​Criteria for Reversals 7/1/01

Modification of Linen and Minor Movable Property Adjustments

This document describes the process by which the Bureau of Long Term Care Programs made changes in the amounts of certain audited allowable costs in the NIS Database beginning with the 2001/2002 rate year for Resident Care, Other Resident Related, and Administrative cost centers, as part of the transition from the original case-mix system to the system as amended pursuant to the notice published in the Pennsylvania Bulletin on Saturday, December 8, 2001.

As originally promulgated, all movable property was included in the case-mix rate-setting process as part of the "fair rental value" system that was applied to all fixed and movable property. In the course of appraising these assets, DHS included linens and other low-cost items with the category of movable equipment. Consequently, during audits of nursing facility cost reports, when DHS auditors encountered such costs included in net operating cost centers, the auditors made adjustments to those entries.

During the course of discussing changes to that part of the case-mix system, the various associations that represent nursing facilities (PANPHA, PHCA, PACAH, and HAP) expressed concern over these adjustments. In the course of working out mutually-acceptable changes, the Bureau of Long Term Care Programs agreed that, when the amendments to the regulations were promulgated, it would change the data in the NIS database to reverse the effect of those adjustments made to the provider's reported allowable costs beginning with the 2001-2002 rate year.

Although this document refers to those changes as "reversals," no audit reports have been changed. Instead, the only changes are those set forth in the NIS Database to calculate case-mix rates. This document describes the two-stage process by which the Bureau made those changes.

Stage 1: Identification of Adjustments

In the first stage, the Bureau identified the audit adjustments to be reversed. Because this exercise only involves medians, peer group prices, and per diem rates for the transition periods beginning with the 2001/2002 rate year, only the audit reports used for this initial year were considered. The review of those audit reports involved three steps.

Step 1

The Bureau created a list of items that, for purposes of this exercise, were deemed to cost less than $500 each. If an adjustment description pertained solely to the rental or purchase of one or more of these items, that adjustment was always reversed. These "always reversed" items include the following:

Step 2

The Bureau created another list of "reviewable items." Items on that list were not deemed to always cost less $500 on an individual basis. Rather, items were included on this list because the Bureau recognized that, depending on the actual amount paid, individual items might cost less than that threshold amount. If the audit description identified a "reviewable" item and the audit report or workpapers indicated that the purchase price of the item was less than $500, the adjustment was reversed. These "reviewable" items include the following:

"Reviewable" Items

Step 3

In addition to searching for adjustments involving specifically-identified types of movable equipment, if the adjustment description referred in a general way to the purchase of equipment and the dollar amount for such an adjustment was less than $500, the adjustment was always reversed. If the amount of the total adjustment was $500 or more, the Bureau reviewed the audit report and workpapers to determine if the per-unit cost was less than $500.

When an adjustment description referred in a general way to the rental or lease of equipment (other than minor equipment), or to the rental or lease of equipment on the Reviewable Items list, the adjustment was not reversed. Also, if an adjustment involved combined costs, and only some of those costs involved the purchase of movable equipment for less than $500, only that part of the adjustment affecting the cost of that equipment was selected for reversal.

Stage 2: Modification of the NIS Database

Prior to the 2001/2002 rate year, NIS Database used the total allowable cost numbers for the three net operating cost centers set forth in the case mix audit reports. In order to accommodate the reversal of minor equipment adjustments as part of the transition to the amended rate-setting system, the Bureau modified the database to include information on the adjustments used to compute those total costs, with the result that changes in those adjustments produced changes in the total allowable costs.

The revised NIS Database started with the original adjustments from the associated audit reports. Because most of those adjustments did not involve minor equipment, most of those adjustments are unchanged. Where changes were made, they were made as follows:

First, if the preceding review indicated that the entire adjustment should be reversed, the dollar amount of that adjustment was set at zero.

Second, if the review indicated that only a part of the adjustment should be reversed, the adjustment was left unchanged and an additional adjustment was added to the database. This additional adjustment set forth a positive amount linked to the original adjustment ID and line number.

Third, for each audit involving one or more reversals or added adjustments, an additional review was conducted to determine if an adjustment had been made to disallow Administrative Costs in excess of the 12% limitation per Manual Section 1187.56(1)(i). If an adjustment of this type had been made during the initial audit, that adjustment was reversed. Then for all audits involving one or more reversals or added adjustments, the 12% limitation was recalculated. The results of the recalculation were added to the database as adjustment ID #999.

Finally, for each audit that had one or more reversals and/or additions made to the database, the adjustments per line were totaled and added to the reported allowable costs. The result was then multiplied by the initial audited allocation percent for the nursing facility portion. The appropriate lines were then summed to determine the Resident Care, Other Resident Related and Administrative Nursing Facility audited allowable costs to be used in the calculation of the medians, prices and rates beginning with the 2001/2002 rate year.