Title of Regulation: 12VAC30-90. Methods and Standards for Establishing Payment Rates for Long-Term Care (amending 12VAC30-90-20, 12VAC30-90-70, 12VAC30-90-257).

Statutory Authority: § 32.1-325 of the Code of Virginia; 42 USC § 1396 et seq.

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: December 16, 2015.

Effective Date: December 31, 2015.

Agency Contact: Emily McClellan, Regulatory Supervisor, Policy Division, Department of Medical Assistance Services, 600 East Broad Street, Suite 1300, Richmond, VA 23219, telephone (804) 371-4300, FAX (804) 786-1680, or email emily.mcclellan@dmas.Virginia.gov.

Basis: Section 32.1-325 of the Code of Virginia grants to the Board of Medical Assistance Services the authority to administer and amend the State Plan for Medical Assistance. Section 32.1-324 of the Code of Virginia authorizes the Director of the Department of Medical Assistance Services (DMAS) to administer and amend the State Plan for Medical Assistance according to the board's requirements. The Medicaid authority, as established by § 1902(a) of the Social Security Act (42 USC § 1396a), provides governing authority for payments for services.

42 CFR 430.10 et seq. requires states to modify Title XIX State Plans whenever material changes are made in state policies for the Medicaid program. The Title XIX State Plan is the Commonwealth's comprehensive written statement that describes the nature and scope of the Virginia Medicaid program and is the basis upon which the Commonwealth claims its federal financial participation.

Purpose: This action modifies three sections in the nursing facility (NF) reimbursement methodology to reflect updated policies resulting from the closure of state operated intermediate care facilities for individuals with intellectual disabilities (ICF/IIDs) and more current policies for NFs reporting and resolution of credit balances. The third change is a technical correction of an incorrect internal citation that has been incorporated.

None of these changes has any effect on the health, safety, or welfare of citizens of the Commonwealth or Medicaid individuals. The change to the calculation of the ICF/IID per diem reimbursement has no effect because none of these types of facilities are being paid their potential ceiling amounts. The changes to NF credit balance reporting may affect enrolled nursing facility providers. The technical correction affects neither individuals nor providers.

Rationale for Using Fast-Track Process: This regulatory action is noncontroversial because it has no effect on Medicaid individuals. The changes to the ICF/IID rate setting and the credit balance reporting are expected to be well received by providers as they facilitate their processes.

Substance: The sections of the State Plan for Medical Assistance that are affected by this action are the 12VAC30-90-20, 12VAC30-90-70, and 12VAC30-90-257.

12VAC30-90-20. Nursing home payment system; generally. This section establishes the payment methodology that DMAS uses for nursing facilities. It includes three separate cost components: plant or capital costs, operating costs (direct patient care costs), and nurse aide training and competency evaluation and competency evaluation costs.

Subsection D provides for the separate treatment of state-owned (the Department of Behavioral Health and Developmental Services) or federal government-owned (Department of Veterans Services) nursing facilities. All of these types of nursing facilities are exempt from the prospective payment system and instead reimbursed retrospectively on the basis of reasonable costs in accordance with the Medicare principles of reimbursement. These institutions are limited to the highest rate paid to a state ICF/IID institution as determined each July 1 by DMAS.

The need for the changes to 12VAC30-90-20 derives from the U.S. Department of Justice (DOJ) lawsuit against the Department of Behavioral Health and Developmental Services, which is resulting in the closure of the state's training centers. Most of the individuals who have been residing in these facilities are being transitioned into community settings to be cared for by one of the Medicaid home and community-based care waiver programs. This transition to communities is set out in the settlement agreement between the Commonwealth and DOJ.

As the training centers' individual populations are declining, the centers' operating and overhead costs are increasing. These centers' operating and overhead costs include: (i) utility payments; (ii) staff salaries and health and welfare benefits, and (iii) administrative costs. As the individual populations decline, they generate fewer and fewer patient care days for which these facilities can bill DMAS. At the same time patient care days are declining and generating fewer billable days, these centers are experiencing increasing overhead costs from employees who are retiring or are eligible for severance pay.

This extreme imbalance of rapidly declining billable patient care days with rapidly increasing operating costs is causing the ratio between these two items to drive higher and higher per day costs. Since DMAS uses this per day cost from these state centers to set the reimbursement rates for both public and private intermediate care facilities for individuals with intellectual disabilities, this rate setting methodology must be changed.

DMAS recommends that the current methodology be replaced with one that uses a benchmark amount (from state fiscal year (SFY) 2012) which is then slightly increased by the annual nursing facility inflation factor based on the percentage of change in the moving average of a nursing facility's market basket of routine service costs. This revised methodology will be appropriate in the long term for the declining number of state-owned ICF/IIDs and the increasing number of private ICF/IIDs.

12VAC30-90-70. Cost report submission. This section is included to modify an incorrect internal regulatory citation. Currently, subdivision A 6 cites 12VAC30-90-37; it should cite 12VAC30-90-38.

12VAC30-90-257. Credit balance reporting. No later than 30 days after the close of every quarter, NFs are required to report credit balances to DMAS. Then the NF issues a check for the credit amount to DMAS or submits claim adjustments to rectify the credit balance. In the absence of either of these two repayment options, DMAS retracts the credit amount owed from future payments owed to the NF. DMAS is also permitted to impose penalties for NF failures to report and repay such Medicaid credit balances.

Beginning in 2003, CMS required that all state Medicaid agencies conduct this activity for hospitals. At that time, DMAS promulgated these regulations, which follow the Medicare model for hospitals of reporting and recovery. For several reasons, this approach has been found to be unworkable.

There are differences in how Medicare covers NF services as compared to Medicaid. Medicare covers only relatively short lengths of NF stays for its beneficiaries whereas Medicaid's lengths of NF stays can range over years. Medicare patients are responsible for annual deductible and coinsurance amounts determined at discharge. Medicaid patients have patient pay requirements (individuals are required to contribute towards the costs of their NF care) that reduces allowable costs by an individual's financial means, including Social Security payments, since Medicaid is a payer of last resort.

Furthermore, there are 262 nursing facilities that are currently enrolled in Virginia Medicaid. Continuing to require NFs to make quarterly reports to DMAS would generate annually 1048 reports, each of which would require manual review and adjudication. This manual review and adjudication process would require an additional two or three more full-time staff members, at salaries and fringe benefit costs exceeding $150,000.

A recently completed audit by the U.S. Department of Health and Human Services Office of the Inspector General determined that NFs owe only a small amount, at any one time, of overpayments (less than $25,000) back to DMAS.

DMAS proposes to regularly remind NF providers, via their weekly remittance advice documents (computer-generated reports that explain the resolution of submitted claims), that they are expected to review their account ledgers, at least quarterly, to determine if they have any credit balances with DMAS. If providers do identify credit balances, they are able to easily adjust such amounts through the claims processing system by filing claim adjustments.

DMAS also proposes to follow up, during site visits at NFs for audits of Personal Fund Accounts, to ensure that this activity has been occurring and that the NF's account books are balanced. DMAS believes that combining this credit balance look-behind with Personal Fund Audits with nursing facilities is the most efficient and least cumbersome way to ensure that NFs are not inappropriately retaining large amounts of tax dollars.

Issues: There are no advantages or disadvantages to citizens in any of these actions. The primary advantages to the agency and the Commonwealth for the recommended changes to 12VAC30-90-20 and 12VAC30-90-257 are the judicious use of tax dollars with the more appropriate reimbursement levels for ICF/IID services and improved collections associated with NF credit balance reporting. Businesses may not like not being able to keep Medicaid payments for longer periods of time but are expected to appreciate the reduced penalties.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The proposed changes update 1) the calculation of the per diem reimbursement ceilings for Intermediate Care Facilities for Individuals with Intellectual Disabilities (ICF/IID) to account for state facility closures and 2) the nursing facility credit balance reporting requirements to reflect more current Medicaid policies.

Result of Analysis. The benefits likely exceed the costs for all proposed changes.

Estimated Economic Impact. One of the proposed changes updates the calculation of the per diem reimbursement ceilings for ICF/IID to account for state facility closures. Facilities that are owned by the Commonwealth or by the federal government are reimbursed retrospectively on the basis of their reasonable costs in accordance with the Medicare principles of reimbursement. The private facilities on the other hand are reimbursed prospectively. However, the private facility rates are limited to the highest rate paid to a state ICF/IID institution as determined for each fiscal year.

The need for the proposed changes derives from the Department of Justice (DOJ) suit against the Department of Behavioral Health and Developmental Services which is resulting in the closure of the state's training centers. According to the Department of Medical Assistance Services (DMAS), most of the individuals who have been residing in these facilities are being transitioned into community settings to be cared for by one of the Medicaid home and community based care waiver programs. This transition to communities is set out in the settlement agreement between the Commonwealth and DOJ.

As the training centers' individual populations are declining, the centers' per diem operating and overhead costs are increasing. These centers' operating and overhead costs include utility payments, staff salaries and health/welfare benefits, and administrative costs. Declining facility populations generate fewer and fewer patient care days for which these facilities can bill DMAS. At the same time that declining patient care days are generating fewer billable days, these centers are experiencing increasing costs from employees who are retiring or are eligible for severance pay.

This imbalance of declining billable patient care days with increasing operating costs is causing the ratio between these two items to drive per diem costs higher and higher. Since DMAS uses this per day cost from these state centers to set the reimbursement rates for both public and private facilities, this rate setting methodology is proposed to be updated.

DMAS proposes that the current methodology be replaced with one that uses a benchmark amount (from fiscal year 2012) which is then slightly increased by the annual nursing facility inflation factor that is based on the percentage of change in the moving average of a nursing facility's market basket of routine service costs. This revised methodology will be more appropriate in the long term for the declining number of state-owned ICF/IIDs and the increasing number of private ICF/IIDs. However, no significant economic impact is expected from this change upon promulgation of these regulations because currently none of these types of facilities are being paid their potential ceiling amounts.

The proposed changes also update the nursing facility credit balance reporting requirements to reflect more current Medicaid policies. Nursing facilities are required to report credit balances to DMAS no later than 30 days after the close of every quarter. Then either the facility issues a check for the credit amount to DMAS or submits claim adjustments to rectify the credit balance. In the absence of either of these two repayment options, DMAS retracts the credit amount owed from future payments owed to the facility. DMAS is also permitted to impose penalties for failures to report and repay such Medicaid credit balances.

Beginning in 2003, the Centers for Medicare and Medicaid Services required that all state Medicaid agencies conduct this activity for hospitals. At that time, DMAS promulgated these regulations for nursing facilities which follow the Medicare model for hospitals of reporting and recovery. For several reasons, this approach has been found to be problematic.

There are differences in how Medicare covers nursing facility services as compared to Medicaid. Medicare covers only relatively short lengths of nursing facility stays for its beneficiaries whereas Medicaid's lengths of nursing facility stays can range over years. Also, Medicare patients are responsible for annual deductible and coinsurance amounts determined at discharge. Medicaid patients have patient pay requirements that reduce allowable costs by individuals' financial means including Social Security payments since Medicaid is a payer of last resort.

Furthermore, there are 262 nursing facilities that are currently enrolled in Virginia Medicaid. DMAS estimates continuing to require nursing facilities to make quarterly reports would generate annually 1,048 reports that would require manual review and adjudication. This manual review/adjudication process would require an additional two to three more full-time staff at salaries and fringe benefit costs exceeding $150,000 per year. Similarly, the facilities would be required to devote additional staff time to prepare and submit these reports.

According to DMAS, a recently completed federal audit determined that nursing facilities owe only a small amount, at any one time, of overpayments (less than $25,000) back to DMAS.

DMAS proposes to regularly remind nursing facilities providers, via their weekly remittance advice documents (computer generated reports that explain the resolution of submitted claims), that they are expected to review their account ledgers, at least quarterly, to determine if they have any credit balances with DMAS. If providers identify credit balances, they would be able to easily adjust such amounts through the claims processing system by filing claim adjustments.

DMAS also proposes to follow up, during site visits at nursing facilities for audits of personal fund accounts, to ensure that this activity has been occurring and that the nursing facility account books are balanced.

DMAS believes that combining this credit balance look-behind with personal fund audits with nursing facilities is the most efficient and least cumbersome way to ensure that nursing facilities are not inappropriately retaining large amounts of credit balances.

Businesses and Entities Affected. The proposed regulations apply to 252 nursing facilities and 46 private and five state-owned Intermediate Care Facilities for Individuals with Intellectual Disabilities.

Localities Particularly Affected. The proposed regulations are not expected to have a disproportional impact on any locality.

Projected Impact on Employment. The proposed credit balance reporting is expected to reduce facilities' and DMAS' demand for labor as they will not have to hire staff to create and review quarterly reports.

Effects on the Use and Value of Private Property. Reduced credit balance reporting would provide some administrative savings to the facilities and should have a positive impact on their asset values.

Small Businesses: Costs and Other Effects. The proposed changes do not introduce additional costs on small businesses. Other effects on small business would be the same as discussed above.

Small Businesses: Alternative Method that Minimizes Adverse Impact. The proposed changes do not have adverse impact on small businesses.

Real Estate Development Costs. No impact on real estate development costs is expected.

Agency's Response to Economic Impact Analysis: The agency has reviewed the economic impact analysis prepared by the Department of Planning and Budget. The agency concurs with this analysis.

Summary:

The amendments, which modify the nursing facility (NF) reimbursement methodology, (i) update the calculation of the per diem ceilings reimbursements for intermediate care facilities for individuals with intellectual disabilities to account for closure of state facilities, (ii) make a technical correction to an incorporation by reference included in nursing facility cost reporting requirements, and (iii) update NF credit balance reporting requirements to reflect more current Medicaid policies.

12VAC30-90-20. Nursing home payment system; generally.

A. Effective July 1, 2001, the payment methodology for nursing facility (NF) reimbursement by the Virginia Department of Medical Assistance Services (DMAS) is set forth in this part.

B. Three separate cost components are used: plant or capital, as appropriate, cost; operating cost; and nurse aide training and competency evaluation program and competency evaluation program (NATCEPs) costs. The rates, which are determined on a facility-by-facility basis, shall be based on annual cost reports filed by each provider.

C. Effective July 1, 2001, in determining the ceiling limitations, there shall be direct patient care medians established for nursing facilities in the Virginia portion of the Washington DC-MD-VA Metropolitan Statistical Area (MSA), the Richmond-Petersburg Metropolitan Statistical Area (MSA), and in the rest of the state. There shall be indirect patient care medians established for nursing facilities in the Virginia portion of the Washington DC-MD-VA MSA, for NFs with less than 61 beds in the rest of the state, and for NFs with more than 60 beds in the rest of the state. The Washington DC-MD-VA MSA and the Richmond-Petersburg MSA shall include those cities and counties as listed and changed from time to time by the Centers for Medicare and Medicaid Services (CMS). A nursing facility located in a jurisdiction which CMS adds to or removes from the Washington DC-MD-VA MSA or the Richmond-Petersburg MSA shall be placed in its new peer group, for purposes of reimbursement, at the beginning of its next fiscal year following the effective date of HCFA's final rule.

D. Nursing facilities operated by the Department of Behavioral Health and Developmental Services (DBHDS) and the Department of Veterans Services (DVS) shall be exempt from the prospective payment system as defined in Articles 1 (12VAC30-90-29), 3 (12VAC30-90-35 et seq.), 4 (12VAC30-90-40 et seq.), 6 (12VAC30-90-60 et seq.), and 8 (12VAC30-90-80 et seq.)) of this subpart. All other sections of this payment system relating to reimbursable cost limitations shall apply. These facilities operated by DBHDS and DVS shall continue to be reimbursed retrospectively on the basis of reasonable costs in accordance with Medicare principles of reimbursement.

E. Reimbursement to Intermediate Care Facilities for the Mentally Retarded (ICF/MR) Individuals with Intellectual Disabilities (ICF/IID) shall be reimbursed retrospectively retrospective on the basis of reasonable costs in accordance with Medicare principles of reimbursement but. Nonstate facilities shall be limited to a ceiling based on the highest as filed rate paid to a state ICF/MR an ICF/IID institution, approved each July 1 by DMAS in state fiscal year 2012 and annually adjusted thereafter with the application of the NF inflation factor, as set out in 12VAC30-90-41 B.

E. F. Except as specifically modified herein in this section, Medicare principles of reimbursement, as amended from time to time, shall be used to establish the allowable costs in the rate calculations. Allowable costs must be classified in accordance with the DMAS uniform chart of accounts (see 12VAC30-90-270 through 12VAC30-90-276) and must be identifiable and verifiable by contemporaneous documentation.

All matters of reimbursement which are part of the DMAS reimbursement system shall supersede Medicare principles of reimbursement. Wherever the DMAS reimbursement system conflicts with Medicare principles of reimbursement, the DMAS reimbursement system shall take precedence. Appendices are a part of the DMAS reimbursement system.

Article 7
Cost Reports

12VAC30-90-70. Cost report submission.

A. Cost reports are due not later than 150 days after the provider's fiscal year end. If a complete cost report is not received within 150 days after the end of the provider's fiscal year, it is considered delinquent. The cost report shall be deemed complete for the purpose of cost settlement when DMAS has received all of the following (note that if the audited financial statements required by subdivisions 3 a and 7 b of this subsection are received not later than 120 days after the provider's fiscal year end and all other items listed are received not later than 90 days after the provider's fiscal year end, the cost report shall be considered to have been filed at 90 days):

1. Completed cost reporting form(s) forms provided by DMAS, with signed certification(s) certifications;

2. The provider's trial balance showing adjusting journal entries;

3. a. The provider's audited financial statements including, but not limited to, a balance sheet, a statement of income and expenses, a statement of retained earnings (or fund balance), a statement of cash flows, the auditor's report in which he expresses his opinion or, if circumstances require, disclaims an opinion based on generally accepted auditing standards, footnotes to the financial statements, and the management report. Multi-facility providers shall be governed by subdivision 7 of this subsection;

b. Schedule of restricted cash funds that identify the purpose of each fund and the amount;

c. Schedule of investments by type (stock, bond, etc.), amount, and current market value;

4. Schedules which that reconcile financial statements and trial balance to expenses claimed in the cost report;

5. Depreciation schedule;

6. Schedule of assets as defined in 12VAC30-90-37 12VAC30-90-38;

7. Nursing facilities which that are part of a chain organization must also file:

a. Home office cost report;

b. Audited consolidated financial statements of the chain organization including the auditor's report in which he expresses his opinion or, if circumstances require, disclaims an opinion based on generally accepted auditing standards, the management report and footnotes to the financial statements;

c. The nursing facility's financial statements including, but not limited to, a balance sheet, a statement of income and expenses, a statement of retained earnings (or fund balance), and a statement of cash flows;

d. Schedule of restricted cash funds that identify the purpose of each fund and the amount;

e. Schedule of investments by type (stock, bond, etc.), amount, and current market value; and

8. Such other analytical information or supporting documentation that may be required by DMAS.

B. When cost reports are delinquent, the provider's interim rate shall be reduced to zero. For example, for a September 30 fiscal year end, payments will be reduced starting with the payment on and after March 1.

C. After the overdue cost report is received, desk reviewed, and a new prospective rate established, the amounts withheld shall be computed and paid. If the provider fails to submit a complete cost report within 180 days after the fiscal year end, a penalty in the amount of 10% of the balance withheld shall be forfeited to DMAS.

12VAC30-90-257. Credit balance reporting.

A. Definitions. The following words and terms when used in this regulation shall have the following meanings unless the context clearly indicates otherwise:

"Claim" means a bill consistent with 12VAC30-20-180 submitted by a provider to the department for services furnished to a recipient.

"Credit balance" means an excess or overpayment made to a provider by Medicaid as a result of patient billings.

"Interest at the maximum rate" means the interest rate specified in § 32.1-312 or § 32.1-313 of the Code of Virginia depending on the facts of the excess payment.

"Negative balance transaction" means the reduction of a payment or payments otherwise due to a provider by amounts or portions of amounts owed the department from previous overpayments to the provider.

"Overpayment" means payments to a provider in excess of the amount that was or is due to the provider.

"Weekly remittance" means periodic (usually weekly) payment to a provider of amounts due to the provider for claims previously submitted by the provider.

B. NFs shall be required to report Medicaid credit balances on a quarterly basis no later than 30 calendar days after the close of each quarter. Credit balances may occur when a provider's reimbursement for services it provides exceeds the allowable amount or when the reimbursement has been for unallowable costs, resulting in an overpayment. Credit balances also may occur when a provider receives payments from Medicaid or another third party payer for the same services.

C. For a credit balance arising on a Medicaid claim within three years of the date paid by the department, the NF shall submit an adjustment claim. If the NF does not want the claim retracted from future DMAS payments, a check in the amount of the credit balance or the adjustment claim or claims shall be submitted with the report. For credit balances arising on claims over three years old, the NF shall submit a check for the balance due and a copy of the original DMAS payment. Interest at the maximum rate allowed shall be assessed for those credit balances (overpayments) that are identified on the quarterly report but not reimbursed with the submission of the quarterly report. Interest will begin to accrue 30 days after the end of the quarter and will continue to accrue until the overpayment has been refunded or adjusted.

C. A penalty shall be imposed for failure to submit the quarterly credit balance report timely as follows:

1. NFs that have not submitted their Medicaid credit balance data within the required 30 days after the end of a quarter shall be notified in writing by the department. If the required report is not submitted within the next 30 days, there will be a 20% reduction in the Medicaid per diem payment.

2. If the required report is not submitted within the next 30 days (60 days after the due date), the per diem payments shall be reduced to zero until the report is received.

3. If the credit balance has not been refunded within 90 days of the end of a quarter, it shall be recovered, with interest, from the due date through the use of a negative balance transaction on the weekly remittance.

4. D. A periodic audit shall be conducted of the NFs' quarterly submission an NF's claim adjustments of Medicaid credit balance data. NFs shall maintain an audit trail back to the underlying accounts receivable records supporting each quarterly report claim adjusted for credit balances.