Medicaid Rate Increase for Nursing Facilities


1997 AB 100/SB 77 Provision


The biennial budget bill revises the nursing home payment formula to limit an increase in payment to Medicaid–certified nursing facilities in FY 1997-98 to no more than 6.1% over that paid in FY 1996-97, or $50,975,0 00 all funds (AF), whichever is less. The bill limits an increase in this payment in FY 1998-99 to no more than 3.5% over that paid in FY 1997-98, or $30,322,500 AF, whichever is less.


Overview or: When Is a 6.1% Rate Increase

Not Really a 6.1% Rate Increase?


Unlike other Medicaid providers, there are two steps in the rate-setting process for Medicaid-certified nursing facilities. In the first step, the Legislature appropriates funds based on estimates of the previou s year’s expenditures and the cost of maintaining the current Medicaid nursing home payment system in the coming year. The 6.1% rate increase contained in the biennial budget bill is the product of this first step.


In the second step, the Legislature has mandated the Department of Health and Family Services (DHFS) to develop a formula to determine the rate, which will be paid, to each nursing facility. The funds appropriated a s rate increases for nursing facilities by the Legislature are distributed to each facility through the Nursing Home Payment Formula, which looks at the historical and prospective costs of each facility. A 6.1% rate increase for nursing facilities, th erefore, does not result in a 6.1% rate increase for an individual nursing facility; that rate increase is determined by the Nursing Home Payment Formula.


The nursing home formula is a rather complex payment system. Generally stated, the formula establishes maximum payment levels, or "targets," for six facility cost centers. These targets are based on t he median cost in each of these cost centers for all facilities, plus a percentage of the statewide median. Facilities whose costs are at or below the target in a given cost center are fully reimbursed for these costs; facilities whose costs exceed the t arget only are reimbursed for costs up to the target.


The six cost centers include:



1997 AB 100/SB 77 adjust the nursing home payment formula in two ways: (1) The formula is rebased; and (2) The overall Medicaid appropriation assumes a number of modifications to the formula itself.



The net adjustments for nursing facilities in FY 1997-98 break out as follows:

Nursing Facility

Funding Adjustments

All Funds Amounts

(in millions)


Medicaid Appropriation Base

for Nursing Facilities


Changes in Nursing Home



Rebasing the Nursing Home Formula


Facility Rate Increase


Net Formula Reductions


Adjusted Base



(WAHSA concerns in this issue paper relate to FY 1997-98. Our concerns over FY 1998-99 funding levels will be communicated as additional budget information becomes available.)


Note that the approximately $51 million available in payments to nursing facilities in FY 1997-98 actually is a combination of $29 million to rebase the formula and $22 million for facility rate increases. Therefore, the n et rate increase for nursing homes under AB 100/SB 77 would be 2.56% in FY 1997-98, not 6.1%.

Rebasing the Nursing Home Payment Formula


Current nursing home rates are based on nursing home formula targets that were established using the median costs from FY 1993 nursing home cost reports. The 1993 cost reports were used to determine statewide median costs by cost centers. Targets used in the current nursing home rates were set at the following percentages above statewide medians:


Direct Care: 110%

Support Services: 103%

Administrative and General: 103%

Fuel and Other Utilities: 115%


The biennial budget bill allows DHFS to use the FY 1995 nursing home cost reports to establish nursing home statewide medians. These medians will be used to establish targets for the 7/1/97 nursing home payment rates. The Depa rtment of Administration (DOA) estimates that $29,000,000 of the $50,975,000 available for payments to nursing facilities in FY 1997-98 is required to update the statewide medians and rebase the payment formula for 7/1/97 rates.


AB 100/SB 77 Formula Modifications


The biennial budget bill would authorize the following nursing home formula modifications:


Direct Care: The bill would amend s.49.45 (6m) (ar) 1 a, Wis.Stats., to eliminate the current law requirement that the direct care target be set at "at least 110% of the statewide median" of direct care cos ts, subject to the availability of necessary state funds. The budget bill assumes a direct care target at 102% of the statewide median. This cut is aimed directly at nursing home caregivers. It is too severe to be called "penny wise and pound-fool ish." More ominously, however, it can only have a negative impact on resident care. Projected 1997-98 formula cut: $24.1 million.


Support Services, Administrative and General, and Fuel and Utilities: The budget bill assumes the 1997-98 formula targets for support services and administrative and general are reduced from 103% of the statewide med ian to 102%. The 1997-98 fuel and utilities target would be cut from 115% of the statewide median to 102%. The cuts in support services and fuel and utilities are especially harmful. The support service cuts hurt support staff whose role in enhancing t he quality of life of a nursing home resident is secondary only to the direct care staff; the fuel and utilities cut simply ignores largely uncontrollable, historical costs. Projected 1997-98 formula cut: $3.1 million.


Classification of Medicare Days to Intensive Skilled Nursing (ISN) Days: In setting MA nursing home rates, the DHFS currently does not collect information about other revenues, including Medicare, which offset nursin g homes’ costs. The DHFS currently classifies a minimum of 12.5% of the Medicare-funded days at the higher ISN level for MA reimbursement. This breakdown approximates the actual level of care, rather than the reimbursement rate, needed by Medicare-funde d nursing home residents. AB 100/SB 77 would require nursing facilities to classify all Medicare days as ISN days. This arbitrary and, we believe, inaccurate, altering of how a facility must classify its resident days would reduce nursing home costs attributable to Medicaid residents and could result in a reduction in a facility’s Medicaid reimbursement rate. Projected 1997-98 formula cut: $9.9 million.


Capital Cost Share: Under the current reimbursement formula, facilities with capital costs greater than the formula target receive 40% payment for costs in excess of the target. Newer facilities and those that have been significantly renovated generally benefit from this cost-sharing provision. Under AB 100/SB 77, the formula’s cost sharing percentage would be reduced to 20%. Projected 1997-98 formula cut: $1.8 million.


Direct Care Inflationary Increase: AB 100/SB 77 would increase the allowable FY 1997-98 direct care inflationary increase, or "increments," from the current formula level of 93% of the median to 150% of the median. The increment represents the maximum allowable direct care inflationary increase for which a facility may be paid during the next fiscal year. Projected 1997-98 formula enhancement: $10.1 million.


Support Services Increment Increase: The biennial budget bill would increase the support services inflationary increment by $.05 (5 cents) per Medicaid resident per day. This increase would allow facilities at the s upport services median to receive an inflationary adjustment. The current formula limits the support services inflationary increase to facilities at 93% of the median. Projected 1997-98 formula enhancement: $600,000.


High Medicaid Utilization Per Diem Adjustment: AB 100/SB 77 would increase the formula’s high Medicaid utilization payment from $.25 to $.50 (25 cents to 50 cents) per day for facilities with a Medicaid occupancy of at least 70%. County facilities are not eligible for this added payment. Projected 1997-98 formula enhancement: $1.5 million.


AB 100/SB 77 proposed payment formula changes are summarized in the following table:

1997-98 Formula Reductions

All Funds

Direct Care


Support Services, Administrative and General, Fuel and Utilities


Capital (debt) Cost Share


Reclassify Medicare Days as ISN Days





1997-98 Formula Increases


Direct Care Increment


Support Services Increment


High Medicaid Utilization Adjustment






1997-98 Net Formula Reductions:




WAHSA Positions




Please consider:




Description of Service

Hourly Wage

Foundry Worker (general)


Fork Lift Truck Operator


Garbage Truck Driver/Loader






Fast Food Second Manager







Resident Acuity Increases



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WAHSA 204 South Hamilton Street Madison, WI 53703
Telephone: (608)255-7060 FAX:(608)255-7064