ALABAMA MEDICAID AGENCY
TABLE OF CONTENTS
560-X-22-.01 Nursing Facility Reimbursement - Preface
560-X-22-.05 Medicaid Per Diem Rate Computation
560-X-22-.06 Reimbursement Methodology
560-X-22-.07 Medicaid Inflation Index
560-X-22-.08 Patient Days
560-X-22-.10 Management And Administrative Costs
560-X-22-.11 Interest Expense
560-X-22-.12 Laundry Expense
560-X-22-.13 Travel Expense
560-X-22-.14 Property Costs
560-X-22-.15 New Facility, Change In Ownership, Or Change In Category Of Care
560-X-22-.16 Return On Equity Capital
560-X-22-.17 Qualified Retirement Plans
560-X-22-.18 Costs To Related Parties
560-X-22-.19 Receipts Which Offset Or Reduce Costs
560-X-22-.20 Chain Operations
560-X-22-.21 Cost Allocation
560-X-22-.22 Unallowable Expenses
560-X-22-.23 Cost Reports
560-X-22-.24 Accounting Records
560-X-22-.25 Patient Personal Fund Accounts
560-X-22-.26 Audit Adjustment Procedures
560-X-22-.28 Negligence Penalty
560-X-22-.29 Cost Report Preparers
Appendix A Forms
560-X-22-.01 Nursing Facility Reimbursement - Preface. This regulation states the Medicaid policy regarding nursing facility reimbursement and establishes the accepted procedures whereby reimbursement is made to nursing facility providers. Because of the length and complexity of this chapter, it has been divided into the following sections to facilitate its utilization.
Author: Susan Mims
Statutory Authority: Code of Ala. 1975, §41-22-2.
History: Rule effective October 1, 1982. Amended effective October 1, 1990. Emergency rule effective September 12, 1991. Amended effective December 12, 1991.
(1) This chapter of the Alabama Medicaid Regulations has been promulgated by the Alabama Medicaid Agency, Medicaid, for the guidance of providers of Medicaid nursing facility care. This chapter is applicable to those providers categorized as NF, NF/IMD, and NF/IDD. It does not apply to those providers categorized as ICF/MR.
(2) The Alabama Medicaid Program is administered by Medicaid under the direction of the Governor's office. Reimbursement principles for nursing facilities are outlined in the following sections of this chapter. These principles, hereinafter referred to as "Medicaid Reimbursement Principles," are a combination of generally accepted accounting principles, principles included in the State Plan, Medicare (Title XVIII) Principles of Reimbursement, and principles and procedures promulgated by Medicaid to provide reimbursement of provider costs which must be incurred by efficiently and economically operated nursing facilities. These principles are not intended to be all inclusive, and additions, deletions, and changes to them will be made by Medicaid on an annual basis, or as required. Providers are urged to familiarize themselves fully with the following information, as cost reports must be submitted to Medicaid in compliance with this regulation.
(3) If this regulation is silent on a given point, Medicaid will normally rely on Medicare (Title XVIII) Principles of Retrospective Reimbursement and, in the event such Medicare Principles provide no guidance, Medicaid may impose other reasonability tests. The tests include, but are not limited to, such tests as:
(a) Does the cost as reported comply with generally accepted accounting principles?
(b) Is the cost reasonable on its own merit?
(c) How does the cost compare with that submitted by similarly sized homes furnishing like category of care?
(d) Is the cost related to patient care and necessary to the operations of a nursing facility?
(4) It is recognized that there are many factors involved in operating a nursing facility. The size of the facility, the intensity of care required, the geographical location (rural or urban), the available labor market, and the availability of qualified consultants are only examples of such factors, and considerable effort has been made to recognize such variables during the development of this chapter. Only reported costs reflecting such variables without exceeding the "prudent buyer" concept or other applied tests of reasonability will be allowed by Medicaid. Medicaid will consider granting variances from the Medicaid Reimbursement Principles whenever a provider submits convincing evidence that it can provide a service in a more cost effective manner if such variance is permitted. Such evidence should be submitted to Chief Auditor, Provider Audit, for approval.
(5) Records must be kept by the provider which document and justify costs, and only those costs which can be fully and properly substantiated will be allowed by Medicaid. Increases over amounts reported on a provider's previous cost reports, except those increases inherent in normal inflation, will be closely examined for reasonableness.
(6) The principles presented herein are based on the "prudent buyer" concept. Nursing facility administrators are expected to conduct their business in an efficient and conservative manner, and to submit requests for reimbursement only for costs which are absolutely necessary to the conduct of an economically and efficiently operated nursing facility.
(7) Unallowable costs which are identified during either desk audits or field audits will be disallowed despite similar costs having been included in prior cost reports without having been disallowed.
(8) The only source of the funds expended by Medicaid is public funds, exacted from the taxpayers through state and federal taxes. Improper encroachment on these funds is an affront to the taxpayers and will be treated accordingly.
(9) To assure only necessary expenditures of public money, it will be the policy of Medicaid to:
(a) Conduct onsite audits of facilities on an unannounced basis, although prior announcement may be made at the discretion of Medicaid.
(b) Determine audit exceptions in accordance with Medicaid Reimbursement Principles.
(c) Allow only nonextravagant, reasonable, necessary and other allowable costs and demand prompt repayment of any unallowable amounts to Medicaid.
(10) In the event desk audits or field audits by Medicaid's staff reveal that providers persist in including unallowable costs in their cost reports, Medicaid may refer its findings to the Medicaid Investigation Section, Medicaid Counsel, and/or the Alabama Attorney General.
(11) CAUTION: The cost allowances contained in this chapter are maximum allowances, and are not considered a standard. Providers whose costs are normally and historically below the presented amounts may not automatically report the larger amount.
(12) While the responsibility for establishing policies throughout the Medicaid Program rests with Medicaid, comments on the contents of this chapter are invited and will be given full consideration.
Author: Susan Mims
Statutory Authority: State Plan; Title XIX, Social Security Act; 42 C.F.R. §§447.200 - .272.
History: Rule effective October 1, 1982. Amended effective July 9, 1984; October 11, 1986. Emergency rule effective May 1, 1988. Amended effective July 12, 1988; October 1, 1990. Emergency rule effective September 12, 1991. Amended effective December 12, 1991.
(1) Accrual Method of Accounting - Revenues must be allocated to the accounting period in which they are earned and expenses must be charged to the period in which they are incurred. This must be done regardless of when cash is received or disbursed.
(2) Adjusted Reported Costs - The net reported costs from Schedule D, Column 7, of the cost report adjusted, as required, for unallowable costs, and cost recovery items.
(3) Medicaid - The Alabama Medicaid Agency.
(4) Medicaid Reimbursement Principles - A combination of generally accepted accounting principles, principles included in the State Plan, Medicare (Title XVIII) Principles of Reimbursement, and procedures and principles promulgated by Medicaid to provide reimbursement of provider costs which must be incurred by efficiently and economically operated nursing facilities.
(5) Allowable Costs - The costs of a provider of nursing facility services which must be incurred by an efficiently and economically operated facility and which are not otherwise disallowed by the reimbursement principles established under and incorporated into this chapter.
(6) Approved Bed Rate - The Medicaid rate paid to nursing facilities for approved beds. (See Section 5 for computation.)
(7) Category - Grouping formed according to type of facility. Medicaid categories to which this chapter applies are: NF, NF/IMD, and NF/IDD.
(8) Chapter - This chapter (560-X-22) of the Alabama Medicaid Administrative Code.
(9) Cost Recovery Item - Income generated by an element of allowable cost.
(10) Facility - Any structure licensed by the State of Alabama for the purpose of providing long-term care to the aged, ill, or disabled.
(11) Fair Market Value - The bona fide price at which an asset would change hands or at which services would be purchased between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts.
(12) Fiscal Year - The 12 month period upon which providers are required to report their costs, being the period from July 1st through June 30th, also called the "reporting period."
(13) HCFA - The Health Care Financing Administration, an agency of the U.S. Department of Health and Human Services.
(14) HIM-15 - The title of the Medicare Provider Reimbursement Manual, a publication of HCFA. All references to this manual or to Title XVIII Principles of Reimbursement in Chapter 22 are for the "Retrospective" Reasonable Cost Reimbursement Principles and not those of the 10-1-83 Prospective Medicare System.
(15) Hold Bed Days - The period during which a provider receives payment from a source other than Medicaid for the reservation of a bed in a long-term care facility for a particular patient who is not in the facility. Hold bed days do not include therapeutic leave covered by Medicaid.
(16) Home Office Costs - See Rule 560-X-22-.20 for indepth discussion and treatment of home-office costs.
(17) Imprest System - A system in which any fund is replenished by writing a check equal to the payments which have been made out of the fund. Examples of such funds are petty cash and payroll.
(18) Interest - Cost incurred for the use of borrowed funds.
(a) Necessary Interest - Incurred to satisfy a financial need of the provider on a loan made for a purpose directly related to patient care. Necessary interest cannot include loans resulting in excess funds or investments.
(b) Proper Interest - Must be necessary as described above, incurred at a rate not in excess of what a prudent borrower would have to pay in the money market at the time the loan was made, and incurred in connection with a loan directly related to patient care or safety.
(19) Interim Per Diem Rate - A rate intended to approximate the provider's actual or allowable costs of services furnished until such time as actual allowable costs are determined.
(20) Medicaid Occupancy - The percentage of the total patient days reported by a nursing facility utilized by patients whose stay is paid all or in part by Medicaid. This does not include Medicare co-pay days.
(21) Medicaid Per Diem Rate - The amount paid by Medicaid for nursing facility services provided to Medicaid patients for a one-day period.
(22) Necessary Function - A function being performed by an employee which, if that employee were not performing it, another would have to be employed to do so, and which is directly related to providing nursing facility services.
(23) Patient Day - Any day that a bed is either occupied or is not otherwise available for immediate occupancy by a newly admitted patient, but only if some payment and/or promise of payment is received either at the full per diem rate or a reduced rate.
(24) Proprietary Provider - Provider, whether a sole proprietorship, partnership, or corporation, organized and operated with the expectation of earning profit for the owners as distinguished from providers organized and operated on a nonprofit basis.
(25) Provider - A person, organization, or facility who or which furnishes services to patients eligible for Medicaid benefits.
(26) Prudent Buyer Concept - The principle of purchasing supplies and services at a cost which is as low as possible without sacrificing quality of goods or services received.
(27) Related - The issue of whether the provider and another party are "related" will be determined under the HIM-15 rules as to classification as "related" parties. (See HIM-15.)
(28) Reasonable Compensation - Compensation of officers and/or employees performing a necessary function in a facility in an amount which would ordinarily be paid for comparable services by a comparable facility.
(29) Reasonable Costs - Necessary and ordinary cost related to patient care which a prudent and cost-conscious businessman would pay for a given item or service.
(30) State Plan - The State Plan promulgated by the State of Alabama under Title XIX of the Social Security Act Medical Assistance Program.
(31) Straight Line Method of Depreciation - Depreciation charges spread equally over the estimated life of the asset so that at the expiration of that period the total cost that was determined to be recoverable through such charges has been recovered.
(32) Unallowable Costs - All costs incurred by a provider which are not allowable under the Medicaid Reimbursement Principles.
(33) Lease - An agreement in which the facility pays for the use of buildings or equipment. Such agreements must not meet the criteria for capitalization as outlined in HIM-15.
(34) Nursing Facility/Institution for Mental Diseases - A nursing facility that provides care only for patients diagnosed with Mental Disease and are over sixty-five (65) years of age.
(35) Nursing Facility/Institution for the Developmentally Disabled - A nursing facility that provides care only to physically and mentally disabled patients who are eighteen years of age or less.
(36) Standard Value - A dollar value per bed used to cover the value of land, buildings, and major movable equipment.
(37) Current Asset Value - Standard value per bed reduced by 1% for each year of age, limited to $12,500 per bed minimum.
(38) Net Asset Value - Current asset value reduced by outstanding allowable mortgage debt.
(39) Rebasing - A mechanism for reflecting inflation in land, buildings, and equipment costs.
(40) Median - The middle value in a distribution, above and below which lie an equal number of values.
(41) Operating Costs - Administrative and general expenses of running a nursing facility. See Rule 560-X-22-.10 for a more detailed description.
(42) Direct Patient Care Cost - Costs that are directly related to providing nursing care to a resident. They consist of direct nursing costs, raw food costs, and fees paid to medical directors, pharmacy consultants, dental consultants, and nursing consultants required by federal and/or state law.
(43) Indirect Care Cost - All nonproperty costs not covered under operating costs and direct care costs. These costs consist of dietary costs (less raw food) housekeeping costs, plant operating costs, activity costs, social service costs, laundry costs (less the cost of doing patient personal laundry) and miscellaneous cost.
(44) Fair Rental Cost - The cost associated with acquiring and using real property (land, buildings, and major movable equipment) not including interest expense, property taxes, and property insurance. See Rule 560-X-22-.14 for more detail.
Author: Susan Mims
Statutory Authority: State Plan; Title XIX, Social Security Act; 42 C.F.R. §§447.200 - .272, et seq.
History: Rule effective October 1, 1982. Amended effective January 4, 1984; March 12, 1988; July 12, 1988. Emergency rule effective May 1, 1990. Amended effective August 14, 1990; October 1, 1990. Emergency rule effective September 12, 1991. Amended: effective December 12, 1991.
560-X-22-.04 Nurses Continuing Education. Mandated Continuing Education Units for nurses and inservice training for nurse aides will be an allowable cost in the direct cost center if it was received in the State of Alabama. All other education cost will be accounted for in the operating cost center.
Author: Bob Murphy
Statutory Authority: State Plan; Title XIX, Social Security Act, 42 C.F.R. § 447.200 - .272, et seq.
History: Rule effective August 12, 1992.
Ed Note: Previous Rule 560-X-22-.04 entitled Budget Variance effective October 1, 1982. Repealed by amendment of Chapter 560-X-22 effective October 1, 1990.
560-X-22-.05 Medicaid Per Diem Rate Computation.
(1) The Medicaid per diem rate will be determined under reimbursement methodology contained in this chapter. (See Rule 560-X-22-.06.) The rates will be based on the cost data contained in cost reports (normally covering the period July 1 through June 30th). In order to allow adequate time for a provider to prepare and submit the cost report and for Medicaid to compute a new rate, each provider will be paid an interim per diem rate. This interim rate will cover the period July 1 through December 31. The interim rate shall be the lower of the latest allowable computed rate or the ceiling rate per day. The allowable rate per day shall be trended by the Alabama Medicaid trend factor. [See Rule 560-X-22-.07(4)] Providers will be paid a weighted per diem rate for the portion of the fiscal year remaining after the provider's new rates are established. The weighted per diem rate will be determined as outlined below:
(2) To calculate the weighted per diem rate: Multiply the allowable per diem rates times twelve. Deduct from that product the interim per diem rate multiplied by the number of months paid. Divide the remainder by the number of months remaining in the fiscal year.
(a) Example 1. Provider's interim rate has been in effect for five (5) months. Provider's weighted rate will be in effect for seven (7) months:
Allowable per diem rate
for the year $ 50.00
Interim rate paid $ 48.00
Allowable per diem rate
multiplied by 12 = $50.00 x 12 $600.00
Deduct interim per diem rate
multiplied by number of months
paid = $48.00 x 5 = $240.00
Remainder = $360.00
Divide the remainder by the
number of remaining months in
the fiscal year = $360.00 - 7
= Weighted per diem rate = $ 51.43
(b) Example 2. Provider's interim rate has been in effect for six (6) months. Provider's weighted rate will be in effect for six (6)months:
Allowable per diem rate
for the year $ 50.00
Interim rate paid $ 48.00
Allowable per diem rate
multiplied by 12 = $50.00 x 12 $ 600.00
Deduct interim per diem rate
multiplied by number of months
paid = $48.00 x 6 = $ 288.00
Remainder = $ 312.00
Divide the remainder by the number
of remaining months in the fiscal
year = $312.00 - 6 = Weighted per
diem rate = $ 52. 00
(c) Unapproved Beds. Capital expenditures must be approved under the State Certificate of Need Program.
Authors: Michael C. Murphy, Susan Mims
Statutory Authority: State Plan; Title XIX, Social Security Act; 42 C.F.R., §§447.200 - .272, et seq.
History: Rule effective October 1, 1982. Amended: effective March 15, 1983; May 9, 1984, September 8, 1984. Emergency rule effective December 1, 1986. A permanent rule incorporating the provisions of this emergency rule was not adopted and therefore the original wording in paragraph 5 was reinstated upon expiration of the emergency rule. Amended: effective September 9, 1987; March 12, 1988; June 14, 1989. Emergency rule effective June 20, 1989. Amended: effective September 13, 1989. Emergency rule effective January 17, 1990. Amended: effective April 17, 1990; October 1, 1990. Emergency rule effective September 12, 1991. Amended effective December 12, 1991.
560-X-22-.06 Reimbursement Methodology.
(1) All nursing facilities will be grouped into three (3) functional categories:
(a) Nursing Facility (NF).
(b) Nursing Facility/Institution for Mental Disease (NF/IMD).
(c) Nursing Facility/Institution for the Developmentally Disabled (NF/IDD).
(2) The following methodology shall apply: Cost reports, as submitted, will be desk audited for any unallowable costs, and those costs will be removed from the subsequent computations. The providers' reported allowable costs will be used as the basis for calculating the new per diem rates. All similar allowable costs will be categorized into one of the four (4) groups: operating costs, direct patient care cost, indirect patient care cost, and property cost. NF/IMD and NF/IDD facilities will be exempt from all ceilings. The following methodology will be used for determining the per diem rates for approved beds. Ceilings are to be limited to the previous year’s ceiling increased by no more than four (4) percentage points over the DRI inflation index. Should the computed ceiling exceed that index, the lower amount will be used. For example:
FY 96 ceiling = $50.00
DRI index = 3.5%
Limit = $50.00 + (.035 + .04)($50)
= $50.00 + $3.75 = $53.75
Computed Ceiling = $54.50
FY 97 Ceiling = $53.75
(a) Operating Cost Center. The allowable management and administrative costs (See Rule 560-X-22-.10), after inflation index is applied, for each facility will be divided by reported patient days. All nursing facilities will be grouped by the number of beds in the facility and the operating costs for each facility will be separated into two bed size groupings, 75 beds or less and 76 beds and over. Each grouping will be arrayed by the cost per patient day and the median plus 5% will be determined for each grouping and that will be the ceiling. This ceiling, or actual cost, whichever is less, will be used for each provider's rate computation.
(b) Direct Patient Care Cost Center. Direct care costs, after inflation index is applied, consisting of nursing services, raw foods, medical director, nursing consultant, pharmacy consultant, and dental consultant for each facility will be divided by reported patient days. These costs per patient day will be arrayed and the ceiling for the direct patient care cost center will be the median cost per patient day plus 10%. The provider's actual allowable reported cost per patient day plus 10% not to exceed the established ceiling plus 10%, whichever is less, will be used for each provider's rate computation.
(c) Indirect Patient Care Cost Center. Costs for plant operations, dietary (minus raw foods), laundry (less costs associated with patient personal laundry), activities, social services, housekeeping, beauty and barber (if provided free of charge by the facility), dietary consultant, social services consultant, and other allowable costs, after inflation index is applied, will be divided by reported patient days. These costs per patient day will be arrayed and a median cost per patient day will be determined. The ceiling for indirect patient care costs is the median cost per patient day plus 10%. The provider's actual allowable reported cost per patient day plus 50% of the difference between actual allowable cost and the established ceiling, up to the ceiling amount, will be used for each provider's rate computation.
(d) Property Cost Center. In lieu of depreciation expense, lease expense, and a return on equity, a fair rental return (see Rule 560-X-22-.14 for detailed explanation) will be computed for each provider using the following procedure:
1. A current asset value per bed will be established. This current asset value will initially be set using the standard value of $25,000 per bed and reducing by 1% for each year of age, or fraction of 1% for partial years, not to exceed a 50% reduction or a minimum value of $12,500 which will be applied as a floor. In order to keep pace with rising construction costs, a rebasing system will be established. The mechanism for rebasing will be to index the current asset values each year. The Marshall-Swift Evaluation Service will be used for adjusting to inflation.
2. A gross rental factor of 2.5% will be multiplied by the current asset value of the facility to determine the rental value of the facility.
3. The "Rate of Return on Current Asset Values" will be computed in two parts. First, the current asset value of the facility, less the balance due on allowable notes incurred to purchase all land, buildings, and equipment, will be multiplied by the "current yield on 30 year U. S. Treasury Bonds" as of June 30th each year. Second, the current asset value will be multiplied by a "risk premium of 1.5% for ownership." The two products will then be added together.
4. Interest expense related to allowable notes incurred to purchase land, buildings, and equipment will be determined.
5. Property taxes and property insurance costs will be determined.
6. The rental value, rate of return, allowable interest, property taxes, and property insurance costs, less laundry adjustment from Fair Rental, will be totaled and that total will be divided by the facility's reported patient days to determine the facility fair rental payment which will be used to compute the facility's rate.
(e) After the operating costs, direct patient care costs, and indirect patient care costs have been added together, the allowable property costs are added. The resulting costs is the rate per patient day for the cost report year.
1. Operating Costs (actual allowable reported costs per patient day up to the ceiling).
2. Direct Patient Care Costs (actual allowable reported cost per patient day plus 10% not to exceed the established ceiling plus 10%).
3. Indirect Patient Care Costs (actual allowable reported cost per patient day plus 50% of the difference between the reported cost and the ceiling up to the ceiling amount).
4. Total of Items 1, 2, and 3.
5. Allowable Property Costs.
6. Laundry fee-for-service.
7. Total of Items 4, 5, and 6.
(g) NF/IDD facilities will not be subject to the above outlined ceilings; however, their rates will be computed in a like manner.
(h) NF/IMD facilities and any other facility owned and operated by the State of Alabama will have their rates computed in the above manner, but will not be eligible for incentive payments in the direct care and indirect care areas, nor will they receive a Fair Rental payment. Instead, their rates will be determined using actual cost with no ceiling limitations and a usage allowance for property costs (2% for buildings and 6 and 2/3% for equipment).
(3) Ceilings Not Subject to Adjustments. Once the ceiling has been established for a fiscal year, it will be final and not subject to revision or adjustment during that year. However, at the discretion of the Agency, it may be changed upon discovery of material error. Since the ceiling rate is based on information provided in the cost reports, it is to the benefit of each provider to ensure that their information is correct and accurate. If obvious errors are detected during the desk audit process, providers will be given an opportunity to submit corrected data.
(4) After the rates have been set, each provider will be notified of its rate. If the provider has questions regarding any disallowances made during the rate setting process, they may request further information in writing. Only those requests submitted in writing will be honored.
(5) During the fiscal year, the Commissioner of Medicaid will consider extraordinary expenditures which are not reasonably foreseeable and are totally beyond the control of the provider. (Example: Additional personnel or equipment mandated by federal or state governmental agencies.) Such expenditures do not include those which can be reasonably anticipated in connection with inflation, such as employee compensation increases and employee benefit increases. Requests to Medicaid for consideration must be fully substantiated, to include the reason for the request, total computed cost, effective date and other supporti