Carbis Walker LLP CPAs & Consultants

November 17, 2010 presented by: Jennifer E. Cidila, CPA, Partner Health Care Services Dionna M. Slagle, CPA, Senior Manager Health Care Services Kelly A. Nord, CPA, Senior Manager Health Care Services Edward A. Klik, Manager Health Care Services Carbis Walker LLP CPAs & Consultants

Agenda Nursing Facility Exception Requests Statement of Policy Bd Bed Hold Policy Medical Assistance Disproportionate Share Payments CCRC Update Enhanced Focus from the Department of Insurance Statutory Minimum Liquid Reserve Other Items Carbis Walker LLP, Certified Public Accountants & Consultants 2

Nursing Facility Exception Requests Statement of Policy In the April 3, 2010, edition of the Pennsylvania Bulletin the Department of Public Welfare (DPW) published the Nursing Facility Exception Requests Statement t t of Policy (SoP). Applies to county and nonpublic nursing facilities that are enrolled, applying for enrollment in the Medical Assistance (MA) Program, and to persons who wish ih to enroll in the MA Program as new providers of nursing facility services. Purpose of the SoP is to provide nursing facilities with guidelines that t DPW will use in exercising ii its existing iti statutory ttt and regulatory discretion to manage the enrollment and participation of nursing facilities as providers in the MA Program. Carbis Walker LLP, Certified Public Accountants & Consultants 3

Nursing Facility Exception Requests Statement of Policy (cont.) Facility must submit a bed request to DPW and obtain DPW s advance written approval before increasing the number of MA certified beds. Facility should submit its bed request to DPW prior to commencing construction of a proposed project that involves expansion of an existing facility or new nursing facility. Carbis Walker LLP, Certified Public Accountants & Consultants 4

Nursing Facility Exception Requests Statement of Policy (cont.) Contents of bed requests: Applicant should submit any information i it believes relevant to support its bed request. Must be signed and include a statement that the representations made and the information i provided d in the bed request are true and correct to the best of the applicant s knowledge, information, and belief. Must also include a statement tt t that t the applicant is authorized to submit the bed request on behalf of the legal entity and that the legal entity has reviewed and approved the contents of the bed request if the applicant is a person other than the legal entity of the subject facility. Carbis Walker LLP, Certified Public Accountants & Consultants 5

Nursing Facility Exception Requests Statement of Policy (cont.) List containing the name and address of the following: Each person who is the legal entity of the subject facility Each owner of the facility A related party involved in the proposed project An overview of the applicant s proposed project which includes a description of the population and primary service area of the subject facility. Narrative and supporting documentation, if any, addressing each guideline. Carbis Walker LLP, Certified Public Accountants & Consultants 6

Nursing Facility Exception Requests Statement of Policy (cont.) Copies of any feasibility or market studies and financial projections prepared for the proposed project, including any studies or projections identifying project costs, sources of project funds, projected revenue sources by payer type, including assumptions used and expected occupancy rates by payer type. Independent d audited dor reviewed financial statements of the subject facility for the most recent year prior to the fiscal year in which the bed request is filed. Carbis Walker LLP, Certified Public Accountants & Consultants 7

Nursing Facility Exception Requests Statement of Policy (cont.) If the financial statements are not available for the subject facility, independent audited or reviewed financial statements of the legal entity or parent corporation of the subject facility for the most recent year prior to the fiscal year in which the bed request is filed. Other information that the applicant believes to be relevant. Applicant should specify whether or not any of the following applies. If so, attach copies of all relative documents. Carbis Walker LLP, Certified Public Accountants & Consultants 8

Nursing Facility Exception Requests Statement of Policy (cont.) Is the subject facility, the legal entity or any owner of the subject facility, or a related party involved in the proposed project currently operating or, at any time during the 3 year period preceding the date of the bed request, operated under a Corporate Integrity Agreement with the Department or the Federal government? Whether the legal entity or any owner of the subject facility, or a related ltd party involved in the proposed project owned, operated, or managed a nursing facility at any time during the 3 year period preceding the date of the bed request and one of the following applies: Carbis Walker LLP, Certified Public Accountants & Consultants 9

Nursing Facility Exception Requests Statement of Policy (cont.) The facility was precluded from participating in the Medicare Program or any State Medicaid Program. The facility had its license to operate revoked or suspended. The facility was subject to the imposition of sanctions or remedies for residents rights violations. The facility was subject to the imposition of remedies based on the failure to meet applicable Medicare and Medicaid Program participation p requirements, and the facility s deficiencies immediately jeopardized the health and safety of the facility s residents; or the facility was designated a poor performing facility. Carbis Walker LLP, Certified Public Accountants & Consultants 10

Nursing Facility Exception Requests Statement of Policy (cont.) Timeframe of DPW s review: DPW will consider bed requests, other than bed transfer requests, submitted on or after January 1, 2010, biannually in two groups as follows: Group One will be bed requests received January 1 through June 30. Decisions should be made by December 31. Group Two will be bed requests received July 1 through December 31. Decisions should be made by June 30. Carbis Walker LLP, Certified Public Accountants & Consultants 11

Nursing Facility Exception Requests Statement of Policy (cont.) DPW will consider bed transfer requests submitted on or after April 3, 2010, in the order in which they are received. DPW will issue decisions i on the requests on an ongoing basis following the expiration of the public comment period. Carbis Walker LLP, Certified Public Accountants & Consultants 12

Nursing Facility Exception Requests Statement of Policy (cont.) Public process: Data book DPW will compile and make available on the Office of Long Term Living (OLTL) website a workbook for each review period containing the following: Data relating to the availability and cost of MA nursing facility services in this Commonwealth and by county. Dt Data relating lti to the availability and cost of home and community based services in this Commonwealth and by county. Commonwealth and county demographic data. Carbis Walker LLP, Certified Public Accountants & Consultants 13

Nursing Facility Exception Requests Statement of Policy (cont.) Bed requests, other than bed transfer requests A listing i of bed requests will be made available for public viewing, at the end of each six month period, on the OLTL website. DPW will make copies of the requests in each group available for public review during regular business hours, and will accept written comments related to the requests in the group for a 30 day period following the date that the notice is posted on the website. Group One listing will be available on or before July 31. Group Two listing will be available on or before January 31. Carbis Walker LLP, Certified Public Accountants & Consultants 14

Nursing Facility Exception Requests Statement of Policy (cont.) Bed transfer requests No later than 15 calendar days following the last day of each calendar month, DPW will make available on the OLTL website a listing of the bed transfer requests received by DPW during the calendar month. For 15 days after the request is posted on the web site, DPW will make copies of the bed transfer requests that are listed in the notice for that calendar month available for review by the public during regular business hours, and will accept written comments related to the bed transfer requests. If the applicant demonstrates good cause, DPW may expedite its review and respond to a bed request before the target date, provided DPW does not respond prior to the close of the applicable comment period noted above. Carbis Walker LLP, Certified Public Accountants & Consultants 15

Nursing Facility Exception Requests Statement of Policy (cont.) In reviewing a bed request, DPW will consider all information i submitted by the applicant and any public comments received on the requests. In addition, DPW may consider information contained in DPW s books and records or obtained from persons other than the applicant that is relevant to the applicant s bed request including the following: Data relating to the overall occupancy rates of MA nursing facilities in the subject facility s primary service area and the county in which the subject facility is or will be located. Carbis Walker LLP, Certified Public Accountants & Consultants 16

Nursing Facility Exception Requests Statement of Policy (cont.) Data relating to the admission rates for day one MA eligible persons and the MA occupancy rates of MA nursing facilities in the subject facility s primary service area and the county in which the subject facility is or will be located. Data relating to the availability of home and communitybased services in the subject facility s primary service area and the county in which the subject facility is or will be located. Data relating to the demographics of the subject facility s primary service area and the county in which the subject facility is or will be located. Carbis Walker LLP, Certified Public Accountants & Consultants 17

Nursing Facility Exception Requests Statement of Policy (cont.) Data relating to the admission and discharge practices of the subject facility and of MA nursing facilities in the subject facility s primary service area and the county in which the subject facility is or will be located. The following information will be maintained by DPW in a public file for each bed request: Bed request Public comments relating to the bed request Requests for additional information relating to the bed request made by DPW and any response to those requests Carbis Walker LLP, Certified Public Accountants & Consultants 18

Nursing Facility Exception Requests Statement of Policy (cont.) Data or information relied upon by DPW in deciding to approve or disapprove a bed request DPW s written response to the bed request Guidelines for evaluation of bed transfer requests: Does the receiving facility and the surrendering facility admit MA day one recipients? Will the decrease in beds at the surrendering facility result in access barriers to nursing facility services for MA recipients? DPW will review the MA occupancy rates both at the surrendering facility and at the receiving facility. Carbis Walker LLP, Certified Public Accountants & Consultants 19

Nursing Facility Exception Requests Statement of Policy (cont.) Will the increase in beds at the receiving facility improve access to nursing facility services for MA recipients? Will the proposed bed transfer result in a change in peer group for the surrendering or receiving facility and, if so, whether the change will have a negative or positive effect on the MA Program or on MA recipients? Is the surrendering facility receiving capital component payments for the MA certified nursing facility beds it is proposing to close as part of the bed transfer request? Did any of the legal circumstances discussed on slides 9 & 10 apply? Will and, if so, how will the applicant s proposed project affect DPW s goal to rebalance the Commonwealth s publicly funded long term living system to create a fuller array of service options for MA recipients? Carbis Walker LLP, Certified Public Accountants & Consultants 20

Nursing Facility Exception Requests Statement of Policy (cont.) Guidelines for evaluation of bed requests other than bed transfer requests: MA Program s need for additional nursing facility beds Suitability Economic and financial feasibility without MA capital component py payments Employment of welfare and Medical Assistance recipients Time lines for completion of approved project Carbis Walker LLP, Certified Public Accountants & Consultants 21

Proposed dparticipation i Review Program Regulation Proposed participation review process for Medical Assistance Nursing Facilities was published in the Pennsylvania Bulletin on November 6, 2010. Proposed rulemaking identifies the factors that DPW will use to evaluate bed requests and establishes a more transparent, standardized process for the submission i of bed requests and bed transfer requests that is consistent with applicable Federal law. Carbis Walker LLP, Certified Public Accountants & Consultants 22

Proposed Participation Review Program Regulation (cont.) Distinguishes between bed requests, in which a facility seeks to increase the overall number of beds in the MA Program by enrolling as a new MA provider or increasing their existing complement of MA certified beds, and bed transfer requests, in which one facility promises to decertify and close MA beds if DPW approves an increase ceasein MA beds at another nearby facility. Aims to achieve neutrality in terms of MA recipient access to nursing facility care and DPW s costs. Carbis Walker LLP, Certified Public Accountants & Consultants 23

Proposed dparticipation i Review Program Regulation (cont.) Establishes additional requirements that apply to bed requests submitted by a closed campus CCRC. Final regulations are to be published by September 30, 2011. Carbis Walker LLP, Certified Public Accountants & Consultants 24

How Can This Policy Impact an Organization? Census Impact Financial Considerations Bed Hold Policy Mdi Medical Assistance Disproportionate t Share Peer Groups and MSA Listings Carbis Walker LLP, Certified Public Accountants & Consultants 25

Bed Hold Policy Bed Hold Day (Hospital Reserve Bed Day) 1187.97, 1187.104, 1189.103 Currently, the Department pays nonpublic and county nursing facilities a maximum of 15 consecutive reserved bed days per hospitalization to hold a bed for a resident who requires hospitalization. The payment is made at a rate of 1/3 if the nursing facility s per diem rate is on file with the Department at the time of the hospitalization, and is paid regardless of the nursing facility s overall total occupancy. Source: The Office of Long-Term Living Website Carbis Walker LLP, Certified Public Accountants & Consultants 26

Bed Hold Policy (cont.) Act 44 directs the Department to propose regulations to establish minimum occupancy requirements as a condition for MA nonpublic and county nursing facilities to receive reserved bed day payments for MA recipients, and to phase in the use of these requirements over a period of two rate years beginning i July 1, 2009, and ending June 30, 2011. To comply with ACT 44, the Department is proposing to revise the rate setting methodology in 1187.97, 1187.104, and 1189.103 as follows: Source: The Office of Long-Term Living Website Carbis Walker LLP, Certified Public Accountants & Consultants 27

BdH Bed Hold ldpolicy (cont.) Beginning July 1, 2009, and ending June 30, 2010, the Department is proposing to amend 1187.104 and 1189.103 to specify that it will only pay a nonpublic or county MA nursing facility for a hospital reserve bed day if the facility s overall total occupancy for the applicable picture date is equal to or greater than 75%. Beginning July 1, 2010, and thereafter, the Department is proposing to pay a facility for a hospital reserved bed day only if the facility s overall total t occupancy for the applicable picture date is equal to or greater than 85%. The Department is also proposing to amend 1187.97 and 1189.103 to exempt a new nursing facility from these occupancy requirements until Case Mix Index Reports for the three picture dates used to calculate overall occupancy are available for the rate quarter. Source: The Office of Long-Term Living Website Carbis Walker LLP, Certified Public Accountants & Consultants 28

Bed Hold Policy (cont.) The intent of these proposed changes is to ensure that MA recipients continue to receive access to medically necessary nursing facility services while encouraging nursing facility efficiency and economy associated with nursing facility occupancy levels. Source: The Office of Long-Term Living Website Carbis Walker LLP, Certified Public Accountants & Consultants 29

Medical Assistance Disproportionate Share Payments 1187.111 Disproportionate Share Incentive Payments a) A disproportionate share payment will be made based on MA paid days of care times the per diem incentive to facilities meeting the following criteria i for a 12 month facility cost reporting period: 1) The nursing facility shall have an annual overall occupancy rate of at least 90% of the total available bed days. 2) The nursing facility shall have an MA occupancy rate of at least 80%. The MA occupancy rate is calculated by dividing the MA days of care paid by the Department by the total actual days of care. b) The disproportionate share incentive payments was based on the following as of December 31, 2009: Source: The Office of Long-Term Living Website Carbis Walker LLP, Certified Public Accountants & Consultants 30

Group Medical Assistance Disproportionate Share Payments (cont.) Overall Occupancy MA Occupancy Per Diem Incentive Group A 90% > = 90% $ 3.72 Group B 90% 88% 89% $ 2.52 Group C 90% 86% 87% $ 1.51 Group D 90% 84% 85% $.91 Group E 90% 82% 83% $.47 Group F 90% 80% 81% $.33 Please note that the MA Disproportionate Share per diems were doubled December 31, 2000, through June 30, 2009. Source: The Office of Long-Term Living Website Carbis Walker LLP, Certified Public Accountants & Consultants 31

Medical Assistance Disproportionate Share Payments (cont.) c) For each year subsequent to year 1 of implementation, disproportionate p share incentive payments py as described in subsection (b) will be inflated forward using the Health Care Financing Administration Nursing Home Without Capital Market Basket Index to the end point of the rate setting year for which the payments are made. d) These payments will be made annually within 120 days after the submission of an acceptable cost report provided that payment will not be made before 210 days of the close of the nursing facility fiscal year. Source: The Office of Long-Term Living Website Carbis Walker LLP, Certified Public Accountants & Consultants 32

Peer Groups Peer Group # MSA Group # of Beds 1 A >or=270 2 A 120 269 3 A 3 119 4 B >or=270 5 B 120 269 6 B 3 119 7 C >or=270 8 C 120 269 9 C 3 119 10 non MSA >or=270 11 non MSA 120 269 12 non MSA 3 119 13 Special Rehab 14 Hospital Based Source: The Office of Long-Term Living Website Carbis Walker LLP, Certified Public Accountants & Consultants 33

MSA Listings MSA Group A Allegheny, Beaver, Bucks, Butler, Chester, Delaware, Fayette, Montgomery, Philadelphia, Washington, Westmoreland. MSA Group B Berks, Carbon, Columbia, Cumberland, Dauphin, Erie, Lackawanna, Lancaster, Lebanon, Lehigh, Luzerne, Northampton, Perry, Pike, Wyoming, York. MSA Group C Cambria, Centre, Lycoming, Mercer, Somerset. Non MSA Adams, Armstrong, Bedford, Blair, Bradford, Cameron, Clarion, Clearfield, Clinton, Crawford, Elk, Forest, Franklin, Fulton, Greene, Huntingdon, Indiana, Jefferson, Juniata, Lawrence, McKean, Mifflin, Monroe, Montour, Northumberland, Potter, Schuylkill, Snyder, Sullivan, Susquehanna, Tioga, Union, Venango, Warren, Wayne. Source: The Office of Long-Term Living s Website Carbis Walker LLP, Certified Public Accountants & Consultants 34

Continuing Care Retirement Community (CCRC) Enhanced Focus fromthedepartment of Insurance The reporting requirements themselves have not significantly changed CCRC financial statements have not been consistent with laws and regulations Becoming more strictly enforced Applicable laws and regulations 40 P.S. 3201 3226 3 31 Pa. Code Chapter 147 Annual Audited Insurers Financial Report Chapter 151 Continuing Care Providers Carbis Walker LLP, Certified Public Accountants & Consultants 35

What is driving the focus on CCRC reporting requirements? Catalysts to increased focus Noncompliance with laws and regulations Significant increase in PA CCRCs over the past five years (currently 230) GAO s comprehensive study of CCRCs Financial instability Economy Inadequate unit sales Lack of liquidity There has only been one instance in the state of Pennsylvania where the residents of a CCRC have lost their entrance fees due to the failure of the CCRC Carbis Walker LLP, Certified Public Accountants & Consultants 36

Annual lfiscal Filing Requirements Areas of Focus for 2010/2011 Consolidating/Combined Financial Statements Independent Auditors Report on the Supplementary Information Statutory Minimum Liquid Reserve Other Items Carbis Walker LLP, Certified Public Accountants & Consultants 37

Consolidating/Combined Financial Statements 31 Pa. Code 147.3(c) states: In accordance with the law and regulations relating to continuing care providers, each continuing care provider shall have an annual audit performed by an independent certified public accountant and shall file with the Commissioner an audited financial report for that year within four months following the end of the provider s fiscal year. A continuing care provider is part of the Insurer definition The CCRC would be represented by its EIN and it is named on the actual Certificate of Authority Carbis Walker LLP, Certified Public Accountants & Consultants 38

Consolidating/Combined d Financial Statements (cont.) 31 Pa. Code 147.7(c) states: A continuing care provider may make written application to the Commissioner for approval to file consolidated or combined financial reports in lieu of separate annual audited financial reports if the continuing care provider is a part of a group of affiliated entities. ii Notice is slated to be released early December stating that this request must be received by the Department one month prior to year end The Department may approve or deny Determination will be made on a case by case basis Carbis Walker LLP, Certified Public Accountants & Consultants 39

Independent Auditors Report on the Supplementary Information If approval is received for consolidating/combined audited d financial i statements, tt t the following must be included: A columnar consolidating or combined worksheet showing the individual amounts for each separate legal entity including the CCRC All consolidating and eliminating entries Carbis Walker LLP, Certified Public Accountants & Consultants 40

Independent Auditors Report on the Supplementary Information (cont.) Auditing procedures must have been applied to the CCRC Example of an allowable Independent Auditors Report on the Supplementary Information: Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The supplementary information is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic consolidated ld dfinancial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. Carbis Walker LLP, Certified Public Accountants & Consultants 41

Independent Auditors Report on the Supplementary Information (cont.) Issues the Department of Insurance has seen with regard to consolidating or combined schedules Disclaimer opinion Unaudited noted on the supplemental statements The CCRC not shown individually on the consolidating/combined ld d statements Carbis Walker LLP, Certified Public Accountants & Consultants 42

Statutory tor Minimum m Liquid id Reserve Per Pennsylvania Statute, each provider must maintain liquid reserves in an amount equal to or exceeding the greater of: The total principal and interest payments due during the next 12 months son long term debt (LTD), D),or Ten percent of projected annual operating expenses less depreciation If the entity has residents not under contract, the reserve is computed only on the proportional share of the LTD or operating expenses applicable to the residents under CCRC agreements. Carbis Walker LLP, Certified Public Accountants & Consultants 43

Statutory t t Minimum i Liquid id Reserve (cont.) The minimum liquid reserve should be maintained in a separate account The provider must notify the commissioner in writing ten days prior to utilizing i the funds in this account and may not expend more than 1/12 th of the required balance each month Carbis Walker LLP, Certified Public Accountants & Consultants 44

Statutory t t Minimum i Liquid id Reserve (cont.) Issues the DOI has noted with regard to the Statutory Minimum Liquid Reserve The calculation is not being audited Providers are not maintaining a separate account for the liquid reserve and are comingling these funds with operating funds The DOI has not been receiving notices to utilize the funds Carbis Walker LLP, Certified Public Accountants & Consultants 45

Statutory Minimum Liquid Reserve (cont.) Enforcing and expanding requirements Statutory Minimum Liquid Reserve calculation must be included in the footnotes to the financial statements which have been audited Statutory Minimum Liquid Reserve must now be broken out separately on the face of the balance sheets They will be looking to ensure that the funds are separately maintained and to ensure that notice is being received prior to the use of the funds Carbis Walker LLP, Certified Public Accountants & Consultants 46

Other Items Financial Statements must be comparative Partner rotation Changes to the CPA Qualification Letter Reporting Requirements for: Change of ownership or control Biographical affidavits Change in CPA Carbis Walker LLP, Certified Public Accountants & Consultants 47

Other Items (cont.) Penalties Per 40 P.S. 3222 Any person who willfully and knowingly violates any provision of this act, or any rule or order under this act, shall, upon conviction, be sentenced to pay a fine of not more than $10,000 or to imprisonment i for not more than two years, or both, for each violation. Carbis Walker LLP, Certified Public Accountants & Consultants 48

Other Items (cont.) House Bill No. 1376 Signed by the Governor on October 7, 2010 Amends the Continuing Care Provider Registration and Disclosure Act States that exams can be conducted whenever deemed appropriate (previously, once every four years) An exam must take place at least once in the first five year period and once in the second five year period after receiving certificate of authority Identifies some of the criteria that will be considered in determining how frequently to conduct examinations Clarifies how the exams are conducted Effective December 6, 2010 Carbis Walker LLP, Certified Public Accountants & Consultants 49

Conclusion Get prepared prior to fiscal year end! Review your Certificate of Authority Review your annual audited financial statements to ensure compliance Request any approvals for consolidating i or combined financial statements Carbis Walker LLP, Certified Public Accountants & Consultants 50

QUESTIONS?? Jennifer E. Cidila, CPA Partner Health Care Services Voice: 724.658.1565 or 800.452.3003 (New Castle office) Email: jcidila@carbis.com Kelly S. Nord, CPA Senior Manager Health Care Services Voice: 724.658.1565 or 800.452.3003 (New Castle office) Email: knord@carbis.com Edward A. Klik Manager Health Care Services Vi Voice: 724.658.1565 68 6 or 800.452.3003 (New Castle office) Email: eklik@carbis.com Dionna M. Slagle, CPA Senior Manager Health Care Services Vi Voice: 724.658.1565 68 6 or 800.452.3003 (New Castle office) Email: dslagle@carbis.com 51