Medicaid:

Methods for Setting Nursing Home Rates Should Be Improved

HRD-86-26: Published: May 9, 1986. Publicly Released: May 9, 1986.

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GAO reviewed seven states' prospective payment systems, which provide nursing homes with incentives to reduce costs without adversely affecting the quality of health care, to identify weaknesses in each phase of the ratesetting process.

GAO found that: (1) allowable base costs were too high because the seven states did not always establish specific written criteria limiting allowable costs; (2) states did not perform adequate studies to ensure that subgroups reflected legitimate differences in the costs of operating nursing homes; (3) inflation indices did not accurately measure inflation within the nursing home industry; and (4) states did not perform studies to ensure that established cost ceilings would maximize nursing homes' incentives to contain costs without jeopardizing quality care. GAO also found that: (1) the Department of Health and Human Services (HHS) did not publish regulations implementing the Deficit Reduction Act which enabled the Health Care Financing Administration (HCFA) and the states to better control cost increases resulting from the sale of a nursing home; and (2) although HHS regulations require states to submit assurances that their Medicaid reimbursement rates are reasonable and adequate, HCFA has not established adequate guidelines to review the basis for state assurances.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: HCFA believes that existing guidelines reflect congressional intent. Although HCFA does not plan to implement this recommendation, HCFA regional offices have used the report to help improve state programs. The regional offices have not, however, taken action to establish guidelines.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, HCFA, to establish guidelines to be used by states in making assurances that their nursing home reimbursement rates are reasonable and adequate. The guidelines should, at a minimum, provide that states make assurances that they have: (1) established specific criteria defining allowable costs for luxury items; (2) used the results of audited cost reports to compute reimbursement rates; (3) used inflation indices that reasonably reflect increased costs in the nursing home industry; (4) performed studies to ensure that the subgroupings used resulted in reasonable and adequate reimbursement for all nursing homes within the group and that the ceilings set on reimbursement rates were appropriate; (5) performed studies to demonstrate an actual shortage of nursing home beds; and (6) established limits on the effects of sales and leases on property costs.

    Agency Affected: Department of Health and Human Services

  2. Status: Closed - Not Implemented

    Comments: Further changes to the law makes this recommendation no longer applicable. The GAO Human Resources Division recently issued a report on those changes.

    Recommendation: The Secretary of Health and Human Services should publish regulations to implement the provisions of the Deficit Reduction Act of 1984 relating to the effects of nursing home sales on allowable property costs and provide technical assistance to the states in developing or revising prospective payment systems.

    Agency Affected: Department of Health and Human Services

  3. Status: Closed - Implemented

    Comments: HCFA believes that it is responsive to state requests for technical assistance and intends to provide assistance when requested. GAO intended a more pro-active HCFA role in fundamental, technical decisions states must make in designing and revising prospective payment systems.

    Recommendation: The Secretary of Health and Human Services should direct the Administrator, HCFA, to provide technical assistance to the states in developing prospective payment systems.

    Agency Affected: Department of Health and Human Services

 

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