Informal Questions We have reviewed the proposed State plan amendment (SPA) to Attachment 4.19-D of your Medicaid State plan submitted under transmittal number 18-22 (Oklahoma SPA Transmittal Notice (TN) #18-22). The purpose of this amendment is to allow for new supplemental payments to 19 qualifying non-state government owned or operated (NSGO) nursing facilities. We conducted our review of your submittal according to the statutory requirements at sections 1902(a)(2), 1902(a)(13), 1902(a)(30), and 1903(a) of the Social Security Act (the Act) and the regulations at 42 C.F.R. §447 Subpart C. Before we can continue processing this proposed amendment, CMS requires additional and clarifying information. The regulation at 42 C.F.R. § 447.252(b) requires that the State plan include a comprehensive description of the methods and standards used to set payment rates. Section 6002 of the State Medicaid Manual explains further that the State plan must be comprehensive enough to determine the required level of Federal Financial Participation (FFP) and to allow interested parties to understand the rate setting process and the items and services that are paid through these rates. Further, since the plan is the basis for FFP, it is important that the plan's language be clear and unambiguous. CMS has the following questions regarding Oklahoma SPA #18-22: Form-179 1. Form 179, Block 7 – Please provide a detailed analysis of how the FFP determination was made and provide supporting documentation of the calculation of $7,737,891 for Federal Fiscal Year (FFY) 2018 and $18,570,938 for FFY 2019. Public Notice 2. Oklahoma SPA #18-22 proposes to implement a supplemental payment program for NSGO nursing facilities effective May 1, 2018. The document did not include the date the public notice was issued on the Oklahoma web alert. Please submit documentation to support the public notice. 3. Please provide documentation supporting any additional public process procedures, such as public hearings, that were undertaken by the state prior to May 1, 2018, to inform the public and provide the public an opportunity to offer comment about proposed Oklahoma SPA #18-22. 4. Did the State receive any public comments? Please submit them for our review. Upper Payment Limit (UPL) 5. Regulations at 42 C.F.R. § 447.272 require that nursing facility (NF) payments in the aggregate for each facility class (i.e. state government-owned or operated facilities, non-state government owned or operated facilities and privately owned and operated facilities) will not exceed a reasonable estimate of the amount Medicare would pay for equivalent Medicaid services. Oklahoma SPA TN #18-22 proposes a new supplemental payment for NSGO nursing facilities. The SPA documentation reflects a total of 293 private and 19 NSGO nursing facilities. The State anticipates that some private nursing facilities will transition to NSGO nursing facilities. a. To serve as the basis for authorizing FFP, a state must demonstrate for the entire SFY that proposed payments are within the UPL using source data extracted from the State’s Medicaid data system or appropriate Medicare data sources. CMS will not approve the submitted UPL pro forma or hypothetical documentation for SFY 2018 and 2019 and authorize supplemental payment amounts for NSGO nursing facilities based on assumptions that private facilities will change ownership designations at some point in the future or when CMS takes action on this SPA. Please submit a UPL demonstration for SFY 2018 and SFY 2019. b. Please clarify if the RUGs data came from a third party or from the Medicaid source payment data. c. Please revise the UPL documentation applicable to the payments for the future rate period (i.e. SFY 2018 and SFY 2019) for all classes (state government owned or operated, non-state government owned or operated, and privately owned and operated). The UPL documentations should include a comprehensive narrative description of the methodology (step by step) used to determine the UPL for each class. The documentation should also include a spreadsheet with provider specific information that starts with the source data and identifies the numerical result of each step of the UPL calculation. All source data should be clearly attached (i.e., cost report year, W/S line, columns, and claims reports, etc.) in the documentation. The state should also keep all source documentation on file for future audit reviews. Efficiency, Economy, and Quality of Care 6. Section 1902(a)(30)(A) of the Act requires that payment rates must be consistent with “efficiency, economy and quality of care.” a. Please explain how the state determined that the proposed supplemental payments are consistent with the principles of “efficiency, economy, and quality of care.” Provide any supporting documentation. b. If the State has determined that current payment levels are reasonable to provide quality care and access to nursing facility services, why is the proposed SPA necessary to improve quality and access at these 19 facilities? Page 2 of 10 c. Based on the available information, the city council members and city employees do not appear to have any experience operating nursing facilities. Please explain how the cities will ensure the nursing home residents receive quality care. d. The public-private partnerships appear to increase the amount of administrative costs for each facility due to management fees, lease payments, consultant fees, and additional city human resources demands. Please provide an analysis of the percentage of the supplemental payments the State expects to be available to increase care-giver staffing levels or similar direct patient care costs. Explain how the proposed amendment is more efficient and economical. e. Please describe any processes the State will use to monitor that the additional payments received by the nursing facilities improve the quality of services received by beneficiaries within the NFs or increase access to NF services where there are current needs. f. Are there any limitations on the cities’ transfer of any portions of the supplemental payments to general governmental operations? How will the State ensure the supplemental payments are used for nursing facility operations and not converted to the general government use? g. Currently, the State has a nursing home supplemental payment, which is called the Oklahoma Focus on Excellence Quality Rating Program, which allows nursing facilities to earn additional reimbursement based on quality points earned. i. Please explain how new proposed supplemental for quality incentive payments is different from the Oklahoma Focus on Excellence Quality Rating Program. ii. Please indicate how many of the approximately 19 non-state nursing facilities currently earn the additional reimbursement based on quality points earned. iii. Please send us an analysis that reflects the additional reimbursement by non-state nursing facility for the last 2 years. iv. Please provide a detailed explanation for how the proposed supplemental for quality incentive payments are not duplicative of the requirements and regulations under Medicare. v. Please explain the state’s cost/quality benefit analysis that provides an additional quality program payment tied to performance for providers already receiving quality incentive payments. Page 3 of 10 vi. Was the initial quality payment viewed by the state as inadequate to improve performance? vii. Will any of the cities hire additional employees or retain outside consultants to oversee the quality of care at the facilities? Please describe each city’s plan or approach to ensuring quality of care and the additional costs related to those efforts. Source of Non-Federal Share 7. CMS reviewed the standard funding responses and other documentation the State submitted with the proposed SPA and continues to have questions regarding the source of the non-federal share of the proposed supplemental payments. a. Will the non-Federal share of the supplemental payments derive from State or local taxes? Do the three cities currently levy taxes or have access to a sufficient amount of state or local tax revenue, which can be utilized for purpose of the IGTs necessary to support the non-Federal share of the supplemental payments to nursing facilities? b. Please describe in detail the source of the non-federal share of these new Medicaid payments. c. Are the 19 facilities required to pay any tax or participation fee not paid by other facilities? d. Do the cities require voter approval to use local tax dollars to fund the nonFederal share of the supplemental payments? e. The public notice includes the following language which says “It is estimated that this request will be budget neutral for the State as the NSGOs will bear the cost of providing the state share match for the program.” Similarly, the UPL clearly ties the payments to the intergovernmental transfers (IGTs) from each provider totaling $3,238,329, not necessarily from the cities’ tax revenues. CMS has concerns how the cities can generate the non-federal share of the payments with public funds and without the fiscal participation of their private partners. Through environmental scans, CMS reviewed the recent three NSGO’s financial statements to ensure that they have enough local taxes to support the non-Federal share. Page 4 of 10 NSGO Participating Nursing Facilities Total amounts transferred /certified City of Hugo City of Hugo City of Hugo City of Hugo City of Hugo City of Hugo City of Hugo City of Hugo City of Hugo Antlers Nursing Home Boyce Manor Nursing Home Calera Manor Choctaw Nation Nursing Home Homestead of Hugo Shawnee Care Center Southern Pointe Nursing Center Talihina Manor Total IGT $ $ $ $ $ $ $ $ City of Pauls Valley City of Pauls Valley City of Pauls Valley City of Pauls Valley City of Pauls Valley City of Pauls Valley City of Pauls Valley Ada Care Center Cedar Creek Nursing Center Garland Road Nursing & Rehab Grace Living Center-Edmond Grace Living Center-SW OKC Grace Living Center-Wildewood Medical Park Rehab & Skilled Care City of Pauls Valley Montevista Rehab & Skilled Care City of Pauls Valley Tulsa Nursing Center City of Pauls Valley Tuscany Village Nursing Center City of Pauls Valley Total IGT Recent Annual Financial Statement Difference (Revenue vs Expenditures) 77,573 105,799 107,226 55,687 90,843 157,578 100,094 109,252 $3,399,022 - $3,263,453 = $386,585 $ 804,052 $ $ $ $ $ $ 169,971 260,200 163,582 265,275 267,748 258,433 $ 197,921 $ $ $ 175,184 299,809 304,499 $10,436,703 $8,8732,756 = $1,563,947 $ 2,362,622 Town of Vici Town of Vici Town of Vici Nursing Home Town of Vici Nursing Home $ $ 71,655 71,655 $382,360 - $381,500 = $602 Page 5 of 10 f. If voter approval is necessary, how might this impact the timing and scope of the proposed SPA? g. Have the cities received taxpayer approval to assume the financial liability for potential overpayments and Civil Monetary Penalties (CMPs)? Please submit supporting documentation including any resolution, ordinance, or election result. h. Please provide any documents, emails, PowerPoint presentations, or correspondence that describes any potential revenue the three cities may receive by owning or operating nursing facilities. i. Please provide all service agreements, contracts, or letters of engagement between the three cities and any outside entities, including consultants, accounting firms, or law firms that relate to the cities’ participation in the proposed supplemental payment program. j. Do the three cities plan to use their facilities’ revenue for the IGTs? k. In the absence of the proposed supplemental payments, do agreements allocate sufficient non-Medicaid revenue to the cities to support the IGTs? For each of the 19 nursing facilities, please provide the following documents or information: i. Most recent full year audited financial statements prepared by an independent accounting firm (including footnotes). ii. Balance sheets, income statements, and cash flow statements for fiscal years ending in 2016 and 2017. iii. Schedule showing amounts due to/from related companies, or individuals, included in the balance sheets. Schedule should list the names of related organizations, or persons, and indicate where the amounts appear on the balance sheet (e.g., Accounts Receivable, Notes Receivable, etc.) iv. 2015 and 2016 Federal tax returns with all attachments. v. 2016 and 2017 Medicare Cost Reports with all attachments. vi. Documents from the Internal Revenue Service (IRS) that indicate the 19 private nursing homes have converted to NSGOs. Nursing Facility Change of Ownership 8. Based on our environmental scan on the arrangements, we understand that there are three NSGOs. They are the Town of Vici, City of Hugo, and City of Pauls Valley. They acquired 19 private nursing home licenses and then contracted with the private owner to manage and operate the facility. Is this correct? Page 6 of 10 Please provide copies of all signed, or under consideration, Cooperative Endeavor Agreements, lease agreements, Intergovernmental Transfers (IGTs), management agreements, MOUs, management contracts, consulting agreements, loan agreements, and any other contracts between the NSGOs and any landlord, management company, or consulting firm related to the transactions or ongoing operations. a. Please provide the 19 facilities’ completed UPL Application Packets. b. Please clarify if the City or County has issued any proposals or enacted any legislation, resolution, or ordinance, other than described, authorizing the new supplemental payments methodology for non-state nursing homes. Please provide copies of the legislation authorizing the proposed changes. c. Will non-state government owned entities purchase from the private owner: the actual nursing facility building, the nursing facility license or both? d. It appears that CHOWs are complete, then please explain the: i. ii. iii. iv. v. vi. vii. viii. ix. x. xi. xii. xiii. xiv. responsibilities of the non-state government entity; responsibilities of the private entity; shared responsibilities for operating the nursing facility; responsibility for liability insurance; ownership and maintenance of the building and equipment; ownership and maintenance of the license; employment status of the facility employees (i.e. city or private employees); entity that will be the enrolled nursing facility Medicaid provider; entity responsible for funding the non-federal share of Medicaid payments; entity that receives and retains Medicaid base and supplemental nursing facility payments; any shared revenue or transfers of value between the private operator and the non-state government owned entity. whether the management fees are a fixed amount if the lease payments are a fixed monthly amount how the lease and management fees are paid by each of the cities (e.g. check, wire transfer, bank account sweep by the management company, or other arrangement) 9. Many of the nursing facilities are more than 1 hour drive from the cities that own or operate them. How will the cities monitor the fiscal and quality aspects of the nursing facilities’ operations and the performance of the managers? For each facility, please identify the city employees, council members, or city contractor responsible for ensuring quality of care and fiscal oversight of the operations. Page 7 of 10 10. Is it typical within Oklahoma for cities to purchase business licenses or other privately owned business assets? Is it typical for a political sub-division to purchase private assets within another political subdivision? Is it typical for such transactions to occur and for the government entity to contract with the private entity to manage the assets after the change in ownership? If so, please provide examples of how this currently occurs in Oklahoma. If these are not typical arrangements within the state, what makes these arrangements unique? 11. Was the sale of the nursing facility license (or, if applicable, the nursing facility building) at a fair market value? How will the fair market value be determined? If the license is not purchased at a fair market value, how is the price determined? 12. Will the management contract between the private operator and the non-state government owned entity be determined through at fair market value? Will the management contract be procured through the state and/or local government procurement processes? If not, how will the price and determination of the management contract be determined? 13. For each of the 19 facilities, please provide all documents that the support any fair market value determinations for the lease amounts, management fee amounts, and the amounts of revenue allocated between the parties to each transaction. 14. If the nursing facility provider is related to the management company, then are the management services only recognized at cost on the nursing facility’s cost report? 15. Please provide an explanation for how any management fees are incorporated in the nursing facility per diem rate (typically a percentage based on net patient revenue). 16. Will providers bill traditional Fee for Service (FFS) for PASRR? Will the nursing facility continue to perform the required PASRR activities, including the provision of identified specialized services? 17. Attach a schedule which completely discloses the ownership or leasehold interest of the physical property and stockholder or other residual financial interest from the date of this request back to the transaction immediately preceding the transaction in question which involved a bona fide sale or lease of the physical property between arm’s length, unrelated parties in which the seller, lessor, or previous lessee severed all ownership interest? (Typically, this is a complete disclosure of ownership back to the purchase or lease by the seller or lessee.) 18. Attach a listing of all parties that assume or are reasonably expected to assume any of the following roles during any of the time period from one year before to one year after the date of the transaction in question: Owner, Lessor, Lessee, Provider or Management Company including the names of all individuals of authority involved? (Typically, this involves two listings of the relevant parties and dates, one marked “Before” the transaction and the other marked "After" the transaction.) Page 8 of 10 19. If any party is a corporate entity that is not publicly traded, include the names of the individual owners and their ownership interest. 20. Section 1–1902, paragraph 16, of the Nursing Home Care Act, 2016 Okla. Sess. Law Serv. Ch. 288 (H.B. 2549), redefines the term “owner” of facility as follows: “Owner” means a person, corporation, partnership, association, or other entity which owns a facility or leases a facility. The person or entity that stands to profit or lose as a result of the financial success or failure of the operation shall be presumed to be the owner of the facility. Notwithstanding the foregoing, any nonstate governmental entity that has acquired and owns or leases a facility and that has entered into an agreement with the Oklahoma Health Care Authority to participate in the nursing facility supplemental payment program (“UPL Owner”) shall be deemed the owner of such facility and shall be authorized to obtain management services from a management services provider (“UPL Manager”), and to delegate, allocate and assign as between the UPL Owner and UPL Manager, compensation, profits, losses, liabilities, decision-making authority and responsibilities, including responsibility for the employment, direction, supervision and control of the facility's administrator and staff … i. For each facility, describe whether the UPL Owner will be primarily liable under the Medicaid provider agreement for any civil money penalties, licensure issues, and Medicaid overpayments? ii. Is there a minimum level of responsibility, involvement, or control required by the UPL Owner? iii. Will UPL Owner bear the tort responsibility for the consequences of the enterprise’s operations? iv. Are any of the management companies affiliated with or related to the nursing facilities that own the license of the nursing facilities? v. Please provide banks statements, checks, or other evidence that the consideration (e.g. fees, rent, etc.) for all of the agreements related to the transactions has been paid by the cities and the amounts paid. If such payments have not been made, please explain why. Comprehensive State Plan Language – Attachment 4.19-D 21. The proposed payment methodology is not comprehensive. Consistent with regulations at 42 C.F.R. § 447.252(b), the State plan methodology must specify comprehensively the methods and standards used by the agency to set payment rates. Generally, CMS has interpreted this to mean interested parties can understand the amounts providers will be paid and the items and services eligible for payment by the state through the methodology. Page 9 of 10 Please clarify the following: a. What does “The total potential Medicaid supplemental payment” mean on Attachment 4.19-D page 45? b. What does “applicable” mean on under the section labeled “Payment Frequency” on Attachment 4.19-D page 46? c. Will the state perform a reconciliation at the end of the fiscal year and make increasing or decreasing adjustments to prior period payments? At the end of the state fiscal year, the state is required to submit UPL documentation from which CMS uses amounts to verify if actual CMS-64 claimed payments exceeded their UPL documentation gap. How will the interim payments and annual reconciliation be in accordance with the UPL demonstration? d. What monitoring efforts are in place for the state to ensure payments are within the specific SFY UPL demonstration? e. Are the cities required to issue the IGTs prior to receiving the supplemental payments? Page 10 of 10