MRD-28-10-00018-P Efficiency Adjustment for Residential Habilitation Services in Supervised IRAs and Supervised CRs

7/14/10 N.Y. St. Reg. MRD-28-10-00018-P

NEW YORK STATE REGISTER

VOLUME XXXII, ISSUE 28

July 14, 2010

RULE MAKING ACTIVITIES

OFFICE OF MENTAL RETARDATION AND DEVELOPMENTAL DISABILITIES

PROPOSED RULE MAKING

HEARING(S) SCHEDULED

 

I.D No. MRD-28-10-00018-P

Efficiency Adjustment for Residential Habilitation Services in Supervised IRAs and Supervised CRs

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

Proposed Action:

Amendment of sections 635-10.5(b), 671.7(a) and 686.13(k) of Title 14 NYCRR.

Statutory authority:

Mental Hygiene Law, sections 13.09(b) and 43.02

Subject:

Efficiency adjustment for residential habilitation services in supervised IRAs and supervised CRs.

Purpose:

To implement an efficiency adjustment by modifying the IRA price.

Public hearing(s) will be held at:

10:30 a.m., Aug. 30, 2010 at 75 Morton St., New York, NY; and 11:00 a.m., Aug. 31, 2010 at Capital District DDSO, 500 Balltown Rd., Bldg. 3, Rm. 2, Schenectady, NY.

Interpreter Service:

Interpreter services will be made available to hearing impaired persons, at no charge, upon written request submitted within reasonable time prior to the scheduled public hearing. The written request must be addressed to the agency representative designated in the paragraph below.

Accessibility:

All public hearings have been scheduled at places reasonably accessible to persons with a mobility impairment.

Text of proposed rule:

Paragraph 635-10.5(b)(18) is amended as follows:

(18) Determination of the efficiency adjustment for individualized residential alternatives (IRAs): [effective January 1, 2003.]

(i) Effective January 1, 2003, there shall be an efficiency adjustment for IRAs as follows:

[(i)] (a) The efficiency adjustment shall be a percentage reduction applied to the allowed administration operating reimbursements for residential habilitation services and room, board and protective oversight (see section 686.13[k][1] of this Title) in the IRA price in effect on December 31, 2002.

[(ii)] (b) The efficiency adjustment described herein will not apply to:

Clauses (a)-(c) of the current subparagraph 635-10.5(b)(18)(ii) are renumbered to be subclauses (1)-(3)

Subparagraphs (iii)-(viii) of the current paragraph 635-10.5(b)(18) are renumbered to be clauses (c)-(h) and the new clauses (c) and (d) are amended as follows:

(c) Reimbursement for administration operating costs for IRAs newly certified on or after January 1, 2003, except those described in [clauses (ii)(a) and (b)] subclauses (b)(1) and (2) of this [paragraph] subparagraph, will reflect the percentage reductions determined in [subparagraph (vii)] clause (g) of this [paragraph] subparagraph.

(d) All information used to determine the efficiency adjustment percentage described in [subparagraph (vii)] clause (g) of this [paragraph] subparagraph is based on allowed IRA administration operating reimbursements for the calendar 2001 or the 2001-2002 price period.

Paragraph 635-10.5(b)(18) is amended by the addition of a new subparagraph (ii) as follows:

(ii) Effective October 1, 2010, for providers in all regions there shall be an efficiency adjustment applied to the IRA price for the residential habilitation services provided in supervised IRAs and supervised Community Residences.

(a) There shall be three components of the efficiency adjustment as follows:

(1) Non-Personal Services (NPS). Providers which demonstrate a level of NPS at or above the benchmark described in item (ii) of this subclause shall be subject to a reduction in the supervised IRA price.

(i) For the purposes of this efficiency adjustment, NPS includes site Other Than Personal Services (OTPS), transportation, and expensed equipment as contained in the supervised IRA price. NPS does not include Personal Services, contracted personal services, Fringe benefits, total program administration, total agency administration, Health Care Adjustments (HCA), capital costs and State paid items.

(ii) The benchmark is predicated on the value of all NPS contained in a provider's supervised IRA price in effect on June 30, 2008 for Region I reporting providers and on December 31, 2007 for Region II and Region III reporting providers. This value is expressed as a percentage of the total operating costs including transportation and HCA but exclusive of capitalized property contained in a provider's supervised IRA price on the respective date. The percentages for each provider offering residential habilitation services are ranked ordinally. OMRDD has established the benchmark at the 15th percentile. All providers below the 15th percentile in the ordinal ranking are exempt from the NPS reduction.

(iii) For all providers ranked at or above the benchmark, the reduction shall be applied to NPS operating costs contained in the supervised IRA price in effect on October 1, 2010.

(iv) The percentage reduction shall be 18 percent.

(2) Administration. Providers which demonstrate a level of Administration contained in the supervised IRA price at or above the benchmark described in item (ii) of this subclause shall be subject to a reduction in the supervised IRA price.

(i) For the purposes of this efficiency adjustment Administration includes Total Program Administration and Total Agency Administration contained in the supervised IRA price. Both Total Program Administration and Total Agency Administration include components representing personal services, administrative contracted services, administrative OTPS and administrative fringe benefits.

(ii) The benchmark is predicated on the combined value of Total Program Administration and Total Agency Administration contained in a provider's supervised IRA price in effect on June 30, 2008 for Region I reporting providers and on December 31, 2007 for Region II and Region III reporting providers. This value is expressed as a percentage of the total operating costs including transportation and the HCA but exclusive of capitalized property contained in a provider's supervised IRA price on the respective date. The percentages for each provider offering residential habilitation services are ranked ordinally. OMRDD has established the benchmark at the 15th percentile. All providers below the 15th percentile in the ordinal ranking are exempt from the Administration reduction.

(iii) For all providers ranked at or above the benchmark, the reduction shall be applied to Total Program Administration and Total Agency Administration operating costs contained in the supervised IRA price in effect on October 1, 2010.

(iv) The percentage reduction shall be 5 percent.

(3) Residual Adjustment. For providers subject to either one or both of the reductions described in subclauses (1) and (2) of this clause, a residual adjustment shall be implemented as described in items (i) and (ii) of this subclause. The residual adjustment shall confine the aggregate effect of this efficiency adjustment and an offset factor of $44 per unit of service to a range between a minimum of 1.5 percent and a maximum of 3.5 percent of the total supervised IRA price on October 1, 2010.

(i) For providers which would realize a reduction in the total supervised IRA price less than 1.5 percent after combining the effects subclauses (1) and (2) of this clause and $44 per unit of service, the total efficiency adjustment shall be increased to 1.5 percent of the total supervised IRA price in effect on October 1, 2010.

(ii) For providers which would realize a reduction in the total supervised IRA price greater than 3.5 percent after combining the effects of subclauses (1) and (2) of this clause and $44 per unit of service, the total efficiency adjustment shall be held to 3.5 percent of the total supervised IRA price in effect on October 1, 2010.

(b) New sites: To the extent that a provider is subject to this efficiency adjustment, a corresponding correction to approved budgeted costs for new sites shall be made so that the percentage offsets in effect before inclusion of the new site–18% NPS, 5% Administration and any residual adjustment thereto–shall be preserved when the new site's budgeted costs are included in the calculation of the supervised IRA price.

(c) For purposes of requesting a price adjustment, the effects of this efficiency adjustment resulting from the NPS and Administrative reductions as described in subclauses (a)(1) and (2) of this subparagraph as well as any subsequent residual adjustment thereto per subclause (a)(3) of this subparagraph shall not be construed as a basis for loss. In processing a price adjustment, any revised price will be offset by the monetary effects of the NPS and Administrative reductions including the residual adjustment thereto, if any.

Paragraph 671.7(a)(10) is amended as follows:

(10) The price as computed in accordance with this subdivision for a community residence of 16 or fewer beds shall be offset as follows:

(i) [For s]Supervised community residences:

(a) Effective January 1, 2010, the offset shall be $1,404 (or a prorated portion thereof for facilities which opened after April, 2009) and beginning January 1, 2010, $156 per month.

(b) Effective October 1, 2010, the offset shall be $200 per month.

(ii) For supportive community residences the offset shall be $1,134 (or a prorated portion thereof for facilities which opened after April, 2009) and beginning January 1, 2010, $126 per month.

Subdivision 671.7(a) is amended by the addition of a new paragraph (11) as follows and the existing paragraphs (11) and (12) are renumbered to be (12) and (13):

(11) Effective October 1, 2010, for providers in all regions there shall be an efficiency adjustment applied to the IRA price for residential habilitation services provided in supervised IRAs and supervised Community Residences.

(i) There shall be three components of the efficiency adjustment as follows:

(a) Non-Personal Services (NPS). Providers which demonstrate a level of NPS at or above the benchmark described in subclause (2) of this clause shall be subject to a reduction in the supervised IRA price.

(1) For the purposes of this efficiency adjustment, NPS includes site Other Than Personal Services (OTPS), transportation, and expensed equipment contained in the supervised IRA price. NPS does not include Personal Services, contracted personal services, Fringe benefits, total program administration, total agency administration, Health Care Adjustments (HCA), capital costs and State paid items.

(2) The benchmark is predicated on the value of all NPS contained in a Community Residence provider's supervised IRA price in effect on June 30, 2008 for Region I reporting providers and on December 31, 2007 for Region II and Region III reporting providers. This value is expressed as a percentage of the total operating costs including transportation and HCA but exclusive of capitalized property contained in a provider's supervised IRA price on the respective date. Alternatively, for Community Residence providers which did not operate supervised IRAs at these times, the NPS costs and the total operating costs shall be extracted from the CFR filed for the period ending either on December 31, 2007 or June 30, 2008 as appropriate in order to calculate a comparable value. The percentages for each provider offering residential habilitation services are ranked ordinally. OMRDD has established the benchmark at the 15th percentile. All providers below the 15th percentile in the ordinal ranking are exempt from the NPS reduction.

(3) For all providers ranked at or above the benchmark, the reduction shall be applied to NPS operating costs contained in the supervised IRA price in effect on October 1, 2010.

(4) The percentage reduction shall be 18 percent.

(b) Administration. Providers which demonstrate a level of Administration contained in the supervised IRA price at or above the benchmark described in subclause (2) of this clause shall be subject to a reduction in the supervised IRA price.

(1) For the purposes of this efficiency adjustment Administration includes Total Program Administration and Total Agency Administration contained in a provider's supervised IRA price. Both Total Program Administration and Total Agency Administration include components representing personal services, administrative contracted services, administrative OTPS and administrative fringe benefits.

(2) The benchmark is predicated on the combined value of Total Program Administration and Total Agency Administration contained in a Community Residence provider's supervised IRA price in effect on June 30, 2008 for Region I reporting providers and on December 31, 2007 for Region II and Region III reporting providers. This value is expressed as a percentage of the total operating costs including transportation and HCA but exclusive of capitalized property contained in a provider's supervised IRA price on the respective date. Alternatively, for Community Residence providers which did not operate supervised IRAs at these times, the Administrative costs and the total operating costs shall be extracted from the CFR filed for the period ending either on December 31, 2007 or June 30, 2008 as appropriate in order to calculate a comparable value. The percentages for each provider offering residential habilitation services are ranked ordinally. OMRDD has established the benchmark at the 15th percentile. All providers below the 15th percentile in the ordinal ranking are exempt from the Administration reduction.

(3) For all providers ranked at or above the benchmark, the reduction shall be applied to Total Program Administration and Total Agency Administration operating costs contained in the supervised IRA price in effect on October 1, 2010.

(4) The percentage reduction shall be 5 percent.

(c) Residual Adjustment. For providers subject to either one or both of the reductions described in clauses (a) and (b) of this subparagraph, a residual adjustment shall be implemented as described in subclauses (1) and (2) of this clause. The residual adjustment shall confine the aggregate effect of this efficiency adjustment and an offset factor of $44 per unit of service to a range between a minimum of 1.5 percent and a maximum of 3.5 percent of the total supervised IRA price on October 1, 2010.

(1) For providers which would realize a reduction in the total supervised IRA price less than 1.5 percent after combining the effects of clauses (a) and (b) of this subparagraph and $44 per unit of service, the total efficiency adjustment shall be increased to 1.5 percent of the total supervised IRA price in effect on October 1, 2010.

(2) For providers which would realize a reduction in the total supervised IRA price greater than 3.5 percent after combining the effects clause (a) and (b) of this subparagraph and $44 per unit of service, the total efficiency adjustment shall be held to 3.5 percent of the total supervised IRA price in effect on October 1, 2010.

(ii) New sites: To the extent that a provider is subject to this efficiency adjustment, a corresponding correction to approved budgeted costs for new sites shall be made so that the percentage offsets in effect before inclusion of the new site-18% NPS, 5% Administration and any residual adjustment thereto-shall be preserved when the new site's budgeted costs are included in the calculation of the supervised IRA price.

(iii) For purposes of requesting a price adjustment, the effects of this efficiency adjustment resulting from the NPS and Administrative reductions as described in clauses (i)(a) and (b) of this paragraph as well as any subsequent residual adjustment thereto per clause (i)(c) of this paragraph shall not be construed as a basis for loss. In processing a price adjustment, any revised price will be offset by the monetary effects of the NPS and Administrative reductions including the residual adjustment thereto, if any.

Paragraph 686.13(k)(1) is amended by the addition of a new subparagraph (ix) as follows and the existing subparagraphs (ix) and (x) are renumbered to be (x) and (xi):

(ix) The total reimbursable operating costs derived through the application of the above methodology shall be subject to efficiency adjustments in paragraph 635-10.5(b)(18) of this Title.

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

Barbara Brundage, Director, OMRDD, Regulatory Affairs Unit, Office of Counsel, 44 Holland Avenue, Albany, New York 12229, [phone], email: [e-mail]

Data, views or arguments may be submitted to:

Same as above.

Public comment will be received until:

Five days after the last scheduled public hearing.

Additional matter required by statute:

Pursuant to the requirements of the State Environmental Quality Review Act, OMRDD, 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.

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 as stated in the New York State Mental Hygiene Law Section 13.09(b).

b. OMRDD's responsibility, as stated in section 43.02 of the Mental Hygiene Law, for setting Medicaid rates for services in facilities licensed by OMRDD.

2. Legislative objectives: These proposed amendments further the legislative objectives embodied in sections 13.09(b) and 43.02 of the Mental Hygiene Law. The proposed amendments are necessary to make adjustments to the reimbursement methodology applicable to Home and Community Based Services (HCBS) waiver residential habilitation services provided in supervised Individualized Residential Alternatives (IRAs) and supervised Community Residences (CRs).

3. Needs and benefits: New York State is looking for savings in its Medicaid program, including Medicaid funded services overseen by OMRDD. OMRDD consulted with providers about how to best achieve savings. An implementation approach was designed that targets cost categories of residential habilitation in supervised settings -non-personal services and administrative expenses-- which may most easily sustain cuts and thereby preserve services and maintain the security of direct professional staff positions. One component of the plan adjusts the financial impacts to create a more equitable spread among providers.

The State believes that the fiscal impact of this efficiency adjustment will be softened by trend increases (3.06 percent for 2009 and 2.08 percent for 2010) to the operating costs components of providers' prices/rate/fees which became effective on February 1, 2010. Additionally, funding to assist employers in addressing the health care needs of their employees is slated to produce an additional 1 percent increase in operational funding for many programs. The health care funding and the efficiency adjustment are being proposed concurrently. Both project an effective date of October 1, 2010.

OMRDD is encouraging providers to seek efficiencies of operation. Because of budgetary uncertainty, many providers had not incorporated any trend increases into their fiscal planning. OMRDD expects that the additional funding attributable to the trend factors which providers only realized after February 1, 2010 may have bolstered their fiscal positions sufficiently for them to absorb the efficiency adjustment without detriment.

Included in this proposal is an increase in the offset to reimbursement for supervised settings. The offset is put in place to avoid duplication of funding and reduces State funding in recognition of other revenues received by providers.

4. Costs:

a. Costs to the agency and to the State and its local governments. There is an approximate $50 million savings in Medicaid that will be evenly shared by the State (approximately $25 million) and the federal (approximately $25 million) governments. There will be no fiscal impact on local governments because Chapter 58 of the Laws of 2005 places a cap on the local share of Medicaid costs.

b. Costs to private regulated parties: There are no initial capital investment costs nor initial non-capital expenses. There are no additional costs associated with implementation and continued compliance with the rule. The proposed amendments are expected to result in a decrease of approximately $50 million in aggregate funding to providers of supervised IRAs and supervised CRs.

5. Local government mandates: There are no new requirements imposed by the rule on any county, city, town, village; or school, fire, or other special district.

6. Paperwork: No additional paperwork will be required by the proposed amendments.

7. Duplication: The proposed amendments do not duplicate any existing State or federal requirements that are applicable to the above cited facilities or services for persons with developmental disabilities.

8. Alternatives: The current course of action as embodied in these proposed amendments reflects what OMRDD believes to be a fiscally prudent, cost-effective reimbursement of HCBS waiver for residential habilitation services provided in supervised IRAs and CRs. OMRDD had previously, in collaboration with representatives of provider associations, discussed alternatives to achieve the desired efficiencies in the provision of the affected services. Other alternatives were thoroughly explored but this was determined to be the optimal methodology.

9. Federal standards: The proposed amendments do not exceed any minimum standards of the federal government for the same or similar subject areas.

10. Compliance schedule: OMRDD expects to finalize the proposed amendments with an effective date of October 1, 2010. The amendments do not impose any new requirements with which regulated parties are expected to comply.

Regulatory Flexibility Analysis

1. Effect on small business: These proposed regulatory amendments will apply to voluntary non-profit agencies that provide HCBS waiver residential habilitation services provided in supervised Individualized Residential Alternatives (IRAs) and supervised Community Residences (CRs) to persons with developmental disabilities in New York State. As of December 2009, approximately 19,000 individuals received residential habilitation services in supervised IRAs and supervised CRs in New York State.

The OMRDD has determined, through a review of the certified cost reports, that while most services are provided by non-profit agencies which employ more than 100 people overall, many of the services 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 overall would themselves be classified as small businesses.

The proposed amendments have been reviewed by OMRDD in light of their impact on these small businesses. The proposed amendments are expected to result in a decrease of approximately $50 million in funding to providers of the affected HCBS waiver residential habilitation services provided in supervised IRAs and supervised CRs. OMRDD has determined that these amendments will not result in increased costs for additional services or increased compliance requirements.

2. Compliance requirements: There are no additional compliance requirements resulting from the implementation of these proposed amendments. The proposed amendments revise the reimbursement methodology for HCBS waiver residential habilitation services provided in supervised IRAs and supervised CRs to adjust payments made to providers, consistent with goals for increased operational efficiency. While operators of the referenced facilities will need to address adjustments in funding through increased operational efficiencies, the amendments do not specifically impose any new requirements with which regulated parties are expected to comply.

3. Professional services: In accordance with existing practice, providers are required to submit annual cost reports certified by certified accountants. The proposed amendments do not alter this requirement. Therefore, no additional professional services are required as a result of these amendments.

4. Compliance costs: There are no additional compliance costs to regulated parties associated with the implementation of, and continued compliance with, these amendments.

5. Economic and technological feasibility: The proposed amendments are concerned with fiscal and reimbursement issues, and do not impose on regulated parties the use of any new technological processes.

6. Minimizing adverse economic impact: The purpose of these proposed amendments is to revise the reimbursement methodologies of the referenced programs and services to adjust payments made to providers, consistent with goals for increased operational efficiency. OMRDD determined that it could adjust prices for HCBS waiver residential habilitation services provided in supervised IRAs and supervised CRs to encourage efficiencies in operation and still adequately reimburse providers of such services. The proposed amendments which adjust the affected residential habilitation reimbursement methodology represent OMRDD's best effort at adjusting reimbursement in a way which will accommodate the realization of efficiencies where they can best be achieved and afforded, and in the most equitable distribution possible.

OMRDD has also reviewed and considered the approaches for minimizing adverse economic impact as suggested in section 202-b(1) of the State Administrative Procedure Act. However, since these amendments require no specific compliance response of regulated parties, the approaches outlined cannot be effectively applied.

7. Small business participation: As noted in the Regulatory Impact Statement, New York State is looking for savings in its Medicaid program, including Medicaid funded services overseen by OMRDD. OMRDD consulted with providers about how to best achieve savings.

In an effort to include small businesses as much as possible in the decision-making process, OMRDD has continued to meet regularly with associations of providers of services to discuss issues of interest. Options for implementing a residential habilitation efficiency adjustment were discussed with representatives of the provider associations at four meetings held on March 22, April 19, May 6, and May 13, 2010. Additionally, workgroups including providers were formed with the goal to refine and work out the specifics of the efficiency adjustment.

Rural Area Flexibility Analysis

A rural area flexibility analysis for these proposed amendments is not being submitted because the amendments will not impose any adverse impact or reporting, record keeping or other compliance requirements on public or private entities in rural areas. There will be no professional services, capital, or other compliance costs imposed on public or private entities in rural areas as a result of the proposed amendments. While the efficiency adjustment contained in the proposed amendments may have some adverse fiscal impact on providers of HCBS waiver residential habilitation services provided in supervised Individualized Residential Alternatives (IRAs) and supervised Community Residences (CRs), the geographic location of any given program (urban or rural) will not be a contributing factor to any such impact.

This is because the reimbursement methodology OMRDD uses to reimburse residential habilitation services in supervised IRAs and supervised CRs is primarily based upon provider specific cost projections. Thus, both this reimbursement methodology and the efficiency adjustment, which is applied proportionately to reimbursement, have been developed to reflect variations in cost and reimbursement which could be attributable to urban/rural and other geographic and demographic factors.

Job Impact Statement

A Job Impact Statement for these proposed amendments is not being submitted because OMRDD does not anticipate a substantial adverse impact on jobs and employment opportunities. The proposed amendments are necessary to make adjustments to the reimbursement methodology applicable to Home and Community Based (HCBS) waiver residential habilitation services provided in supervised Individualized Residential Alternatives (IRAs) and Community Residences (CRs). An implementation approach was designed that targets cost categories—non-personal services and administrative expenses-- which may most easily sustain cuts and thereby preserve services and maintain the security of direct professional staff positions. The fiscal impact of this efficiency adjustment will be softened by trend increases (3.06 percent for 2009 and 2.08 percent for 2010) to providers’ operating costs which became effective on February 1, 2010. Additionally, funding to assist employers in addressing the health care needs of their employees is slated to produce an additional 1 percent increase in funding for many programs. Consequently, OMRDD does not anticipate an adverse impact on jobs and employment opportunities.