PDD-15-11-00025-A Reimbursement Methodology for Residential Habilitation Services Delivered in Supervised IRAs and Supervised CRs

6/29/11 N.Y. St. Reg. PDD-15-11-00025-A

NEW YORK STATE REGISTER

VOLUME XXXIII, ISSUE 26

June 29, 2011

RULE MAKING ACTIVITIES

OFFICE FOR PEOPLE WITH DEVELOPMENTAL DISABILITIES

NOTICE OF ADOPTION

 

I.D No. PDD-15-11-00025-A

Filing No. 530

Filing Date. Jun. 14, 2011

Effective Date. Jul. 01, 2011

Reimbursement Methodology for Residential Habilitation Services Delivered in Supervised IRAs and Supervised CRs

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

Action taken:

Amendment of sections 635-10.5 and 671.7 of Title 14 NYCRR.

Statutory authority:

Mental Hygiene Law, sections 13.09(b) and 43.02

Subject:

Reimbursement methodology for residential habilitation services delivered in supervised IRAs and supervised CRs.

Purpose:

To modify reimbursement for prices in supervised IRAs and supervised CRs effective July 1, 2011.

Text of final rule:

A new subparagraph 635-10.5(b)(18)(iv) is added as follows:

(iv) Effective July 1, 2011, supervised IRA prices shall be reduced according to the measures outlined in this subparagraph. There are two distinct actions to the price reductions. The personal services action addresses provider surpluses in funding for direct care, clinical and support staff and the associated fringe benefits. The administrative action addresses reimbursable administrative costs and holds reimbursement to a level of efficiency. Providers may be subject to only one action or to both actions or they may be exempt from both.

(a) Applicability. The price reductions will apply to all providers except for those which meet the criteria for exemption.

The first criterion, in order for any provider to be exempt from the impact of the reduction on any basis, is a cost report requirement. Region I providers must have filed a 2008-2009 cost report and Regions II and III providers must have filed a 2008 cost report on or before December 23, 2010, except that a provider may submit the cost report after December 23, 2010 if the cost report represents an original submission or a resubmission specifically requested by OPWDD due to identified inaccuracies or insufficiencies. Cost reports submitted after December 23, 2010 must be submitted by May 1, 2011 unless the Commissioner exercises or has exercised his or her discretion to extend the May 1, 2011 deadline. Providers with cost reports submitted in accordance with the deadlines in this clause (a) may qualify for exemption from the personal services surpluses action pursuant to subclause (1) of clause (b) of this subparagraph. Providers with cost reports submitted in accordance with the deadlines in this clause (a) may qualify for exemption from the administrative action pursuant to subclause (1) of clause (c) of this subparagraph. Providers which did not submit cost reports in accordance with the deadlines in this clause (a) shall be subject to price reductions pursuant to clause (d) of this subparagraph.

OPWDD shall employ data extracted from the most recent 2008/2008-2009 cost report submitted by a provider on or before December 23, 2010, except that data from a 2008/2008-2009 cost report submitted after December 23, 2010 representing an original submission or a resubmission specifically requested by OPWDD due to identified inaccuracies or insufficiencies and submitted by May 1, 2011 or a later deadline extended by the Commissioner shall also be utilized. For providers of supervised residential habilitation services which did not operate group day habilitation or supplemental group day habilitation programs for the cost reporting year 2008/2008-2009, the components subjected to analysis relate to the provider's supervised IRAs. For providers which did operate group day habilitation and/or supplemental group day habilitation programs for the cost reporting year 2008/2008-2009, the components subjected to analysis relate to the combination of the provider's supervised IRAs, group day habilitation and/or supplemental group day habilitation services. Additionally, for providers which converted a residential program to a supervised IRA or a day program to a group or supplemental group day habilitation program subsequent to the 2008/2008-2009 cost report period, OPWDD incorporated the data included in the 2008/2008-2009 cost report(s) for the converted program(s) prior to conversion into its analyses.

(b) Personal Services Surpluses Action.

(1) Exemptions.

(i) Providers with FTE personal services losses and actual personal services fringe benefit percentages greater than the reimbursable percentages are exempt. To qualify for this exemption, a provider must meet each of the two criteria which follow.

(A) FTE personal services loss. OPWDD compared each provider's actual FTEs for direct care, clinical care and support as reported in its 2008/2008-2009 cost report to the maximum reimbursable FTEs designated for direct care, clinical care and support as reflected in the corresponding price(s). This analysis included the FTE equivalents for contracted services. OPWDD identified a subset of providers which demonstrated an excess of actual FTEs over reimbursable FTEs. They meet the first criterion for this exemption.

(B) Fringe benefit percentage. The fringe benefit percentage equals the total fringe benefits costs for direct care, clinical and support staff divided by the salary costs for direct care, clinical and support staff expressed as a percentage. For the providers which meet the criterion in subitem (A) of this item, OPWDD compared each provider's actual direct care, clinical and support services associated fringe benefit percentage as evidenced by its 2008/2008-2009 cost report data to the reimbursable direct care, clinical and support services associated fringe benefit percentage as reflected in the corresponding price(s). OPWDD identified a subset of providers with actual fringe benefit percentages that were higher than the fringe benefit percentage in the price(s). They are exempt.

(ii) Providers with a loss in personal services and associated fringe benefits combined are exempt. OPWDD examined 2008/2008-2009 cost reports for those providers not exempted by virtue of item (i) of this subclause. OPWDD compared each provider's actual expenses for direct care, clinical care and support and the associated fringe benefits to the total reimbursable costs reflected in the corresponding price(s) and designated for direct care, clinical care and support and the associated fringe benefits cost categories. This analysis included contracted services. OPWDD identified a subset of providers which demonstrated an excess of actual expenses for direct care, clinical care and support and the associated fringe benefits over reimbursable costs reflected in the corresponding price(s) and designated for direct care, clinical care and support and the associated fringe benefits. They are exempt.

(iii) Providers with aggregate unmodified surpluses. Providers not exempted by virtue of items (i) or (ii) of this subclause were identified as having aggregate unmodified surpluses equal to the amount by which the aggregated reimbursable costs as reflected in the prices and designated for direct care, clinical care and support and the associated fringe benefits exceeded the corresponding aggregated actual expenses for direct care, clinical care and support and the associated fringe benefits as reported in those providers' cost reports for reporting year 2008/2008-2009.

(iv) To/from transportation modification. For all providers with aggregate unmodified surpluses as defined in item (iii) of this subclause, OPWDD examined their 2008/2008-2009 cost reports. OPWDD compared the provider's aggregated actual expenses for to/from transportation to the aggregated total reimbursable costs reflected in the corresponding price(s) and designated for to/from transportation. If the aggregated total reimbursable costs exceeded aggregated actual expenses for to/from transportation, OPWDD added the amount of this excess to the aggregate unmodified surplus amount calculated pursuant to item (iii) of this subclause to yield the aggregate surplus. Conversely, if the aggregated actual expenses for to/from transportation exceeded the aggregated total reimbursable costs reflected in the corresponding price(s) for to/from transportation, OPWDD offset the unmodified surplus amount calculated pursuant to item (iii) of this subclause by this difference to derive the aggregate surplus. If, however, this calculation yielded a negative number for any provider, it is not considered a surplus and such provider is exempt.

(2) Providers subject to the personal services surpluses action are those providers which are not specifically exempted pursuant to subclause (1) of this clause.

(3) Untrended tentative aggregate gross reduction. A provider identified as having an aggregate surplus after the to/from transportation modification pursuant to the analysis conducted by OPWDD as described in item (iv) of subclause (1) of this clause shall be subject to a price reduction. This aggregate surplus is referred to as the untrended tentative aggregate gross reduction.

(4) Tentative aggregate gross reduction. The tentative aggregate gross reduction equals the untrended tentative aggregate gross reduction pursuant to subclause (3) of this clause trended to June 30, 2011 dollars.

(c) Administrative action.

(1) Exemptions.

(i) Total agency revenue exemption. Providers with total agency gross revenues less than $1.5 million dollars as reflected in the agency fiscal summaries of their 2008/2008-2009 cost reports are exempt.

(ii) Compensation exemption. For each provider not exempted by virtue of item (i) of this subclause, OPWDD extracted from the governing board and compensation summaries in its 2008/2008-2009 cost report the total annualized compensation of all employees with agency administrative titles. Using this dollar value, OPWDD compared the total annualized compensation to the total agency revenue as described in item (i) of this subclause to establish a value that expressed the total annualized compensation as a percentage of total agency revenue. OPWDD identified a subset of providers with percentages equal to or less than one half of one percent. They are exempt.

(iii) Administrative expenses as a percent of operating expenses exemption. For providers not exempted by virtue of items (i) or (ii) of this subclause, total reimbursable administration (agency and program including fringe benefits) costs as reflected in the price(s) corresponding to the provider's 2008/2008-2009 reporting year were expressed as a percentage of the total reimbursable operating costs in that price (those prices). As a prerequisite to this calculation, when appropriate, respective amounts were adjusted for capacity changes that occurred throughout the year. OPWDD identified a subset of providers with percentages of less than 10 percent. They are exempt.

(2) Providers subject to the administrative action are those providers which are not specifically exempted pursuant to subclause (1) of this clause.

(3) Tentative aggregate gross reduction. For providers subject to the administrative action, OPWDD used the compensation data also used in item (ii) of subclause (1) of this clause and the reported number of FTEs corresponding to those administrative titles as reported in providers' 2008/2008-2009 cost reports. OPWDD computed a provider-specific average compensation per FTE for the administrative titles. Similarly, OPWDD computed a provider-specific average compensation per FTE for direct care, clinical and support staff using data from providers' 2008/2008-2009 cost reports. (Direct care, clinical and support staff collectively are referred to as direct support staff.) The compensation data for both administrative titles and direct support titles included fringe benefits. A ratio of average administrative compensation to average direct support compensation was determined for each provider. Providers' ratios were then ranked and separated into 5 graduated levels. A reduction percentage was established to correspond to each level of compensation ratios. The reduction percentage for a provider is dependent on a provider's positioning in the five levels. The following chart gives the explicit ranges for the compensation ratios and the applicable reduction percentage.

Compensation Ratios Administration to Direct Support	Reimbursable Administrative Costs Reduction Percentage
Equal to or greater than 10.0:1	9.0%
Equal to or greater than 6.0:1 but less than 10.0:1	7.5%
Equal to or greater than 4.0:1 but less than 6.0:1	6.0%
Equal to or greater than 3.0:1 but less than 4.0:1	4.0%
Less than 3.0:1	2.0%

The tentative aggregate gross reduction equals the reduction percentage determined by a provider's ranking in the compensation ratio comparisons applied to that provider's aggregate reimbursable administrative costs as reflected in the corresponding price(s) at June 30, 2011.

(d) Total impact limitation. Before OPWDD revises a provider's supervised IRA price, it shall assess the total impact on a provider of all the tentative gross reductions and tentative aggregate gross reductions pursuant to this subparagraph 635-10.5(b)(18)(iv) and sections 635-10.5(c)(16), 635-10.5(e)(6) and 671.7(a)(13) of this Title, combined with the final price and fee reductions pursuant to sections 635-10.5(b)(18)(iii), 635-10.5(d)(6), 635-10.5(h)(3)(iii)(d), 635-10.5(ab)(12)(iii)(b) and 671.7(a)(12) of this Title. The total impact to an individual provider shall be limited to an amount not to exceed 6.5 percent of the aggregated total gross reimbursable operating costs as reflected in a provider's June 30, 2011 prices and the aggregated total gross allowable reimbursement reflected in a provider's June 30, 2011 fees for the provider's programs and/or services subject to the price and fee revisions. The lesser of the amount of the total impact or the amount of the total impact as limited by the 6.5 percent provision represents the final impact. For providers for which no 2008/2008-2009 cost reports were available because the conditions established in clause (a) of this subparagraph were not met, the total impact is calculated as follows: The aggregated total gross reimbursable operating costs as reflected in a provider's June 30, 2011 prices and the aggregated total gross allowable reimbursement as reflected in a provider's June 30, 2011 fees for the provider's programs and/or services subject to the price and fee revisions are summed. The total is multiplied by 6.5 percent. The product is the final impact for these providers.

(e) Allocation of final impact. Before allocation, the final impact on a provider shall be reduced by the final price and fee reductions pursuant to sections 635-10.5(b)(18)(iii), 635-10.5(d)(6), 635-10.5(h)(3)(iii)(d), 635-10.5(ab)(12)(iii)(b) and 671.7(a)(12) of this Title because those reductions are not subject to any further revisions. The remainder of the final impact on a provider shall be distributed equitably across the reimbursable operating costs in that provider's supervised residential habilitation, group day habilitation, supplemental group day habilitation and prevocational services in proportion to the amount of reduction each of these programs would have incurred had the reductions been calculated separately. OPWDD shall make an internal allocation within the price for providers subject to both the personal services surplus action and the administrative action pursuant to this subparagraph 635-10.5(b)(18)(iv).

(f) Final supervised IRA price reduction percentage. The allocation of the final impact to a provider's supervised residential habilitation services shall be expressed as a percentage of the total gross reimbursable operating costs reflected in the price in effect on June 30, 2011.

(g) The final supervised IRA price shall be the supervised IRA price in effect on June 30, 2011 reduced by the final supervised IRA price reduction percentage pursuant to clause (f) of this subparagraph applied to that price.

(h) For the purposes of requesting a price adjustment, the effects of this price reduction shall not be construed as a basis for loss. In processing a price adjustment, any revised price will be offset by the monetary impact, prorated as appropriate, of the price reduction as calculated pursuant to this clause.

(i) The commissioner, at his or her discretion, may waive all or a portion of this adjustment for a provider upon the provider demonstrating that the imposition of the reduction would jeopardize the continued operation of the residential habilitation services.

A new paragraph 635-10.5(b)(22) is added as follows:

(22) Revenues realized by providers from reimbursement attributable to components of the price other than the administrative component shall not be used to fund administrative expenses.

Subdivision 671.7(a) is amended by the addition of new paragraphs (13) and (14) as follows:

(13) Effective July 1, 2011, pursuant to subparagraph (b)(18)(iv) of section 635-10.5, providers shall be subject to the supervised IRA price reductions except for those providers specifically excluded by the exemptions described in that subparagraph.

(14) Revenues realized by providers from reimbursement attributable to components of the price other than the administrative component shall not be used to fund administrative expenses.

Final rule as compared with last published rule:

Nonsubstantive changes were made in section 635-10.5(b).

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

Barbara Brundage, Director, Regulatory Affairs Unit, OPWDD, 44 Holland Avenue, Albany, NY 12229, [phone], email: [e-mail]

Additional matter required by statute:

Pursuant to the requirements of the State Environmental Quality Review Act, OPWDD, as lead agency, has determined that the action described herein will have no effect on the environment, and an E.I.S. is not needed.

Revised Regulatory Impact Statement, Regulatory Flexibility Analysis, Rural Area Flexibility Analysis and Job Impact Statement

Minor changes were made to the proposed regulation to correct punctuation and to insert conforming language for consistency.

These changes do not necessitate revisions to the previously published Regulatory Impact Statement, Regulatory Flexibility Analysis for Small Business and Local Governments, Rural Area Flexibility Analysis or Job Impact Statement.

Assessment of Public Comment

OPWDD received three comments from voluntary providers. The comments and OPWDD's responses follow.

Comment: A voluntary agency wrote that the regulations should "incorporate two basic items: Adjusting for vacancies reported on the CFR" and "Adjusting for IRAs opened during the year." The writer proposed new language for insertion into the regulations to address these concerns.

Response: OPWDD will not be making the changes that were recommended. OPWDD reasoned that no adjustment for utilization was necessary because statewide utilization in IRAs is already at a high level (96 percent). With respect to sites opened for partial years, the data extracted from price sheets factored in the capacity changes for those sites that either opened or closed during the year.

Comment: Another agency urged that the amendments (this one among others) be withdrawn because the proposed changes depart from the three "core principles" that define the relationship between the State and voluntary providers. It asserted that efficient providers reserve funds to accommodate special needs as they arise; that providers need a safety net in the form of the appeal mechanism to address "unforeseen operating losses;" and that interchange allows providers to reallocate funds between cost centers and programs to meet changing needs and compensates for a reimbursement system that is "neither scientific nor accurate." It contended that "these three principles have been violated by the proposed regulations."

Response: OPWDD will not be withdrawing the regulations. The amendments were designed to encourage operating efficiencies. Aspects of the regulations were formulated to reduce surplus funding by more closely aligning reimbursement with actual costs. The appeals process was amended to be better synchronized with OPWDD's prospective reimbursement methodologies. OPWDD has a long established tradition of reaching out to stakeholders for their input before instituting systemic changes to programs and payments. Providers through provider associations participated in numerous discussions during the development stage of these amendments. With respect to the interchange restriction, OPWDD is responding to providers by repealing this aspect of the amendments in order to avoid negative consequences to those providers already demonstrating the greatest levels of efficiency. This will occur through a separate emergency rule making action that is timed to coincide with the adoption of these regulations.

Comment: A third provider expressed its view that the methodology employed to effect the price reductions should not include exemptions for any providers. It insisted that every provider should "shoulder" the burden and "contribute its fair share to the budget cut." It opined that non-exempt providers will be forced to discharge individuals in order to downsize and that those individuals will migrate to exempt providers for services. It projected that a consequent "revenue transfer" from non-exempt to exempt providers will ensue with agency survival paralleling the monetary movement. It objected to the focus of the exemption criteria on personal services and expounded that by cutting personal services reimbursement without regard to provider status in terms of Other Than Personal Services (OTPS), providers which have experienced losses in OTPS are precluded from using interchange to fund those legitimate expenses. The provider also opposed the inclusion of program administrative expenses in the equation for determination of the administrative efficiency adjustment because it discerns a distinction between agency and program administration that skews the results. In its view, program administrative staff who provide clinic oversight command higher compensation than agency administrative staff, and therefore only agency administration expenses should be utilized for the purposes of the administrative reduction. Finally, this provider states that the methodology fails to take into account an efficiency adjustment that is already in place. Because that efficiency adjustment is not distributed to the cost categories on the price sheets, identified surpluses are overstated in the calculations.

Response: In designing the methodology, OPWDD attempted to be sensitive to those providers which operated without surplus reimbursement or at exceptionally efficient levels. For such providers, reductions could cause severe hardships and OPWDD elected not to impose reductions on providers with the least ability to sustain them. OPWDD selected personal services as the object of the efficiency adjustments because its statistical analysis indicated this and the associated cost categories were being overfunded. OPWDD purposely did not target OTPS because, as a component of Non-personal Services (NPS), it was subject to an efficiency adjustment in May, 2010 in Group and Supplemental Group Day Habilitation and in October, 2010 in supervised IRAs and supervised CRs. OPWDD considers that the prospect of agency downsizing to accommodate to these funding reductions is improbable because the reductions targeted surpluses. Further, OPWDD notes that regulatory safeguards are in place to protect individuals in the event that an agency seeks to discharge them. These safeguards can be found in 14 NYCRR Section 633.12.

The provider is incorrect in classifying clinical oversight as program administration. Both agency and program administration categories are intended to represent purely administrative functions and clinic oversight is a clinical function and belongs in the clinical cost category.

Finally, the writer identifies an earlier efficiency adjustment that if taken into account could potentially reduce the surplus derived by OPWDD's calculations for the personal services efficiency adjustment. OPWDD observes that the earlier efficiency adjustment was intended to be permanent. Introducing it into the equation concerning the present amendments would diminish its effect. Moreover, OPWDD has no means to determine how an individual provider might have absorbed and distributed the effects of that efficiency adjustment.