Chapter Four

Nursing Home Wage, Benefit, and Staffing Enhancement Program

The Nursing Home Wage, Benefit, and Staffing Enhancement Program was established under Public Act 99-279 to enable nursing facilities to increase current employees' wages and benefits and/or add direct and indirect care staffing. The wage enhancement program was allocated $75 million in the FY 00 budget year, retroactive to April 1, 1999. The act also increased each home's per diem rate, resulting in additional funding of $10 million in FY 00 and $22.8 million in FY 01.

Allocation Formula

The act required the commissioner of DSS to adjust nursing home Medicaid rates for the period April 1, 1999, through June 30, 1999, by a per diem amount representing each home's allocation of funds appropriated under the enhancement program. A facility's share of the enhancement initiatives funds was based upon its percentage of total direct (e.g., nurses and nurse aides) and indirect (e.g., dietary, housekeeping, and social work) costs, during the 1998 cost reporting year, in relation to the costs of all facilities, adjusted for Medicaid days. Nursing pool costs were included in the calculation. The per diem increase was then built into a facility's 2000 Medicaid rate issued by DSS.

Program funds. The Medicaid cost reports are filed by each facility based on annual expenditures from October 1 through September 30. Since the act provided for per diem increases as of April 1, 1999, and program funding of $75 million was allocated on an annualized basis, $37.5 million was available for the first six months of the program (April 1, 1999 - September 30, 1999).

There were 252 facilities that received enhancement funds. The per diem add-on ranged from $3.47 to $17.69 per Medicaid resident. The average per diem received was $9.92 per facility.

Allowable Increases

Although a facility's enhancement allocation is based on direct and indirect employee costs, funds could also be applied toward salary, wage, and benefit increases for employees categorized in certain administrative areas such as office support and maintenance workers. The funds could also be applied to increases in costs related to nursing pool services, if the DSS commissioner deemed them reasonable and necessary. The act prohibited the use of funds for wage and salary increases for nursing facility administrators, assistant administrators, owners, or related-party employees. There are four areas of allowable expenditures:

• salary and wage - all payroll expense increases, such as hourly wage adjustments, overtime, and bonuses (but payments to employees made in the form of a gift or service award are not recognized under the program);
• fringe benefits - workers' compensation, social security (FICA), insurance (e.g., health, disability, unemployment, life), pension, uniform allowance, child daycare, and employee physicals (but costs associated with employee recruitment, staff parties, training, seminars, and conferences are not recognized under the program);
• additional direct and indirect staff - increases in Medicaid allowable direct and indirect employee costs related to added staffing and/or hours:
  • direct care component staff includes nurses and nurse aides; and
  • indirect component staff includes dietary, housekeeping, laundry, social work, recreation workers, physicians, pharmacists, and therapists (Medicaid-allowable therapy costs are determined based upon a payer-type utilization formula. and professional fees are subject to per-hour limits under Medicaid reimbursement regulation); and
• necessary and reasonable increases in nursing pool/temporary staffing costs - although the intent of the wage enhancement program is to provide permanent nursing facility employees with higher wages and benefits and to increase direct and indirect care staffing, the law permits the DSS commissioner to allow reasonable and necessary increases in outside temporary staffing services. As a guideline, facilities must notify the department of increases in outside service costs projected to be in excess of 30 percent from the prior year. The department then conducts a review for reasonableness and necessity. Enhancement payments may not be applied to cost increases associated with contracts for services such as therapy, dietary, housekeeping, and laundry.

Verification of the Proper Use of Payments

Auditing of cost reports. Through its annual review of Medicaid cost report filings, the social services department compares each home's entire 1998 expenditures for wages, benefits, and staffing to such expenditures in the 1999, 2000, and 2001 cost reports to determine whether a home has applied payments to the allowable enhancements. Facilities must demonstrate spending for wages, benefits, and direct/indirect staffing increased over 1998 costs by an amount equal to or exceeding payments received under the enhancement program.

It is important to note under P.A. 99-279 facilities are credited with wage, benefit, and staffing enhancements made during the entire 1999 cost-reporting period (10/1/98 - 9/30/99), not just after April 1, 1999, which was the date the Medicaid rate increases related to the enhancement program took effect. A facility that gave a wage and/or benefit increase or increased staffing between October 1, 1998, and March 31, 1999, would also be eligible for enhancement funds. Thus, those facilities' entire 1998 allowable expenditures are compared to 1999, 2000, and 2001 to determine whether a home has applied additional payments to those allowed under the law.

Program Impact to Date

As required by the act, the Department of Social Services completed a compliance review for all of the nursing facilities that received enhancement payments. The review compared 1998 and 1999 expenditures. Data provided by the department to the program review committee showed 252 facilities received enhancement payments. Of these:

• 180 nursing facilities passed the spending test;
• 72 nursing facilities required additional review after not meeting the initial spending test, of which:
  • 27 homes passed after a more thorough review;
  • 6 homes had partial rate reductions;
  • 3 homes failed and had a complete rate reduction;
  • 6 homes remain under review; and
  • 30 homes have missing data because required cost reports were not filed or there was poor or missing data.

One factor that triggered a more careful review by DSS was if expenditures for nursing pool personnel were greater than 30 percent between 1998 and 1999. According to DSS, facilities with those expenditures were ultimately approved. In addition, under C.G.S. Section 17b-238(b), nursing facilities have the right to appeal revisions to their rates as a result of enhancement program verification reviews and field audits.

The vast majority (82 percent) of nursing facilities passed the DSS spending test for 1999 by using enhancement funds in one or more of the four allowable expenditure categories. Table IV-1 compares total facilities' expenditures by specific categories for 1998 and 1999. As noted above, the aggregate amount that needed to be expended by facilities in order to pass the 1999 spending test was $37.5 million (one-half of the $75 million allocated for the program for the six-month period from April 1, 1999, to September 30, 1999).

As the table shows, total expenditures increased by $72 million from 1998 to 1999. Increases in expenditures for nursing personnel (combined nurse, aide, and pool) accounted for $44 million (61 percent) of the $72 million. The greatest dollar increase was for nurse aides, while expenditures for temporary pool services, the bulk of which is used to obtain nurses and aides, grew a full 50 percent from 1998 and 1999. Such large increases in this category is one indication of the problems nursing facilities are experiencing in recruiting nursing personnel.

Table IV-2 shows, by type of nursing staff, the increase in 1999 expenditures and whether the expenditure was a result of additional hours or higher wages. For example, $16 million more was spent for licensed nurses in 1999, with $7.2 expended because of additional hours and $8.8 million because of increased wages. It is not possible to discern if the increase in nursing hours are as a result of newly hired nursing staff or if existing nursing staff worked more hours. Overall, the table shows, almost half of the total growth in expenditures can be attributed to increased hours, and half can be attributed to increased wages.

Table IV-3 compares the reported number of nursing hours in 1998 and 1999, the increase for 1999, and the number of full-time equivalent (FTE) positions resulting from the increase. One caveat associated with the increase in reported annual hours, however is that no uniform definition exists in the cost report on what facilities should include in the number of hours reported. While some facilities may report paid hours, which include any vacation, sick, and personal time accrued, others might report actual hours worked. As a result, the increase in hours reported for 1999 may include more employee paid days off and not additional hours actually worked. However, if the entire increase in hours were in fact worked, it would equal a total of 461 additional FTE positions.

Medicaid Cost Reporting

The Medicaid cost reports submitted to DSS by each nursing facility contain total salaries and wages paid for specific employee categories for all staff of the nursing homes. Aggregated annual hours by employee category must also be reported. The same information is also reported for consultants, paid on a fee-for-service basis, including nurses and aides obtained through temporary agencies. As noted above, the committee found a major limitation of using the Medicaid cost reports for policy analysis is the lack of uniform definitions for reported hours. The department also recognized this problem and provided a uniform definition (hours reported should be based on actual employee hours paid for the year including paid time off) for facilities to report beginning with the 2000 Medicaid cost report filings.

Another limitation of the Medicaid cost report is that the wages and hours for registered and licensed practical nurses, both for employees and nursing pools, do not distinguish between nurses who are responsible for providing direct resident care and those who perform administrative tasks. The committee finds since the information in the cost report is increasingly being used for staff and wage analysis among nursing facilities, there is a need to refine the categories to more accurately distinguish nursing staff that provide direct resident care from those performing administrative tasks.

Committee Recommendation

The Department of Social Services should amend pages 10 and 13 of the Medicaid cost report, beginning with the 2001 submission, so that salaries and wages, and hours for RN and LPNs involved in providing direct care to residents shall be reported separately from RNs and LPNs involved in administrative functions.

"Direct care" shall mean the provision of direct care and services to the resident, commonly referred to as hands on care services, including, but not limited to, the administration of medication and treatment, feeding, bathing, toileting, dressing, lifting, and moving residents. Administrative nurse functions shall include, but not be limited to, infection control, in-service training, and maintaining the federally required minimum data set.

While required as a submission to verify costs for Medicaid reimbursement, the Medicaid cost report data offers the most comprehensive data on staffing and costs in the industry. Hence, it has become a valuable tool for policymakers and researchers, as well as cost regulators.

If Medicaid cost report data are to continue being used to make policy decisions, the reporting needs to be accurate and provide a fair representation of what is actually occurring in the industry. Since the cost report contains the most complete information, with salaries and hours worked by employee category and temporary agencies, this is the most logical place to require a refinement of the definition of type of work. The committee believes this recommendation will allow analysis based on cost report data to be more accurate, and thus, of better use to policymakers.

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