Montana Administrative Register Notice 37-590 No. 16   08/23/2012    
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BEFORE THE Department of Public

health and human services of the



In the matter of the amendment of ARM 37.40.307 and 37.40.361 pertaining to nursing facility reimbursement






            TO:  All Concerned Persons


1.  On June 21, 2012, the Department of Public Health and Human Services published MAR Notice No. 37-590 pertaining to the public hearing on the proposed amendment of the above-stated rules at page 1248 of the 2012 Montana Administrative Register, Issue Number 12.


2.  The department has amended the above-stated rules as proposed.


3.  The department has thoroughly considered the comments and testimony received.  A summary of the comments received and the department's responses are as follows:


COMMENT #1:  The department received several comments requesting that the rates not be cut for any nursing facility and opposing the reduction in rates to 21 of 82 nursing facilities.  Most of the facilities slated for cuts are small rural facilities such as those located in Baker, Big Sandy, Broadus, Browning, Chinook, Crow Agency, Fort Benton, Hamilton, Jordan, Lewistown, Livingston, Plentywood, and Sheridan.  Even a small cut is a hardship for these facilities.


Because of the way the reimbursement system incorporates the case mix adjustment for acuity in the rate calculation process, some facilities will see their reimbursement cut anywhere from a fraction of one percent up to almost four percent in part because of the increase in the statewide case mix index (CMI) when compared to the facility CMI.  When there is no additional funding added to the reimbursement system, an anomaly occurs because the overall increase in care needs of Medicaid beneficiaries is not funded, instead funding is reallocated from the facilities whose case mix did not increase.  While the system provides for some fluctuation upward and down due to the case mix, the cost of statewide increases should not be borne by 21 facilities that end up with a rate decrease.  The cost of caring for nursing facility residents is increasing but instead of an inflationary increase to account for these costs, the rates are being cut.


Commenters believe that the reductions can be ameliorated within the funding levels appropriated by the Legislature for nursing homes either by reducing the number of Medicaid bed days utilized in the rate calculation due to declining caseload or by recognizing the differences in the rates of FMAP utilized during the legislative session for appropriation purposes and the FMAP rates that will be utilized for payment purposes throughout the year.  Also, commenters believe that there was no intent on the part of the Legislature to cut the rates of any nursing facility.


RESPONSE #1:  The department has utilized the funding that was appropriated in HB 2 by the 2011 Montana Legislature in its calculation of the Medicaid rates that were distributed for provider comments.  The corresponding bed days were reflected in the rate sheet based on the funding provided by the Legislature to cover this caseload estimate and supported by the utilization of Medicaid days by facilities during the 2012 rate year.


Additionally, the department has looked at current trends in patient contribution from paid claims data to determine what level of patient contribution will be available for the 2013 rate calculation.  The department utilized the legislative approved increase of patient contribution that is being passed on to nursing facilities at an estimated 3% increase in the COLA.  It is not yet certain if there will be a COLA increase for fiscal year (FY) 2013 or what level of increase retirement plans will have that may impact the patient contribution provided by nursing facility residents under Medicaid for rate year 2013.


After reassessing the variables utilized in the draft rate sheet and looking at the impact that the rate adjustments will have on small rural providers the department has determined that there is a need to mitigate these reductions in rates.  We agree that there was no specified intent that rates be reduced for any nursing facility and that the reallocation of the case mix with no new money in the system results in rate swings and decreases that could not have been known at the time the Legislature was in session.  The department will hold harmless, at the established 2012 Medicaid rate, the 22 nursing facility providers that were to receive a rate reduction.


The department monitors on an ongoing basis the rate setting variables and the utilization trends and will continue to do so for rate year 2013 for nursing facility providers to determine the impact that these adjustments to rates, for these 22 providers, will have on the level of funding available for nursing facility reimbursement.


The department usually has adopted a July 1st effective date for Medicaid nursing facility rules and rate changes because the funding is available July 1st.  The original draft rate spreadsheet that was the basis of the proposed rate changes would have resulted in decreased reimbursement for some providers.  Consequently, the department could not retroactively decrease rates as this would have resulted in an adverse impact on those providers.  Therefore, the department proposed a September 1, 2012 effective date.  Based on comments the department received during the public comment period, it decided not to adopt decreased rates, thus removing the possibility of adverse impact upon providers.  Therefore, the department has adopted the new rates retroactive to July 1, 2012.


The department is barred by 2-4-306(5), MCA from implementing the new rates prior to adoption of these rules.  Providers can act on them upon publication of this notice in the MAR on August 23, 2012.


COMMENT #2:  In the statement of reasonable necessity the department indicates that it is implementing legislative funding as well as continuing a price-based reimbursement approach to help mitigate conditions affecting nursing facilities.  We ask the department to clarify how an overall rate increase of just .39% and rate cuts for 25% of all facilities takes these issues and values into account.  Please provide any data developed by the department to determine that these cuts are reasonable and necessary to achieving the goal of quality of care and the ability to meet state and federal regulations.  The department also indicates that it considered the impact of rate changes on efficiency, economy, quality of care, and access to Medicaid services and concluded that the rates are still sufficient to meet the requirements of 42 USC 1396(a)(3)(A).


The cost of caring for residents is increasing but instead of an inflationary increase to account for these costs, the rates are being cut.  The department's own consultant determined that for FY 2011, the cost of caring for a Medicaid beneficiary was $185.24 per day.  The department is setting rates two years later at an average of $162.52 per day.  If one considers even minimal inflation of 2.55% per year, the cost of a day of care will be $194.62 during the period for which these rates are being set.  On average the state will be paying only 83.5% of actual costs.


RESPONSE #2:  Federal laws or regulations do not mandate that established Medicaid rates must cover all of the actual costs incurred by nursing facility providers.  This is not a standard by which the legal adequacy of rates has been measured in the past nor is it the standard that will be utilized in the future.


The department has developed rates which are reasonable and adequate and in compliance with all requirements.  The price is reflective of many factors that impact the ways that nursing facilities do business and is set at a level that is fair when considering all of those factors together.


The statewide price is determined through a public process.  Factors that are considered in the establishment of this price include the cost of providing nursing facility services, Medicaid recipient's access to nursing facility services, the quality of nursing facility care, as well as budgetary or funding levels.  The price-based rate reflects a rate commensurate with the services that are required to be provided by nursing facility providers when meeting federal and state requirements.  Predictability of the reimbursement calculation is one of the required features of the price-based reimbursement approach, as is the recognition of the changes in acuity of the residents in a facility over time.


Each nursing facility receives the same operating per diem rate, which is 80% of the statewide price.  The remaining 20% of the statewide price represents the direct resident care component of the rate and is acuity adjusted.  Each facility's direct resident care component rate is specific to that facility and is based on the acuity of Medicaid residents served in that facility.  As acuity changes in each facility based on the level of complexity of the residents being served relative to the statewide acuity, facility rates adjust upward or downward to account for this change in acuity.  This was a component that was considered necessary when the price-based system of reimbursement was first adopted to account for and reflect the level of complexity of residents being served and adjusted accordingly to account for this change in acuity in each facility.  In order to minimize the volatility of the rates from year to year, which was a negative feature of the previous reimbursement system, only 20% of the overall price is adjusted for these changes in acuity.


With no increases in the overall funding in the system of reimbursement, facility rates will adjust upward or downward based on the acuity of their residents, especially if the acuity level is significantly higher or lower than the acuity of the prior year for that facility.  This is one feature that providers believed was important in a rate system, the recognition of changes in the level of acuity of residents in each facility.


Montana contracts with Myers and Stauffer LC to prepare an annual analysis of each nursing facility's cost of providing nursing facility services to Medicaid recipients, and each facility's reimbursement rate.  The analysis provides the department with an evaluation tool as to the adequacy of the statewide pricing for Montana nursing facilities and has done so since 2002.  The annual rate to cost analysis that is performed for the rate setting process indicates for state fiscal year (SFY) 2011 that Montana's Medicaid day-weighted average total rate that includes all supplemental payments (IGT and direct care wages) was $179.50 compared to the Medicaid inflated cost of $185.24, or that on average Medicaid is covering approximately 96.9% of cost through the various forms of reimbursement to nursing facility providers.  This rate comparison supports the determination as to the adequacy of the Medicaid reimbursement rates for nursing facilities.


Montana nursing facilities received additional funding from the IGT program in fiscal year 2012.  The department took the opportunity to increase the IGT reimbursement by taking advantage of the ability to match existing county funds with enhanced federal funds up to the higher Medicare Upper Payment Limit (UPL) amount thus providing an enhanced IGT payment to Montana nursing facilities in 2012.  County nursing facilities received total combined funding from Medicaid reimbursement, to the UPL or at a minimum a net gain of $18.62 per day, while noncounty facilities received IGT funding of almost $8.35 per day in addition to their reimbursement rates and direct care wage funds to support their Medicaid residents in fiscal year 2012.  These amounts were significantly higher than expected and were passed on to Montana nursing facilities.


Providers will continue to participate and benefit from the IGT program that provides supplemental payments in addition to the Medicaid payment rate set through the reimbursement methodology during fiscal year 2013.  The IGT program provides funding separately to both county and noncounty facilities.


In fiscal year 2013 Montana nursing facilities will continue to receive increases from direct care wage (DCW) funding through an appropriation that is separate and in addition to the provider rate funding provided through the price-based methodology.  The DCW program provides funding separately from the reimbursement rate calculation to help facilities provide wage increases to its direct care workforce and will provide over $3.9 million dollars in ongoing funding during this fiscal year that can only be used to provide for lump sum bonus' or to sustain or increase wage payments to direct care and ancillary workers in nursing facilities.  This is approximately $3.81 per Medicaid day that will be passed on to facilities to provide for wage or bonus increases for direct care and ancillary workers.  This funding should serve to mitigate some of the concerns related to providing wages and bonuses to facility workers during the next fiscal year.


Occupancy in Montana for nursing facility care has been declining for some time but has slowed in recent years.  The current statewide occupancy level is at 70% with several facilities operating at occupancy levels of under 50%.  With these levels of occupancy there are open and available beds for those individuals that seek to access nursing facility placements.  While some facilities are operating at a much fuller occupancy level there is capacity in many of Montana's nursing facilities to place individuals that require this level of service.  If some facilities feel that they can no longer admit Medicaid residents that is unfortunate, but we believe that there will be other facilities that will admit these residents and provide Medicaid funded nursing facility services.


COMMENT #3:  A comment was received stating we support the lump sum distributions appropriated by the Legislature for direct care workers and the methodology outlined for distribution of these funds.


RESPONSE #3:  The department concurs with this comment and will continue to implement the direct care wage funding for nursing facility direct care workers.


            4.  The department intends to apply these rules retroactively to July 1, 2012.  A retroactive application of the proposed rules does not result in a negative impact to any affected party.



/s/ John Koch                                                 /s/ Jane Smilie for                                        

Rule Reviewer                                               Anna Whiting Sorrell, Director

                                                                        Public Health and Human Services



Certified to the Secretary of State August 13, 2012.



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