Determination of Rate Components.
(a) The NF provider's direct care portion of
the reimbursement rate is calculated as the sum of the direct care case mix
adjusted cost component, the direct care noncase mix adjusted cost component,
and the direct care spending floor adjustment.
1. The direct care case mix adjusted cost
component reimbursement rate shall be determined as follows:
(i) The per diem direct care case mix
adjusted cost for each NF is determined by dividing the facility's direct care
case mix adjusted cost from the base year cost reporting period by the NF's
actual total resident days during the cost reporting period. These costs shall
be trended forward from the midpoint of the NF provider's base year cost
reporting period to the midpoint of the rate year using the index
factor.
(ii) The per diem
neutralized direct care case mix adjusted cost is calculated by dividing each
NF provider's inflated direct care case mix adjusted cost per diem by the NF
provider's NF cost report period case mix index.
(iii) The per diem neutralized inflated
direct care case mix adjusted cost, for each Medicaid participating NF that
meets the criteria to be included in the cost component median, is arrayed from
low to high and the annualized Medicaid residentdayweighted median cost is
determined.
(iv) The statewide
direct care case mix adjusted price is established at one hundred six percent
(106.00%) of the direct care case mix adjusted annualized Medicaid
residentdayweighted median cost.
(v) The statewide direct care case mix
adjusted price is then multiplied by each NF's own Medicaid NFwide semiannual
average case mix index for the rate period to establish the direct care case
mix adjusted cost component.
2. The direct care noncase mix adjusted cost
component reimbursement rate shall be determined as follows:
(i) The per diem inflated direct care
noncase mix adjusted cost for each NF provider is determined by dividing the
facility's direct care noncase mix adjusted cost during the base year cost
reporting period by the NF provider's actual total resident days during the
cost reporting period. These costs shall be trended forward from the midpoint
of the NF's base year cost reporting period to the midpoint of the rate year
using the index factor.
(ii) The
per diem inflated direct care noncase mix adjusted cost, for each NF that
meets the criteria to be included in the cost component median, is arrayed from
low to high and the annualized Medicaid residentdayweighted median cost is
determined.
(iii) The statewide
direct care noncase mix adjusted price is established at one hundred six
percent (106.00%) of the direct care noncase mix adjusted annualized Medicaid
residentdayweighted median cost.
(iv) The statewide direct care noncase mix
adjusted price is then multiplied by each NF provider's direct care noncase
mix adjusted quality incentive multiplier to establish the NF provider's direct
care noncase mix adjusted cost component.
(v) The direct care noncase mix adjusted
quality incentive multiplier is determined by the NF provider's Quality Tier.
The quality incentive multiplier is determined as follows:
(I) Quality Tier 1  One hundred five percent
(105.00%) multiplier
(II) Quality
Tier 2  One hundred two and onehalf percent (102.50%) multiplier
(III) Quality Tier 3  One hundred percent
(100.00%) multiplier
3. The direct care spending floor adjustment
is calculated as follows:
(i) The sum of the
NF provider's direct care case mix adjusted and direct care noncase mix
adjusted cost components calculated above are multiplied by the NF provider
specific spending floor percentage to determine the direct care spending floor
threshold.
(ii) The direct care
spending floor percentage for each NF provider is determined by the NF
provider's Quality Tier. The spending floor percentage is determined as
follows:
Effective Date of Quality Tier Floor
Percentage

Quality Tier 1

Quality Tier 2

Quality Tier 3

July 1, 2018

82.50%

85.00%

87.50%

July 1, 2019

85.00%

87.50%

90.00%

July 1, 2020

87.50%

90.00%

92.50%

July 1, 2021

90.00%

92.00%

94.00%

(iii) The direct care spending floor
adjustment is calculated as the lesser of the Medicaid direct care cost per
diem minus the direct care spending floor threshold, or zero.
(iv) The Medicaid direct care cost per diem
used in the direct care spending floor calculation is established as follows:
(I) Utilize the most recently audited or desk
reviewed cost reports covering a period of six (6) months or more, with an end
date eighteen (18) months or more prior to each July 1 rate setting
period.
(II) The per diem inflated
direct care noncase mix adjusted cost for each NF provider is determined by
dividing the facility's direct care noncase mix adjusted cost during the
applicable cost reporting period by the NF provider's actual total resident
days during the cost reporting period. These costs shall be trended forward
from the midpoint of the applicable cost reporting period to the midpoint of
the rate year using the index factor.
(III) The per diem direct care case mix
adjusted cost for each NF is determined by dividing the facility's direct care
case mix adjusted cost from the applicable cost reporting period by the NF
provider's actual total resident days during the cost reporting period. These
costs shall be trended forward from the midpoint of the cost reporting period
to the midpoint of the rate year using the index factor.
(IV) The per diem neutralized inflated direct
care case mix adjusted cost is calculated by dividing each NF provider's
inflated direct care case mix adjusted cost per diem by the NF provider's NF
cost report period case mix index.
(V) The per diem neutralized inflated direct
care case mix adjusted cost is then multiplied by each NF provider's own
Medicaid NFwide semiannual average case mix index for the rate period to
create the Medicaid direct care case mix adjusted cost per diem.
(VI) The Medicaid direct care case mix
adjusted cost per diem is then added to the inflated direct care noncase mix
adjusted cost per diem to create the Medicaid direct care cost per
diem.
(b) The statewide administrative and
operating cost component will be determined as follows:
1. The per diem administrative and operating
cost for each NF provider is determined by dividing the provider's
administrative and operating cost during the base year cost reporting period by
the NF provider's actual total resident days during the cost reporting period.
These costs shall be trended forward from the midpoint of the NF provider's
base year cost reporting period to the midpoint of the rate year using the
index factor.
2. The per diem
administrative and operating cost, for each NF that meets the criteria to be
included in the cost component median, is arrayed from low to high and the
annualized Medicaid residentdayweighted median cost is determined.
3. The statewide administrative and operating
cost component is established at one hundred one percent (101.00%) of the
administrative and operating annualized Medicaid residentdayweighted median
cost.
4. Every NF provider will
receive the statewide administrative and operating cost component as
reimbursement in full for its administrative and operating
expenditures.
(c) The
capital cost component of the reimbursement rate shall be based on a fair
rental value (FRV) appraisal based reimbursement system, in lieu of
reimbursement for capital specific costs such as depreciation, amortization,
interest, rent/lease expense, etc. The capital cost component will be
determined as follows:
1. Each NF provider
will receive an appraisal from TennCare's certified appraisal contractor.
TennCare's certified appraisal contractor must be selected through a formal
procurement process for a single statewide contract.
2. NF appraisal values will be subject to a
statewide mandatory reappraisal process in conjunction with the second (2nd)
rebase following the implementation of new statewide appraisal
values.
3. A NF provider may apply
for a voluntary reappraisal. The voluntary NF reappraisal will be effective for
rate setting purposes beginning with the semiannual rate period directly
following the completion of the reappraisal process. The reappraisal process
will not be determined complete until the reappraisal is final. To obtain a
voluntary reappraisal, the NF must meet all of the following criteria:
(i) The NF satisfies one of the following
conditions:
(I) NF provider has moved its
certificate of need/operations to a new permanent location. The new location is
not required to be new construction. However, if the new location is one that
has a current active appraisal or reappraisal valuation, the provider will be
given the active appraisal value for rate setting purposes.
(II) NF provider has moved more than ten
percent (10%) of its total licensed bed capacity to a new location on the
current NF campus, and the new location was not previously included in any
appraisal or reappraisal process.
(III) NF provider has performed and placed
into service within the last 12 months a renovation/improvement greater than or
equal to fifteen percent (15%) of its current net depreciated facility
appraisal value (excluding land, but including site improvements). The total
cost of the renovation shall only consider the cost of fixed assets as defined
in this Chapter.
(IV) Any
renovation/improvement included in a previous appraisal/reappraisal process
must not be considered when determining if the reappraisal participation
criteria has been met.
(ii) The NF has provided sufficient
documentation to TennCare to support it has satisfied one of the conditions in
subpart (i) above.
(iii) The NF
agrees to utilize the certified appraisal firm and appraisal methodology
designated by TennCare.
(iv) The NF
agrees to be responsible for the cost of the appraisal.
(v) The NF agrees that all semiannual
capital improvement updates submitted prior to the reappraisal request will be
considered as part of the new reappraisal, and removed from being separately
considered in the rate setting process.
4. TennCare's appraisal contractor will
utilize the Marshall and Swift (Boeckh) Building Valuation System for Nursing
Facilities, or its successor, to calculate the fee simple replacement cost
(undepreciated and depreciated) of the building(s), site improvements and the
market value of land for each NF provider.
(i) The fee simple replacement cost of
buildings and site improvements is calculated using the cost approach appraisal
method.
(ii) Only physical
deterioration is considered. The appraisals are performed under the assumption
that the NF is financially and functionally viable and economic obsolescence is
not considered.
(iii) Land values
are determined using the sales comparison approach.
5. Determination of the Building(s) fee
simple replacement cost.
(i) The comparative
unit method (calculator method) from Marshall and Swift section 15, or its
successor, is utilized for this calculation.
(I) All costs, multipliers, and economic
lives are directly pulled from the Marshall and Swift Commercial Estimator 7,
or its successor.
(II) Only
physical depreciation is considered, and assumptions are made that no
obsolescence is present.
(III)
Physical depreciation is determined based on the certified appraiser's opinion
of effective age based on the actual age of the facility and renovations and
updates over time.
(IV) Only fixed
assets are determined through the appraisal process. Moveable equipment values
are determined separately.
(ii) First, an actual weighted age of the
facility is determined based on the age of building improvements, and the
square footage of each section. Separate buildings or additions to original
buildings may be separately valued by the appraiser, if determined necessary.
The weighted age will then be grouped into the following ranges:
Actual Age

Implied Age for Depreciation

0  10 years

Actual Age

11  15 years

13 years

16  20 years

18 years

21  25 years

23 years

26  30 years

28 years

31  35 years

33 years

35 years +

10 years remaining life

(iii) After the determination of implied age,
recent NF provider capital improvements will be considered to determine whether
the implied age needs to be adjusted for depreciation purposes. Capital
improvements submitted by the NF provider during the appraisal process are
considered for effective age purposes. The allowed range of placed in service
dates of capital improvements allowed for submission will be determined by
TennCare.
(iv) The final calculated
effective age (implied age less improvement considerations) will be divided
into an economic life based on Marshall and Swift guidelines as detailed in the
table below. At no time will remaining economic life (economic life less
effective age) be less than 10 years.
Class

Low Cost and Average

Good and Excellent

A

45

50

B

45

50

C

40

45

D

35

40

(v)
The following is a listing of the description of the class of construction:
Class

Description

A

Fireproofed structural steel

B

Reinforced concrete columns/beams

C

Masonry bearing walls

D

Wood or steel studs

(vi)
The following is a listing of the rank, or estimate of construction quality
based on the Marshall and Swift definition of quality:
Rank

Description

1

Low Cost

2

Average

3

Good

4+

Excellent

6. Determination of Site Improvement fee
simple replacement cost. Site improvement cost estimates are based on Marshall
and Swift section 66, or its successor. The site improvements will be
depreciated based on a 15 year economic life.
7. Determination of Land Market Value. Land
values are determined through the sales comparison approach.
(i) Sales and listings of vacant land
comparable to the subject property are collected and analyzed.
(ii) The appraiser adjusts the prices to some
common unit of comparison, and then adjusts the prices for market conditions,
location, physical characteristics, available utilities, zoning, highest and
best use, and other relevant variations.
(iii) From this information the appraiser
derives a unit value applicable to the NF. This unit value is then utilized to
establish the market value of land as if it was vacant.
(iv) The maximum value of land used in
determining FRV per diem rates will be $7,500.00 per licensed bed. Licensed
beds used in this calculation will be total current NF licensed beds as of the
April 1 prior to each July 1 rate setting.
(v) The lesser of the maximum land value or
the appraised land value will be the allowable land value utilized for FRV
calculation purposes.
8.
Fair Rental Value Per Diem Calculation.
(i)
The undepreciated and depreciated values of the NF provider's building(s), site
improvements, and land (which is not depreciated) are determined through the
appraisal process.
(ii) The
depreciated values are subtracted from the undepreciated values to determine
the total value of depreciation.
(iii) The calculated depreciation is then
modified in the following manner to determine the total modified depreciation
to be applied to the fair rental value system:
(I) NF providers with a weighted construction
year age less than thirty (30) years will have calculated depreciation
multiplied by fifty percent (50%) to determine their total modified
depreciation to be applied to the fair rental value system.
(II) NF providers with a weighted
construction year age of thirty (30) years or more will have their calculated
depreciation multiplied by seventy percent (70%) to determine their total
modified depreciation to be applied to the fair rental value system.
(iv) Total modified depreciation
is subtracted from the undepreciated facility values (buildings, site
improvements, and allowable land) and the value of NF provider fixed asset
additions is added to the totals to determine total base facility
value.
(v) The total base facility
value is then compared to a maximum allowable base value threshold.
(vi) The maximum allowable base facility
value threshold is established by multiplying the NF provider total licensed
beds by $75,000. NF providers may increase the per licensed bed threshold of
$75,000 based on their specific Medicaid private room resident day percentage.
The Medicaid private room resident day percentage is calculated from base year
cost report Medicaid private room resident days divided by total base year bed
days available. Each NF provider is then compared to the thresholds established
in the table below to determine any additions to the total per licensed bed
value.
Quality Incentive Tier

Total Addition to Per Bed Value

Medicaid Private Room Resident Day Percentage
Threshold

1

$3,000

10%

2

$1,500

5%

3

$0

Less than 5%

(vii) A moveable equipment value will be
determined for each provider by multiplying total licensed beds by
$7,500.
(viii) The lesser of the
maximum allowable base facility value threshold or the actual total base
facility value calculated above will be added to the total moveable equipment
value to determine the total facility value.
(ix) The total facility value will be
multiplied by a rental factor to establish an annual fair rental value. The
rental factor will vary depending on the NF provider's quality tier. The rental
factor will be established as follows:
(I)
Quality Tier 1  Eight and seventenths percent (8.70%)
(II) Quality Tier 2  Eight and thirtyfive
hundredths percent (8.35%)
(III)
Quality Tier 3  Eight percent (8.00%)
(x) The annual fair rental value will be
divided by the greater of total annualized actual resident days, or the minimum
occupancy percentage threshold of eightyfive percent (85%) of annualized
licensed beds capacity of the provider to establish the provider's fair rental
value per diem.
(xi) The licensed
beds utilized for fair rental value purposes will be recognized once annually.
Total NF licensed beds will be determined using the current facility licensed
beds as of the April 1 prior to each July 1 rate setting.
(xi) No depreciation or inflation factors
will be applied to the appraisal totals in nonappraisal years.
9. Modification of Total Facility
Value between Appraisal Periods.
(i) In order
to continue to incentivize providers to perform capital improvement in
nonappraisal years, TennCare will allow each NF provider to modify its total
facility value on a semiannual basis for capitalized fixed assets by meeting
the requirements set out below in items (I) through (V). A facility may request
a waiver of one or more of the requirements by submitting a written request to
TennCare detailing the requirement(s) requested to be waived and the reasons
supporting the request.
(I) The request for
modification of total facility value is submitted at a minimum three (3) months
prior to the July 1 or January 1 rate setting periods, and the modification is
reported on the applicable form designated by TennCare.
(II) The total capitalized fixed assets are
greater than $1,000 per licensed bed. Licensed bed totals will be determined as
of the April 1 following the submission for modification.
(III) The cost must be capitalized according
to CMS Publication 151, The Provider Reimbursement Manual  Part 1, and have
been placed into service within the previous 12 months prior to the submission
date of the modification request.
(IV) Capitalized assets must contain only
fixed assets as defined by CMS Publication 151, The Provider Reimbursement
Manual  Part 1, sections 104.2 and 104.3. Major movable equipment that has
been capitalized must not be included for modification purposes.
(V) The capitalized assets must be reported
to TennCare net of any grant monies or insurance proceeds associated with the
purchasing of the asset.
(ii) Qualifying capitalized fixed asset
expenditures will be added to the total facility base value portion of the FRV
per diem calculation.
(iii) No
inflation or depreciation will be applied to the qualifying items.
(iv) A NF statewide mandatory appraisal or
voluntary reappraisal will eliminate all previously submitted and accepted
fixed asset addition amounts from the FRV per diem calculation.
(v) Request for modification will not be
accepted during a statewide mandatory appraisal year, as it is assumed the
provider will have received credit for these items within the appraisal
process, regardless of whether or not the provider actually submitted the
information to TennCare's certified appraisal firm.
(d) CostBased Component. The NF
provider's costbased component is the sum of the provider's NF related real
estate tax per diem calculation and the provider assessment costbased
reimbursement rate determined by TennCare. The costbased component is
determined as follows:
1. The NF provider's
NF real estate tax cost reported on the Medicaid supplemental cost report is
divided by the greater of actual base year cost report resident days or
eightyfive percent (85%) of base year cost report licensed beds capacity of
the provider. These costs shall be trended forward from the midpoint of the NF
provider's base year cost reporting period to the midpoint of the rate year
using the index factor.
2. The
provider assessment costbased reimbursement rate is determined by TennCare for
only the Medicaid share of the provider assessment cost incurred by NF
providers. NF providers will receive their costbased reimbursement rate based
on their specific provider class. The provider class will be determined for
each NF provider from the cost report year information utilized in the
calculation of the provider assessment. The provider class criteria and
associated provider assessment costbased reimbursement rate are determined as
follows:
(i) NF providers with 50,000 or more
annual Medicaid patient days. The reimbursement rate is calculated as the total
assessment fee collected from this class of NF providers divided by total class
resident days (all payer types).
(ii) NF providers that are designated as
Continuing Care Retirement Center (CCRC), or NF providers with 50 or fewer
licensed beds. The reimbursement rate is calculated as the total assessment fee
collected from this class of NF providers divided by total class resident days
(all payer types).
(iii) New NF
providers. The reimbursement rate is calculated as $2,225 divided by the number
of calendar days in the rate year.
(iv) All other Medicaid participating NF
providers that do not meet the criteria for subparts (i), (ii) or (iii) above.
The reimbursement rate is calculated as the total assessment fee collected from
this class of NF providers divided by total class resident days (all payer
types).
(e)
Adjustments to the Reimbursement Rate.
1.
Adjustments to the Medicaid daily rate may be made when changes occur that will
eventually be recognized in updated cost report data, for example an increase
in the federal minimum wage rate. These adjustments would be effective until
the next rebasing of cost report data or until such time as the cost reports
fully reflect the change. Adjustments to the rate will be made solely at the
discretion of TennCare.
2. Budget
Adjustment Factor (BAF). For the beginning of each state rate year effective
July 1st TennCare will establish a NF program budget target and compare that to
the annual expected Medicaid expenditures on nursing facility days for the
upcoming rate year using established rate setting mechanics. TennCare will
establish the BAF to adjust the annual expected Medicaid expenditures to meet
the program's NF budget target. The BAF may be positive or negative and will be
applied as an across the board percentage adjustment to all providers
reimbursement rate components calculated according to this rule. The following
is the detailed calculation of the BAF:
(i)
Rate System Expected Cost
(I) Projected July
1 Provider Reimbursement Rates Calculated Using All Applicable Reimbursement
Provisions Specified within this Chapter (prior to application of the
BAF)
(II) X New Cost Report
Medicaid Days (From Most Recent Comptroller Reviewed Cost Report data, or paid
claims data if TennCare determines this data source to be more
appropriate)
(III) = Expected Cost
of NF Reimbursement System.
(ii) NF Budget Target
(I) Projected July 1 Provider Reimbursement
Rates Calculated Using All Applicable Reimbursement Provisions Specified within
this Chapter (prior to application of the BAF)
(II) X New Cost Report Medicaid Days (From
Most Recent Comptroller Reviewed Cost Report data, or paid claims data if
TennCare determines this data source to be more appropriate)
(III) = Target Cost of NF reimbursement
System Prior to Adjustments
(IV)
+/ State Budgetary Adjustments
(V)
= Final Budget Target of NF Reimbursement System.
(iii) BAF Calculation
(I) NF Budget Target / Rate System Expected
Cost = BAF % to apply to all provider rates.
(II) For each nonJuly 1 rate setting period,
TennCare will recalculate the BAF to accommodate changes to the reimbursement
system from new CMI, new facilities, legislative mandates, and other factors.
The BAF is applied to all provider reimbursement rate components, and will be
adjusted to ensure the state will continue to meet the NF budget target. The
BAF adjustment may be positive or negative depending on circumstance.
3. For rate setting
periods from July 1, 2018, to June 30, 2020, a phasein of provider
reimbursement rates will occur in an effort to ease the transition for
providers to the case mix reimbursement system. The phasein process will be
calculated as follows:
(i) A NF provider's
base reimbursement rate will be established as the Medicaid day weighted
average of the Level 1 and Level 2 NF reimbursement rate in effect for each NF
provider on July 1, 2017, as determined on January 1, 2018. The Medicaid day
weighted average will also consider the NF provider's quarterly bridge payments
for acuity and quality. The base reimbursement rate will be the starting point
for all phasein calculations.
(ii)
For each July 1 rate setting, the current base reimbursement rates shall be
trended forward from the midpoint of the previous rate year to the midpoint of
the new rate year using the index factor.
(iii) The providers case mix system
reimbursement rate will be determined according to the rate calculation
procedures identified in this rule.
(iv) The reimbursement rate differential will
be determined by subtracting the NF provider's base reimbursement rate from the
applicable case mix system reimbursement rate.
(v) If the calculated reimbursement rate
differential exceeds a positive or negative TennCare determined corridor
amount, then a rate adjustment will be applied to the NF provider's case mix
system reimbursement rate in an amount equal to the difference between the rate
differential total and the corridor amount, in order to ensure the NF
provider's reimbursement rate is not increased or decreased more than the
corridor amount from the calculated base reimbursement rate.
(vi) Effective for rate periods beginning
July 1, 2018, the corridor amount will be a floor of minus six dollars ($6)
from the base reimbursement rate, with the ceiling being determined at an
amount above the base reimbursement rate necessary to achieve statewide budget
neutrality.
(vii) Effective for
rate periods beginning July 1, 2019, the corridor amount will be a floor of
minus twelve dollars ($12) from the base reimbursement rate, with the ceiling
being determined at an amount above the base reimbursement rate necessary to
achieve statewide budget neutrality.
(viii) Effective for rate periods beginning
July 1, 2020, the case mix system reimbursement rate will no longer be
subjected to a phasein.