This blog was written and produced by Margaret Lally and Robert Nasso, CPA at The Bonadio Group. Looking to get in touch with Margaret or Robert? Reach out today: Margaret Lally firstname.lastname@example.org, Robert Nasso email@example.com.
The New York State Fiscal Year 2022 budget passed the legislature on April 7th and included provisions that require skilled nursing facilities to spend 70% of operating revenue on direct patient care and 40% of operating revenue on resident-facing wages (these wages are included in the direct patient care total). If providers fail to meet these standards, they will have to remit the shortfall to the state. Additionally, providers whose operating revenues exceed operating and non-operating expenses by more than 5% of operating and non-operating expenses must remit the excess to the state. Much of the final bill language is unclear so the regulation writing phase will be important in determining the final impacts of the bill on the industry. The penalties will go into effect for expenses incurred in 2022 with the first penalties being due November 1, 2023.
The state will be utilizing cost report data to calculate the penalties so accurate cost reporting will be more important than ever. Direct Resident Care expense excludes capital expenses reported on Exhibit H of the RHCF-4 on lines 001 – 003. It also excludes Administration, Fiscal Services, Grounds, Security, Cafeteria, Medical Records, and Utilization Review. Resident-Facing Wages are limited to Salaries, Wages, and Employee Benefits reported in the Ancillary Services and Program Services sections of Exhibit H. Contracted RN, LPN, and CNA wages are allowable but must be discounted by 15%. It is unclear if other contracted services are allowable in the Resident-Facing Wages calculation as the bill only explicitly refers to the nursing staff, however, it would seem unreasonable if the intent was to exclude contracted therapists and other staff in the ancillary and program services groups. Presumably, operating revenue, expense, and non-operating expense will be derived from Exhibit E for the profit penalty calculation, but this could be problematic for entities that report consolidated numbers on those exhibits. It is also uncertain how penalties will be calculated for hospital-based providers and providers with a change of ownership in the middle of a cost-reporting year.
Areas of Concern
Aside from the obvious negative impact on the industry this bill will have, there are several specific issues that make the bill problematic. The exclusion of capital expenditures hurt providers who have invested in their facilities and may make future investments untenable. There are also providers who may have difficulty making mortgage payments based on the state formula. The final bill did include a provision that would reduce revenue by “the average increase in the capital portion of the Medicaid reimbursement rate from the prior three years”, but this language is confusing and various interpretations result in widely different impacts. The Cash Receipts Assessment revenue is often included in Operating Revenue and this bill would compel providers to spend 70% of that revenue on direct patient care even though much of it is paid to the state and only a portion is reimbursable. The bill also does not consider the underfunding of the Medicaid program as providers have not had a trend factor update in several years and the operating rate direct component is based on 2007 costs. It also does not address the current staffing shortage.
Nursing Home Minimum Staffing Standards
The New York Legislature has also passed “safe staffing” legislation impacting nursing homes. According to the legislation, nursing homes must average 3.5 hours of nursing care per resident per day. Of that 3.5 hours, 2.2 must be provided by certified nurse assistants, and 1.1 hours must be provided by LPNs or RNs. These requirements would go into effect on January 1, 2022, with civil penalties associated with non-compliance enforced starting April 1, 2022.
Providers are encouraged to review the impact of the bill on their facility. Providers should also review their cost reporting allocations and groupings to ensure all resident care costs are captured and accurately reported. For example, some facilities report floor managers who provide direct patient care in the nursing administration category. Providers should ensure that all patient care expense is allocated to the correct category to minimize potential penalties. Providers should also review their CMS five-star staffing rating to see how it compares to the upcoming nursing hours requirements.
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