The Current Status of the Nursing Home Industry Presented to the 2007 TSCPA Healthcare Conference Cool Springs Marriott November 26, 2007

Learning Objectives Discuss changes affecting Medicare reimbursement Discuss the changes in TennCare reimbursement for nursing home providers Discuss ways to improve reimbursement Discuss the alternatives to institutional care Discuss options for financing care

What are the Current Trends Genworth Financial commissions an annual survey performed by Care Scout Continuum of care is expanding Assisted living units are catering to private pay market Increase in the number of adult day care programs Patients can expect to pay approximately $10,000 more per year than they paid in 2004 Increased competition from home care and home and community-based programs

Changes Affecting Medicare Nursing Home quality measures Additional RUG categories Change in market basket calculation MDS 3.0

Quality Measures QIO program was established by Part B of Title XI of the Social Act and was amended by the Peer Review Act of 1982 They are now in the 8th Scope of Work Mission is to: ..to improve the effectiveness, efficiency, economy, and quality of services delivered to Medicare beneficiaries.

Quality Measures (continued) Requirements of the QIO program: Improve quality of care Protect the integrity of the Medicare Trust Fund Protect beneficiaries Address complaints Address provider-issued notices And other QIO responsibilities

RUG Categories Increased from 44 to 53 in FFY 2007 New categories deal with increased patient acuity RUX,RUL, RVX, RVL,RHX, RHL, RMX, RML Look for more changes in the future

Change in Market Basket Methodology From inception of SNF PPS have used 1997 data trended forward using inflation factor For 2008 FFY, CMS will use 2004 data Why is this important?

MDS 3.0 Currently providers use MDS 2.0 to evaluate patients clinically. CMS is set to introduce MDS 3.0 Will collect additional data on patient condition and resource utilization

Changes affecting TennCare Add-on payments to the rate More dependence on Medicare Part D More detailed review of cost reports Schedule H State budget concerns Proposed rule changes

TennCare Rate Add-ons Cost Containment Incentive Sprinkler adjustment Minimum wage adjustment Bed tax pass-through

Medicare Part D Previous TennCare Pharmacy program Seven scripts per month Advocate lawsuits Rising cost of prescription drugs Federal Prescription Drug plan (MMA) TennCare now requires all eligible patients to participate in Medicare Part D

More Detailed Cost Report Review Now require all of the following be filed with cost report: Working trial balance Depreciation Management contract Leases Detailed analysis of anything “other.”

More Detailed Cost Report Review (continued) Adjustment of free meals “Reasonableness” adjustments Overhead (see Schedule H) Possible future adjustments; “Excessive” benefits Certain types of benefits Otherwise reasonable expenses Things that the reviewer does not understand

Ways to Improve Reimbursement Careful completion of the MDS Accurate assignment of cost on the cost report Push for a Nursing Home specific wage index Accurate and complete bad debt logs Appropriate charge structure

MDS Completion Involve an interdisciplinary team Clinical members Financial members Capture all clinical data about the patient Make sure all ADL and clinical needs are identified

Cost Report Assignment Make sure all ancillary charges are captured Assign cost to appropriate cost centers Proper overhead allocations Assign where overhead departments used Do not assign if no overhead, e.g. Outside pharmacy

Wage Index SNFs currently use the hospital wage index Rationale is that the nursing home data is not accurate SNFs do not use the occupational mix portions of the hospital wage index Wage disparities are not the same

Medicare Bad Debts Electronic maintenance of logs encouraged by CMS Complete all required columns Accumulate supporting documentation “as you go” Apply collection policies consistently Capture non-dual eligibles

Charge Structure Appropriate routine charge has significant impact on TennCare Level I reimbursement Allows for a more accurate distribution of cost to various payors May have a positive bottom line effect

Alternatives to Traditional Services Effect of increased patient acuity Assisted living facilities Residential housing Adult day care services Facility-based home care and private duty services

Methods of Financing Care State budget constraints will limit increases in TennCare Medicare will eventually curtail “cross subsidization” of TennCare patient cost More affluent boomers coming into the nursing home age population will be more likely to have long-term care insurance.

Facility Specific Financing Concerns HUD 242 loan guarantees to finance betterments and improvements Form 990 changes Funding of increased salaries

Questions and Contact Information Questions??? Contact information: William C. (Bill) Matheney FHFMA, CPA, MBA 6136 Shallowford Road Suite 101 Chattanooga, TN 37421 Phone 423-894-7400 ext 105 Email bmatheney@matheneystees.com