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PA Bulletin, Doc. No. 11-1063


Payment for Nursing Facility Services Provided by County and Nonpublic Nursing Facilities; Notice of Change in Methods and Standards of Setting Payment Rates

[41 Pa.B. 3303]
[Saturday, June 25, 2011]

 The Department of Public Welfare (Department) is announcing its intent to revise the Medical Assistance (MA) payment methodology and standards for payment of MA nursing facility services in Fiscal Year (FY) 2011-2012 to authorize the continued use of a budget adjustment factor (BAF) in setting payment rates for nursing facility services.


 Since 1996, the Department has used a case-mix prospective payment methodology to set per diem rate payments for MA nursing facility providers. One of the reasons the Department adopted this payment methodology was that the prior retrospective cost-based payment system had proven to be ''highly inflationary'' and change was necessary to curb an ''explosive growth of nursing facility expenditures.'' See 25 Pa.B. 4477 (October 14, 1995). In 2006, the Department noted that ''[s]ince the case-mix payment system was implemented in 1996, MA nursing facility payment rates have risen more than 56% and, since 2000, have increased by 27.4% overall. During this same period, expenditures for MA nursing facility services have grown to nearly $3 billion and expenditures for MA services to the elderly and disabled now consume approximately 70% of the $14 billion MA Program budget.'' See 36 Pa.B. 3207 (June 24, 2006).

 Realizing that the MA Program could not continue to sustain the pace at which long-term care expenditures were growing, the Department amended the Commonwealth's Title XIX State Plan and issued regulations changing the case-mix payment methodology effective July 1, 2005 to include use of a BAF in annual rate-setting. See 35 Pa.B. 6232 (November 12, 2005). The next year, after engaging in an extensive public process, the Department took steps to continue the use of the BAF through FY 2007-2008. See 36 Pa.B. 3207.

 The Department adopted use of a BAF to moderate or cap the rate at which nursing facility payment rates increase from one year to the next. The General Assembly endorsed this policy change and amended section 443.1(7)(i) and (iii) of the Public Welfare Code (62 P. S. § 443.1(7)(i) and (iii)) in 2007 (P. L. 49, No. 16, June 30, 2007) and again in 2008 (P. L. 557, No. 44, July 4, 2008) to mandate continued use of the BAF through FY 2010-2011, subject to approval by the Federal Centers for Medicare and Medicaid Services (CMS). Since the implementation of the BAF, case-mix per diem rates have increased on an annual average basis by $4.60 per day and in the aggregate by 16.62% overall from FY 2004-2005 through FY 2010-2011. In contrast, had the BAF not been used, rates would have increased on an annual average basis by $7.18 per day and overall by 25.93%, well in excess of either the Consumer Price Index or the CMS Nursing Home without Capital Market Basket Index.

 Under section 443.1(7)(iii)(A) of the Public Welfare Code, the current statutory provision mandating use of the BAF expires June 30, 2011. Because it would be fiscally irresponsible to revert to a payment methodology that produces unsustainable rate increases, particularly given current economic conditions, the Department is proposing and expects that the General Assembly will enact legislation to mandate continued use of a BAF in FY 2011-2012, subject to CMS approval. Use of the BAF has assured, and will continue to assure, that payments to nursing facilities under the MA Program are consistent with efficiency and economy.

 Further, during the past 5 years the BAF has been in place, the Department has uncovered no evidence that the quality of care in this Commonwealth MA nursing facilities has been adversely impacted by use of the BAF. To the contrary, MA nursing facility providers continue to deliver a high quality of care. The Department does not expect the quality of care to decline in FY 2011-2012, and will continue our enforcement and monitoring activities to ensure that is the case.

 In addition, although the BAF has served to moderate the overall aggregate increases in case-mix per diem rates, the adjusted case-mix per diem rate payments, together with the other supplemental payments to nursing facilities authorized under the Commonwealth's approved State Plan, have been and will continue to be sufficient to assure that MA recipients have equal access to medically necessary nursing facility services. The vast majority of licensed nursing facilities in this Commonwealth participate as providers in the MA Program, and the MA Program pays for more days of nursing facility care than all other payors combined. The Department does not expect this to change if the BAF continues in FY 2011-2012.

Proposed BAF Methodology for FY 2011-2012

 As previously noted, the Department intends to submit a State Plan Amendment (SPA) to CMS to continue use of the BAF. Under the proposed SPA, the Department will apply a BAF and make adjustments to nonpublic nursing facility and county payment rates in FY 2011-2012. As in prior years, the BAF will limit the estimated Statewide day-weighted average payment rate for MA nursing facility services for county and nonpublic nursing facilities so that the average payment rate in effect for the FY is limited to the amount permitted by the funds appropriated by the General Appropriations Act for the FY. For nonpublic nursing facilities, however, the Department is proposing to the change the manner in which the BAF is calculated.

Nonpublic Nursing Facilities

 Since 2005, the Department calculated one BAF each rate-setting year, and applied that BAF to the nursing facility payment rates in effect for the rate-setting year. Instead of calculating one BAF for the FY, the nursing facility industry requested and the Department is proposing to calculate a BAF each quarter of FY 2011-2012 for nonpublic nursing facilities as follows.

Quarterly BAF Formula

 Prior to establishing the MA nonpublic nursing facility quarterly rates for the 2011-2012 rate year, the Department will use the following formula to determine the Quarterly BAF:

 Annual target rate divided by the weighted average quarterly rate at 100% equals the Quarterly BAF.

 If the Quarterly BAF as calculated is greater than 1.0, the Quarterly BAF will equal 1.0.

Terms Related to the BAF Determination

 The following words and terms, when used in the 2011-2012 BAF determination, have the following meaning, unless the context clearly indicates otherwise:

Annual per diem adjustment—The per diem amount of adjustment from the base rate allowed by the funds appropriated by the General Appropriations Act for the 2011-2012 rate year. The annual per diem adjustment is the annual target rate minus the base rate.

Annual target rate—The base rate multiplied by one plus the percentage rate of change permitted by the funds appropriated by the General Appropriations Act for the 2011-2012 rate year.

Base days—The source of days for the day-weighted calculation used in determining the base rate and the weighted-average quarterly rates at 100%. The base days are the sum of each nonpublic nursing facility's paid facility days, therapeutic leave days and 1/3 of the hospital bed reserve days from the PROMISe data file used to determine disproportionate share payments preceding the rate year used to determine the base rate.

Base rate—For fiscal year 2011-2012, the projected Statewide day-weighted average rate for fiscal year 2010-2011 based on the funds appropriated for fiscal year 2010-2011.

Quarterly BAF—The BAF applied to each nonpublic nursing facility's quarterly rate, as calculated for the quarter.

Weighted-average quarterly rate at 100%—The Statewide day-weighted average of the nonpublic nursing facilities' quarterly rates, as applicable, determined in accordance with 55 Pa. Code Chapter 1187 (relating to nursing facility services), calculated using base days, prior to application of a BAF.

County Nursing Facilities

 Under the proposed SPA, the Department will continue to calculate and apply the BAF to county nursing facility payment rates as it has in prior rate-setting years. Specifically, the Department will adjust each county nursing facility's per diem rate by multiplying the rate by a BAF. A county nursing facility's per diem rate for an MA resident will be the facility's July 1, 2010, per diem rate as calculated under 55 Pa. Code Chapter 1189, Subchapter D (relating to rate setting) and 55 Pa. Code § 1189.91(b) (relating to per diem rates for county nursing facilities) multiplied by the county BAF.

 Use of the calculations previously described is contingent upon the approval by CMS of the SPA.

Fiscal Impact

 No fiscal impact is anticipated as a result of these changes through June 30, 2012. The amount of funding available for this program is dependent upon the funds appropriated by the General Assembly in the forthcoming fiscal year. Therefore, until a budget bill is passed and enacted, any estimated fiscal impact associated with this notice is solely based on the funding levels as proposed in the Governor's Executive Budget.

Public Comment

 Interested persons are invited to submit written comments regarding the BAF formulas to the Department of Public Welfare/Department of Aging, Office of Long-Term Living, Bureau of Policy and Strategic Planning, Forum Place, 5th Floor, 555 Walnut Street, Attention: Marilyn Yocum, Harrisburg, PA 17101-1919. Comments received within 30 days will be reviewed and considered for any subsequent revision of the notice.

 Persons with a disability who require an auxiliary aid or service may submit comments using the Pennsylvania AT&T Relay Service at (800) 654-5984 (TDD users) or (800) 654-5988 (voice users).

Acting Secretary

Fiscal Note: 14-NOT-707. Under the proposed State Plan Amendment, the Department of Public Welfare will apply a budget adjustment factor (BAF) and make adjustments to county and nonpublic nursing facility payment rates in 2011-12. The BAF shall limit the estimated statewide day-weighted average payment rate for medical assistance nursing facility services for county and nonpublic nursing facilities so that the average payment rate in effect for that fiscal year is limited to the amount permitted by the funds appropriated by the General Appropriations Act for the fiscal year. Until a budget bill is passed and an appropriation level set, we cannot estimate the fiscal impact associated with this notice. (8) recommends adoption.

[Pa.B. Doc. No. 11-1063. Filed for public inspection June 24, 2011, 9:00 a.m.]

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