) are intended to resolve that question. In addition, the Department has modified the introductory part of subsection (e) to include the words ''for purposes of cost reporting.'' This modification is intended to establish the timetable for the transition period, and to ensure that the amendments are not misunderstood. In particular, this revision makes clear that, during the transition period, the changes in Subchapter E (relating to allowable program costs and policies) will only have an effect upon the cost reporting requirements, and not upon the Department's price setting or rate setting decisions. Regardless of which cost center is appropriate, therefore, the revised rules only apply to those cost reporting periods that begin on or after January 1, 2001, except as specified in § 1187.91(1)(iv)(D).
§ 1187.51(e)(1)
As originally promulgated, § 1187.51(e)(1) identified 14 categories of costs that, for purposes of the Case-mix Payment System, may be both ''resident care costs'' and ''allowable costs.'' The amendments add a 15th category: ''supplies and minor movable property . . . used in a nursing facility in the course of providing a service or engaging in an activity identified in subsection (e)(1).'' For example, if game and craft items are used in the course of providing resident activities services, the cost of those items is properly included as an allowable resident care cost.
§ 1187.51(e)(2)
As originally promulgated, § 1187.51(e)(2) identified four categories of costs that, for purposes of the case-mix payment system, may be both ''other resident related costs'' and ''allowable costs.'' The amendments add a fifth category: ''supplies and minor movable property . . . used in a nursing facility in the course of providing a service or engaging in an activity identified in subsection (e)(2).'' For example, laundry soaps and bleaches, floor cleaners, toilet paper, paper towels and light bulbs are properly included as allowable other resident related costs. In addition, changes to § 1187.51(e)(2)(i) also set forth the Department's determination that the costs of supplies and minor movable property associated with ''food, food preparation, food service, and kitchen and dining supplies'' are and should be treated as ''other resident related costs,'' while § 1187.51(e)(2)(ii) sets forth the Department's determination that linen costs be treated in like manner.
§ 1187.51(e)(3).
As originally promulgated, § 1187.51(e)(3) identified 20 categories of costs that, for purposes of the case-mix payment system, may be both ''administrative costs'' and ''allowable costs.'' The amendments delete two of these categories and add one new one. The two deleted categories are ''transportation equipment depreciation'' and ''transportation equipment interest.'' Under the revised Chapter 1187, all transportation equipment directly used by the nursing facility is ''movable property,'' and the costs of this equipment are treated in the same manner as the costs of all other movable property. Thus, if an item of transportation equipment costs $500 or more, it is an item of major movable property. Otherwise, it is an item of minor movable property. In the latter instance, the cost of that item is an allowable cost within the administrative cost center. The new category encompasses ''supplies and minor movable property . . . used in a nursing facility in connection with an activity identified in subsection (e)(3).'' Thus, for example, the acquisition cost of office supplies is properly included as an allowable administrative cost.
§ 1187.51(e)(4).
As originally promulgated, § 1187.51(e)(4) provided that ''FRV'' was an allowable cost. That provision pertained to the FRV of all items, including fixed and movable property. The amendments change this provision. While the FRV of fixed property remains an allowable cost, for purposes of price and rate setting the FRV of movable property is only an allowable cost until an audited cost report for a cost report period beginning on or after January 1, 2001, has been submitted to the NIS database for the nursing facility. Once that condition is met, the draft amendments provided that the allowable cost would be ''the audited acquisition cost of the major movable property'' for the most recent audited cost report. The Department has clarified that provision to make reference to the audited ''acquisition'' cost. In addition, the Department revised the ''real estate tax cost'' provision so that it uses the defined term. See § 1187.96(d)(3).
§ 1187.56. Selected Administrative Cost Policies.
§ 1187.56(1)(ii)(D).
As originally promulgated, § 1187.56(1)(ii)(D) provided that ''[h]ome office allocations, including administratively allowable depreciation and interest costs relating to transportation equipment, shall be reported in the general administration line of the cost report.'' The Department has removed the references to transportation equipment to be consistent with the revisions to other provisions of the regulations that remove specific references to transportation equipment. In making this change, the Department does not intend to alter the treatment of home office costs or home office allocations. Thus, home office costs and allocations continue to include both direct and indirect allowable home office costs, including depreciation and interest relating to home office fixed and movable property. All home office costs continue to be recognized as general and administrative costs.
§ 1187.56(2) and (3).
The amendments have changed the term ''interest--administrative'' to ''other interest'' and modified the associated definition. The changes in paragraphs (2) and (3) reflect the new terminology. In addition, they clarify that this cost is allowable only if ''necessary and proper.'' Additionally, the provision formerly in § 1187.56(2)(vii), which pertained to ''interest expense on funds borrowed for transportation equipment purchases,'' has been eliminated because, under the amendments, that interest is capital interest and, as such, is no longer an allowable cost.
§ 1187.56(4).
The provision formerly § 1187.56(4) has been removed in its entirety. That provision provided that certain costs associated with the acquisition and ownership of transportation equipment (namely interest and depreciation) were allowable costs to be included in a nursing facility's ''administrative cost center.'' Under the amendments, transportation equipment is an undifferentiated type of movable property. Thus, under the amendments, the acquisition cost of this movable property is an allowable capital cost if the acquisition cost is $500 or more; or an allowable administrative cost if the acquisition cost is less than $500.
§ 1187.56(7).
As originally promulgated, § 1187.56(7) provided that ''[r]ental expense for plant, property and equipment is not recognized as a separate allowable cost. It is included in the FRV.'' Because, under the amendments, the rental cost of movable property is an allowable cost, the original provision is no longer completely correct. Therefore, it has been deleted and, in its place, § 1187.59(a) has been amended to provide that rental expense for fixed property is not an allowable cost.
§ 1187.57. Selected Capital Cost Policies.
Former § 1187.57(a).
Under Chapter 1187 as originally promulgated, a nursing facility's capital rate component was comprised of two parts: an ''FRV'' element that pertained to all fixed and movable property, and a ''real estate tax cost'' element. Former subsection (a) summarized this arrangement. However, as a result of the amendments, the capital rate component is now comprised of three parts: the fixed property component; the movable property component; and the real estate tax cost component. Thus, former subsection (a) has been removed, and the introductory part of § 1187.57 now summarizes the composition of the capital cost component.
Former § 1187.57(b)(1)--(4).
As originally promulgated, paragraphs (1)--(4) set forth various provisions pertaining to the appraisal of nursing facilities. Those provisions have been incorporated in modified form into the new version in revised subparagraphs (ii), (v), (vii) and (viii). Changes in wording reflect the updated terminology, clarifications and changes in the overall system.
Former § 1187.57(b)(5).
As originally promulgated, paragraph (5) stated: ''The original cost of a nursing facility will not be a factor in the determination of the appraised depreciated replacement cost.'' In the amended version, this provision has been omitted as unnecessary: The definition of ''depreciated replacement cost'' is clear that the appraisal considers ''the amount required to replace'' fixed or movable property, not the amount required to obtain it in the first place.
Former § 1187.57(c) and (d).
In the draft version of the amendments disseminated to the public, the Department erroneously indicated that it intended to remove these subsections. The Department has no such intention. However, those provisions have been modified to conform to the revised system and terminology. Thus, the substance of former § 1187.57(c) is in §§ 1187.57(1)(x) and (2)(i)(D), while the substance of former § 1187.57(d) is in § 1187.57(1)(viii).
§ 1187.57(1)
This paragraph specifies that the new ''fixed property component'' of a nursing facility's capital rate is based upon the depreciated replacement cost of the facility's fixed property and the associated financial yield rate. In addition, it provides detail on how and when the underlying appraisals will be performed and used. In particular:
Under Chapter 1187 as originally promulgated, the Department was not required to obtain an annual appraisal for each nursing facility but, rather, was only required to reappraise the facility once every 5 years. The revised version specifies that the Department will not only make an annual determination of the depreciated replacement cost of each nursing facility's fixed property but, in addition, specifies that when an initial appraisal or reappraisal has not been done within the preceding 12-month period, the Department will use an ''updated appraisal.''
The revisions expressly recognize the various types of appraisals currently used by the Department, that is, ''initial appraisals,'' ''limited appraisals,'' ''updated appraisals'' and ''reappraisals.'' In addition, the revisions set forth the Department's prior and current practice regarding the use of these appraisals, including the requirement that, for the results of a limited appraisal to be included in the Department's determination of a nursing facility's capital rate for a rate year, the facility must request the limited appraisal by January 31 of the preceding rate year.
§ 1187.57(2)
One of the principal changes made by these amendments is the removal of movable property from the FRV system of determining capital costs. In effectuating that change, the audited acquisition costs of minor movable property are treated as net operating costs, and are included in the computation of peer group prices. The audited acquisition costs of major movable property, however, are treated as capital costs. To implement this change, the Department needs audited cost reports that set forth the audited costs of major movable property. The information is only available starting with cost reporting periods beginning on January 1, 2001. For this reason, paragraph (2) is divided into two subparagraphs. Until the required audited costs are in the database, the Department will continue to use the FRV system to include movable property costs in the capital rate component. Once the audited costs are in the database, the Department will begin using the audited acquisition costs for movable property.
§ 1187.57(3)
As originally promulgated, § 1187.57(a) provided that a nursing facility's capital rate component would be computed using, among other things, ''the nursing facility's real estate taxes or reasonable payment made in lieu of real estate taxes.'' Paragraph (3) sets forth the same thought using the revised terminology.
§ 1187.5. Costs of related parties.
The wording of this section has been revised to clarify that it applies to movable property and supplies furnished by a related party. No change in the substance of this provision is intended. Thus, for instance, home office costs and management service costs involving a related party continue to be administrative costs. See §§ 1187.51(e)(3) and 1187.56.
§ 1187.59. Nonallowable costs.
§ 1187.59(a)(24).
As originally promulgated, § 1187.59(a)(24) stated that the Department would not recognize as an allowable cost ''[d]epreciation and interest on indebtedness for capital plant facilities not included in the FRV payment.'' The amendments substitute the following list: ''Depreciation on fixed or movable property, capital interest, amortization--capital costs and rental expense for fixed property.'' As revised, this provision encompasses not only those costs originally declared to be nonallowable, but also relocates the rules pertaining to rental expense (as it applies to fixed property) and ''amortization--capital costs.'' See §§ 1187.51(e)(4) and 1187.71(a)(4)(v) (although nursing facility's must report amortization--capital costs, these costs are not included in the listing of allowable costs and, consequently, under § 1187.51(e), are nonallowable).
§ 1187.60. Prudent buyer concept.
The Department revised the wording of this section to conform it to the revised terminology pertaining to movable property and supplies. No change is intended to the substance of this section.
§ 1187.61. Movable Property Cost Policies.
In general.
§ 1187.61 is a new section. The purpose of this section is to set forth the rules on how the allowable acquisition cost of an item of movable property shall be determined, and to specify offsets against those costs. For the cost of movable property to be allowable under this provision, the cost to acquire the movable property must be incurred by the nursing facility, that is, the facility must purchase or rent the movable property. Thus, for example, a nursing facility may use DME (such as, a wheelchair) that is owned by a resident in rendering services to the resident in accordance with his care plan. In these instances, the nursing facility has not incurred an acquisition cost.
In addition, for the cost of movable property to be allowable, the Department has added language to this provision that requires that the nursing facility must place the movable property in service during the cost reporting period in which the facility reports the cost. This requirement is intended to protect against the situation when a nursing facility contracts to purchase or rent movable property, with delivery and payment to be made later. Especially when the nursing facility would retain the ability to cancel the order, this situation would permit abusive cost reporting practices.
§ 1187.61(a).
Subsection (a) makes clear that the related party and prudent buyer rules in §§ 1187.58 and 1187.60 are applicable and shall limit the actual acquisition cost of movable property.
§ 1187.61(b)(1).
Paragraph (1) provides that ''acquisition cost is determined on a per-unit basis.'' Thus, for instance, if a nursing facility pays $600 for three identical television sets, the acquisition cost is $200 per set, even if purchased under a ''buy 2, get 1 free'' arrangement. On the other hand, if the nursing facility purchases three non-identical television sets that are individually priced at $100, $200 and $300, the acquisition cost of each is the individual amount paid.
§ 1187.61(b)(2).
Chapter 1187 specifies that nursing facility cost reports shall be prepared using the accrual basis of accounting. See §§ 1187.71(d) and 1187.73(b). Consistent with this requirement, when a nursing facility contracts to purchase an item of movable property, the full purchase price of the item generally is capitalized, including that portion of the purchase price that has not yet been paid as of the close of the cost reporting year. Thus, for instance, if the nursing facility purchases a motor vehicle on a 4-year installment sales contract, the full acquisition cost of that item is recognized in a single cost reporting period. Also, capital interest is a nonallowable cost. See § 1187.59(a)(24). Therefore, in computing the acquisition cost of an item purchased under an installment sales agreement, all interest costs must be excluded. Moreover, if the nursing facility has contracted to purchase an item, but has not received the item and has not paid the full purchase price, then under § 1187.61(a), there is no allowable acquisition cost for that period. Thus, for instance, if the motor vehicle is contracted for in one cost reporting period, but not received and put into service until the subsequent cost reporting period, the cost is only considered to have accrued as of the second cost reporting.
§ 1187.61(b)(3).
Under Chapter 1187 as originally promulgated, the rental cost of fixed and movable property was a nonallowable cost. Under the amendments, the rental cost of fixed property continues to be a nonallowable cost. However, when an item of movable property is acquired by renting or leasing it, the acquisition cost of that item is an allowable cost: If the total acquisition cost is $500 or more, that cost is an allowable capital cost; if it is less than $500, it is an allowable net operating cost. Assume, for instance, that an item is rented for a 24-month period, at $100 per month, when the first month of the rental period is the last month of the cost reporting period, with the result that, for the initial cost reporting period, the nursing facility only paid $100 in rent. For that cost reporting period, the nursing facility would report $100 in rental acquisition costs. However, although the rent for that period was less than $500, the total rent for the item is $2,400. Therefore (and assuming that the imputed purchase price also is $500 or more), the acquisition cost of this item should be reported as a capital cost, rather than a net operating cost.
With regard to the specifics of § 1187.61(b)(3):
* ''Renting'' versus ''Leasing.'' As used in the amendments, the words ''rent'' and ''lease'' are considered synonyms. They pertain to any situation when the owner or rightful possessor of an item of property (the lessor) grants to another person (the lessee) the right to possess, use and enjoy that item for a specified period of time, in exchange for payment of a stipulated consideration, that is, rent. If a nursing facility enters into a contract whereby it leases an item for a period of time and, at the end of that time, obtains title to it (or has the option of purchasing it), that item is considered to be leased or rented except that, at the end of the period, if an additional payment is required to obtain title to the item, that payment is treated as the purchase price of the item, for purposes of computing its acquisition cost.
* Annual acquisition costs. If a nursing facility purchases an item of movable property, the entire acquisition cost of that item is reported in the cost reporting period during which the item was first placed into service. By contrast, if the nursing facility leases that item, the acquisition cost of that item is reported on an annual basis, for each cost reporting period in which the item is leased.
* Computation of the acquisition cost. The annual acquisition cost of a rented or leased item of movable property is limited by the ''imputed purchase price'' of that item. For purposes of making this comparison, the latter is annualized on a straight-line basis over its useful life. If the item is only in use for a portion of a cost reporting period, both the rent and the imputed purchase price are pro rated for that portion. For example, for an item with a purchase price of $3,600 and an expected useful life of 3 years, the annualized purchase price is $1,200 per year. If the monthly lease payment is $150 (that is, an annual cost of $1,800), the ''acquisition cost'' of this item would be limited to $1,200 per year ($100 × 12 months), assuming that no other lower amount would qualify as the ''imputed purchase price.''
§ 1187.61(b)(4).
The case-mix payment system is a prospective payment system that uses annual per diem rates (adjusted quarterly) to compensate nursing facilities for providing nursing facility services. In setting these rates, the system looks at the reasonable allowable costs incurred in the past. However, there is no correlation between the rates in effect for a given rate year and the costs by the nursing facility during that same 12-month period. Rather, the rates are set using audited costs of previous periods (adjusted for inflation and the nursing facilities ''case-mix'') as a basis for determining what a reasonable rate would be for the period in question. Consistent with that methodology, the amendments provide for the inclusion of the imputed ''cost'' of an item acquired as a gift or donation. The assumption is that, if the nursing facility had not acquired the item at no cost, it would have had to have purchased the same or similar item and, thus, would have incurred an allowable cost, and the cost would be included in the NIS database. Thus, for the NIS database to reflect the imputed cost of the donated item, the amendments provide that the nursing facility receiving the item shall report the appraised depreciated replacement cost of the item. Assuming that the item is related to the provision of nursing facility services, that cost is an allowable cost. The amendments also place the burden on the nursing facility of obtaining the necessary appraisal. This arrangement is wholly appropriate, since the nursing facility is in the position of knowing when these items are donated and, further, bears the consequences that arise from failure to obtain that appraisal.
§ 1187.61(b)(5).
In a trade-in situation, an old item is used to pay some or the entire purchase price of the new item. Thus, for instance, if a nursing facility ''trades-in'' an old lawnmower as part of the purchase of a new lawnmower, the acquisition cost of the new lawnmower is the amount the facility is paying (that is, the amount of money (exclusive of interest) being paid) plus the trade-in value of the old lawnmower. The trade-in value of the old lawnmower is determined by depreciating its acquisition cost on a straight-line basis over its useful life as determined by the specified ''Uniform Chart.'' The draft version of this provision was modified to eliminate possibly ambiguous or confusing phrasings.
§ 1187.61(c).
The purpose of the offsets is to prevent nursing facilities from ''gaming'' the case-mix payment system by, for instance, acquiring items of movable property solely to increase their reported costs, then selling or otherwise conveying the movable property to another person. The Department finds these rules appropriate, as nursing facilities do not typically resell items of movable property to other entities but, instead, are themselves the end-users of the items. Moreover, these rules encourage nursing facilities to fully consume items of major movable property.
During the public process, the Department was asked why the term ''pay'' was used in the draft of this section, while ''liquidate'' was used in § 1187.52. The Department has revised the wording of § 1187.61(c) to eliminate the perceived inconsistencies.
During the public process, the Department received a recommendation that the Department amend its regulations to specify how a nursing facility's status as a debtor in bankruptcy might affect that facility's allowable costs, including short-term liabilities that are not liquidated within 1 year. The Department has already provided nursing facilities with guidance on this issue: When a nursing facility has not liquidated its short-term liabilities, the facility may, under 1 Pa.Code § 35.18 (relating to petitions for issuance, amendment, waiver or deletion of regulations), submit a petition to the Secretary of the Department seeking a waiver of the application of the regulations to those costs. The Department finds that this response adequately addresses the commentator's concern.
§ 1187.61(d).
Under the amendments, the acquisition cost of movable property is an allowable cost and, if a nursing facility trades-in, conveys, transfers or removes an item from service, an offset is taken. Under these circumstances, it would be inconsistent for losses on those transactions to be considered an allowable cost. Consequently, they are expressly declared to be nonallowable.
§ 1187.61(e).
The purpose of this provision is to ensure that, when an item of movable property is rented or leased by the nursing facility, the nursing facility obtains adequate documentation of the terms and conditions of the transaction. Failure to secure the documentation at the time of the transaction results in the acquisition costs being deemed nonallowable. When an item of movable property is rented, and if the rental agreement also covers maintenance, services or supplies, only that portion of the rent that relates to the item of movable property is considered in determining the annual acquisition cost that may be reported as an allowable minor or major movable property cost. Maintenance, services or supplies covered by the rental agreement would be reported in the appropriate net operating cost center.
§ 1187.71. Cost Reporting.
§ 1187.71(a).
This section identifies those costs that a nursing facility includes in its annual cost report. Included costs are not necessarily ''allowable costs.'' See, § 1187.71(a)(4), which requires that facilities report depreciation, interest on capital indebtedness, the cost of renting the nursing facility, and ''amortization--capital costs.'' The principal changes made in this subsection are: (1) the inclusion of a provision for minor movable property in each of the three net operating cost centers; and (2) the inclusion of supplies in each of those cost centers. Aside from those changes: (a) because the ''resident care costs'' now includes a minor movable property provision, the DME provision was removed as superfluous; (b) in the ''other resident related costs'', the dietary provision was amended so that all kitchen, food service and dining supplies are expressly encompassed within this category; and the ''laundry'' provision was amended so that the linen costs are expressly encompassed within that category; (c) in the ''administrative costs,'' because costs associated with transportation equipment are now treated as costs of movable property, and equipment rental is a form of acquisition cost, the separate provisions for those costs have been eliminated as obsolete and duplicative. Also, although the draft version of the amendments proposed to eliminate ''officers' life insurance'' as a reportable cost, that proposal was in error and has been reversed. The changes to the ''capital costs'' reflect the changes in terminology and the need to have the costs of ''major movable property'' reported separately.
§ 1187.71(c).
Subsection (c) was modified so that it uses the same terminology as other sections, while retaining the same meaning as the original version.
§ 1187.71(f).
The terminology of subsection (f) was modified to clarify that the financial records that enrolled nursing facilities must maintain include lease agreements and rental agreements involving either fixed or movable property. In addition, because ''supplies'' is now a defined term, ''requisitions for supplies'' has been removed to avoid possible confusion.
§ 1187.80. Failure to file a cost report.
§ 1187.80. In general.
A function of § 1187.80 is to establish an incentive for nursing facilities to file timely and acceptable cost reports. Because, under the amendments, a nursing facility's movable property component of the capital rate will be computed using information from a single audited cost report, the revised system may motivate some facilities to attempt to ''game'' the system by withholding cost reports. For instance, a nursing facility that purchased voluminous quantities of major movable property in 1 year, and little or none in the following year, might consider withholding the cost report for the latter year, in hopes that the costs from the first year would be used in 2 separate rate years. Because of this concern, the Department originally proposed that late or nonfilers would receive $0 for their capital component. During the public process, the Department received a comment questioning the severity of this proposed change. Upon consideration of this comment, the Department concluded that a less severe incentive should suffice. Therefore, in addition to changes intended to more clearly state the rule, it has changed the proposed regulation as noted in this Preamble.
§ 1187.80(b).
As originally drafted, if a nursing facility failed to file a timely cost report, the amendments would have reduced the facility's net operating components by 5%, but would have reduced the facility's capital rate component to $0. However, in response to comments, the Department revisited the capital portion of this provision. Because the Department is concerned with attempts to manipulate the movable property costs, the Department revised this provision so that, for cost reporting periods beginning on or after January 1, 2001, the failure to file a timely cost report will cause the movable property component of the capital rate to default to $0.
In subsection (b), the meaning of the introductory language has been clarified. As noted in this Preamble, nursing facility payments are computed using a prospective comprehensive per diem rate. Thus, regardless of the particular mix of items and services used to provide care to a particular MA resident, the payment for that resident is computed using the entire rate. Consequently, although Chapter 1187 speaks at various places of ''rates'' for the various cost centers, those ''rates'' are not ''payment rates'' but, rather, are more accurately and properly understood to be components of the comprehensive per diem rate. In like manner, it is inaccurate to speak of ''payment to the nursing facility for net operating costs for cost reporting periods involved.'' Therefore, the phrasing of this subsection has been amended to eliminate possible ambiguities and to more accurately describe the functioning of the case-mix payment system.
§ 1187.91. Database.
§ 1187.91(1)(iv)(D).
The Department has included various provisions in the amendments that provide for a transition from the existing movable property payment methodology to the new methodology set forth in the amendments. The Department has added this new subsection to implement one aspect of the transition. Specifically, the new subsection authorizes the Department to disregard audit adjustments that disallow or reclassify costs for linens and minor movable property reported as net operating costs on cost reports for fiscal periods beginning prior to January 1, 2001. This new subsection only applies to price and rate-setting effective on or after July 1, 2001; it does not authorize modification of audit adjustments for any other price and rate-setting period. Moreover, this new subsection only authorizes the disregard of adjustments that reduce costs already reported. It does not permit modification of audit reports to include costs that were not previously reported on cost reports or to increase costs beyond those reported on cost reports. The new subsection specifies that the Department will not adjust the audited statistics when revising the nursing facility audited Resident Care, Other Resident Care and Administrative allowable costs as a result of the application of this section. However, the new subsection does specifically authorize the Department to recalculate the maximum allowable administrative cost, and to disallow administrative costs in excess of the 12% limitation as specified in § 1187.56(1)(i).
§ 1187.91(2).
As originally promulgated, Chapter 1187 provided that the capital rate would consist of two components. One component involves what is now called ''real estate tax costs.'' Although changes in wording have been made in § 1187.91, no change in meaning is intended with regard to the ''real estate tax cost'' component. Rather, the revised version reflects the Department's interpretation of the original wording. However, the amendments do alter the other originally promulgated part which dealt with FRV.
As originally promulgated, the FRV component of the capital rate pertained to all fixed and movable property. The amendments remove ''movable equipment'' from that formulation: The acquisition costs of ''minor movable property'' are included in net operating cost centers, while the acquisition costs of ''major movable property'' are used to compute a new component of the capital rate component. To implement this change, the Department is issuing revised MA-11 cost reporting forms and schedules. These will first be used for the cost reporting periods that begin on January 1, 2001. Cost reports for earlier periods will use old versions of the MA-11 and will not set forth the required information. As explained elsewhere, the Department finds it impracticable to have the nursing facilities revise the cost reports for these periods, and it is impracticable for the Department to reaudit those cost reports. Therefore, there will be a transition period during which the new cost report will be submitted and audited, but during which the movable property component will be computed using the FRV system. However, as soon as a new MA-11 has been audited and the verified costs have been submitted and input into the NIS database, the Department will begin using the contents of that audited cost report (and its successors) in the next rate setting.
§ 1187.96--Price and rate setting.
As originally promulgated, Chapter 1187 provided that each nursing facility's capital rate had two parts, the ''FRV'' (which encompassed both fixed and movable property) and the ''real estate tax cost.'' The amendments revise the system so that a nursing facility's capital rate now has three components: (1) The fixed property component still uses the FRV system; (2) a new component is established for movable property; and (3) the real estate tax cost component remains unchanged.
§ 1187.96(d)
The 90% adjustment. To encourage nursing facility efficiency and economy associated with nursing facility occupancy levels, the Department makes minimum occupancy adjustments. Thus, if a nursing facility's overall occupancy level is below 90% of total available bed days, the Department makes an adjustment to the total facility resident days as though the nursing facility were at 90% occupancy. See § 1187.23(a). This adjustment is made to the administrative and capital cost components. Id.; § 1187.96(c) and (d). However, it is not applied to a newly constructed nursing facility until that facility has been enrolled in the MA Program for one full annual price setting period. See § 1187.97(1)(iv). The amendments retain the 90% adjustment.
§ 1187.96(d)(1).
As originally promulgated, § 1187.96(d)(1) provided that the determination of the ''FRV'' included all fixed and movable property of the nursing facility. As amended, this paragraph provides that only the FRV of the fixed property will be used for purposes of computing the capital rate. Although the wording has been modified, the process for determining that amount remains unchanged.
§ 1187.96(d)(2).
Immediate conversion to the revised system is impracticable and, consequently, there must be a transition period. During the transition period, the movable property component will be computed in accordance with § 1187.96(d)(2)(i), which reproduces the result of Chapter 1187 as originally promulgated. Afterwards, it will be computed in accordance with subparagraph (ii), which sets forth the new method.
§ 1187.97. Rates for new nursing facilities, nursing facilities with a change of ownership, reorganized nursing facilities, and former prospective payment nursing facilities.
§ 1187.97(1)(ii).
This section defines ''new nursing facility'' as a ''newly constructed, licensed and certified nursing facility; or an existing nursing facility that has never participated in the MA Program or an existing nursing facility that has not participated in the MA Program during the past 2 years.'' As originally promulgated, § 1187.97(1)(ii) specified how the capital rate component for a new nursing facility would be calculated. Because, under the amendments, the capital rate component now consists of three parts, rather than two, this paragraph has been amended to reflect that change.
In addition, a distinction is made between nursing facilities that are certified for participation in the MA Program prior to January 1, 2001, and those that are certified for participation on or after that date. As set forth in subparagraph (ii), the earlier ''new nursing facilities'' will transition from the original to the revised case-mix system in the same manner as all other nursing facilities. However, because the Department has no movable property appraisals for the later ''new nursing facilities,'' the transition for these facilities will be based upon the acquisition cost of their new movable property, plus the depreciated replacement cost of any other movable property, amortized over 3 years. Except when the new nursing facility lacks a depreciation schedule for its used movable property, the latter method will eliminate the use of appraisals as a basis for the costs used to set the movable property component of the new nursing facilities' capital rate components.
The Department has modified the treatment of real estate taxes in setting per diem rates for new nursing facilities. The purpose of this change is to ensure that, until audited costs are available in the NIS database, the new nursing facility's capital rate component is computed using current real estate tax costs.
§ 1187.97(2)(iii).
Under Chapter 1187 as originally promulgated, the acquisition cost of fixed and movable property had no effect upon the rates, because the allowable costs for those items were determined using the FRV system. The amendments, however, modify that system so that the acquisition costs of movable property are an allowable cost. The purpose of this subparagraph (iii) is to clarify that, when a nursing facility changes owners, that transaction has no effect upon the reported or allowable movable property costs.
§ 1187.112.
To conform this section to the revised terminology, the term ''movable equipment'' is being replaced with ''movable property.''
§ 1187.113.
Under Chapter 1187 as originally promulgated, § 1187.113 imposed a limitation on the computation of the capital component of a nursing facility's per diem rate. That limitation, known as the ''bed moratorium'' (§ 1187.96(d)(1)), applied to both fixed and movable property. However, in addition to moving minor movable property costs to the net operating cost centers, the amendments also eliminate the application of the moratorium to major movable property costs. Thus, under the amended Chapter 1187, the allowable acquisition costs of movable property will be included in the computation of the nursing facilities per diem rate. The moratorium continues to be applicable to fixed property.
Subchapter K: Exceptional payment for nursing facility services.
As originally promulgated in Chapter 1187 when a nursing facility provided nursing facility services to an MA eligible resident, payment made by the Department at the per diem rate constituted payment in full for those services, including the use of any and all DME. See §§ 1187.51 and 1101.63. ''Durable medical equipment'' or ''DME'' is a form of movable property. See § 1187.2. However, under provisions of the State Medicaid plan, the Department also is authorized to make additional payments, if requested by a nursing facility and if the resident in question requires certain high-technology DME. By promulgating Subchapter K, the Department is establishing this option as a part of its regulations.
As set forth in Subchapter K, when certain requirements are met, the Department will make ''exceptional payments'' to enrolled nursing facilities. Those payments are made in addition to any payments made under a nursing facility's per diem rate, and are made only to nursing facilities. They are not made to residents, DME vendors, physicians, or other persons and entities.
To receive an exceptional payment, a nursing facility must request and the Department must approve an ''exceptional DME grant.'' Whether a nursing facility submits a request is optional.
When it initially disseminated its draft regulations, the Department intended to continue its current practice of requiring grant agreements whenever it approved a nursing facility's exceptional grant request. The Department has determined that this practice is unnecessary. Because the requirements relating to exceptional DME grants are now included in the Department's regulations, the Department will no longer use grant agreements for grants issued on or after July 1, 2001. The Department has deleted all references to grant agreements from Subchapter K. Due to the optional, exceptional and individual nature of these grants, however, the Department will specify the particular terms of each grant in writing, and nursing facilities will be required to certify to the Department, on a form designated by the Department, that they have read and understand the terms of the grant, as a condition of receiving the grant.
Although there is a direct correlation between the amount of an exceptional payment and the necessary, reasonable and prudent cost of the associated DME, the payment is not made for the purpose of reimbursing the nursing facility for its costs of obtaining the exceptional DME. Under the prospective payment system set forth in Chapter 1187, the Department pays for nursing facility services provided to MA residents. See § 1187.51. Consistent with this approach, an exceptional payment constitutes additional payment for nursing facility services provided to the resident identified in the exceptional DME grant.
During the public process, the Department received a comment recommending that the Department require nursing facilities to notify residents of the availability of exceptional DME upon admission to a nursing facility and to assess residents as to their need for the equipment as part of the annual resident assessment. The Department has not included these requirements in Subchapter K because nursing facilities are already required to notify residents of services and items that are covered by Medicare and Medicaid payments and to periodically perform assessments of their residents' needs and to develop comprehensive care plans based upon those assessments. See 42 CFR 483.10(b)(5) and (6) and 483.20 (relating to resident rights; and resident assessment).
§ 1187.151. Definitions.
In general.
The definitions in § 1187.151 pertain to the provisions in Subchapter K. A ''resident'' as defined therein is not only a resident of a nursing facility, but rather, is an MA eligible resident of a nursing facility enrolled in the MA Program as a provider of nursing facility services, and is identified in a request for an exceptional DME grant as needing exceptional DME.
Exceptional DME grant. An exceptional DME grant is not money or other consideration. Rather, it is a conditional authorization given by the Department. That authorization sets forth the Department's permission for a particular nursing facility to submit invoices to the Department for additional payments, above and beyond any payments made at the facility's case-mix per diem rate, for nursing facility services provided to an identified MA resident. In the absence of a grant, a nursing facility may not present the Department with an invoice or other demand for any payment.
§ 1187.152. Additional reimbursement of nursing facility services related to exceptional DME.
§ 1187.152(a).
For an item of DME to qualify as ''exceptional DME,'' the acquisition cost of that item must meet or exceed the minimum acquisition cost threshold in the Department's annual notice. Because, at the present time, that threshold is $5,000, any item of exceptional DME is and must be an item of major movable property. See § 1187.2 (definition of ''movable property''). Although the Department is using the annual list to specify the amount of the threshold to permit ready adjustment of it, the Department expects that the adjustments will track changes in the cost of DME and, consequently, that ''exceptional DME'' will always qualify as ''major movable property.'' As set forth in § 1187.52(e)(4)(ii)(B), the acquisition costs of major movable property are (subject to various conditions) allowable costs. Thus, because all items of exceptional DME are movable property, the cost of exceptional DME is (generally) an allowable cost. Like other allowable nursing facility costs, the cost of an item of exceptional DME is limited by the requirement that it be necessary, reasonable and prudent. See § 1187.152(a).
When DME and related services and items are approved by a grant, subsection (a) specifies the mechanism for conclusively determining the amount of exceptional DME costs that is ''necessary, reasonable and prudent'': It is the amount of the costs ''identified in the nursing facility's grant.'' Consequently, ''[a]ny costs incurred in excess of the costs identified in the grant are not allowable costs. . . '' For cost reporting and auditing purposes, this provision is conclusive. However, when the DME or related services and items are not approved by a grant, these provisions do not apply.
§ 1187.152(b).
Subsection (b) provides that, if a nursing facility provides nursing facility services to an MA eligible resident, and if those services involve the use of ''exceptional DME,'' the nursing facility may seek additional reimbursement by requesting a grant from the Department. This phrasing is intended to indicate that the nursing facility is not required to make a request. If no request is made, the nursing facility still may receive payment through the submission of invoices, based upon its per diem rate. However, in the absence of a grant request, the Department will not issue a grant and, consequently, there will be no authorization of an additional payment.
During the public process, the Department received comments suggesting that, in addition to permitting nursing facilities to apply for exceptional DME grants, the Department should also permit requests to be submitted by residents and their outside physicians, and that residents should have the right to request independent assessments to determine their need for DME. These suggestions were prompted by the concern that, because the decision to request a grant lies in the hands of the nursing facility, facilities may decline to make requests unless they are reasonably confident that the requests will be granted. While the Department agrees that the resident, the resident's family and the resident's physician should be active participants in developing the resident's care plan, the Department is not willing to reduce or limit the obligation that a nursing facility provider has to make all medically necessary DME available to its residents, as part of its responsibility to provide care and services, including DME, under the residents' individual plans of care. For this reason, the Department has not accepted the suggestion to allow persons other than nursing facilities to submit exceptional DME grant requests. Nonetheless, to address the concern that nursing facilities may not make exceptional DME requests in order to avoid their obligation to provide necessary care to their residents, the Department has amended § 1187.22 to provide that the nursing facility must maintain a separate written record identifying all requests or physicians' orders received by the facility for exceptional DME, and for other DME the Department may specify. The purpose of this amendment is to provide the Department with a means of effectively and efficiently determining whether the requests are incorrectly ignored or rejected.
In addition, the Department and the DOH monitor nursing facilities to ensure that they provide services in compliance with law. If a resident or the resident's family, representative or physician believe that the nursing facility is not allowing them to participate in the care planning process or that the facility is not meeting the residents needs, the Department urges the resident, or the resident's family member, representative or physician to contact the local Area Agency on Aging (AAA) ombudsman, the DOH complaint hotline at (800) 254-5164, or the Department's DME hotline at (877) 299-2918. In addition, the resident or resident representative may consider consulting his attorney or the local legal services organization. The telephone number of the local AAA and legal services organizations are listed in the blue pages of the telephone book.
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