The purpose of this online seminar series is to increase consumer involvement in Medicaid nursing facility reimbursement. My name is Eddie Miller. I am an Associate Professor of Gerontology and Public Policy and Fellow, at the Gerontology Institute, at University of Massachusetts Boston, and Adjunct Associate Professor of Health Services, Policy and Practice at Brown University. Cynthia Rudder is director of special projects at the Long Term Care Community Coalition, or LTCCC, a citizen advocacy group in York State. This is the second of five modules in the online series. It will provide an introduction to the nuts and bolts of nursing home reimbursement, or Reimbursement 101. First, we would like to thank the Commonwealth Fund and, in particular, our Project Officer, Mary Jane Koren, for the funding necessary to make the series the web modules and the research on which it was based possible. Now, Medicaid nursing home reimbursement can be structured to serve several important policy objectives. Here, we'll learn that concern for provider costs is reflected in prospective payment (especially flat-rate reimbursement), rebasing frequency, cost categories and ceilings, efficiency incentives, and ancillary service provisions. That concern for beneficiaries' access is reflected in case-mix reimbursement, high Medicaid census add-ons, equalization of Medicaid and private payment rates, and add-ons for high need, medically complex, and other hard to place individuals. That concern for payment equity across providers is also reflected in case-mix, Medicaid census, and rate equalization provisions, in addition to peer groupings, hold harmless stipulations, provider tax programs, and property tax provisions. That concern for service capacity is reflected in minimum occupancy standards and capital valuation and preauthorization requirements. That concern for budgetary control is reflected in the use of legislatively-derived inflation factors and overall funding caps. and that concern for quality is reflected in cost categories and floors, settlement procedures, wage pass-through programs, pay-for-performance, and private room incentives. Let's begin with costs, which tends to be at the forefront of most state officials' minds, particularly in the current fiscal context. Now states may reimburse nursing homes either retrospectively after care is been delivered, or prospectively in advance of care, regardless of actual costs incurred by facilities during the rate year. Those that set rates prospectively either establish facility or resident-specific rates, or assign the same flat rate to all facilities, perhaps varying somewhat by general type of facility or peer group. Because prospective systems set rates in advance, they are considered more cost containing than retrospective systems, which reimburse providers their actual costs up to some limit. Few, if any, states currently use retrospective reimbursement. Because prospective flat-rate systems do not base rates on the historical costs of each individual facility, they are considered more cost containing than prospective facility or resident-specific systems which do. Only a handful of states, including Texas and Kentucky, employ flat-rate reimbursement; the remainder base reimbursement on facility-specific costs, which may or may not be adjusted for resident-specific characteristics as per case-mix adjustment described below. Now all reimbursement systems require information on costs whether across the entire industry or with respect to particular facilities. Rebasing involves updating or changing the basic data used to establish reimbursement. These data derive from cost reports submitted annually. Reimbursement systems that use older cost reports to establish rates are generally considered more cost containing than reimbursement systems that use newer cost reports because they are tied less closely to nursing facilities current costs. By contrast, rebasing on a set schedule might be considered less cost containing, since doing so encourages facilities to spend more during the year in which their rates are rebased, as the more they spend in the current year, the more they get paid in future years. Each state handles rebasing very differently. In Minnesota, for example, there is no rebasing- reimbursement is simply based on the previous year's rate adjusted forward. While no rebasing took place between 1983 and 2009 in New York, in 2009, rates were rebased using 2002 cost reports. States such as Minnesota and New York contrast with Alabama and Wisconsin which rebase annually using prior year's costs, California which rebases annually using two year old cost reports, and Washington which rebases every other year using two year old cost reports. Cost categories--often referred to as cost centers or cost components-- are used to pool costs for purposes of applying limits or caps (or, as we'll see later, floors) to certain areas of expenditures. All states divide their rates into cost categories. While each state defines their categories differently, common categories include direct care, indirect care, administration, and capital. The number of categories vary significantly across states, however, with, for example, Idaho and Montana having two; Minnesota and Ohio, three; New York and Maryland, four; Delaware and New Hampshire, five; and Washington and California, seven each. Cost categories, or actually costs ceilings which are applied to cost categories, are methods for limiting costs, typically within specific, like I said cost categories, based on the median, average, percentile, or one of numerous other possible derivative factors. Ceilings create incentives to contain costs because facilities spending above the ceiling receive that ceiling rather than its actual projected cost. Although facilities are typically paid the lower of their actual costs or ceilings, ceilings are often set higher in the direct care cost components than in the non-care related components such as operations and administration. This is based on the assumption that there should be fewer disincentives to spend money on direct patient care than on other areas; otherwise, quality may be adversely harmed. Ceilings may be based on all facilities throughout a state or a subset known as the peer group, described in a little bit. New York, for example, establishes separate ceilings for its direct care and indirect care cost components; 115% of the statewide average for its direct care and indirect care cost components, or actually, its direct care cost component; and 115% of the peer group average in the case of its indirect care cost component. Washington, by contrast, sets its ceilings as a percentage of the median cost in a facility's peer group: 112% for direct care, 110% for both therapy and support services, and 100% for operations. States also employ a variety of additional incentives to encourage cost efficiency. Perhaps the most common is giving facilities a percentage of the difference between the ceiling and the projected cost for particular costs centers. Again, most states that have such provisions do not include the direct care component of their rate because they do not want to encourage reduced spending on direct care (as doing so could reduce quality of care to residents). In Alabama and New York, however, providers receive a percentage of the difference between both their direct and indirect care cost components and the established ceilings in these areas. More typical, really, is Mississippi where the efficiency incentive applies to administration and operations only. Another area impacting costs is ancillaries, which consist of services provided during the course of care in a nursing facility that may be included in the rate under the appropriate cost center, billed separately, or paid for by another program. These are important because evidence indicates that the inclusion of ancillaries such as therapies, oxygen, and durable medical equipment in the Medicaid per diem rate, as compared to paying for them separately, has important implications both for the rates themselves, as well as the costs borne by providers. Not surprisingly, states handle ancillaries very differently. Therapies, for example, are currently bundled into the rates in Texas, Washington, and Wisconsin, but not Alabama, California, or Minnesota. It is not unusual for services that were once bundled into the rate to be unbundled. While therapies had traditionally been bundled in New York, for example, they were recently removed, beginning July 7, 2011. Now let's turn to incentives meant to promote Medicaid beneficiary access to care. Perhaps the most salient provision is case-mix adjustment. The primary intent of case-mix is to compensate providers for the "heavy care" requirements of more frail and disabled residents, thereby encouraging better access to nursing homes for functionally more dependent Medicaid recipients. Case-mix is also adopted, in part, to enhance quality of care. By linking reimbursement to the acuity of care, case-mix systems provide incentives for nursing homes to reallocate resources, in particular, clinical staffing, in ways that are more responsive to the needs of the residents that they serve. Case-mix also helps to distribute payments more equitably across providers, as those that serve more resource intensive residents get paid more, on average, than those who do not. Although there are many commonalities, there is a lot variation across the case-mix systems adopted, including whether the weights used to adjust payment is incorporated at the facility- or resident- level and updated one or more times annually. Now the number of case-mix States has grown dramatically over the past 30 years, from just 3 prior to 1981, to 18 by 1991, 26 by 1998, and 35 today. Though some states such as Massachusetts, Maryland, Nebraska, and West Virginia use their own home grown case-mix systems, most states implementing case-mix employ variations on RUG-III, the third generation of the Resource Utilization Group system for adjusting nursing home payments. The information needed for RUG classification is taken from the Minimum Data Set, or MDS, an assessment instrument federally mandated in 1987. The MDS is a tool that collects comprehensive information on residents' nursing needs, activity of daily living impairments, cognitive status, behavioral problems, and medical diagnoses. It is used for both care planning and reimbursement purposes. Using this information, residents are classified into categories that form a hierarchy from greater to lesser resources used in meeting resident care requirements. As the examples on this slide suggest, the case-mix approach chosen can vary substantially even within the RUGs System. Thus, for example, the number of categories into which residents can be categorized varies, ranging from 34 in Minnesota and Wisconsin to 44 in Washington and 53 in New York. Whereas New York, Washington, and Wisconsin apply facility-specific averages to determine how much nursing homes should be paid, Minnesota determines payment on a resident by resident basis. There is also variation in how frequently the case-mix data used to inform state reimbursement levels must be updated; in New York and Wisconsin, it is every six months; in Minnesota and Washington, it is quarterly. Each state uses the RUGs weights to adjust costs or payments in one or more components of their rates. All adjust nursing services and supplies. All but Minnesota case-mix adjust non-nursing social services, activities, and other patient-related care. Two--New York and Wisconsin--case-mix adjust therapies. States also try to promote access through high Medicaid census add-ons. Medicaid payments tend be 30% lower, on average, than the private pay price. Consequently, there are disincentives for nursing facilities to take Medicaid beneficiaries when they compete with private pay patients for the same beds. This, combined with lower documented quality in high Medicaid homes, has spurred states to provide additional payments to facilities with high Medicaid censuses. Several states incorporate this incentive into their systems. To qualify for such payments in Wisconsin, for example, facilities' combined Medicare and Medicaid patient days must constitute 65% or more of total patient days. Add-ons increase in 5 degree increments, beginning with 65 to 70%, 70 to 75% and so on, with the particular size of the add-ons depending on whether the facility is located in Milwaukee or not. Just two states in the country--Minnesota and North Dakota--have rate equalization, which stipulates that facilities cannot charge private paying residents more than the Medicaid rate established for their case-mix group, with the exception of private rooms. The purpose, really, is to avoid discrimination against Medicaid residents and to create equity of behalf of private pay residents by protecting their resources from rapid spend down, which also benefits the state through reduced Medicaid utilization. It also creates a moral imperative for the state to pay an adequate rate because the industry cannot cross-subsidize Medicaid with private pay. Because both Minnesota and North Dakota exclude private rooms from this provision, facilities have an incentive to create single occupancy rooms as well, thereby, perhaps, enhancing quality of life and downsizing the number of beds. In order to encourage nursing home admittance, some states have given 'add-ons' to a facility's rate or have developed special rates for certain categories of residents that they consider hard to place or in need of more resources. Some states have programmatic requirements attached to these add-ons, in order to make sure that the added funds go into patient care; others give the add-ons on admission, with no need to demonstrate how they were ultimately spent. In both New York and Maryland, for example, many programmatic requirements are mandated. By contrast, to receive any of the add-ons available in Georgia and Texas, facilities need only admit individuals with moderate to severe cognitive impairment or who are ventilator dependent to qualify. Now let's consider payment equity, which is addressed in part by some of the provisions already outlined, including case-mix adjustment, high Medicaid census add-ons, and rate equalization, but also addressed through such reimbursement policy characteristics as peer groupings, hold harmless stipulations, provider fees, and property tax provisions. One strategy states use to promote payment equity is by grouping similar types of providers for purposes of the rate setting process. These groupings are typically based on geography, facility size, and hospital affiliation. There is wide variation in the way states group providers for purposes of rate setting. California, for example, has established an entirely separate reimbursement system for hospital-based facilities while employing 7 geographically-based peer groups in its free standing system. New York has also established separate reimbursement rates for hospital-affiliated facilities, and for those serving specialty populations such as children and those suffering from AIDS and traumatic brain injury, while employing two peer groups-- less than 300 beds and 300 or more beds--in its free standing system. Not surprisingly, significant reimbursement redesigns often affect some providers more than others. Consequently, states sometimes adopt hold harmless mechanisms so that facilities receive per diem rates no lower than they would have received had no change taken place. These are technically temporary provisions adopted in the short run to promote industry buy-in and to blunt the impact of whatever changes are taking place. Though the transition that has now been suspended, and this is actually Minnesota, had been implementing something called "rebasing", they had considered that no facility, no nursing facility in the state was to receive an operating payment rate less the operating payment rate under its current system for paying providers. Unfortunately, this system has now been suspended, therefore negating the need for for the hold harmless. Similarly, during the transition to rebasing in New York in 2009, facilities were held harmless on their direct, indirect, and non-comparable rate components. Previously they had been held harmless when changes were made to certain wage equalization factors. States have used a range of "creative financing" mechanisms to increase Federal matching funds under Medicaid. Perhaps the most noteworthy are provider taxes which typically involve transfers of funds from providers to state governments, who then use these funds to pay providers under Medicaid, thereby qualifying for additional federal matching payments with little or no state spending. Federal law requires that such taxes be uniform--that is, they must be applied to all gross revenues, not just those deriving from Medicaid. Typically, states compensate providers for the cost of the tax through increases in the Medicaid reimbursement rate; consequently, those providers with more private pay patients receive less of their tax contributions back in the way of government reimbursement. Additionally, federal matching dollars drawn in by states' nursing home taxes totaled $3.8 billion in 2007, a significant amount. The extension of Indiana's nursing home tax, the Quality Assessment Fee, authorized $102.5 million in total annual collections in 2007 with which to fund additional payments of $215.8 million. Michigan's Quality Assurance Assessment Program collected $794 million from nursing homes in 2007 with which to support Medicaid rate increases totaling $1.5 billion. Over ten years, Illinois' Provider Tax Assessment Program collected $2.5 billion in provider assessments, resulting in additional Medicaid reimbursements of $4.8 billion. Wisconsin more than doubled its nursing home bed tax during 2009 to 2011, generating $90 million in additional federal matching funds, most of which, to the consternation of the nursing home industry, was used to close the state's budget deficit instead of funding increases in the provider reimbursement rate, as perhaps originally intended. For for-profit facilities, who pay property taxes there also non-profit facilities that do not. Because for-profit facilities pay property taxes and these taxes are incorporated calculations that affect the rates for all facilities in states such as Washington and Texas, accounting for the costs of property taxes increases the rate of reimbursement received, not just for those for-profits, but for non-profit facilities in those states as well. This is controversial. Whereas for-profits in these states must use the extra payment to cover their tax liabilities, non-profits may use it for other, non-tax-related purposes. For-profits argue that this provides non-profits with an unfair advantage. Non-profits believe this compensates them, albeit indirectly, for higher labor costs. Since other states reimburse property taxes separately from the broader tax rate calculations-- either as a 100% pass-through or as part of the capital component of the rate, doing so does not affect the level of payment received by non-profit providers. As such, controversies such as this may be avoided. Let's consider state's efforts to ensure and promote maximal use of available service capacity, which includes such rate setting components as minimum occupancy standards, capital valuation, and capital authorization requirement. Among the more salient mechanisms states use to promote the use of available resources are minimum occupancy standards, which typically establish the minimum number of days by which costs in one or more cost categories are divided for purposes of establishing reimbursement. Thus, if resident days are below the minimum occupancy level, they are increased to the imputed level, which effectively reduces per resident day costs and hence the component rates based on such costs. Some states such as Washington allow facilities to temporarily reduce the number of licensed beds if their occupancy declines, thereby ameliorating the impact of this requirement. Other states such as Alabama and New York do not. Perhaps one of the more difficult reimbursement policy areas to understand is capital. Capital costs include that portion of the per diem rate associated with construction, acquisition or lease of land, buildings or equipment used for resident care in a nursing facility. Since this is a very very complicated area that relatively few people in the country seem to understand, we'll provide you with just a very broad overview here today. On the one hand, a large proportion of states such as New York, Washington, and Wisconsin reimburse for capital on the basis of historical construction or purchase costs, including an allowance for depreciation. These systems usually include actual interest expenses, lease payments, and sometimes, for proprietary homes, the payment of a return on equity. Other states, by contrast, employ fair rental approaches that pay a simulated rent, or return on the appraised value of a facility's assets, in lieu of separate payments for depreciation, return on equity, and/or interest payments. Fair rental methods vary depending on how asset values are determined and updated, whether interest is included or reimbursed separately, and what rate of return of paid. Systems such Minnesota's that reimburse interest separately are known as "net rental" systems; those such as Alabama and California's that include interest as "gross rental" systems. There are, of course, still other methods that we will not elaborate upon here. In order for new capital costs to be reimbursed in some states, expenditures beyond minor repairs and maintenance must be approved by Medicaid, regardless of whether there is a Certificate of Need or C.O.N. process in place or not. In case you are not familiar, C.O.N. programs require nursing homes to obtain state approval before construction of new facilities or major renovation of old ones. Some states also establish moratoriums on new construction altogether or on the certification of new beds. Whereas C.O.N. provides permission to build, capital authorization lets providers know whether they can pay for capital expenditure projects, in part, through Medicaid. One example is Wisconsin, where reimbursement for debt resulting from remodeling and new bed construction must be for approved expenditures. Another is Alabama, where improvements and renovations in excess of 5% of current asset value must be submitted for review; those costing less than 5% are not normally covered, as providers' return from their fair rental payments were designed to cover such smaller payments as these. Not surprisingly, states typically try to exert budgetary control over their rates. This is usually reflected in how they deal with inflation, though some include overall budgetary caps as well. As noted, most states set rates prospectively based on prior year's costs. Consequently, these costs need to be inflated forward to account the changes in market conditions. This is accomplished through use of various legislatively-determined adjustments and/or nationally or locally derived indices. This is an important distinction because annual legislative authorizations for inflation adjustment are quite different than building an inflation method into the law which will be applied regardless of a state's fiscal circumstances. Washington uses purely legislatively-defined factors; Minnesota, legislatively-defined factors, but for property costs to which the C.P.I. is applied. New York, C.P.I. adjusted rate increases with legislative amendments; and California, state specific C.P.I. and labor indices. Use of independent indices such as these makes it more difficult for states to limit aggregate spending to pre-established levels. A number of states apply mechanisms to keep nursing home payment within appropriated amounts, with some--Washington, Texas, and California--applying these mechanisms to the overall rate, others--Wisconsin and Alabama--to various cost elements. Washington in particular has a budget dial in which the Legislature sets a statewide average maximum nursing facility payment rate for each state fiscal year ($166 in 2011, for example). The state is required to reduce rates for all Medicaid participating nursing homes by a uniform percentage if the statewide average total rate approaches this limit. California, by contrast, establishes maximum annual increases in the overall weighted average Medicaid rate (5.5% in Fiscal Year 2008). When the current year's weighted average rate is projected to exceed the specified budgetary limit, the state is required to reduce each facility's projected rate by an equal percentage. Finally, and perhaps, most importantly from the consumer perspective, there are a number or multitude of mechanisms that states can put into place to promote quality and quality improvement. This includes floors, settlement procedures, wage pass-through programs, pay-for-performance, and private room incentives. Floos are the opposite of ceilings. The intention is to promote spending, typically on direct patient care, based on the median, average, percentile, etc. Floors creative incentives for facilities to spend money because facilities spending the floor either a) receive the floor rather than its actual projected cost, and/or b) must reimburse the state for the difference. Like ceilings, floors may be based on all facilities throughout a state or a subset or peer. New York, for example, establishes separate floors for its direct care and indirect care cost components; Approximately 90% of the statewide average in the case of its direct care cost component and approximately 90% of the peer group average in the case of its indirect care cost component. All facilities in the state receive the floor, regardless of their actual spending in these areas. Louisiana goes one step further. It encourages spending in the direct care area by setting a floor for its Direct Care and Care Related Cost centers. Any facility spends less than the floor must reimburse Medicaid for the difference between their spending and the floor. Regardless of whether there is a floor or not, some states require nursing homes to return all unspent payments certain areas. Perhaps this is best reflected in Washington which has a process called "settlement", in which facilities must return unspent payments in direct care, therapy care, and support services for each reporting period. As with floors, the intent is to promote spending on direct patient care by requiring nursing homes to spend all money has been allocated for that purpose. Another strategy states use to promote quality is to focus on the recruitment and retention of direct care staff. Prevailing research reveals a relationship between Medicaid payment levels and CNA wages, benefits, satisfaction, and overall levels of staffing. Thus, one policy option to promote staffing might be to increase the Medicaid per diem rates received by facilities. But whether nursing homes will direct any additional Medicaid dollars toward hiring more staff is open to question. Consequently, given the importance of compensation, state governments have sought to improve staffing levels, in part, through wage pass-through programs which require that a portion of Medicaid reimbursement increases be directed towards wages and benefits for nurse aides and other direct care workers. Texas has the most extensive wage pass-through program, which although voluntary, is applied to 85% of Medicaid participating facilities. Those electing to enroll agree to maintain direct staffing above minimum standards and submit annual reports verifying that they have met these requirements. There are 27 potential levels of enhancement depending on available appropriations, ranging from 34 cents to $8.92 per day. Another prominent wage pass-through effort was implemented in Florida, which although voluntary, applied to 92.6% of the state's facilities. Participating facilities received add-ons, ranging from 50 cents to $2.81 per day, and averaging $1.96 per day. The program was associated with additional facility spending of $107,152, on average, on salaries and benefits for direct care workers, as well as increased staffing hours, primarily among CNAs. Some states have begun to experiment with "pay-for-performance" incentives, which provide nursing homes with higher levels of reimbursement based on achieving desired outcomes, whether in relation to absolute performance or improvement over time. By 2007, there were 9 state P4P programs, representing 20% of nursing homes nationwide and 16.7% of all residents. These programs varied considerably, both in terms of the performance measures chosen the size and type of financial incentives used. Despite the range of indicators, most used data from nursing home inspections, consumer surveys, staffing, and MDS-derived clinical quality indicators. Some states incorporate quality of life and culture change as well. Rewards range from a 25 cent flat bonus per resident day to a 5% increase in the daily rate. P4P systems also differ on other dimensions, including whether the incentives are paid for through the redistribution of existing funds or additional appropriations. If redistribution, some facilities would receive higher reimbursement, others lower, relative to their existing rates based on their performance on the quality scores used. Another issue has been whether P4P encompasses a small or large number of indicators. In New York, additional funds are awarded on the basis of one indicator only: decubitus ulcer rates. Minnesota has a fairly complex P4P system, which has been suspended in recent years due to state budget cuts. Incentive payments were based on a facility's composite quality score, which ranged from 0 to 100. Performance elements included: 24 MDS indicators, staff retention, staffing level, use of pool staff, survey deficiencies, and resident satisfaction and quality of life. Those scoring from 0 to 40 did not receive an add-on; 100, a 2.4% add-on; and 40 to 100, an add-on based on a straight-line relationship with the summary quality score used. Whereas the incentive payments averaged 1% in year 1, they averaged 0.13% in year 2, before the program was put on hold in 2009. In a related quality improvement initiative, the State continues to provide facilities with incentive payments of up to 5% of their base payment rate for a period of 1 to 3 years. To qualify, facilities apply competitively on an individual or collaborative basis, proposing innovative projects meant to quality or efficiency, or increase successful diversions or discharges to a home or community-based alternative settings. Utah has a somewhat simpler P4P program. Initially, a facility simply needed to demonstrate it had a quality improvement plan and means to measure it. The state subsequently required facilities to contract with an independent third party to conduct a consumer satisfaction survey, and demonstrate an action plan to address items that were rated below average on that survey. Facilities must also have a plan for culture change and demonstrate that they are working on implementing that plan. They must have an employee satisfaction program in place as well. The state now allocates $1 million annually for this program, with individual payments ranging from $3,000 to $30,000 per facility per year. Facilities with an IJ-level survey violation are disqualified; facilities receiving a substandard quality of care level citations, levels F through L, may obtain only 50% of its potential award. Utah has also established a separate pool of money with which to target capital improvements that improve quality. The purpose is to create an expectation that quality not just about the clinical care provided, but sometimes the capital infrastructure as well. Here, the state has come up with a smorgasbord of options from which facilities might choose. Examples include a nurse call system, vans, heavy duty lifts, electronic health records, bathing systems, quality training, and dining systems. $4.3 million has been allocated to this program. Clearly, there has been growing emphasis on improving the quality of life of nursing home residents. Although this can be done with more staffing, clinical teams and transforming caregiving in general, architectural changes that make nursing homes more home-like environments, including the use of single occupancy rooms, is also advocated, and downsizing may be encouraged as well. High Medicaid/Medicare facilities in Wisconsin, for example, with 15% or more private pay rooms may qualify for up to $1 a day, and those found to replace 90%, up to $2. Facilities in Minnesota may receive up to 20% higher reimbursement on the operating component of their rates for bed closures resulting in the creation of single bed rooms. Exclusion of private pay rooms from rate equalization also promotes the use of single occupancy rooms in Minnesota. The idea to encourage single occupancy rooms in Minnesota came from the state in order to reduce the number of beds. Now that we have reviewed the nuts and bolts of Medicaid nursing home reimbursement, the remaining modules will identify strategies for increasing consumer involvement and influence in this area. We'll examine consumer participation and influence in Minnesota and New York, the two case study states studied, in addition to explaining why it is important for consumers to be at the table when policy in this area is being discussed. We'll also review the prerequisites for consumer involvement, the major strategies consumer groups in Minnesota and New York have pursued when trying to influence state policy in this area, along with some potentially effective supplemental strategies. For additional information on the content reviewed in this module, you may contact Cynthia Rudder at cynthia@ltccc.org and Eddie Miller at edward.miller@umb.edu. Also, please continue on to Module 3: Influencing Nursing Home Reimbursement I, during which we begin the process of identifying strategies underlying successful consumer participation and influence in Minnesota and New York.

Increasing Consumer Involvement in Medicaid Nursing Facility Reimbursement Edward Alan Miller, Ph.D., M.P.A. University of Massachusetts Boston Cynthia Rudder, Ph.D. Long Term Care Community Coalition Module 2: Reimbursement 101 The Commonwealth Fund Grant #20110033 Policy Objectives Cost Containment Access Equity in Provider Payment Service Capacity Overall Budgetary Control Quality Policy Objective Cost Containment: Prospective payment (especially flat-rate) Rebasing frequency Cost categories Ceilings Efficiency incentives Ancillary service provisions Policy Objective Beneficiaries’ Access: Case-mix adjustment High Medicaid census add-ons Equalization of Medicaid and private payments Add-ons/special rates for hard-to-place residents Policy Objective Payment Equity Across Providers: Case-mix, Medicaid census, rate equalization Peer groupings Hold harmless stipulations Provider tax programs Property taxes Policy Objective Service Capacity: Minimum occupancy standards Capital valuation Capital preauthorization Policy Objective Overall Budgetary Control: Inflation factors Funding caps Policy Objective Quality: Floors Settlement procedures Wage pass-through programs Pay-for-Performance Private room incentives Cost Containment General Methodology Retrospective Reimbursement Rates set after care has been delivered Reimburses providers actual costs up to some limit Used in very few states Prospective Reimbursement Set rates in advance, regardless of actual costs incurred Considered more cost containing than retrospective payment Used in most states Facility/Resident Specific v. Flat-Rate Facility/resident specific set rates based on historical facility costs Flat-rate assigns same rate to all facilities within a state, perhaps varying by general facility type; considered most cost containing Rebasing Rebasing Involves Updating, or Changing, the Basic Data Used to Establish Payment Rates Data derive from cost reports submitted annually Older Costs Reports=>More Cost Containing Data is less closely tied to nursing facilities’ current costs Fixed Schedule=>Less Containing Facilities spend more during years in which they are rebased Each State Handles Rebasing Differently Cost Categories/Centers Used to Pool Costs for Purposes of Applying Limits or Caps to Certain Areas of Expenditures All states divide their rates into cost categories Common Categories/Centers Direct Care, Indirect Care, Capital, Administration, etc. Number of Categories/Centers Vary Ceilings Method for Limiting Costs Typically applied to specific cost categories Based on median, average, percentile, etc. Ceilings typically set higher for direct patient care Facilities Spending Above the Ceiling Receive the Ceiling Rather Than Their Actual Costs Substantial Interstate Variation Efficiency Incentives Provide Facilities a Percentage of the Difference between the Ceiling and Projected Cost Most Exclude Direct Care Cost Center Because They Do Not Want to Encourage Reduced Spending in This Area, Possibly Harming Quality States Handle Somewhat Differently Ancillary Services Services That May Be Incorporated into the Rate, Billed Separately, or Paid for Elsewhere Therapies, oxygen, durable medical equipment (DME), etc. Inclusion/Exclusion in Medicaid Rate Has Implications for Rates and Provider Costs States Handle Various Ancillaries Differently Bundled Services May Change Over Time Beneficiary Access Case-Mix Adjustment Case-mix Methods Adjust Per Diem Rates Using Weights Derived from Functional status, Cognitive Status, and Medical Conditions Typically Provide Stronger Incentives To serve more resource intensive residents due to higher payments for care provided to those individuals To enhance quality of care due to the reallocation of resources (clinical staffing) in ways responsive to residents’ needs To distribute payments more equitably across providers, as those who care for more intensive residents should get paid more Case-mix Weights May be Incorporated At the facility- or resident-level Updated one or more times annually Arizona Colorado Delaware Georgia Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Minnesota Mississippi Montana Nebraska Nevada New Hampshire New Jersey New York N. Carolina N. Dakota Ohio Oregon Pennsylvania S. Carolina S. Dakota Texas Utah Vermont Virginia Washington W. Virginia States Using Case-Mix Resource Utilization Groups-III Some States—MA, MD, NE, WV—Have Home Grown Case-Mix Systems; Most Rely on RUGs Minimum Data Set (MDS) Collects Information on Residents’ Characteristics RUG-III Uses This Information to Classify Residents into Categories Based on Greater to Lesser Resources Used Each of These Categories Is Associated with a “Relative Resource Use” Weight which Grants Higher Payments for Heavier Care Residents RUG-III Examples Minnesota Resident-specific 34 group system applied to nursing services and supplies; updated quarterly New York Facility-specific 53 group system applied to nursing services and supplies, other patient-related care, and therapies; updated semi-annually Washington Facility-specific 44 group system applied to nursing services and supplies, and other patient-related care; updated quarterly Wisconsin Facility-specific 34 group system applied to nursing services and supplies, other patient-care, and therapies; updated semi-annually High Medicaid Census Add-On Provide Additional Payments to Facilities with High Proportions of Medicaid Residents Medicaid payments are lower than private pay; this creates disincentives to take Medicaid patients Several States Incorporate This Incentive Wisconsin: To qualify, facilities’ combined Medicare and Medicaid patient days must constitute 65% or more of total patient days. Can earn an extra $1.30 to $4.60 per resident day Rate Equalization Stipulates That Facilities Cannot Charge Private Paying Residents More Than the Medicaid Rate In Minnesota and North Dakota only Serves a Variety of Purposes Avoid discrimination against Medicaid residents Protects private pay residents’ resources from rapid spend down to Medicaid, also saving the state money Creates imperative for state to pay adequate rate because no cross-subsidization from private pay can take place Creates single occupancy room incentives since both states excludes private rooms from this provision High Need/Medically Complex Add-Ons or Special Rates Established for Categories of Residents Considered Hard to Place or in Need of More Resources Typical add-ons: (1) ventilator dependent residents; (2) brain-injured residents; and (3) residents with dementia or Alzheimer’s Some states include programmatic requirements, others don’t Programmatic Requirements, Yes v. No YES: NEW YORK (Special Rates: AIDs, pediatrics; Add-Ons: traumatic brain, ventilator dependent, neurobehavioral); MARYLAND (Ducubitus Ulcer care, tube feeding, communicable disease, central lines, ventilator care) NO: GEORGIA (moderate/severe cognitive impairment); TEXAS (ventilator dependent); Payment Equity Peer Groupings Groups Similar Types of Providers for Purposes of the Rate Setting Process Geography: Due to differences in labor/resource costs Size: Larger facilities benefit from economies of scale Hospital: Tend to serve higher acuity populations Wide Variation in State Approaches California: Entirely separate reimbursement system for hospitals; 7 geographic groups in free standing system New York: Separate system for hospital-based and specialty facilities (pediatrics, AIDS, head injuries); Free standing, bed size Hold Harmless Provisions Ensure That Facilities Receive Per Diem Rates No Lower Than Had No Change Taken Place Typically temporary to promote industry buy-in for major changes and to blunt the impact of such changes Hold Harmless Employed at Critical Junctures Transitioning to an entirely new reimbursement system Transitioning to new reimbursement system components Provider Taxes Collect Revenue from Providers, Fund the State Share of Medicaid Expenditures, Leverage Federal Medicaid Matching Dollars Benefits range $1 to $4 for Every $1 in provider tax revenue Federal Law Requires That Taxes Apply to All Gross Revenue, Private and Medicaid Providers Compensated Through Increases in the Medicaid Rate; Some More Than Others (i.e., Those with More Medicaid Revenue) $3.8 Billion from Nursing Home Taxes in 2007 Nursing Home Tax Examples Indiana Quality Assessment Fee in 2007 authorized $102.5 million in total collections to fund $215.8 million in additional payments Michigan Quality Assurance Assessment collected $794 million in 2007 to support $1.5 billion in Medicaid rate increases Illinois Provider Tax Assessment collected $2.5 billion over 10 years, resulting in additional Medicaid reimbursements of $4.8 billion Wisconsin Doubled bed tax during 2009-2011, generating $90 million in additional federal matching, 87% used to close budget gap Property Taxes For-Profits Pay; Non-Profits Do Not States Handle Property Taxes Differently Washington, Texas: Included in operations/administration Alabama, New York: Paid for through capital component Minnesota, California, Wisconsin: 100% pass-through Controversial in Washington, Texas, etc Incorporated in calculations that affect rates for all facilities Raises rates to non-profits though they do not pay property tax For-profits must use “extra payment” to cover tax liabilities Non-profits may use “extra payment” for non-tax-related purposes Service Capacity Minimum Occupancy Standards Minimum Number of Days Costs in One or More Categories Are Divided for Rate Setting Purposes If resident days are below the minimum, they are increased to that level, effectively reducing costs/resident day and, thus, payment Some states allow facilities to temporarily reduce the number of licensed beds, thereby ameliorating the impact of this requirement Application Varies Across States Capital Valuation Capital Costs Include Construction; Acquisition or Lease of Land, Buildings, Equipment (Complicated!) Historical Method Construction/purchase costs; an allowance for depreciation Usually include interest expenses, lease payments, and sometimes a payment of a return on equity (in the case of private homes) Examples: New York, Washington, and Wisconsin Capital Valuation Capital Costs Include Construction; Acquisition or Lease of Land, Buildings, Equipment (Complicated!) Historical Method Construction/purchase costs; an allowance for depreciation Usually include interest expenses, lease payments, and sometimes a payment of a return on equity (in the case of private homes) Examples: New York, Washington, and Wisconsin Fair Rental Method Pay simulated rent, return on the appraised value of facility assets Vary based on how asset values determined/updated, whether interest is included or not; and what rate of return is paid Minnesota pays interest separate (“net-rental”); Alabama and California includes interest (“gross rental”) Capital Authorization For New Property Costs to Be Reimbursed, Capital Expenditures Beyond Minor Repairs and Maintenance Must Be Approved by Medicaid, Independent of Certificate-of-Need (CON) Several States Require Authorization Budgetary Control Inflation Prior Year’s Costs Need to Be Inflated Forward to Account for Changes in Market Conditions Legislative adjustments: Provides state governments with the flexibility to cater increases to state fiscal circumstances National/Local Indices: Builds in an inflation method independent of a state’s fiscal circumstances States Employ Very Different Methods Legislative Adjustment of All Costs: Washington Legislative Adjustment of Most Costs : Minnesota Indices with Legislative Adjustment: New York Indices Only: California Budgetary Caps Mechanisms to Keep Nursing Home Payments within Appropriated Levels Budgetary Caps Vary Somewhat in Execution Quality Floors Method for Promoting Spending Typically applied to direct patient care Based on median, average, percentile, etc. Facilities Spending Below a Floor, Receive the Floor Rather Than Its Actual Projected Cost, Possibly Reimbursing the State the Difference Floors Method for Promoting Spending Typically applied to direct patient care Based on median, average, percentile, etc. Facilities Spending Below a Floor, Receive the Floor Rather Than Its Actual Projected Cost, Possibly Reimbursing the State the Difference Substantial Interstate Variation New York: ~90% of statewide average for direct care; ~90% of peer group average for indirect care; all facilities receive the floor Louisiana: Sets floor for its direct care and care related cost centers. Any facility spending less than the floor must reimburse Medicaid the difference between their spending and the floor Settlement Facilities Must Return Unspent Payments Washington’s Settlement Process Facilities required to return unspent payments in direct care, therapy care, and support services for each reporting period The intent is to promote spending on direct patient care by requiring nursing homes to spend all money that has been allocated for that purpose Wage Pass-Through Programs Demonstrated Relationship Between Medicaid Payment Levels and CNA Wages, Benefits, Satisfaction, and Overall Staffing But ↑ Payment Generosity Will Not Necessarily Result in Increased Staffing; Money May Be Spent Elsewhere Wage Pass-Through Programs Require That a Portion of Medicaid Payment Increases Be Directed Towards Wages and Benefits for Nurse Aides and Other Direct Care Workers Wage Pass-Through Examples Texas Voluntary, applied to 85% of facilities; facilities must maintain direct staffing levels above minimum standards; There are 27 potential areas of enhancement, depending on available appropriations, ranging from $0.34 to $8.92 per day Wage Pass-Through Examples Texas Voluntary, applied to 85% of facilities; facilities must maintain direct staffing levels above minimum standards; There are 27 potential areas of enhancement, depending on available appropriations, ranging from $0.34 to $8.92 per day Florida Voluntary, applied to 92.6% of facilities; add-ons averaged $1.96 per day; associated with additional facility spending of $107,152, on average, on salaries and benefits for direct care workers and increased staffing hours, primarily among CNAs Pay-for-Performance Provides Facilities with Higher Levels of Payment Based on the Achievement of Desired Outcomes Whether in Relation to Absolute Performance or Improvement Over Time Nine Existing State Programs Vary Considerably 20% of facilities accounting for 16.7% of residents nationwide Most frequently incorporate survey inspection, consumer questionnaire, staffing, and MDS-derived clinical indicator data Programs use a bonus or add-on to the facilities’ per diem rates in the form of either a relative percent increase or fixed dollar amount Reward: 25 cents flat bonus/resident day, 5% increase in daily rate Redistribution v. new appropriations; Number of indicators sused P4P Examples Minnesota Payments based on composite quality score (0 to 100) Elements included 24 MDS indicators, staff retention, staff level, pool staff, survey deficiencies, satisfaction/quality of life Potential payouts vary with score: 0 (0-40 points) to 2.4% (100 points) Average incentive payments were 1% in Year 1, 0.13% in Year 2 State also has a competitive grant program that provides payments up to 5% of base rate for 1 to 3 years for innovative projects P4P Examples Minnesota Payments based on composite quality score (0 to 100) Elements included 24 MDS indicators, staff retention, staff level, pool staff, survey deficiencies, satisfaction/quality of life Potential payouts vary with score: 0 (0-40 points) to 2.4% (100 points) Average incentive payments were 1% in Year 1, 0.13% in Year 2 State also has a competitive grant program that provides payments up to 5% of base rate for 1 to 3 years for innovative projects Utah Must implement a QI plan and means to measure it; a contract with a 3rd party to conduct a satisfaction survey, and a plan for culture change Potential payouts range from $3,000 to $30,000 per year Can’t participate if receive IJ-level deficiency; can receive only a 50% payout if receive a substandard deficiency (citation level F through L) State has a separate program to incentivize capital improvements targeted at quality of care and quality of life (e.g., lifts, bathing systems) Single Occupancy Rooms Improving Quality of Life Includes Architectural Changes such as Single Occupancy Rooms (Though They May Also Encourage Downsizing) Single Occupancy Rooms Improving Quality of Life Includes Architectural Changes such as Single Occupancy Rooms (Though They May Also Encourage Downsizing) Examples of States with Private Room Incentives Wisconsin: High Medicaid/Medicare facilities in Wisconsin with 15% or more private rooms may qualify for up to $1.00 per diem; those with 90% or more up to $2.00 Minnesota: Facilities may receive up to 20% higher reimbursement on the operating component of their rates for bed closures resulting in the creation of single bed rooms. The state also excludes private rooms from rate equalization Influencing Reimbursement Consumer Group Participation/Influence Importance of Being “At the Table” Prerequisites for Consumer Involvement Major Strategies Supplemental Strategies Contacts Cynthia Rudder, Ph.D., Long Term Care Community Coalition cynthia@ltccc.org http://www.ltccc.org/ Edward Alan Miller, Ph.D., M.P.A., University of Massachusetts Boston edward.miller@umb.edu http://www.umb.edu/academics/mgs/faculty/edward_miller/