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Minnesota Legislature

Office of the Revisor of Statutes

Chapter 256B

Section 256B.441

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256B.441 VALUE-BASED NURSING FACILITY REIMBURSEMENT SYSTEM.
    Subdivision 1. Rate determination. (a) The commissioner shall establish a value-based
nursing facility reimbursement system which will provide facility-specific, prospective rates for
nursing facilities participating in the medical assistance program. The rates shall be determined
using an annual statistical and cost report filed by each nursing facility. The total payment rate
shall be composed of four rate components: direct care services, support services, external
fixed, and property-related rate components. The payment rate shall be derived from statistical
measures of actual costs incurred in facility operation of nursing facilities. From this cost basis,
the components of the total payment rate shall be adjusted for quality of services provided,
recognition of staffing levels, geographic variation in labor costs, and resident acuity.
(b) Rates shall be rebased annually. Each cost reporting year shall begin on October 1 and
end on the following September 30. Beginning in 2006, a statistical and cost report shall be filed
by each nursing facility by January 15. Notice of rates shall be distributed by August 15 and the
rates shall go into effect on October 1 for one year.
(c) The commissioner shall begin to phase in the new reimbursement system beginning
October 1, 2007. Full phase-in shall be completed by October 1, 2011.
    Subd. 2. Definitions. For purposes of this section, the terms in subdivisions 3 to 42 have the
meanings given unless otherwise provided for in this section.
    Subd. 3. Active beds. "Active beds" means licensed beds that are not currently in layaway
status.
    Subd. 4. Activities costs. "Activities costs" means the costs for the salaries and wages of
the supervisor and other activities workers, associated fringe benefits and payroll taxes, supplies,
services, and consultants.
    Subd. 5. Administrative costs. "Administrative costs" means the direct costs for
administering the overall activities of the nursing home. These costs include salaries and wages
of the administrator, assistant administrator, business office employees, security guards, and
associated fringe benefits and payroll taxes, fees, contracts, or purchases related to business office
functions, licenses, and permits except as provided in the external fixed costs category, employee
recognition, travel including meals and lodging, training, voice and data communication or
transmission, office supplies, liability insurance and other forms of insurance not designated to
other areas, personnel recruitment, legal services, accounting services, management or business
consultants, data processing, central or home office costs, business meetings and seminars,
postage, fees for professional organizations, subscriptions, security services, advertising, board of
director's fees, working capital interest expense, and bad debts and bad debt collection fees.
    Subd. 6. Allowed costs. "Allowed costs" means the amounts reported by the facility which
are necessary for the operation of the facility and the care of residents and which are reviewed
by the department for accuracy, reasonableness, and compliance with this section and generally
accepted accounting principles.
    Subd. 7. Center for Medicare and Medicaid services. "Center for Medicare and Medicaid
services" means the federal agency, in the United States Department of Health and Human
Services that administers Medicaid, also referred to as "CMS."
    Subd. 8. Commissioner. "Commissioner" means the commissioner of human services
unless specified otherwise.
    Subd. 9. Desk audit. "Desk audit" means the establishment of the payment rate based
on the commissioner's review and analysis of required reports, supporting documentation, and
work sheets submitted by the nursing facility.
    Subd. 10. Dietary costs. "Dietary costs" means the costs for the salaries and wages of the
dietary supervisor, dietitians, chefs, cooks, dishwashers, and other employees assigned to the
kitchen and dining room, and associated fringe benefits and payroll taxes. Dietary costs also
includes the salaries or fees of dietary consultants, direct costs of raw food (both normal and
special diet food), dietary supplies, and food preparation and serving. Also included are special
dietary supplements used for tube feeding or oral feeding, such as elemental high nitrogen diet,
even if written as a prescription item by a physician.
    Subd. 11. Direct care costs category. "Direct care costs category" means costs for nursing
services, activities, and social services.
    Subd. 12. Economic development regions. "Economic development regions" are as defined
in section 462.385, subdivision 1.
    Subd. 13. External fixed costs category. "External fixed costs category" means costs
related to the nursing home surcharge under section 256.9657, subdivision 1; licensure fees
under section 144.122; long-term care consultation fees under section 256B.0911, subdivision
6
; family advisory council fee under section 144A.33; scholarships under section 256B.431,
subdivision 36
; planned closure rate adjustments under section 256B.437; property taxes and
property insurance; and PERA.
    Subd. 14. Facility average case mix index. "Facility average case mix index" or "CMI"
means a numerical value score that describes the relative resource use for all residents within
the groups under the resource utilization group (RUG-III) classification system prescribed by
the commissioner based on an assessment of each resident. The facility average CMI shall be
computed as the standardized days divided by total days for all residents in the facility.
    Subd. 15. Field audit. "Field audit" means the examination, verification, and review of the
financial records, statistical records, and related supporting documentation on the nursing home
and any related organization.
    Subd. 16. Final rate. "Final rate" means the rate established after any adjustment by the
commissioner, including, but not limited to, adjustments resulting from audits.
    Subd. 17. Fringe benefit costs. "Fringe benefit costs" means the costs for group life, health,
dental, workers' compensation, and other employee insurances and pension, profit-sharing, and
retirement plans for which the employer pays all or a portion of the costs and that are available
to at least all employees who work at least 20 hours per week.
    Subd. 18. Generally accepted accounting principles. "Generally Accepted Accounting
Principles" means the body of pronouncements adopted by the American Institute of Certified
Public Accountants regarding proper accounting procedures, guidelines, and rules.
    Subd. 19. Hospital-attached nursing facility status. (a) For the purpose of setting rates
under this section, for rate years beginning after September 30, 2006, "hospital-attached nursing
facility" means a nursing facility which meets the requirements of clauses (1) and (2); or (3); or
(4), or had hospital-attached status prior to January 1, 1995, and has been recognized as having
hospital-attached status by CMS continuously since that date:
(1) the nursing facility is recognized by the federal Medicare program to be a hospital-based
nursing facility;
(2) the hospital and nursing facility are physically attached or connected by a corridor;
(3) a nursing facility and hospital, which have applied for hospital-based nursing facility
status under the federal Medicare program during the reporting year, shall be considered a
hospital-attached nursing facility for purposes of setting payment rates under this section. The
nursing facility must file its cost report for that reporting year using Medicare principles and
Medicare's recommended cost allocation methods had the Medicare program's hospital-based
nursing facility status been granted to the nursing facility. For each subsequent rate year, the
nursing facility must meet the definition requirements in clauses (1) and (2). If the nursing facility
is denied hospital-based nursing facility status under the Medicare program, the nursing facility's
payment rates for the rate years the nursing facility was considered to be a hospital-attached
nursing facility according to this paragraph shall be recalculated treating the nursing facility as a
non-hospital-attached nursing facility;
(4) if a nonprofit or community-operated hospital and attached nursing facility suspend
operation of the hospital, the remaining nursing facility must be allowed to continue its status as
hospital-attached for rate calculations in the three rate years subsequent to the one in which the
hospital ceased operations.
(b) The nursing facility's cost report filed as hospital-attached facility shall use the same
cost allocation principles and methods used in the reports filed for the Medicare program.
Direct identification of costs to the nursing facility cost center will be permitted only when the
comparable hospital costs have also been directly identified to a cost center which is not allocated
to the nursing facility.
    Subd. 20. Housekeeping costs. "Housekeeping costs" means the costs for the salaries
and wages of the housekeeping supervisor, housekeepers, and other cleaning employees and
associated fringe benefits and payroll taxes. It also includes the cost of housekeeping supplies,
including cleaning and lavatory supplies and contract services.
    Subd. 21. Labor-related portion. The "labor-related portion" of direct care costs and of
support service costs shall be that portion of costs that is attributable to wages for all compensated
hours, payroll taxes, and fringe benefits.
    Subd. 22. Laundry costs. "Laundry costs" means the costs for the salaries and wages of
the laundry supervisor and other laundry employees, associated fringe benefits, and payroll
taxes. It also includes the costs of linen and bedding, the laundering of resident clothing, laundry
supplies, and contract services.
    Subd. 23. Licensee. "Licensee" means the individual or organization listed on the form
issued by the Minnesota Department of Health under chapter 144A or sections 144.50 to 144.56.
    Subd. 24. Maintenance and plant operations costs. "Maintenance and plant operations
costs" means the costs for the salaries and wages of the maintenance supervisor, engineers,
heating-plant employees, and other maintenance employees and associated fringe benefits and
payroll taxes. It also includes direct costs for maintenance and operation of the building and
grounds, including fuel, electricity, medical waste and garbage removal, water, sewer, supplies,
tools, and repairs.
    Subd. 25. Normalized direct care costs per day. "Normalized direct care costs per day"
means direct care costs divided by standardized days. It is the costs per day for direct care services
associated with a RUG's index of 1.00.
    Subd. 26. Nursing costs. "Nursing costs" means the costs for the wages of nursing
administration, staff education, and direct care registered nurses, licensed practical nurses,
certified nursing assistants, and trained medication aides; mental health workers and other direct
care employees, and associated fringe benefits and payroll taxes; services from a supplemental
nursing services agency and supplies that are stocked at nursing stations or on the floor and
distributed or used individually, including: alcohol, applicators, cotton balls, incontinence pads,
disposable ice bags, dressings, bandages, water pitchers, tongue depressors, disposable gloves,
enemas, enema equipment, soap, medication cups, diapers, plastic waste bags, sanitary products,
thermometers, hypodermic needles and syringes, and clinical reagents or similar diagnostic
agents, and drugs which are not paid on a separate fee schedule by the medical assistance program
or any other payer.
    Subd. 27. Nursing facility. "Nursing facility" means a facility with a medical assistance
provider agreement that is licensed as a nursing home under chapter 144A or as a boarding
care home under sections 144.50 to 144.56.
    Subd. 28. Operating costs. "Operating costs" means costs associated with the direct care
costs category and the support services costs category.
    Subd. 29. Payroll taxes. "Payroll taxes" means the costs for the employer's share of the
FICA and Medicare withholding tax, and state and federal unemployment compensation taxes.
    Subd. 30. Peer groups. Facilities shall be classified into three groups, called "peer groups,"
which shall consist of:
(1) C&NC/Short Stay/R80 - facilities that have three or more admissions per bed per year,
are hospital-attached, or are licensed under Minnesota Rules, parts 9570.2000 to 9570.3600;
(2) boarding care homes - facilities that have more than 50 percent of their beds licensed as
boarding care homes; and
(3) standard - all other facilities.
    Subd. 31. Prior rate-setting method. "Prior rate-setting method" means the rate
determination process in effect prior to October 1, 2006, under Minnesota Rules and Minnesota
Statutes.
    Subd. 32. Private paying resident. "Private paying resident" means a nursing facility
resident who is not a medical assistance recipient and whose payment rate is not established by
another third party, including the veterans administration or Medicare.
    Subd. 33. Rate year. "Rate year" means the 12-month period beginning on October 1
following the second most recent reporting year.
    Subd. 34. Related organization. "Related organization" means a person that furnishes goods
or services to a nursing facility and that is a close relative of a nursing facility, an affiliate of a
nursing facility, a close relative of an affiliate of a nursing facility, or an affiliate of a close relative
of an affiliate of a nursing facility. As used in this subdivision, paragraphs (a) to (d) apply:
(a) "Affiliate" means a person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with another person.
(b) "Person" means an individual, a corporation, a partnership, an association, a trust, an
unincorporated organization, or a government or political subdivision.
(c) "Close relative of an affiliate of a nursing facility" means an individual whose relationship
by blood, marriage, or adoption to an individual who is an affiliate of a nursing facility is no
more remote than first cousin.
(d) "Control" including the terms "controlling," "controlled by," and "under common control
with" means the possession, direct or indirect, of the power to direct or cause the direction of
the management, operations, or policies of a person, whether through the ownership of voting
securities, by contract, or otherwise, or to influence in any manner other than through an arms
length, legal transaction.
    Subd. 35. Reporting period. "Reporting period" means the one-year period beginning on
October 1 and ending on the following September 30 during which incurred costs are accumulated
and then reported on the statistical and cost report.
    Subd. 36. Resident day or actual resident day. "Resident day" or "actual resident day"
means a day for which nursing services are rendered and billable, or a day for which a bed is held
and billed. The day of admission is considered a resident day, regardless of the time of admission.
The day of discharge is not considered a resident day, regardless of the time of discharge.
    Subd. 37. Salaries and wages. "Salaries and wages" means amounts earned by and paid to
employees or on behalf of employees to compensate for necessary services provided. Salaries and
wages include accrued vested vacation and accrued vested sick leave pay. Salaries and wages
must be paid within 30 days of the end of the reporting period in order to be allowable costs of
the reporting period.
    Subd. 38. Social services costs. "Social services costs" means the costs for the salaries and
wages of the supervisor and other social work employees, associated fringe benefits and payroll
taxes, supplies, services, and consultants.
    Subd. 39. Stakeholders. "Stakeholders" means individuals and representatives of
organizations interested in long-term care, including nursing homes, consumers, and labor unions.
    Subd. 40. Standardized days. "Standardized days" means the sum of resident days by case
mix category multiplied by the RUG index for each category.
    Subd. 41. Statistical and cost report. "Statistical and cost report" means the forms supplied
by the commissioner for annual reporting of nursing facility expenses and statistics, including
instructions and definitions of items in the report.
    Subd. 42. Support services costs category. "Support services costs category" means the
costs for dietary, housekeeping, laundry, maintenance, and administration.
    Subd. 43. Reporting of statistical and cost information. (a) Beginning in 2006, all
nursing facilities shall provide information annually to the commissioner on a form and in a
manner determined by the commissioner. The commissioner may also require nursing facilities
to provide statistical and cost information for a subset of the items in the annual report on a
semiannual basis. Nursing facilities shall report only costs directly related to the operation of the
nursing facility. The facility shall not include costs which are separately reimbursed by residents,
medical assistance, or other payors. Allocations of costs from central, affiliated, or corporate
office and related organization transactions shall be reported according to section 256B.432.
The commissioner may grant to facilities one extension of up to 15 days for the filing of this
report if the extension is requested by December 15 and the commissioner determines that the
extension will not prevent the commissioner from establishing rates in a timely manner required
by law. The commissioner may separately require facilities to submit in a manner specified by
the commissioner documentation of statistical and cost information included in the report to
ensure accuracy in establishing payment rates and to perform audit and appeal review functions
under this section. Facilities shall retain all records necessary to document statistical and cost
information on the report for a period of no less than seven years. The commissioner may amend
information in the report according to subdivision 47. The commissioner may reject a report filed
by a nursing facility under this section if the commissioner determines that the report has been
filed in a form that is incomplete or inaccurate and the information is insufficient to establish
accurate payment rates. In the event that a complete report is not submitted in a timely manner,
the commissioner shall reduce the reimbursement payments to a nursing facility to 85 percent of
amounts due until the information is filed. The release of withheld payments shall be retroactive
for no more than 90 days. A nursing facility that does not submit a report or whose report is filed
in a timely manner but determined to be incomplete shall be given written notice that a payment
reduction is to be implemented and allowed ten days to complete the report prior to any payment
reduction. The commissioner may delay the payment withhold under exceptional circumstances
to be determined at the sole discretion of the commissioner.
(b) Nursing facilities may, within 12 months of the due date of a statistical and cost report,
file an amendment when errors or omissions in the annual statistical and cost report are discovered
and an amendment would result in a rate increase of at least 0.15 percent of the statewide weighted
average operating payment rate and shall, at any time, file an amendment which would result in a
rate reduction of at least 0.15 percent of the statewide weighted average operating payment rate.
The commissioner shall make retroactive adjustments to the total payment rate of a nursing
facility if an amendment is accepted. Where a retroactive adjustment is to be made as a result
of an amended report, audit findings, or other determination of an incorrect payment rate, the
commissioner may settle the payment error through a negotiated agreement with the facility and a
gross adjustment of the payments to the facility. Retroactive adjustments shall not be applied to
private pay residents. An error or omission for purposes of this item does not include a nursing
facility's determination that an election between permissible alternatives was not advantageous
and should be changed.
(c) If the commissioner determines that a nursing facility knowingly supplied inaccurate
or false information or failed to file an amendment to a statistical and cost report that resulted
in or would result in an overpayment, the commissioner shall immediately adjust the nursing
facility's payment rate and recover the entire overpayment. The commissioner may also terminate
the commissioner's agreement with the nursing facility and prosecute under applicable state
or federal law.
    Subd. 44. Calculation of a quality score. (a) The commissioner shall determine a quality
score for each nursing facility using quality measures established in section 256B.439, according
to methods determined by the commissioner in consultation with stakeholders and experts. These
methods shall be exempt from the rulemaking requirements under chapter 14.
(b) For each quality measure, a score shall be determined with a maximum number of
points available and number of points assigned as determined by the commissioner using the
methodology established according to this subdivision. The scores determined for all quality
measures shall be totaled. The determination of the quality measures to be used and the methods
of calculating scores may be revised annually by the commissioner.
(c) For the initial rate year under the new payment system, the quality measures shall include:
(1) staff turnover;
(2) staff retention;
(3) use of pool staff;
(4) quality indicators from the minimum data set; and
(5) survey deficiencies.
(d) For rate years beginning after October 1, 2006, when making revisions to the quality
measures or method for calculating scores, the commissioner shall publish the methodology in
the State Register at least 15 months prior to the start of the rate year for which the revised
methodology is to be used for rate-setting purposes. The quality score used to determine payment
rates shall be established for a rate year using data submitted in the statistical and cost report from
the associated reporting year, and using data from other sources related to a period beginning
no more than six months prior to the associated reporting year.
    Subd. 45. Operating payment rate for direct care and support services. The
commissioner shall provide recommendations to the legislature by February 15, 2006, on specific
methodology for the establishment of the operating payment rate for direct care and support
services under the new system. The recommendations must not increase expenditures for the
new payment system beyond the limits of the appropriation. The commissioner shall include
recommendations on options for recognizing changes in staffing and services that may require
a supplemental appropriation in the future.
    Subd. 46. Calculation of quality add-on. The payment rate for the quality add-on shall be a
variable amount based on each facility's quality score.
(a) For the rate year beginning October 1, 2006, the maximum quality add-on percent shall
be 2.4 percent and this add-on shall not be subject to a phase-in. The determination of the quality
score to be used in calculating the quality add-on for October 1, 2006, shall be based on a report
which must be filed with the commissioner, according to the requirements in subdivision 43, for
a six-month period ending January 31, 2006. This report shall be filed with the commissioner
by February 28, 2006. The commissioner shall prorate the six months of data to a full year.
When new quality measures are incorporated into the quality score methodology and when
existing quality measures are updated or improved, the commissioner may increase the maximum
quality add-on percent.
(b) For each facility, determine the operating payment rate.
(c) For each facility determine a ratio of the quality score of the facility determined in
subdivision 44, less 40 and then divided by 60. If this value is less than zero, use the value zero.
(d) For each facility, the quality add-on shall be the value determined in paragraph (b) times
the value determined in paragraph (c) times the maximum quality add-on percent.
    Subd. 47. Audit authority. (a) The commissioner may subject reports and supporting
documentation to desk and field audits to determine compliance with this section. Retroactive
adjustments shall be made as a result of desk or field audit findings if the cumulative impact of
the finding would result in a rate adjustment of at least 0.15 percent of the statewide weighted
average operating payment rate. If a field audit reveals inadequacies in a nursing facility's record
keeping or accounting practices, the commissioner may require the nursing facility to engage
competent professional assistance to correct those inadequacies within 90 days so that the field
audit may proceed.
(b) Field audits may cover the four most recent annual statistical and cost reports for which
desk audits have been completed and payment rates have been established. The field audit must
be an independent review of the nursing facility's statistical and cost report. All transactions,
invoices, or other documentation that support or relate to the statistics and costs claimed on
the annual statistical and cost reports are subject to review by the field auditor. If the provider
fails to provide the field auditor access to supporting documentation related to the information
reported on the statistical and cost report within the time period specified by the commissioner,
the commissioner shall calculate the total payment rate by disallowing the cost of the items for
which access to the supporting documentation is not provided.
(c) Changes in the total payment rate which result from desk or field audit adjustments to
statistical and cost reports for reporting years earlier than the four most recent annual cost reports
must be made to the four most recent annual statistical and cost reports, the current statistical and
cost report, and future statistical and cost reports to the extent that those adjustments affect the
total payment rate established by those reporting years.
(d) The commissioner shall extend the period for retention of records under subdivision 43
for purposes of performing field audits as necessary to enforce section 256B.48 with written
notice to the facility postmarked no later than 90 days prior to the expiration of the record
retention requirement.
History: 1Sp2005 c 4 art 7 s 43; 2006 c 212 art 3 s 21