SB 0470 - Fiscal Note

Fiscal Note - SB 0470 - Allows long-term care facilities to expand their capacity and transfer beds, within certain situations

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO.: 1837-01

BILL NO.: SB 470

SUBJECT: Allows Certain Long-Term Care Facilities to Increase Bed Capacity

TYPE: Original

DATE: March 1, 1999

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
General Revenue	$40,887 to ($59,113)	($77,339) to ($177,339)	($77,339) to ($177,339)
Nursing Facility Quality Care	$200	$4,150	$1,400
Total Estimated Net Effect on All State Funds	$41,087 to ($58,913)	($73,189) to ($173,189)	($75,939) to ($175,339)

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
Federal	$9,422 to ($90,578)	($171,733) to ($271,733)	($171,733) to ($271,733)
Total Estimated Net Effect on All Federal Funds	$9,422 to ($90,578)	($171,733) to ($271,733)	($171,733) to ($271,733)

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
Local Government	$0	$0	$0

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 7 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials from the Department of Health and Department of Mental Health assume that this proposal will not fiscally affect their agencies.

Officials from the Department of Social Services - Division of Medical Services (DMS) assume this proposal will impact their agency two ways. The extension of the moratorium will be a cost avoidance and allowing nursing facilities (NF) to add beds if that facility has over 90% occupancy will result in costs. The following assumptions were used to arrive at their estimated fiscal impact:

1) Current Medicaid occupancy is 55%.

2) The statewide average number of Medicaid beds per facility is 95 beds.

3) Over the past four years the average rate increase granted due to the addition of beds was $.91.

Cost Avoidance from the Extension of the CON Moratorium

The DMS stated today's consumer is demanding and utilizing more non-institutional, community-based services. As a result of this new consumer demand and the availability of a wider array of community services, they believe nursing home utilization trends are changing.

The DMS has taken this trend into account in developing the fiscal note for certificate of need changes. Previous fiscal impact responses prepared for similar proposals reflected substantial costs because of the premise that the new beds would be filled with Medicaid recipients. The number of Medicaid recipients residing in nursing facilities has remained fairly constant since 1992, while at the same time the number of available beds has been increasing. Therefore, for the section of this proposal that addresses the phase-out of the certificate of need process, they recognize a fiscal impact but not to the extent in previous CON fiscal impact responses. The DMS no longer believes that an increase in available beds will increase the number Medicaid is paying for, and in fact the last five years historical trends support this position.

The proposed extension will generate a cost avoidance to the Medicaid program. If the extension is not enacted, facilities will be able to receive a CON after July 1, 1999 and begin construction on or after July 1, 2000.

ASSUMPTION (continued)

Current regulation allows for a rate adjustment because of the addition of beds. Newly constructed facilities have a higher per diem than the average Medicaid per diem. New facilities entering the Medicaid program receive an interim rate for the first two years of operation then a rate is set based on their cost report. This rate is retroactive to the first day of their second fiscal year of operation. The current interim rate is $89.65; the average rate for NFs that recently had their Medicaid rate set is $93. The average rate for NFs excluding NF with interim rates is $89.46. The DMS would expect to see an average increase of $.91 per day for facilities with interim rates (for their first fiscal year) and an increase of $3.64 per day when their rate is established.

The DMS further assumes the number of facilities adding new beds would double without the CON requirements. The DMS has received 3 requests for rate adjustments due to the addition of beds this fiscal year. Without the CON requirements, it is assumed that 6 additional facilities would build bed additions.

The DMS is not assuming these facilities will fill their "new" beds with Medicaid recipients. It is assumed the facilities will request an increase to their Medicaid per diem.

Cost of increasing rates due to the addition of beds:

95 beds x 55% = 52 Medicaid recipients

52 recipients x $.91 rate increase x 365 days = $17,272

$17,272 x 6 facilities = $103,632

Fiscal impact is as follows:

FY 2000 - $0 (construction could not begin until July 1, 2000)

FY 2001 - $51,816 ($103,632 x 6/12 = $51,816) 6 months for construction and licensure

FY 2002 - $103,632

The DMS states the cost avoidance with new facilities is unknown, less than $100,000 each for the General Revenue Fund and Federal Fund but greater than $100,000 in total for the General Revenue Fund and Federal Fund combined. This is based on the assumption that new construction and facilities with new additions receive a higher per diem. Costs associated with new construction would impact the DMS for 2 months of FY 01 and 12 months of FY 02.

ASSUMPTION (continued)

Oversight will present a range of cost avoidance from a low of $0 (assuming no one transfers to a residential care facility) to a maximum of $100,000 each for the General Revenue Fund and Federal Fund (assuming 10 clients would transfer to a residential care facility).

Costs from Allowing NFs to Increase Bed Size if the Facility has an Average Occupancy of at Least 90% for Four Consecutive Quarters:

There are 147 nursing facilities whose average occupancy for the last four consecutive quarters is 90%. (Information from the Department of Health-Certificate of Need Program.) The statewide average number of Medicaid beds per facility is 95 beds. It is estimated that 18% of these facilities or 26 facilities will expand their capacity through this proposal.

The DMS is not assuming that these facilities will fill their "new" beds with Medicaid recipients. It is assumed the facilities will request an increase to their Medicaid per diem. Current regulation allows for a rate increase because of the addition of beds.

Cost of increasing rates due to the addition of beds:

95 beds x 55% = 52 Medicaid recipients

52 recipients x $.91 rate increase x 365 days = $17,272

$17,272 x 26 facilities = $449,072

Fiscal impact is as follows:

FY 2000 - $449,072 x 4/12 = $149,691 (allows for 6 months for construction and licensure)

FY 2001 - $449,072

FY2002 - $449,072

These costs were split between state and federal funds at a rate of 40% state and 60% federal.

Officials from the Department of Social Services - Division of Aging (DA) stated for facilities who may be allowed to increase their licensed capacity, there will be a license fee of $50. The number of facilities currently meeting the 90% criteria is 194. DA staff familiar with licensing processes and trends estimate that approximately 75% or 145 (194 x 75%) of these facilities may choose to increase the number of licensed beds or convert beds to another level of service over the next five years resulting in additional licensure fees of $7,250 (145 x $50). It is anticipated that 50% of these licensure modifications will occur during the first year the proposal becomes effective.

ASSUMPTION (continued)

The actual licensure fees are assessed when the beds are ready for occupancy; therefore, DA staff project the increased revenue of $3,660 will occur in the second year. DA projects the remainder will be spread out equally over the following three years at $1,200 per year.

Facilities transferring beds to another facility will be assessed a $25 licensure modification fee. Also, the facilities converting beds to another level of service will be assessed a $25 licensure modification fee. DA staff estimate that 36 (25% of 145) of the facilities may choose to purchase additional beds from another facility to allow them to increase their bed capacity in excess of 25% or 30 beds resulting in additional licensure fees of $900 (36 x $25) over the five year period. DA staff estimate that 16 of the facilities may choose to convert beds to another level of service resulting in additional licensure fees of $400 (16 x $25). Since conversion from one type of licensure of service to another will not always require significant modifications to a facility's physical plan, DA staff project $200 of the increased license fees will be receive during FY 00. DA staff project that $450 of additional licensure fees for transferring beds and $50 of additional fees for conversion of beds will occur in the second year with the remaining increase in fees spread over the next three years at $200 per year. The fees are deposited into the Nursing Facility Quality Care Fund.

FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
	(10 Mo.)
GENERAL REVENUE FUND
Cost Avoidance -
Department of Social Services (DOSS) -
Division of Medical Services	$0 to	$0 to	$0 to
Persons Living in Lower Cost Facilities	$100,000	$100,000	$100,000
Costs - DOSS - Division of Medical Services
Increase Medical Assistance Payments	($59,113)	($177,339)	($177,339)
ESTIMATED NET EFFECT ON	$40,887 to	($77,339) to	($77,339) to
GENERAL REVENUE FUND	($59,113)	($177,339)	($177,339)
FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
(continued)	(10 Mo.)
NURSING FACILITY QUALITY CARE FUND
Revenue - Department of Social Services -
Division of Aging
Licensure Fees	$200	$4,150	$1,400
ESTIMATED NET EFFECT ON NURSING
FACILITY QUALITY CARE FUND	$200	$4,150	$1,400
FEDERAL FUNDS
Cost Avoidance -
Department of Social Services (DOSS) -
Division of Medical Services	$0 to	$0 to	$0 to
Persons Living in Lower Cost Facilities	$100,000	$100,000	$100,000
Costs - DOSS - Division of Medical Services
Increased Medical Assistance Payments	($90,578)	($271,733)	($271,733)
ESTIMATED EFFECT ON	$9,422 to	($171,733) to	($171,733) to
FEDERAL FUNDS	($90,578)	($271,733)	($271,733)
FISCAL IMPACT - Local Government	FY 2000	FY 2001	FY 2002
	(10 Mo.)
	$0	$0	$0
FISCAL IMPACT - Small Business
Small businesses operating as nursing facilities may be impacted by this proposal. The fiscal impact to these small businesses cannot be determined.

DESCRIPTION

This proposal revises the certificate of need law. It extends the certificate of need moratorium on additional or new beds until December 31, 2001. In addition, it allows the Missouri Health Services Review Committee to allow a facility to expand up to twenty-five percent of its licensed capacity, not to exceed thirty new beds, if that facility has had over ninety percent occupancy for the last year.

In addition, the health services review committee may allow the transfer of beds within any level of service from a facility with less than eighty percent occupancy for the last year to a facility with over ninety percent occupancy for the last year. Transfers may only be done within a particular geographic area and the facility that transferred beds may not add any beds for

the next five years.

This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space.

SOURCES OF INFORMATION

Department of Health

Department of Social Services

Department of Mental Health

Jeanne Jarrett, CPA

Director

March 1, 1999