YELLOW SHEET Office of the State Auditor of Missouri Claire McCaskill

March 28, 2001

Report No. 2001-27

Missouri nursing home Medicaid rates need to be rebased more frequently using more current and actual nursing home cost report data.  

This audit reviewed the financial status of Missouri’s nursing home industry in relation to the state’s Medicaid Reimbursement Program.  Our audit determined the funding increase and projected effect on the industry if Medicaid reimbursement rates are adjusted (rebased), evaluated varying reimbursement methods, reviewed possible funding sources, and  studied how the industry fared nationally.  The following highlights our results:

Medicaid rates based on old cost data

Missouri Medicaid rates are adjusted (rebased) using actual nursing home cost data less often then other states.  Missouri uses trend factors to annually adjust nursing home Medicaid rates,  but these rates are based on nearly decade-old cost report data for many homes.   In 1998, only one other state’s nursing home  Medicaid rates were based on cost data older than the 1992 cost data used in Missouri.  In addition, a national study reported 33 other states used cost report data that was no more than two years old to set 1998 rates. Rate adjustments based on more current cost report data would allow Medicaid rates to more accurately reflect actual operating costs for each nursing home.  (See page 10)

Nursing home industry is overbuilt.

Missouri’s average occupancy rate for its nursing homes (80 percent) is one of the lowest in the nation and continues to decline.  Nursing homes with low occupancy rates receive lower reimbursements and cannot fully recover administrative and capital costs under the current rate structure.  In addition, the large number of unoccupied beds indicates more nursing homes are open than what is needed, which increase the costs for the Medicaid program.  (See page 12)

Rebase cost lowest if Medicaid rates are capped at costs.

The additional funding needed to rebase Medicaid rates using the most  current cost data range from $57 million to $132 million depending on the specific rate computation used.  This audit reviewed various methods including those using current state regulations and methods if state regulations changed.  If the state rebases using current regulations, our analysis showed it would cost as much as $132 million.  But it could cost less than half that amount ($57 million) if the state capped reimbursement rates at allowable costs.   
(See page 15)

Missouri may receive up to $436 million in additional funding in the next two calendar years through federal approval to participate in a Medicaid legislation “loophole.”  This money, known as the Intergovernmental Transfer Program (IGT), can be used by the state for any purpose.  The current plan for the money calls for “one-time efficiency grants” to the nursing homes of up to $196 million over the next two fiscal years.  These grants would replace the annual trend factor increases in each nursing home’s rate.  This funding would be in addition to $60 million in IGT monies already distributed to nursing homes in fiscal year 2001.  These grants provide funding equally to financially-distressed and profitable nursing homes.  (See page 18)

A “hold harmless” provision would cost state more.

After rebasing, the new Medicaid rate for some homes may be less than the home’s current rate.  The Department of Social Services in the department’s initial budget request for fiscal year 2002  asked the General Assembly to institute a “hold harmless” provision.  Such a provision would allow facilities whose rate might decrease as a result of rebasing to retain the higher current rate.  This provision, which is currently not allowed under state regulation, would cost the state at least an additional $2 million.  (See page 16)