ACCOUNTING & ASSURANCE FOR SKILLED NURSING FACILITIES

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1 ACCOUNTING & ASSURANCE FOR SKILLED NURSING FACILITIES Presented by: Christopher J. Previte, Director, Healthcare Services Erik W. Lynch, Director, Healthcare Services

2 Agenda 2 Accounting Update Federal State Medicare Update OIG Update Rate Update DoN Program Challenges Next Steps Benchmarks Conclusion/ Questions

3 Accounting Update 3 Accounting for Bad Debts ASU No Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities. Current practice Report patient service revenues net of contractual allowances. Report provision for bad debts in operating expenses. New Regulations Report related provisions for bad debts as a separate deduction from patient service revenue, rather than as a separate component of operating expense. Malpractice Insurance ASU No The ultimate costs of malpractice claims shall be accrued when the incidents that give rise to the claims occur. The health care entity shall evaluate its exposure to losses arising from malpractice claims and recognize a liability that will not be presented net of anticipated insurance recoveries. An entity that is indemnified for these liabilities shall recognize an insurance receivable at the same time that it recognizes the liability.

Current practice Report patient service revenues net of contractual allowances. Report provision for bad debts in operating expenses.

4 Federal Update 4 Medicare Update Overall increase in SNF rate of 1.8% (1.7% in 2012) Market basket index (including budget neutrality factor) - 2.5% Multi-factor productivity - (0.7)% (ACA 2010) New in FY increased productivity to reduce cost UNADJUSTED SNF FEDERAL RATE PER DIEM FY 13 Urban FY 13 Rural FY 12 Urban FY 12 Rural Nursing case-mix $ $ $ $ Therapy case-mix Therapy non-case-mix Non-case-mix

7)% (ACA 2010) New in FY 2012 - increased productivity to reduce cost UNADJUSTED SNF FEDERAL RATE PER DIEM FY 13 Urban FY 13

5 Federal Update 5 Medicare Update Wage index adjustment % of SNF federal rate Overall, the rate changes will range from increases of.84% to 2.72% in MA, depending on geographic location and 2.22% in RI RUGS IV system continues to be utilized, effective 10/1/2011 MDS 3.0 is still in use to group patients MASSACHUSETTS AREA WAGE INDEXES Counties FY 2013 FY 2012 Barnstable Suffolk, Plymouth, Norfolk Middlesex Essex Berkshire Franklin, Hampden, Hampshire Worcester Bristol Mass Rural Rhode Island

0 is still in use to group patients MASSACHUSETTS AREA WAGE INDEXES Counties FY 2013 FY 2012 Barnstable 1.2843 1.2838 Suffolk, Plymouth, Norfolk 1.2378 1.

6 Federal Update 6 Budget Control Act of year plan to reduce federal spending by $2.1 trillion Sequestration adjustment 2% reduction to all Medicare payments beginning in January 2013 Implementation is unknown, but potentially through reduced remittances Essentially wipes out rate increase to nursing homes

1 trillion Sequestration adjustment 2% reduction to all Medicare payments

7 2013 OIG Work Plan 7 What will the OIG be investigating? Adverse events in post-acute care Understand growth in Medicare expenditures Medicare requirements for quality of care in SNF s Use of residential assessment instruments to plan care correctly State agency verification of deficiency corrections Reviewing the reviewers Oversight of poorly performing facilities Performance improvement and corrective action

quality of care in SNF s Use of residential assessment instruments to plan care correctly State agency

8 2013 OIG Work Plan 8 What will the OIG be investigating? Use of atypical antipsychotic drugs Monitoring and necessity Hospitalization of SNF residents Manageable or preventable through better quality of care? Questionable billing patterns for Part B services Is there abuse within these services? Oversight of minimum data set submitted by LTCF s Accuracy and completeness

residents Manageable or preventable through better quality of care?

9 State Rate Update 9 Developments July through October Rate certification user fee rate reduction of $3.20/day from the June 2012 rate, due to expiration of the FY 2012 temporary rate regulation November 2012 Emergency Regulations re-instate the $3.20/day, rates adjusted upwards to reimburse the July through October reduction November 2012 through June 2013 rates will be the same as at June 2012, including the $3.20 add-on

Emergency Regulations re-instate the $3.

10 State Rate Update 10 Summary No changes for standard rate components for FY 2013, similar to FY 2009 through FY (Fifth year of no increase) Bed hold payment remains at $80.10 per day Pay for Performance continues with the same level of funding as 2012 of $2.8 million. Adjustment to the user fee provision of $2.94 per day Add-on adjustment of $0.26 to bring the rate back up by the $3.20 No change to capital payment rates

10 per day Pay for Performance continues with the same level of funding as 2012 of $2.8 million.

11 DoN Program 11 Determination of Need Program DoN applications are down, thus no action has been taken to increase capital rates. Two schools of thought: 1. Avoid DoN applications by splitting up construction projects to keep costs below DoN Expenditure Minimums. ($1,713,426) Result: Save on the expensive cost of the application, environmental studies & paperwork. 2. Use the DoN Program to your advantage. Put $$ into your facilities, complete DoN application. Result: Apply for a capital rate adjustment

Avoid DoN applications by splitting up construction projects to keep costs below DoN Expenditure Minimums.

12 Current Environment 12 Challenges Federal deficit HC reform Quality vs. quantity Changing payment landscape Consumer expectation Staffing

13 Current Environment 13 Next steps Cost cutting Contract negotiation Strategic alliances Training to ensure quality Information technology

14 Benchmarks 14 Occupancy - Annual level: A continued decline since Levels have decreased to approximately 91% Caused by expanding choices for the elderly such as assisted living facilities, adult day care and home care. Days Cash on Hand - How long cash on hand will cover average expenses: Average days cash is approximately 25 days, which has grown from approximately 20 days from prior years Accounts Receivable Days - The amount of time is takes to collect outstanding A/R balances: Average days of 42 days, which is higher than industry ideal benchmark of 30 days. Average days have shown slight increases over prior years Changes in reimbursement and payer mix affect this ratio

Days Cash on Hand - How long cash on hand will cover average expenses: Average days cash is approximately 25 days, which has grown from approximately 20 days from prior

15 Benchmarks 15 Debt to Equity - Measures how leveraged a facility is and its ability to incur additional debt: Industry average is 1:1 Decreasing ratio over prior year data (less new debt) Operating Margin - Profitability from a facility s primary revenue sources: 1% Margin. This is a modest increase over margins of prior years Average Payer Mix Medicaid - 70% Medicare - 15% Private & Other - 15% Benchmarks show modest increases in private & other and decreases of Medicare and Medicaid over prior year data Cost per Resident Day - Key metric that measures the actual cost to run the facility per resident per day. Based on current data, average cost was approximately $250 per day

This is a modest increase over margins of prior years Average Payer Mix Medicaid - 70% Medicare - 15% Private & Other - 15% Benchmarks show modest increases in private &

16 16 Questions?

17 Contact information 17 Erik W. Lynch Director, Healthcare Audit Services Feeley & Driscoll, P.C. 200 Portland Street Boston, MA Christopher J. Previte Director, Healthcare Audit Services Feeley & Driscoll, P.C. 200 Portland Street Boston, MA

200 Portland Street Boston, MA 02114 www.fdcpa.com Christopher J.

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