Office of Facilities Regulation Performance Audit

1. Office of Facilities RegulationPerformance Audit Presentation for the National State Auditors Association Annual Conference June 8, 2006 Ernest A. Almonte, CPA, CFE Auditor General – State of Rhode Island

2. Audit Team Members • Robert Voccia – Supervising Auditor • Patricia Testa, CPA – Principal Auditor • David Naylor – Principal Auditor • Andrea Butola, CPA – Principal Auditor • Manrique Vargas, CISA – Supervising Information Technology Auditor • Gianfranco Monaco, CISA – Principal Information Technology Auditor

3. Background • During 2004 and 2005 the Department of Health’s (DOH) regulation and oversight of the State’s nursing facilities became the object of intense media and public scrutiny. • News articles detailed • deteriorating condition and ultimate death of a nursing home resident, • Office of Facilities Regulation’s (OFR) regulatory response, and • deficient conditions at the facility.

12. Background (con’t) • Media reports concluded that: • OFR reluctant to close poorly performing nursing facilities, • regulators were afraid of alienating nursing home interests, and • public’s access to inspection results was delayed.

13. Background (con’t) • Several reviews of the regulatory process and the underlying State general laws began. • The Governor commissioned a review. • The Lieutenant Governor, Chairman of the Long Term Care Coordinating Council, established a task force. • The General Assembly’s Joint Legislative Committee on Health Care Oversight began public hearings.

14. Background (con’t) • In October 2004 the JCLS directed the Office of the Auditor General to conduct a performance audit of OFR, including: • evaluating policies and procedures, • compliance with laws and regulations, and • functions, financing and staffing. • The audit was to be completed by February 1, 2005.

15. Background (con’t) • Challenges: • Timeframe • Other entities examining same issues • How do we evaluate OFR decisions – no medical expertise • How do we comment without establishing policy or favoring certain proposals (further study) • Cooperation sometimes difficult due to environment

16. Objectives, Scope and Methodology • Objective - practices and procedures complied with federal and state laws and regulations and were effective and efficient • Scope – GAGAS, period covered, policies and procedures - did NOT include evaluating professional judgment - did NOT include evaluating adequacy of laws • Methodology – review laws and regulations, policies and procedures, interviews (DOH, DEA, DHS, AG, Ombudsman), survey files, complaint documentation and financial data

17. Background - OFR • The Office of Facilities Regulation (OFR) • Primary responsibility – ensure compliance of all state licensed and federally certified health care facilities. • Wide range of facilities from hospitals to tattoo and body piercing establishments (approximately 690 facilities). • Budget $3.7 million • 39 employees including 25 field surveyors

18. Findings and Recommendations The Findings and Recommendations section of the audit report was presented in the following four subsections: • STATE AND FEDERAL SURVEY REQUIREMENTS • COMPLAINT INVESTIGATION REQUIREMENTS • OFFICE OF FACILITIES REGULATION RESOURCES • FISCAL MONITORING OF NURSING FACILITIES

19. State and Federal Survey Requirements • Both federal and state laws and regulations govern the regulation of nursing homes. • State laws layer additional requirements over the federal requirements. • OFR can not met additional state requirements. Federal and state survey requirements are summarized in the following table.

20. Comparison of State and Federal Survey Requirements for Nursing Facilities: Survey requirement Federal State Annual survey Survey required between 9 to 15 months following the previous survey to achieve an overall average of 12 months Annual licensing survey required (G.L. 23-17-7 and 23-17-12) Unannounced additional surveys No equivalent requirement 2 required each year in addition to annual licensing survey (G.L. 23-17-12) Substandard care found during annual licensing survey No equivalent requirement Bi-monthly inspections required for the following 12 months (G.L. 23-17-12) Deficiencies noted during annual licensing survey Follow-up inspection required – time interval dependent upon the scope and severity of the deficiencies cited No equivalent requirement State and Federal Survey Requirements (con’t)

21. State and Federal Survey Requirements (con’t) • No interim surveys for most nursing facilities. • Six out of seven facilities cited for substandard care between were not inspected on a bi-monthly basis as required. • No annual licensing inspection for 6 facilities (2003) and 9 facilities (2004) • No annual licensing inspection for 14 of State’s 15 hospitals

22. State and Federal Survey Requirements (con’t) Matters Requiring Further Study Or Legislative Deliberation: • Affirm need for additional state surveys - if so consider risk-based approach (modify statute) • Factors - previous surveys, responsiveness to deficiencies, financial condition, etc. • Risk-based approach allows the OFR latitude to use its resources more effectively.

23. State and Federal Survey Requirements (con’t) • No formal policies or procedures to track survey deficiencies throughout the process. • Allegations of favoritism • Complaints by employees and former employees of deleted deficiencies • Dropped in decision making and quality control processes

24. Complaint Investigation Requirements • OFR met the Federal timeframes for complaint investigations. • Could not meet the more stringent state requirement (7 days). The following two tables represent the complaint categories and statistics on compliance with federal and state timeframes.

25. Complaint Category Description Timeframes Federal State Immediate jeopardy Facility’s noncompliance with one or more conditions or requirements indicates immediate corrective action is necessary because serious injury, harm, impairment or death to a resident, patient or client has, or is likely to occur. 2 working days 24 hours Non immediate jeopardy – high Facility’s noncompliance with one or more conditions or requirements may have caused, harm that impairs mental, physical and/or psychosocial status. 10 working days 7 days Non immediate jeopardy – medium Facility’s noncompliance with one or more conditions or requirements may have caused harm or potential of more than minimal harm that does not significantly impair mental, physical, and/or psychosocial status. 45 working days 7 days Non immediate jeopardy – low Complaints that allege discomfort that does not constitute injury or damage. next onsite survey 7 days Administrative review Complaints not needing an onsite investigation -- further investigative action (written/verbal communication or documentation) initiated and information gathered is adequate in scope and depth to determine that an onsite investigation is not necessary. Not applicable No action necessary Adequate information has been received about the incident/complaint such that the state agency can determine with certainty that no further investigation, analysis, or action is deemed necessary. Not applicable Complaint Investigation Requirements (con’t)

26. Fiscal 2004 Complaints – Compliance with Investigation Timeframes: Complaint Category Number Federal Complaint Investigation Timeframes State Complaint Investigation Timeframes Met federal time requirements Exceeded federal time requirements Met state time requirements Exceeded state time requirements Immediate jeopardy 2 1 1 0 2 Non immediate jeopardy - high 2 2 0 2 0 Non immediate jeopardy - medium 17 4 13 3 14 Non immediate jeopardy - low 783 725 58 * 75 708 Administrative review 7 7 0 0 7 Referral 0 0 0 0 0 Total complaints requiring investigation  811  739  72  80  731 91% 9% 10% 90% No action necessary 226 Total all complaints 1,037 * All Non immediate jeopardy low complaints exceeding the federal time requirements occurred before January 1, 2004 when the time requirement was 120 days rather than the current requirement which is at the time of the next survey. Complaint Investigation Requirements (con’t)

27. Complaint Investigation Requirements (con’t) Matters Requiring Further Study or Legislative Deliberation: • Complaint investigation requirements outlined in state law are much more stringent than federal law and regulation. • Full compliance requires significant dedicated resources • Competing resources • Ease state timeframe for complaints – additional high risk surveys. • Lessening state survey requirements - resources available more timely complaint investigations

28. Complaint Investigation Requirements (con’t) Matters Requiring Further Study Or Legislative Deliberation: • Federal complaint triage categories (CMS) differ from State law. • Two sets of requirements (burdensome, difficult to interpret and apply) • Consider aligning State and Federal complaint triage categories • State timeframes for investigation could still remain more stringent

29. Office of Facilities Regulation Resources • Staffing analysis was prepared to support need for additional personnel. • Analysis was incomplete and unsupported. • Failed to accurately document number of additional personnel needed • Clear that additional resources required for compliance

30. Office of Facilities Regulation Resources (con’t) • OFR needs additional resources to perform its mandated federal and state functions. • OFR’s mandated responsibilities should be reexamined • Additional resources aligned with statutory provisions

31. Fiscal Monitoring of Nursing Facilities • Direct relationship between fiscal soundness and ability to provide consistent quality of care • OFR did not assess or consider financial position • Multiple solutions were being proposed • Report discussed use of financial condition as indicator of increased risk of deteriorating care.

32. Fiscal Monitoring of Nursing Facilities (con’t) The Fiscal Monitoring of Nursing Facilities section of our report was presented in the following subsections: • FINANCIAL INFORMATION CURRENTLY EXISTING • FORM AND LEVEL OF REQUIRED FINANCIAL INFORMATION • RESPONSIBILITY FOR PERFORMING THE FINANCIAL EVALUATION • CRITERIA FOR EVALUATING FINANCIAL CONDITION • UTILIZATION OF THE FINANCIAL DATA TO ENHANCE MONITORING • SOLUTIONS FOR FINANCIALLY TROUBLED FACILITIES

33. Fiscal Monitoring of Nursing Facilities (con’t) Financial Information Currently Existing • The Department of Human Services (DHS) receives annual cost reports from each nursing facility. • Cost report contains detailed financial information (B/S, O/S (Medicaid only)) • Cost report is unaudited - audited F/S not required. • Cost reports utilized for rate setting - not to evaluate the financial position.

34. Fiscal Monitoring of Nursing Facilities (con’t) Form and Level of Required Financial Information • Cost reports versus audited financial statements • Cost report provides a valuable and already available source of financial data for analysis. • Trend information regarding increases/decreases in accounts payable and receivable, retained earnings and total capital. • Requiring facilities submit certain supplementary financial information may be sufficient.

35. Fiscal Monitoring of Nursing Facilities (con’t) Form and Level of Required Financial Information (con’t) • Audited financial statements not required by either DOH or DHS • Additional cost to facility or State • Privately owned, non-profit, corporate chain • Financial statements and note disclosures don’t provide detail contained within cost reports • If F/S required - combination of both would likely be required to effectively analyze the financial data

36. Fiscal Monitoring of Nursing Facilities (con’t) Responsibility for Performing the Financial Evaluation • OFR – DHS – another entity • OFR does not employ fiscal staff • DHS’ Rate Setting Unit (RSU) establishes per diem Medicaid rates • Best suited (level of expertise, past experience) – potential appearance of conflicting responsibilities

37. Fiscal Monitoring of Nursing Facilities (con’t) Criteria for Evaluating Financial Condition • Criteria for evaluating financial condition does not exist in law or regulation. • Criteria should be straightforward and capable of objective measurement • Significant operating losses for two successive years • Frequent requests for advances on Medicaid reimbursements • Unfavorable working capital ratios • High proportion of accounts receivable more than 90 days old • Increasing accounts payable, unpaid taxes and/or payroll related costs • Minimal or decreasing equity and/or reserves • High levels of debt and high borrowing costs

38. Fiscal Monitoring of Nursing Facilities (con’t) Utilization of Financial Data to Enhance Monitoring • State law currently requires the Director of DOH to establish, by regulation, criteria to determine the frequency of unannounced inspections • Law appears to allow DOH to establish a more risk-based approach - which could incorporate financial condition • Generate financial rating factor (RSU) for use in a risk-based model

39. Fiscal Monitoring of Nursing Facilities (con’t) Solutions for Financially Troubled Facilities • Additional regulatory oversight versus financial assistance. • Public disclosure or not • Consider ownership (privately owned, non-profit, corporate chain) • Capacity of system – close versus assist

40. Impact of Audit • Results of our audit presented to Joint Committee on Health Care Oversight at public hearing • Legislation enacted incorporating various recommendations • OFR budget was modified increasing authorized positions

41. Office of Facilities Regulation A complete copy of the audit report is available at the Office of the Auditor General’s website. www.oag.ri.gov QUESTIONS?