Audit report, for the year ended June 30, 1998, A. G. Rhodes Home at Wesley Woods, Inc., Medicaid provider no. 00040818A, Nursing Facilities Services Program [June 30, 1998]

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DEPARTMENT OFAIJDITSAND ACCOUNTS Medicaid and Local Gov'ernmenf Audits ...

TABLE OF CONTENTS

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5

Summary of Audit Findings Affecting Allowable Costs and Patient Day Statistics 13

Schedule of Allowable Costs and Patient Day Statistics 15

Report Prepared By:
State ofGeorgia Department ofAudits and Accounts Medicaid and Local Government Audits Division
254 Washington Street. s. w.. Suite 322
Atlanta. Georgia 30334-8400 (404) 656-2006
Michael A. Plant. Director

RUSSELL W. HINTON
STATE AUDITOR

DEPARTMENT OF AUDITS AND ACCOUNTS
MEDICAID AND LOCAL GOVERNMENT AUDITS
254 Washington Street, S.w., Suite 322 Atlanta, Georgia 30334-8400
Telephone (404) 656-2006 Facsimile (404) 656-7535
June 22, 1999

MICHAEL A. PLANT
DJRECfOR

Members of the Board of Medical Assistance, and The Honorable Dr. William R. Taylor, Commissioner Department of Medical Assistance 2 Peachtree Street, N.W., 40th Floor Atlanta, Georgia 30303
Ladies and Gentlemen:
This report provides the results of our audit of A.G. Rhodes Home at Wesley Woods, Inc., provider number 00040818A, a participant in the Nursing Facility Services Program for the year ended June 30, 1998. This report is intended to be used solely in connection with the administration of the Georgia Department of Medical Assistance Nursing Facility Services Program and is not to be used or relied upon for any other purpose.
Respectfully Submitted,
~tD.~~ Russell W. Hinton State Auditor
RWH/cr/bw

1998 Audit Report: A.G. Rhodes Home at Wesley Woods. Inc.

1

INTRODUCTION

General Information

The Georgia Medical Assistance Program (Medicaid) is administered by the Georgia Department of Medical Assistance and is jointly funded by the State of Georgia and the federal government. Medicaid pays health care providers for furnishing health care services to individuals or families with low income and limited resources. The Department of Medical Assistance has established specific payment guidelines and limitations for each covered medical service.

Through the Nursing Facility Services Program, Medicaid pays for care in institutional settings for recipients who are unable to remain at home or in the community. Nursing homes are paid for this service using rates calculated from Nursing Home Cost Reports submitted by each provider. These cost reports include financial, patient census, and other information. Information included in the Nursing Home Cost Report is subject to audit by the Department of Medical Assistance or its agents. In an agreement with the Department of Medical Assistance, the Department of Audits and Accounts has accepted the responsibility of auditing Medicaid providers.

Provider Information

A.G. Rhodes Home at Wesley Woods, Inc., a I50-bed long-term health care facility located in Atlanta, Georgia, is a provider enrolled in the Georgia Medicaid Nursing Facility Services Program. The facility provides both skilled and intermediate care services to resident patients.

2

Nursing Facility Services Program

The facility was operated as a freestanding nursing home by Bauguess Management Co., Inc., for the year ended June 30, 1998.

Audit Objectives

The purpose of this audit was to determine whether A.G. Rhodes Home at Wesley Woods, Inc., maintained adequate documentation to support the allowable costs and patient day statistics reported in its Nursing Home Cost Report for the year ended June 30, 1998; and to determine whether A.G. Rhodes Home at Wesley Woods, Inc., complied with the federal and state laws, regulations, policies and procedures for the Nursing Facility Services Program in effect for that period. The specific objectives of this audit were to:



determine if allowable costs re.ported in the Nursing

Home Cost Report are reasonable and allowable, in

all material respects, in accordance with federal and

state laws, regulations, policies and procedures

governing the Georgia Nursing Facility Services

Program;



compare patient day statistics included in the cost

report to provider records to determine if the patient

day statistics are accurately reported; and



recommend appropriate action based on the results

of our audit.

1998 Audit Report: A.G. Rhodes Home at Wesley Woods. Inc.

3

Scope and Methodology

To accomplish these objectives, we perfonned a limited review of the provider's internal control structure to the extent necessary to plan our audit. We interviewed provider personnel and examined records and documentation to determine the adequacy of amounts and disclosUfes included in the Nursing Home Cost Report. We also reviewed, on a test basis, evidence supporting these amounts and disclosures and assessed the accounting principles used and significant estimates made by management. We evaluated the tested transactions and accounts for compliance with cost reporting principles included in the Health Care Financing Administration Provider Reimbursement Manual (RCFA Pub. 15-1) and DMA Policies and Procedures for Nursing Facility Services.
In accordance with Section 1002 of Policies and Procedures for Nursing Facility Services, the Department of Medical Assistance has
calculated the payment rate for A.G. Rhodes Home at Wesley Woods,
Inc., using a method often called the "Dodge Index system". Under the Dodge Index system, reasonable construction and asset acquisition costs are used in calculating the payment rate rather than the actual costs incurred by the nursing home for property costs such as depreciation and amortization; capital-related interest expense; and lease expense. Because these property costs are not considered by the Department of Medical Assistance when calculating the payment rate for A.G. Rhodes Home at Wesley Woods, Inc., our audit did not include a review of these costs. However, because property taxes and insurance are used by the Department of Medical Assistance to

4

Nursing Facility Services Program

calculate the provider's payment rate, we have reviewed those costs as part of our audit.
As a result of audit procedures related to other (non-property) costs, we noted adjustments which should be made by the Department of Medical Assistance related to bond expense, depreciation, and amortization. We have included findings related to these matters in our report.
The Dep8.rtment of Audits and Accounts is responsible for providing the Department of Medical Assistance with information regarding the accuracy of cost and patient data for A.G. Rhodes Home at Wesley Woods, Inc., for the year ended June 30, 1998. If the Department of Medical Assistance implements the recommendations in this report by adjusting the allowable costs and/or patient day statistics used in calculating the provider's billing rate, the provider may appeal to the Department of Medical Assistance for reconsideration of the audit fmdings. For this reason, we have not included a response from the provider in our report. However, we have discussed the contents of this report with the provider and have considered its responses when preparing the report. In all other respects, this audit was conducted in accordance with generally accepted government auditing standards.

1998 Audit Report: A.G. Rhodes Home at Wesley Woods. Inc.

5

FINDINGS AND RECOMMENDATIONS

Incorrect Expense Classifications

Finding No.1

Documentation examined during the audit showed that some of the expenses were not classified in accordance with th~ Uniform Chart of Accounts prescribed by the Department of Medical Assistance for providers participating in the Medicaid Nursing Facilities Services Program. We recommend that the provider implement policies and procedures to ensure that all of its expenses are classified in the appropriate cost centers. We recommend that the Department of Medical Assistance make the following adjustment to reclassify costs to the appropriate cost centers.
(DMA Policies and Procedures, Appendix D)

COST CENTER Routine Services Linen Expense Laundry and Housekeeping Linen Expense Administrative and General Bond Expense Liability Insurance Property and Related Expenses Bond Expense Liability Insurance
Total Adjustment to Allowable Costs

$

$ (5,212) 12,072

$

5,212

(12,072)

$

( 301) 301
6,860
(6,860) 0

Costs Not Related to Patient Care

Finding No.2

Allowable costs claimed included payments which were not considered to be for patient care operations. Federal regulations provide that costs which are not appropriate or necessary and proper in developing and maintaining the operation of patient care facilities and activities are not allowable in computing allowable costs. We recommend that the provider implement policies and procedures to

6

Nursing Facility Services Program

ensure that expenses claimed in the cost report do not include items not related to patient care. We recommend that the Department of Medical Assistance make the following adjustment to remove the non-patient care expenses from allowable costs.
(HCFA Pub.1S-1 Section 110, 2102.1, 2136.2; DMA Policies and Procedures Sections 901, 1002.1(k))

ITEMS Legal and Accounting Fees Promotional Brochures Prosthetic Devices

$

(1,622)

(8,366)

(1,080)

$ (11,068)

COST CENTER Routine Services Administrative and General
Total Adjustment to Allowable Costs

$

(1,080)

(9,988)

$_--lI(.1..1._,0_6.8.).

Recalculation ofAncillary Services Cost Adjustment

Finding No.3

The provider received revenues from the sale of ancillary services to patients; therefore, allowable costs for special services are limited to the maximum allowable cost calculated on Schedule B-IA of the cost report~ Documentation examined during the audit showed that certain corrections were necessary to amounts reported on Schedule B-1A as total cost per books, total charges, Medicaid charges, total patient days, and Medicaid patient days. These findings required the recalculation or Schedule B-IA. A copy of this recalculation has been furnished to the provider. We recommend that the provider implement policies and procedures to ensure that all information used to calculate the ancillary services cost adjustment is correct. We recommend that the Department of Medical Assistance make the following adjustment to decrease allowable costs for the net effect of the recalculation.
(General Instructions to the Cost Report)

1998 Audit Report: A.G. Rhodes Home at Wesley Woods. Inc.

7

Ancillary Services
Medical Supplies
COST CENTER Routine Services

Adjustment Per Cost Report

Recalculated Adjustment

Audit Finding

$_.......-=====0 $ (162,166) $ (162,166)

$ (162,166)

Excess Compensation

Finding No.4

Allowable costs claimed included compensation to employees which exceeded DMA maximum limitations. The Department of Medical Assistance annually calculates allowable salary ceilings for various positions as well as maximum fees allowable for medical and corporate directors. We recommend that the provider implement policies and procedures to ensure that compensation to its employees which exceeds the DMA maximum limitations is excluded from allowable costs claimed. We recommend that the Department of Medic.al Assistance make the following adjustment to reduce allowable costs by the amount of compensation paid in excess of the DMA guidelines, plus related employer's share of payroll taxes.
(DMA Compensation Ceilings; HCFA 15-906)

Position Title

Total

Guideline

Compensation Ceiling (A)

Excess

Medical Director Administrator
Payroll Taxes

$

35,140 $

16,087 $

(19,053)

111,786

63,515

(48,271)

5,862

4,859

(1,003)

$

152,788 $

84,461 $

(68,327)

(A) Ceilings have been adjusted to percentage of full-time, where applicable.

8

Nursing Facility Services Program

COST CENTER Special Services Administrative and General
Total Adjustment to Allowable Costs

$

(19,053)

(49,274)

$_......",iiC6_8..,.3._2.7.)

Expense Reimbursements

Finding No.5

Documentation examined during the audit showed that amounts shown on the cost report as revenues were from sales of materials and/or services, the cost of which were included in allowable costs claimed. Federal regulations provide that amounts received for discounts, allowances, refunds and rebates are not to be considered a form of income but should be used to reduce the specific costs to which they apply. We recommend that the provider implement policies and procedures to ensure that allowable costs claimed are reduced by any expense reimbursements received. We recommend that the Department of Medical Assistance make the following adjustment to reduce allowable costs claimed by expense reimbursements shown as revenues.
(HCFA Pub. 15-1 Section 800)

COST CENTER Dietary

$_ _.....(..6._06~)

Allocation ofIndirect Expenses to Non-Patient Care Areas

Finding No.6

The provider uses a portion of its building for purposes which are not related to patient care. Indirect expenses related to the non-patient care use of the building are calculated on Schedule B-5 of the cost report. Documentation examined during the audit showed that certain corrections were necessary to amounts reported -on Schedule B-5 as allowable costs and square footage. These findings required the recalculation of Schedule B-5. A copy of this recalculation has been furnished to the provider. We recommend that the provider implement policies and procedures to ensure that all information used to allocate indirect expenses to

1998 Audit Report: A.G. Rhodes Home at Wesley Woods. Inc.

9

non-patient care areas is correct. We recommend that the Department of Medical Assistance make the following adjustment to decrease allowable costs for the net effect of the recalculation.
(HCFA Pub. 15-1 Section 2102.3; General Instructions to the Cost Report)

COST CENTER Laundry and Housekeeping Operation and Maintenance of Plant . Property and Related Expenses
Total Adjustment to Allowable Costs

$

(1,014)

(680)

(1,504)

$................_(3..,.1..9...8...)..

Start Up Costs .

Finding No.7

The provider entered the program on July 1, 1997, and claimed expenses from July 1, 1997, to June 30, 1998. However, the provider did not begin admitting patients until September 17, 1997. Documentation examined during the audit showed that costs incurred prior to September 17, 1997, qualify as start up costs and should be amortized over a 60 month period. We recommend that the provider implement policies and procedures to ensure that these costs are amortized over 60 months. We recommend that the Department of Medical Assistance make the following adjustment to decrease allowable costs for fiscal year June 30, 1998.
(HCFA Pub. 15-1 Section 2132.3)

COST CENTER Operation and Maintenance of Plant Administrative and General
Total Adjustment to Allowable Costs

$

(1,543)

(6,653)

(8,196)

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Nursing Facility Services Program

Fixed Asset Purchases Claimed as Expense

Finding No.8

Allowable costs claimed included purchases of assets which are considered to be capital additions to property under generally accepted accounting principles. The Uniform Chart of Accounts issued by DMA provides for inclusion of such assets in property accounts. We recommend that the provider implement policies and procedures to ensure that all purchases of fixed assets are shown on the cost report as capital additions. We recommend that the Department of Medical Assistance make the following adjustment to reduce allowable costs by the amount of purchased assets claimed as expense and to increase allowable costs by depreciation allowable.
(HCFA Pub. 15-1 Section 108)

COST CENTER . Administrative and General Cost of Major Moveable Equipment Property and Related Expenses Allowable Depreciation
Total Adjustment to Allowable Costs

$

(779)

19

$_ _-*'(7..6..0..)

Bond Issuance Costs Claimed as Expense

Finding No.9

Allowable costs claimed included bond issuance costs used to fund the purchase of assets which are considered to be capital additions to property under generally accepted accounting principles. The Uniform Chart of Accounts issued by DMA provides for inclusion of such bond issuance costs in property accounts. We recommend that. the provider implement policies and procedures to ensure that bond issuance costs are shown on the cost report as capital expenses. We recommend that .the Department of Medical Assistance make the following adjustment to reduce allowable costs by the amount of bond issuance costs claimed as expense and to increase allowable costs by the amount of amortization allowable.
(HCFA Pub. 15-1 Section 108; DMA Policies and Procedures, Appendix D)

1998 Audit Report: A.G. Rhodes Home at Wesley Woods, Inc.

11

COST CENTER Administrative and General Bond Issuance Costs Property and Related Expenses Amortization Expense
Total Adjustment to Allowable Costs

$

(692)

28

$......-.:=.(...6...6..4_)

Lack ofSufficient Documentation

Finding No. 10

Some of the expenses included in allowable costs were not supported by adequate documentary evidence. Federal regulations provide that cost information as developed by the provider must be current, accurate, and in sufficient detail to support payments made for services rendered to beneficiaries. We recommend that the provider implement policies and procedures to ensure that all expenses shown on the cost report are supported by sufficient documentation. We recommend that the Department of Medical Assistance make the following adjustment to remove the undocumented expenses from allowable costs.
(HCFA Pub. 15-1 Section 2304)

COST CENTER Administrative and General

$_ _--..(8.;,.95~)

Patient Day Statistics

Finding No. 11

Census records examined during the audit showed that the nursing home had 34,186 patient days of service rather than the 33,794 shown on the cost report. Federal regulations provide that cost information as developed by the provider must be current, accurate, and in sufficient detail to support payments made for services rendered to beneficiaries. We recommend that the provider implement policies and procedures to accumulate accurate patient day statistics. We

12

Nursing Facility Services Program

recommend that the Department of Medical Assistance make the adjustment of 392 days to correct the statistical information.
(HCFAPub.IS-1 Section 2304)

Accounts Receivable Credit Balances

Finding No. 12

Documentation examined during the audit showed that the provider had numerous credit balances in its individual accounts receivable. Credit balances in the facility's accounts receivable result from overpayments for services provided to its patients. The $2;758.52 shown in the following table represents overpayments from the Department of Medical Assistance that had not been resolved as of March 1, 1999. We recommend that the provider review its credit accounts receivable and refund overpayments to the appropriate party. We further recommend that the provider implement policies and procedures to ensure that overpayments on patients' accounts are promptly refunded to the payor. We also recommend that the Department of Medical Assistance review this matter and recover any overpayments identified.

Patient Name
Herring, Clarice Shedd, Harvey Stallings, Addie Wilson, Marjorie
Total

Balance
$ 1,291.28 158.82 86.97
1,221.45
$ 2,758.52

1998 Audit Report: A.G. Rhodes Home at Wesley Woods, Inc.

13

SUMMARY OF AUDIT FINDINGS AFFECTING ALLOWABLE COSTS AND PATIENT DAY STATISTICS

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Nursing Facility Services Program

FINDING
NUMBER

ALLOWABLE COSTS

Administrative and General

1

Incorrect Expense Classifications

$

6,860

2

Costs Not Related to Patient Care

(9,988)

3

Excess Compensation

(49,274)

7

Start Up Costs

(6,653)

8

Fixed Asset Purchases Claimed as Expense

(779)

9

Bond Issuance Costs

(692)

10

Lack of Sufficient Documentation

(895)

Property and Related Expenses

1

Incorrect Expense Classifications

$

(6,860)

5

Allocation of Indirect Expenses to Non-Patient

Care Areas

(1,504)

8

Fixed Asset Purchases Claimed as Expense

19

9

Bond Issuance Costs

28

Total Audit Findings Affecting Allowable Costs

$

(61,421)
(8,317) (255,880)

PATIENT DAY STATISTICS

11 Patient Day Statistics

392

1998 Audit Report: A.G. Rhodes Home at Wesley Woods, Inc.

15

SCHEDULE OF ALLOWABLE COSTS AND PATIENT DAY STATISTICS

ALLOWABLE COSTS Routine Services Special Services Dietary Laundry and Housekeeping Operation and Maintenance of Plant Administrative and General Property and Related Expenses

COST REPORT TOTALS

FIELD AUDIT FINDINGS

AUDITED TOTALS

$

2,084,532 $ (163,547) $ 1,920,985

149,939

(19,053)

130,886

383,271

(606)

382,665

294,472

(713)

293,759

199,315

(2,223)

197,092

608,579

(61,421)

547,158

450,483

(8,317)

442,166

Total Allowable Costs

$

4,170,591 $ (255,880) $ 3,914,711

PATIENT DAY STATISTICS

33,794

392

34,186