You asked for information on New Jersey’s new nursing home provider assessment law. You are particularly interested in the waiver the state received from the federal Centers for Medicare and Medicaid Services (CMS) and how long it took the state to get this waiver.

SUMMARY

After two years of working and re-working its plan, New Jersey recently received CMS approval to impose an “assessment” on the state’s nursing homes. The assessment is $ 11. 89 per non-Medicare patient bed day. Monies collected will be used to enhance the Medicaid reimbursements these homes receive.

Because the assessment as originally conceived was going to create many “loser” homes, the law was re-written to exempt a number of facilities from paying the assessment. These include continuing care retirement communities (CCRC) and county-run homes, among others. To exempt these homes, the state had to request waivers of federal law, which required it to show CMS that despite these exemptions, the tax was generally redistributive, a key criterion for federal approval.

NEW JERSEY’S PROVIDER ASSESSMENT

2003—Proposal

In early 2003, New Jersey’s Department of Health and Social Services (DHSS) began developing a provider assessment plan. Its original plan was a uniform assessment applied to all nursing homes in the state. The state determined how much revenue it wanted to generate to arrive at the uniform rate. Agency officials began meeting with CMS (which must approve these plans) in spring 2003 to discuss the plan.

The nursing home industry strenuously opposed the plan, arguing that it generated too many loser homes, since the money going back into the industry heavily favored homes with high numbers of Medicaid residents. This effectively eliminated any chance the plan had of legislative passage. But industry officials and the state immediately began working on an alternative plan, the results of which became the basis for a 2003 law.

Enacted Law

PL 2003, C. 105 required each nursing home to pay an assessment to the state tax department, for deposit in a non-lapsing, Nursing Home Quality of Care Improvement Fund it established. The amount of the assessment varied. Homes with either high or low Medicaid occupancy rates paid $ 1 per non-Medicare patient day. All other homes paid a per diem assessment, which would be calculated by dividing the total statewide maximum allowable assessment that federal law allows (6% of annual revenues), less the assessments paid by the high and low Medicaid homes, by the total non-Medicare patient days of the other homes. The law specified that the assessment would not go into effect until the federal government approved the plan.

The law specified how the collected assessments would be spent. They are to be transferred into the state’s General Fund and allocated to nursing homes in an amount sufficient to pay Medicaid rates at FY 2003 levels or higher and continue applying nursing home re-basing and bed hold payment methodologies that were in effect during that fiscal year.

The law further specified that the assessments are to be considered allowable costs for Medicaid reimbursement purposes, and that any funds remaining after the above allocation be made a uniform per diem add-on for all Medicaid days provided by the state’s nursing homes.

The law also required that a portion of the assessment be used to establish a grant program for all nursing homes to: (1) ensure quality care and promote staff recruitment and retention, (2) increase staffing to improve the quality of care, and (3) increase or improve the use of innovative patient care technologies. It directed the DHSS commissioner to adopt regulations to carry out this program in a way that would not violate the federal provider tax law’s hold harmless provision. (This essentially says that a particular taxpayer cannot get payment back from the state that can be directly correlated to paying the assessment. )

Under the act, for two years after its passage, any money facilities receive to increase employee recruitment or retention and wages is not subject to the Medicaid reimbursement caps in state regulation, again, provided this provision does not violate the federal hold harmless requirement.

The law directed the DHSS commissioner to apply for both a Medicaid state plan amendment, as well as a uniformity waiver, to secure federal reimbursement.

CMS Negotiations and 2004 Changes to Law

After the law passed, DHHS began work anew with CMS to write a Medicaid state plan amendment and a waiver request. According to DHHS’ Bill Dawidowski, CMS had two major concerns with the new law. First, the grant and high- and low-Medicaid home payment provisions appeared to CMS to hold certain homes harmless, even though the state said they did not. These two provisions were ultimately scrapped, and the legislature repealed them during the 2004 session (PL 2004, Ch. 41, approved June 29, 2004).

Another state official stated that the CCRC industry demanded that its homes be exempt from the assessment. Thus, the 2004 legislative changes exempted certain homes from paying the tax, which required the state to get CMS to waive its “broad based” rule. (A tax is considered to be broad based if it is imposed on at least all health care providers in a class of providers and is imposed “uniformly. ” A tax is considered uniform in this instance if it is imposed at a uniform rate on all providers in the class. ) Those exempt include: CCRCs; comprehensive personal care homes; residential health care facilities; adult day health facilities; county health care facilities, including county nursing homes; Department of Military and Veterans’ Affairs facilities; assisted living facilities; and the Fireman’s Home. (According to the official, the waiver was only needed for the CCRCs, not the other non-Medicaid homes. )

The state renewed its negotiations with CMS after the legislature’s actions. CMS approved the waiver on February 22, 2005, but the assessment will be applied retroactive to July 2004. (Federal law provides that waivers are effective on the first day of the calendar quarter in which the state files the request, 42 CFR Sec. 433. 7(c)(1). ) According to Dawidowski, the nursing home industry is happy with the final product, in part because it was involved in a very “open” process. And a vice president of the state’s hospital association continuing care division said an “effective collaboration of all stakeholders” made it possible.

Passing the Waiver Test

States that want to exempt certain homes from their provider tax (assessment in New Jersey and certain other states), as New Jersey did, must get CMS approval through a waiver. The waivers can be from the law’s “broad based” requirement, “uniformity” requirement, or both. States seeking a uniformity waiver, regardless of whether it is broad-based, must demonstrate that their proposed tax is generally redistributive.

States must do a regression analysis for these different waivers and can choose the one that is most likely to get CMS approval. New Jersey decided to do both a broad based and uniformity waiver. It developed a linear regression analysis in which the dependent variable was each nursing home’s percentage share of the total tax paid if the tax was uniformly imposed on all nursing home patient days (no exemptions) and the independent variable was each nursing home’s number of Medicaid patient days (days in which Medicaid paid for care). (This is called B1. ) (In other words, it would show how changing the number of a home’s Medicaid patient days affected its percentage share of the total tax paid. )

The state then calculated the slope of a linear regression for its proposed assessment program in which the dependent variable was each nursing home’s percentage share of the total assessment paid and the independent variable was the number of Medicaid patient days for each assessment-paying facility (B2). Here, the state was measuring the effect changing the number of Medicaid days would have on a home’s share of the assessment, including those exempt from paying the tax.

Then the state used the patient day and assessment rate data to perform a third regression analysis calculation, which yielded a ratio of 1. 11, meaning the tax was generally redistributive (i. e. , B1/B2=1. 11). (Federal regulations state that if the value of the ratio is at least 1 it is considered redistributive, and CMS will automatically approve the waiver. )

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