2014 Session

Budget Amendments - HB30 (Member Request)

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Chief Patron: O'Bannon
Conversion to Price-Based System of Payment for Nursing Facilities (language only)

Item 301 #2h

Item 301 #2h

Health and Human Resources
Medical Assistance Services, Department of

Page 258, strike lines 45 through 50, and insert:
"KKK.  The Department of Medical Assistance Services shall amend the State Plan for Medical Assistance to convert the current cost-based payment methodology for nursing facility operating rates to a price-based methodology effective July 1, 2014.  The new price-based payment methodology shall be implemented in a budget neutral manner.
The department shall calculate prospective operating rates for direct and indirect costs in the following manner.
a.  The department shall calculate the cost per day in the base year for direct and indirect operating costs for each nursing facility.  The department shall use existing definitions of direct and indirect costs.  
b.  The initial base year for calculating the cost per day is cost reports ending in calendar year 2011.  The department shall rebase prices in fiscal year 2018 and every three years thereafter using the most recent reliable calendar year cost settled cost reports for freestanding nursing facilities that have been completed as of September 1.
c.  Each nursing facility’s direct cost per day shall be neutralized by dividing the direct cost per day by the raw Medicaid facility case mix that corresponds to the base year by facility.
d.  Costs per day shall be inflated to the midpoint of the fiscal year rate period using the moving average Virginia Nursing Home inflation index for the 4th quarter of each year (the midpoint of the fiscal year).  Costs in the 2011 base year shall be inflated from the midpoint of the cost report year to the midpoint of fiscal year 2012 by prorating fiscal year 2012 inflation and annual inflation after that.  Annual inflation adjustments shall be based on the last available report prior to the beginning of the fiscal year and corrected for any revisions to prior year inflation.    
e.  Prices will be established for the following peer groups using a combination of Medicare wage regions and Medicaid rural and bed size modifications based on similar costs.
1.  Direct Peer groups
       -  Northern Virginia MSA
       -  Other MSAs
       -  Northern Rural
       -  Southern Rural
2.  Indirect Peer Groups
       -  Northern Virginia MSA
       -  Rest of State – Greater than 60 Beds
              -  Other MSAs
              -  Northern Rural
              -  Southern Rural
       -  Rest of State – 60 Beds or Less
f.  The price for each peer group shall be based on the following adjustment factors:
1.  Direct-105 percent of the peer group day-weighted median neutralized and inflated cost per day for freestanding nursing facilities.
2.  Indirect-100.7 percent of the peer group day-weighted median inflated cost per day for freestanding nursing facilities.
g.  Facilities with costs projected to the rate year below 95 percent of the price shall have an adjusted price equal to the price minus the difference between their cost and 95 percent of the unadjusted price.  Adjusted prices will be established at each rebasing.  New facilities after the base year shall not have an adjusted price until the next rebasing.  The “spending floor” limits the potential gain of low cost facilities, thereby making it possible to implement higher adjustment factors for other facilities at less cost.
h.  Individual claim payment for direct costs shall be based on each resident’s Resource Utilization Group (RUG) during the service period times the facility direct price (similar to Medicare).
i.  Resource Utilization Group is a resident classification system that groups nursing facility residents according to resource utilization and assigns weights related to the resource utilization for each classification.  The department shall use RUGs to determine facility case mix for cost neutralization in determining the direct costs used in setting the price and for adjusting the claim payments for residents.  The department may elect to transition from the RUG-III 34 Medicaid grouper to the RUG-IV 48 grouper in the following manner.
1.  The department shall neutralize direct costs per day in the base year using the most current RUG grouper applicable to the base year.
2.  The department shall utilize RUG-III 34 groups and weights in fiscal year 2015 for claim payments.
3.  Beginning in fiscal year 2016, the department may elect to implement RUG-IV 48 Medicaid groups and weights for claim payments.
4.  RUG-IV 48 weights used for claim payments will be normalized to RUG-III 34 weights as long as base year costs are neutralized by the RUG-III 34 grouper.  In that the weights are not the same under RUG IV as under RUG III, normalization will insure that total payments in direct using the RUGs IV 48 weights will be the same as total payments in direct using the RUGs-III 34 grouper
j.  The department shall transition to the price-based methodology over a period of four years blending the price-based rate described here with the cost-based rate based on current law with the following adjustments.  The facility cost-based operating rates shall be the direct and indirect rates for fiscal year 2015 based on facility case mix neutral rates modeled after the law that would have been in effect in fiscal year 2015 absent this amendment and using base year data from calendar year 2011 inflated to the rate year.  Based on a four-year transition, the rate will be based on the following blend:
1.  Fiscal year 2015 - 25 percent of the price-based rate and 75 percent of the cost-based rate.  
2.  Fiscal year 2016 - 50 percent of the price-based rate and 50 percent of the cost-based rate.
3.  Fiscal year 2017 - 75 percent of the price-based rate and 25 percent of the cost-based rate.  
4.  Fiscal year 2018 - 100 percent of the price-based (fully implemented)
Cost-based rates to be used in the transition for facilities without cost data in the base year but placed in service prior to July 1, 2013 shall be determined based on the most recently settled cost data.  If there is no settled cost report at the beginning of a fiscal year, then 100 percent of the price-based rate shall be used for that fiscal year. Facilities placed in service after June 30, 2013 shall be paid 100 percent of the price-based rate.
2.  Prospective capital rates shall be calculated in the following manner.
a.  Fair rental value per diem rates for the fiscal year shall be calculated for all freestanding nursing facilities based on the prior calendar year information aged to the fiscal year and using RS Means factors and rental rates corresponding to the fiscal year.  There will be no separate calculation for beds subject to and not subject to transition.
b.  The department shall develop a procedure for mid-year fair rental value per diem rate changes for nursing facilities that put into service a major renovation or new beds.  A major renovation shall be defined as an increase in capital of $3,000 per bed.  The nursing facility shall submit complete pro forma documentation at least 60 days prior to the effective date and the new rate shall be effective at the beginning of the month following the end of the 60 days.  The provider shall submit final documentation within 60 days of the new rate effective date and the department shall review final documentation and modify the rate if necessary effective 90 days after the implementation of the new rate.  No mid-year rate changes shall be made for an effective date after April 30 of the fiscal year.  
c.  The rental rate shall be 8.75 percent in fiscal year 2015, 8.5 percent in fiscal year 2016, 8.25 percent in fiscal year 2017 and 8.0 percent in fiscal year 2018 and future years.
d.  The capital per diem rate for hospital-based nursing facilities shall be the last settled capital per diem.
3.  Prospective NATCEP rates shall be the Medicaid per diem rate in the base year inflated to the rate year based on inflation used in the operating rate calculations.
4.  A prospective rate for criminal records checks shall be the per diem rate in the base year.
5. The department shall have the authority to implement these payment changes effective July 1, 2014 and prior to completion of any regulatory process in order to effect such changes.

(This budget-neutral language amendment requires the Department of Medical Assistance Services to implement a fully prospective, price-based payment methodology for nursing facility services effective July 1, 2014.  The new methodology, which grew out of budget language adopted by the 2013 General Assembly, is designed to facilitate the transition of individuals receiving nursing home services to managed care under the dual demonstration.)