Ohio Biennium Budget Signed Into Law

The Ohio Biennium Budget (HB 153) for fiscal years 2012 and 2013 was signed into law June 30th by Governor Kasich. Below we have provided you with a summary of Medicaid reimbursement changes, as well as a list of Frequently Asked Questions (FAQs).   

Summary of changes:

• Skilled Nursing Facilities (SNFs)
• Intermediate Care Facilities for the Developmentally Disabled (ICFs/DD)

As expected, the final version of HB 153 contains critical changes regarding nursing home and intermediate care facility reimbursement. The final budget contained all the provisions from the Conference Committee so if you have received that version from us, you have the most reliable estimate to date. Contact us if you have not yet received your facility’s 7-1-11 estimated Medicaid rate.

Despite continued lobbying by the industry since the bill’s March 15th introduction, the $470 million biennium cut to nursing homes only improved to approximately $370 million, which represents an average 6% rather than 7% cut, as the governor initially proposed. As a result, the average rate is expected to drop from approximately $176.49 to $166.11. While the 6% represents an average cut, actual rate changes vary from a 22% increase to a 23% decrease. ICF/DDs fared better, as the governor-proposed 1% cut to the statewide average targeted rate was eliminated.

These outcomes represent a significant funding loss to the industry and will be detrimental to patient care. HW Healthcare Advisors can help you navigate this biennium budget crisis. Contact us for assistance.

For SNFs, optimizing case mix and controlling cost is more important than ever. ICF/DD providers face continued cost control challenges due to reduced ceilings, but will find some relief in the rollback being effectively reduced as well.

A positive result (for most providers) from the Conference Committee process is that case mix scores will be frozen, and SNF 7/1/11 rates will be calculated using the average of the 6/30/10 and 9/30/10 case mix scores rather than 12/31/10 and 3/31/11. The freeze mitigates a further rate decrease caused by the 12/31/10 drop in case mix scores for most facilities (relating to the MDS 3.0 implementation) and has an $18M positive impact for SNFs.

In addition to the reimbursement components detailed below, the budget also includes 16 regulatory changes, the most relevant of which are reductions in staffing requirements and tub/shower requirements, and amounts owed to SNFs now receive priority in probate above Medicaid estate recovery. 

Summary of Changes to Medicaid Reimbursement (FY12 and FY13)

SNF Summary

• Implementation of the pricing system effective July 1, 2011, with components of price calculated from 2003 historical data. The existing phase-in system was eliminated, with a stop loss provision (FY12 only) which will limit the rate reduction to 10% plus half the difference greater than 10%, of the 1/1/11 rate. No stop gain exists. One hundred seventy two (or 18%) facilities will benefit from the stop loss. All other facilities are in price as of 7/1/2011. In FY13, full implementation of the pricing system takes effect.
• Components of price calculated as follows:
  • Direct: 25th percentile plus 2% (formerly 25th percentile plus 7%)
  • Ancillary/Support: 25th percentile (formerly 25th percentile plus 3%)
  • Capital: 25th percentile (formerly calculated at the median)
• Consolidated services payment (bundling) of $1.88 added to direct care price; this rewards facilities with higher case mix scores (formerly was a $3.91 add-on
• Effective 1/1/12 payment for leave days is 50% for facilities with greater than 95% occupancy; 18% for all other facilities (formerly leave days paid at 50% for all facilities)
• FY12 only will have 2 additional quality points for above average Medicaid utilization. Estimated price per point is $0.61 and average payment to remain at $3.03.
• New quality system to be developed by a workgroup and placed in statute 7/1/12, with a maximum quality payment of $16.44 per day. Measures will be attainable by all facilities and the State will pay a bonus to high performing facilities if all quality dollars are not earned by providers.
• FY12 franchise permit fee (FPF) will be $11.47, FY13 will be $11.67. FPF add-on remains for FY12; in FY13 those dollars shift to the quality component.
• FPF can be recalculated semi-annually to reflect beds decertified midyear. Payment of franchise permit fees relating to Change of Providers (CHOPs) will now be prorated at time of CHOP.
• FY13 introduces a flat rate of $130 for PA1 and PA2 residents and excludes them from case mix calculations; however, these residents will count toward case mix score if they are PA1 or PA2 due to incomplete assessment.

ICFs/DD Summary

• Existing formula remains in statute but an interim formula with lower ceilings and inflation factors will be used in conjunction with existing formula for FY12 and FY13. Facilities over the ceilings will be significantly impacted.
• Eliminated proposed 1% cut in ICF funding.
• FY12 and FY13 rate paid will be a 50/50 blend of the current formula (with rollback) and the interim formula (no rollback but has reduced ceilings and inflation factors), which will reduce the effect of the rollback.
• FY12 FPF will be $17.99 (FY11 was $13.55); FY13 $18.32
• FY12 ceilings and inflation factors for interim formula:

Direct                         $108.21 (L)          $102.21 (S)
Indirect                      $  68.98 (L)           $  59.60 (S)
Indirect Efficiency   $   3.69 (L)            $   3.19 (S)
Capital Efficiency     cut in half
Inflation Factor        101.23% for direct, protected and indirect

• Targeted statewide average caps rising to $282.59 for FY 12 ($278.15 for FY 11) and $282.92 for FY 13. No additional dollars are being added to the system, the increase is a result of the franchise fee increase.
• A special administrative fund within the DODD was created to assist facilities significantly impacted by this interim formula.
• A new formula will be developed and put in statute in FY14.
• Depreciation recapture for ICFs was eliminated.
• Current leave day provisions remained unchanged.
• Proposes downsizing Developmental Centers over the biennium.

Frequently Asked Questions (FAQs)

SNF FAQs

• My case mix scores dropped significantly in December because of MDS 3.0. How will this impact my rate for July 1?

In response to provider concerns that using the December 2010 case mix scores would drastically reduce many facilities’ rates, HB 153 instructed ODJFS to “freeze” case mix scores at the same level that was used to set your January 1, 2011 rates. These rates were set using the June and September 2010 quarterly scores, which were established based on MDS 2.0. On January 1, 2012, ODJFS will return to the normal case mix schedule, using June and September 2011 for the January 1, 2012 rates and December 2011 and March 2012 for the July 1, 2012 rates.

• Everything I’ve read says that nursing facility rates are being cut by 6%. Why is my rate dropping by more than that?

The Governor’s original proposal called for an approximately 7% cut to average nursing facility rates. The final budget bill resulted in a 6% cut to average rates. However, the impact to individual facilities varied widely, with some facility rates dropping more than 20% and rates for about 100 facilities actually increasing. The greatest number of facilities (437) saw their rates dropping between 5% and 10%, which is in line with the Governor’s budget.

• In past years, my rate reduction has been limited to a stop loss percentage, which was usually 1% or 2%. Did that happen again this year?

The Governor’s proposal did not include a stop loss for facilities with rates well above their prices. However, in response to concerns of providers with high Medicaid rates, the Conference Committee added a stop loss provision to the final budget bill. The stop loss in HB 153 was considerably less generous than in previous years. The provision only helped facilities with rate decreases greater than 10% of their June 30, 2011 rates, and the amount over 10% is limited to one-half. For example, a provider that would have seen a 15% rate cut would only be cut by 12.5% (i.e., 10% plus one-half of 5%). The stop loss provision in HB 153 only helped approximately 170 facilities.

• The Governor’s office said that they want to place an emphasis on quality, not quantity. How is ODJFS going to pay for quality under the new budget?

For the first year of the budget, the “quality incentive” will continue to use the same point system that has been in place since the beginning of the pricing model. The only change to the quality incentive was the addition of two points for higher than average Medicaid utilization. The Medicaid utilization piece of the incentive will now be worth three points. However, the total pool of dollars for the quality incentive will remain the same, with the average quality payment at $3.03 per day. As a result, the “price per point” will decrease to accommodate the extra points being earned for high Medicaid utilization. We’ve estimated that the new “price per point” will drop from $.77 per point to approximately $.61 per point.

In the second year of the budget, the quality incentive and franchise permit fee payments will be rolled into one quality payment of $16.44. The new system must be developed and passed by the legislature by December 31, 2011. The intent of the new system will be that all facilities be able to earn the maximum quality payment available.

• If FPF is part of the quality component of the rate in FY13, will I be reimbursed for all my FPF?

As we mentioned above, the new system for FY13 will be designed so that all facilities can earn the maximum quality payment and, therefore, have their full FPF reimbursed through their Medicaid rate. However, in the event that a facility’s quality payment is more than $4.77 ($16.44 max - $11.67 FPF) below the maximum, then there is a chance that their bed tax would not be fully covered in their Medicaid rate.

• What can I do to increase my rate?

 

The two most important words relating to your Medicaid rate going forward are CASE MIX! Under the pricing system, a facility can only impact its rate through Medicaid-only case mix scores or the quality incentive, and with the changes to the quality system, Medicaid case mix needs to be looked at with the utmost attention. As small as it may be, an increase of one-tenth of a point in case mix can increase your rate anywhere from $3.80 to $5.04 depending on your peer group. For example, a 100-bed facility with average occupancy and utilization percentages could increase their revenue by $75,000-$100,000 per year with just a one-tenth of a point case mix improvement.
 

ICFs/DD FAQs 

• If my March 31, 2011 IAF score decreased will this affect my rate?

Yes, the IAF score for the quarter ended March 31, 2011 is used to set the direct care portion of the FY12 (7/1/2011-6/30/2012) rate. Either a decrease or increase of the 3/31/2011 IAF score will impact the rate. No interim adjustments will be allowed once the FY12 rate is set.

• What happens if I find an error on my FY12 Medicaid rate setting?

Providers will have 30 days from the date on the rate setting to notify ODJFS of all errors. Forward your FY12 Medicaid rate setting to your HW&Co. Healthcare Advisor who will review it for accuracy and advise you of any communication to make to the State.

• Will the increased franchise permit fee (bed tax) be reimbursed in my rate?

Yes. Effective 7/1/11 both the bed tax and a component of your daily Medicaid rate increased by $4.44. The franchise permit fee is now $17.99.

All FAQs

• Is there anything else I can do to make it through the next two years?

The new budget represents a significant change to the nursing facility environment in Ohio.  Operating at the status quo will no longer be sufficient to thrive, let alone to survive.  A careful review of the entire operations of your facility, from expense control to staffing, is extremely important.  The new budget bill included a provision to lighten the nurse staffing requirements for nursing facilities, which can help to offset the loss of revenue from Medicaid.  Other areas that require review include: 

-Ancillary contracts – review your therapy, transportation, lab, radiology and pharmacy contracts for any potential cost savings

-Employee benefits - health savings plans and/or high-deductible plans can provide significant reductions in expense

-Dietary operations – how much food is being thrown away each day?  Can you lower the number of servers?

-Is there anything you are doing in-house that might be done more inexpensively by an outside provider (e.g., payroll processing/laundry)?

-How well are you known by your area hospitals for referrals of Medicare residents?  Do they know when you have available beds?


• How can HW Healthcare Advisors help me?

HW Healthcare Advisors can help you better position your facility for this new reality in the following areas, which are sure to be important aspects of the new budget:   

-Expense control and operational efficiencies

-Strategic planning/revenue opportunities

-MDS optimization and documentation

-Billing and accounts receivable management

-Staffing plans/scheduling policies

-Census management

Please contact us with any questions on the budget or to discuss ways in we can assist your facility.