MRD-03-09-00019-P ICF/DD Efficiency Adjustment, New York State Register

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:

Proposed Action:

Amendment of section 681.14 of Title 14 NYCRR.

Subject:

ICF/DD efficiency adjustment.

Purpose:

To promote efficiency and economy OMRDD is implementing an across the board reduction in reimbursement for operating costs.

Text of proposed rule:

Subdivision 681.14(g) is amended as follows:

(g) Adjustments.

(1) Effective January 1, 2005 for Region II and III facilities, and effective July 1, 2005 for Region I facilities, there shall be an efficiency adjustment for under 31-bed facilities as described herein and applied as a reduction to reimbursable operating costs.

([1]i) A determination shall be made as to whether each provider has a per bed surplus or loss for all its under 31-bed facilities.

([i]a) Surplus/loss shall equal operating revenue minus operating costs.

([a]1) For purposes of this efficiency adjustment, operating revenue and costs are net of day treatment, day service, transportation, and regional FTE add-ons.

([b]2) Revenue for determining the surplus/loss calculations for all facilities in all regions is from the rate effective July 1, 2004.

([c]3) Costs for determining the surplus/loss calculations are from the 2001 or 2001-2002 cost reporting year, trended to 2004 or 2004-2005 dollars.

([ii]b) The value of the surplus/loss is divided by the total number of beds in all of the provider's under 31-bed facilities to determine the provider's per bed surplus/loss value.

([2]ii) Regional ranking of the per bed surplus/loss value.

([i]a) Within each of the three regions, the per bed surplus/loss values are ranked and identified in descending order.

([ii]b) Within each region, the ranking is divided into five groups.

Region I	Surplus/Loss Range (Per Bed)
Efficiency Group 5	$17,498 to $4,289
Efficiency Group 4	$4,288 to $523
Efficiency Group 3	$522 to ($2,986)
Efficiency Group 2	($2,987) to ($7,465)
Efficiency Group 1	($7,466) to ($42,035)

Region II	Surplus/Loss Range (Per Bed)
Efficiency Group 5	$17,478 to $6,354
Efficiency Group 4	$6,353 to $4,081
Efficiency Group 3	$4,080 to $873
Efficiency Group 2	$872 to ($5,343)
Efficiency Group 1	($5,344) to ($16,087)

Region III	Surplus/Loss Range (Per Bed)
Efficiency Group 5	$12,398 to $7,216
Efficiency Group 4	$7,215 to $2,207
Efficiency Group 3	$2,206 to ($1,049)
Efficiency Group 2	($1,050) to ($6,440)
Efficiency Group 1	($6,441) to ($15,631)

([3]iii) Each of the five groups within each region is assigned an ordinal weight.

Group 5 = 5

Group 4 = 4

Group 3 = 3

Group 2 = 2

Group 1 = 1

([4]iv) Determination of total adjustment per facility.

([i]a) The number of beds in the facility is multiplied by its assigned ordinal weight and the result is multiplied by $334.

([ii]b) The facility's reimbursable operating costs are reduced by the amount determined in subparagraph (i) of this paragraph.

([5]v) Reallocation of costs. The following changes to cost allocations for all under 31-bed facilities are effective January 1, 2005 for Region II and III facilities, and effective July 1, 2005 for Region I facilities.

([i]a) General insurance costs are reallocated from base year administration OTPS costs to base year support OTPS costs.

([ii]b) Property and casualty insurance costs are removed from base year administration OTPS costs. Property and casualty insurance costs from the appropriate cost report period are included in capital costs.

([iii]c) Expensed equipment costs from the base year cost report are included in support OTPS costs. Expensed equipment costs are not included in capital costs.

(2) Effective April 1, 2009 for providers subject to reporting requirements governing Regions II and III and effective October 1, 2009 for providers subject to reporting requirements governing Region I, there shall be an efficiency adjustment for under-31 bed facilities of 3 per cent applied as a reduction to reimbursable operating costs. For purposes of appealing a rate, the effects of this efficiency adjustment shall not be construed as a basis for loss. In executing appeal procedures, OMRDD’s determination of a provider’s financial position shall be calculated net of the effects of this efficiency adjustment.

Text of proposed rule and any required statements and analyses may be obtained from:

Barbara Brundage, Director, Regulatory Affairs Unit, OMRDD, 44 Holland Avenue, Albany, New York 12229, (518) 474-1830, email: barbara.brundage@omr.state.ny.us

Data, views or arguments may be submitted to:

Same as above.

Public comment will be received until:

45 days after publication of this notice.

Additional matter required by statute:

Pursuant to the requirements of SEQRA and 14 NYCRR Part 602, OMRDD has on file a Negative Declaration with respect to this Action. OMRDD has determined that the action herein will have no effect on the environment, and an E.I.S. is not needed.

Regulatory Impact Statement

1. Statutory Authority -

a. OMRDD's authority to adopt rules and regulations necessary and proper to implement any matter under its jurisdiction is stated in the New York State Mental Hygiene Law Section 13.09(b).

b. Section 43.02 of the Mental Hygiene Law grants the commissioner the authority to establish rates and fees for payment under the Medicaid program for facilities licensed by OMRDD and it requires the commissioner to adopt rules and regulations to effectuate Section 43.02.

2. Legislative Objectives - These amendments further the legislative objectives embodied in the sections 13.09(b) and 43.02 of the Mental Hygiene Law.

3. Needs and Benefits - OMRDD is implementing a 3 percent across the board reduction in reimbursement for operating costs for all under thirty-one bed Intermediate Care Facilities for Persons with Developmental Disabilities (ICF/DD). The rationale for this measure derives from the nature of the current economy and OMRDD's perspective on the financial status of ICF/DDs in recent years.

OMRDD has historically increased providers' operating revenues on an annual basis through the implementation of trend factors. Their purpose has been to ensure that provider reimbursement keep abreast of inflation and to provide resources that enable providers to attract and appropriately compensate staff. For the last nine years, relatively robust economies have dictated annual trend factors ranging from 2.97 percent to 6.69 percent with an average of 4.84 percent. Once applied, the trend factors accumulated and compounded.

The current economic landscape is vastly different from those that gave impetus to the years of increased reimbursement. The recessionary nature and high unemployment that define the current economy suggest that inflation may be in check and that staff recruitment and retention achieved through additional monetary stimulus may not be required. Moreover, OMRDD expects that a contraction in the economy may signal a contraction in provider spending.

Recent consolidated fiscal report filings demonstrate that providers realizing a surplus outnumber those realizing a deficit. This finding coupled with the external economic environment suggests that the efficiency adjustment will not compromise delivery of service but could potentially better align reimbursement with costs.

4. Costs -

a. There are no costs to providers of ICF/DD services to implement or comply with the proposed rule. However, providers in aggregate will experience a reduction in reimbursement of $18 million. This reduction represents 3% of the total reimbursement for operating costs received by providers of ICF/DD services, which is $600 million in aggregate.

b. There is a reduction in costs to the state and federal governments as a result of this fee schedule amendment. The aggregate reduction will be $18 million, which represents $9 million in federal funds and $9 million in state funds.

c. There are no costs to local governments as a result of these specific amendments.

5. Paperwork -

There will be no additional paperwork required as a result of these amendments. Providers will bill Medicaid for ICF/DD services in the same way they have always billed.

6. Local Government Mandates -

a. There are no new requirements imposed on local governments by this amendment.

7. Duplication -

a. The amendment does not duplicate any existing State or Federal requirement.

8. Alternatives -

a. In its efforts to promote greater economy in the under thirty-one bed ICF/DDs, OMRDD had developed three alternatives to implementing an efficiency adjustment. These alternatives were discussed with provider representatives. OMRDD respectfully acquiesced to their expressed preference for this bottom line uniform cut in under thirty-one bed ICF/DDs.

9. Federal Standards -

a. The amendment does not exceed any minimum standard of the federal government for the same or similar subject area.

10. Compliance Schedule -

a. OMRDD intends to finalize and file the proposed amendment within and according to the timeframes provided by the State Administrative Procedure Act. (SAPA).

Regulatory Flexibility Analysis

1. Types and number of small businesses and local governments rule applies -

a. These proposed regulatory amendments will apply to agencies which operate Intermediate Care Facilities for Persons with Developmental Disabilities (ICF/DD). While most services are provided by voluntary agencies which employ more than 100 people overall, many of the facilities operated by these agencies at discrete sites employ fewer than 100 employees at each site, and each site (if viewed independently) would therefore be classified as a small business. Some smaller agencies which employ fewer than 100 employees would themselves be classified as small businesses. OMRDD estimates that approximately 111 ICF/DD provider agencies would be affected by the proposed amendments.

b. Local governments do not have a share of the Medicaid costs for ICF/DDs. There are no costs to local governments as a result of these specific amendments.

2. Reporting, record keeping, compliance requirements -

a. There will be no additional paperwork as indicated in the Regulatory Impact Statement. Providers will bill Medicaid for ICF/DD services in the same way they have always billed.

3. Cost to implement and comply with this rule -

a. There are no costs to providers of ICF/DD services to implement or comply with the proposed rule. However, providers in aggregate will experience a reduction in reimbursement of $18 million. This reduction represents 3% of the total reimbursement for operating costs received by providers of ICF/DD services, which is $600 million in aggregate.

b. There is a reduction in costs to the state and federal governments as a result of this fee schedule amendment. The aggregate reduction will be $18 million, which represents $9 million in federal funds and $9 million in state funds.

c. There are no costs to local governments as a result of these specific amendments.

4. Assessment of the economic and technological feasibility of compliance -

a. There is no new technology required by the rule.

5. How the rule is designed to minimize economic impact -

OMRDD is implementing a 3 percent across the board reduction in reimbursement for operating costs for all under thirty-one bed Intermediate Care Facilities for Persons with Developmental Disabilities (ICF/DD). The rationale for this measure derives from the nature of the current economy and OMRDD's perspective on the financial status of ICF/DDs in recent years.

OMRDD has historically increased providers' operating revenues on an annual basis through the implementation of trend factors. Their purpose has been to ensure that provider reimbursement keep abreast of inflation and to provide resources that enable providers to attract and appropriately compensate staff. For the last nine years, relatively robust economies have dictated annual trend factors ranging from 2.97 percent to 6.69 percent with an average of 4.84 percent. Once applied, the trend factors accumulated and compounded.

The current economic landscape is vastly different from those that gave impetus to the years of increased reimbursement. The recessionary nature and high unemployment that define the current economy suggest that inflation may be in check and that staff recruitment and retention achieved through additional monetary stimulus may not be required. Moreover, OMRDD expects that a contraction in the economy may signal a contraction in provider spending.

Recent consolidated fiscal report filings demonstrate that providers realizing a surplus outnumber those realizing a deficit. This finding coupled with the external economic environment suggests that the efficiency adjustment will not compromise delivery of service but could potentially better align reimbursement with costs.

6. Small business and local government participation -

a. The Provider Associations were made aware of the proposed regulations on two separate occasions. The regulations were discussed and presentations made at meetings held in October 2008 and they had the opportunity to comment during the pre-submission period. The Provider Associations encompass numerous provider agencies from across New York State.

Rural Area Flexibility Analysis

A Rural Area Flexibility Analysis for the proposed amendment is not being submitted because the amendment will not impose any adverse economic impact on rural areas or on reporting, record keeping or other compliance requirements on public or private entities in rural areas.

OMRDD is implementing a 3 percent across the board reduction in reimbursement for operating costs for all under thirty-one bed Intermediate Care Facilities for Persons with Developmental Disabilities (ICF/DD). The rationale for this measure derives from the nature of the current economy and OMRDD's perspective on the financial status of ICF/DDs in recent years.

OMRDD has historically increased providers' operating revenues on an annual basis through the implementation of trend factors. Their purpose has been to ensure that provider reimbursement keep abreast of inflation and to provide resources that enable providers to attract and appropriately compensate staff. For the last nine years, relatively robust economies have dictated annual trend factors ranging from 2.97 percent to 6.69 percent with an average of 4.84 percent. Once applied, the trend factors accumulated and compounded.

The current economic landscape is vastly different from those that gave impetus to the years of increased reimbursement. The recessionary nature and high unemployment that define the current economy suggest that inflation may be in check and that staff recruitment and retention achieved through additional monetary stimulus may not be required. Moreover, OMRDD expects that a contraction in the economy may signal a contraction in provider spending.

Recent consolidated fiscal report filings demonstrate that providers realizing a surplus outnumber those realizing a deficit. This finding coupled with the external economic environment suggests that the efficiency adjustment will not compromise delivery of service but could potentially better align reimbursement with costs.

Job Impact Statement

A Job Impact Statement for the proposed amendment is being submitted because, while it is not apparent from the nature and purpose of the rule that there may be a substantial adverse impact on jobs and/or employment opportunities, the potential for such impact exists, especially when coupled with other regulatory changes being proposed to effectuate budget savings.

The rule implements a three percent across the board reduction in reimbursement for operating costs for all under 31 bed Intermediate Care Facilities for Persons with Developmental Disabilities (ICF/DD). The rationale for this measure derives from the nature of the current economy and OMRDD's perspective on the financial status of ICF/DDs in recent years.

Specifically, as OMRDD historically increased providers' operating revenues on an annual basis an average of a 4.84 percent each year over the last nine years, this has resulted in many providers realizing a surplus as demonstrated by recent consolidated fiscal report filings. This finding, along with the external economic environment, suggests to OMRDD that the efficiency adjustment of a three percent reduction will not compromise delivery of service but could potentially better align reimbursement with costs. Additionally, OMRDD expects that a contraction in the economy may signal a contraction in provider spending which may result in a loss in employment opportunities.

While OMRDD will not dictate how each agency implements the three percent reduction, it anticipates that most or many agencies will realize the reduction by tapping into their surpluses or by other efficiencies. To the extent that any agency does reduce or eliminate jobs, they will be bound to maintain minimum staffing ratios for an ICF/DD at each facility.

ICF/DDs with fewer than 31 beds employ people in administration, clinical and direct care/support positions. All of these job categories could potentially be affected by this rule. There are approximately 862 jobs in the administration category for less than 31 bed ICF/DDs; approximately 1341 jobs in the clinical category and approximately 9457 jobs in the direct care/support category.

There are ICF/DDs with fewer than 31 beds throughout New York State. To the extent jobs are lost, it is not anticipated by OMRDD that a disproportionate adverse impact on jobs or employment opportunities will occur in any area or region of the state as a result of this rule.

OMRDD has minimized any unnecessary adverse impacts on existing jobs by giving ICF/DD providers maximum flexibility in how they will respond to this adjustment and has urged them to do so without impacting jobs. As stated in the Regulatory Impact Statement, the majority of ICF/DDs have surpluses. These surpluses and the slowing economy mean that ICF/DDs may be able to absorb the adjustment without any change in staffing and without significant cuts in spending. Where ICF/DDs do have to adjust spending, they may very well be able to accomplish necessary savings without impacting staffing levels.

MRD-03-09-00019-P ICF/DD Efficiency Adjustment

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