j)EPARTMENTOFAUDITS AND ACCOUNTS Medicaid-and Local Government Audits A"Uj)ITREPORT JTORTIIEYEA.R.ENDED.JU.NE30, 1996 COL... UMBUS. PR..OFESSION.AL . . . <, . '. HEALTH.SERVIGES, INC. . '0 ,0' ': . HOM.. E OFFICE .', . NURSINGFACILITIES.SEltVICESPROGRAM TABLE OF CONTENTS LETTER OF TRANSMITTAL i INTRODUCTION 1 0 FINDINGS AND RECOMMENDATIONS 6 Summary of Audit Findings Affecting Allowable Costs 11 Schedule of Allowable Costs 13 Summary of Allocations to Chain Components 15 Report Prepared By: State ofGeorgia Department ofAudits and Accounts Medicaid and Local Government Audits Division w., 254 Washington Street. S. Suite 322 Atlanta, Georgia 30334-8400 (404) 656-2006 Michael A. Plant, Director CLAUDE L. VICKERS STATE AUDITOR DEPARTMENT OF AUDITS AND ACCOUNTS 254 Washington Street, S.W., Suite 214 Atlanta, Georgia 30334-8400 Telephone (404) 656-2006 Facsimile (404) 656-7535 October 29, 1997 Members of the Board of Medical Assistance, and The Honorable Dr. William R. Taylor, Acting 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 Columbus Professional Health Services, Inc., a home office with chain components participating in the Nursing Facilities Services Program for the year ended June 30, 1996. This report is intended to be used solely in connection with the administration of the Georgia Department of Medical Assistance Nursing Facilities Services Program and is not to be used or relied upon for any other purpose. Respectfully Submitted, t7~~ Claude L. Vickers State Auditor CLV/dt/bw 1996 Audit Report: Columbus Professional Health Services, 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 Facilities 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. A home office such as Columbus Professional Health Services, Inc., does not provide medical services directly to individuals. Instead, a home office provides a variety of administrative and other support services to other organizations. The organizations receiving services from the home office are known as chain components. Because a home office does not provide medical services directly to individuals, Medicaid does not pay a home office directly for the services provided by the home office. However, a chain component may include the cost of services furnished by its home office in the 2 Nursing Facilities Services Program HomeOfflce Information Audit Objectives Nursing Home Cost Report it submits to the Department of Medical Assistance. The costs that an individual chain component may include in its costs report are detennined by an allocation ofthe home office's allowable costs shown on the Home Office Cost Report submitted to the Department of Medical Assistance. The Home Office Cost Report includes financial, statistical, and other information. Information included in both the Nursing Home Cost Report and the Home Office Cost Report is subject to audit by the Department of Medical Assistance or its agents. In an agreement with the Department ofMedical Assistance, the Department ofAudits and Accounts has accepted the responsibility of auditing Medicaid providers and home offices. Columbus Professional Health Services, Inc., filed a Home Office Cost Report with the Georgia Department of Medical Assistance for the year ended June 30, 1996. The Home Office Cost Report listed eight chain components, two of which are nursing homes, both of which are in Georgia. In addition to the audit of the home office cost report, we have completed audits ofprovider cost reports filed by two components of the chain organization: Oak Manor Nursing Home, Inc. Pine Manor Nursing Home, Inc. The purpose of this audit was to determine whether Columbus Professional Health Services, Inc., maintained adequate 1996 Audit Report: Columbus Professional Health Services, Inc. 3 Scope and Methodology documentation to support the allowable costs reported in its Home Office Cost Report for the year ended June 30, 1996; and to detennine whether Columbus Professional Health Services, Inc., complied with the federal and state laws, regulations, policies and procedures for the Nursing Facilities Services Program in effect for that period. The specific objectives of this audit were to: detennine if allowable costs reported in the Home Office 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 Facilities Services Program; detennine if allowable costs have been properly allocated among the components of the chain organization; and recommend appropriate action based on the results of our audit. To accomplish these objectives: we perfonned a limited review ofthe home office's internal control structure to the extent necessary to plan our audit. We interviewed home office personnel and examined records and documentation to detennine the adequacy ofamounts and disclosures included in the Home Office Cost Report. We also 4 Nursing Facilities Services Program 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. The Department of Audits and Accounts is responsible for providing the Department ofMedical Assistance with information regarding the accuracy of cost information for Columbus Professional Health Services, Inc., and the allocation of its costs among its chain components for the year ended June 30, 1996. As a result of our audit, we have recommended that the Department of Medical Assistance make adjustments to the allowable costs claimed by Columbus Professional Health Services, Inc. The allocation of these audit adjustments among the chain components is shown in the Summary of Allocations to Chain Components on page 15. In our separate audits of the chain components, we have recommended that the Department of Medical Assistance adjust the allowable costs claimed by each chain component for its share of the adjustments to the home office's allowable costs. If the Department of Medical Assistance implements the recommendations in this report and the individual chain component audit reports by adjusting the allowable costs used in calculating the billing rate of each individual nursing home provider, that provider may 1996 Audit Report: Columbus Professional Health Services, Inc. 5 appeal to the Department of Medical Assistance for reconsideration of the audit findings. For this reason, we have not included a response from the home office in our report. However, we have discussed the contents of this report with the home office 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. 6 Nursing Facilities Services Program FINDINGS AND RECOMMENDATIONS Finding No.1 Pooled Costs Directly Allocated to Chain Components Allowable costs claimed by the home office included Nurse Aide Training and Testing (NATT) expenses that were directly allocated to specific chain components. Documentation examined during the audit showed that some of these costs were not for NATT and should have been included in pooled costs rather than being directly allocated to chain components. Federal regulations provide that allowable costs incurred for the benefit of, or directly attributable to, a specific provider must be allocated directly to the chain entity for which they were incurred; however, federal regulations also provide that allowable costs that have not been directly assigned to specific chain components must be allocated among the providers on a basis to equitably allocate the costs over the chain components or activities receiving the benefits of the costs. We recommend that the home office implement policies and procedures to ensure that only costs applicable to specific chain components are directly allocated to those components. We recommend that the Department of Medical Assistance make the following adjustment to reclassify the costs benefiting the entire chain from directly allocated costs to pooled costs. (HCFA Pub. 15-1 Section 2150.3B) DIRECTLY ALLOCATED COSTS Salaries and Wages POOLED COSTS Salaries and Wages Net Adjustment to Allowable Costs $ (2,649) 2,649 $====0= 1996 Audit Report: Columbus Professional Health Services, Inc. 7 Finding No.2 Costs Not Related to Patient Care 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 home office implement policies and procedures to ensure that expenses claimed in the cost report do not include items not related to patient care. We recommend that the Department ofMedical Assistance make the following adjustment to remove the non-patient care expenses from allowable costs. (HCFA Pub. 15-1 Sections 2102.3,2144.8; DMA Policies and Procedures Section 1002.l(k ITEMS Legal Expense Personal Purchases Sick Leave Expense Telephone Expense Vehicle Lease Expense $ (3,997) (19,710) (4,500) (970) (11,620) $ (40,797) POOLED COSTS Salaries and Wages Rental and Leasing Communications Legal Fees Travel and Entertainment Convention and Education Total Adjustment to Allowable Costs $ (4,500) (11,620) (970) (3,997) (858) (18,852) $=====(4:=0=,79:=7=) 8 Nursing Facilities Services Program Finding No.3 Cost Report Adjustment Reversal An adjustment was made during cost report preparation to remove salary costs and related employee benefits paid to an employee who performed duties that were not related to patient care. Documentation examined during the audit showed that the costs applicable to this employee were less than the costs report adjustments. 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 home office implement policies and procedures to ensure that adjustments made during cost report preparation are accurate. We recommend that the Department of Medical Assistance make the following adjustment to reverse a portion of the home office adjustment. (HCFA Pub. 15-1 Section 2304) POOLED COSTS Salaries and Wages $===1=,2:=34= Finding No.4 Excess Compensation 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 home office 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 Medical 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 ofpayi"oll taxes. (DMA Compensation Ceilings; HCFA 15-906) 1996 Audit Report: Columbus Professional Health Services, Inc. 9 Position Title Compensation Guideline Claimed Ceiling (A) Excess Chief Executive Officer $ Payroll Taxes Corporate Relations Officer Payroll Taxes 57,728 $ 3,193 37,224 2,848 48,740 $ 3,729 36,848 2,819 (8,988) 536 (376) (29) $ 100,993 $ 92,136 $ (8,857) (A) Ceilings have been adjusted to percentage of full-time, where applicable. POOLED COSTS Salaries and Wages $===(~8~,8~57d:) Finding No.5 Incorrect Expense Classifications Documentation examined during the audit showed that interest expense was not properly classified. Federal regulations provide that cost information as developed by the home office must be current, accurate and in sufficient detail to support payments made for services rendered to beneficiaries. We recommend that the home office 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 interest costs to the appropriate cost center. (HCFA Pub. 15-1 Section 2304; General Instructions to Cost Report) POOLED COSTS Rental and Leasing Interest Expense - Capital Related Total Adjustment to Allowable Costs $ (21,601 ) 21,601 $'===df::: 10 Nursing Facilities Services Program Finding No.6 Allocationsfrom Home Office Columbus Professional Health Services, Inc., was a component of a chain organization for the year ended June 30, 1996. As a result of our audit of the home office cost report filed in connection with the Medicaid Nursing Home Facilities Program, we recommended that the Department of Medical Assistance make adjustments to the allowable costs Claimed by the home office. We recommend that Columbus Professional Health Services, Inc. and its home office implement policies and procedures to ensure that only allowable costs are allocated from the home office to the provider. We recommend that the Department ofMedical Assistance make the following adjustment to correct allowable costs to reflect the allocation of the adjustments made to the home office cost report. (HCFA Pub. 15-1 Section 2150) POOLED COSTS Management Fees Allocation Statistics Administrative Expenses $ (1,078) (42,584) Total Adjustment to Allowable Costs $=::::::!::(4=:3=,6=62=) 1996 Audit Report: Columbus Professional Health Services, Inc. 11 SUMMARY OF AUDIT FINDINGS AFFECTING ALLOWABLE COSTS FINDING NUMBER DIRECTLY ALLOCATED COSTS Salaries and Wal:es 1 Pooled Costs Directly Allocated to Chain Components $==(=2=,64=9::=:) POOLED COSTS Salaries and Wat:es 1 Pooled Costs Directly Allocated to Chain Components $ 2 Costs Not Related to Patient Care 3 Cost Report Adjustment Reversal 4 Excess Compensation Rental and Leasinl: 2 Costs Not Related to Patient Care $ 5 Incorrect Expense Classifications Communications 2 Costs Not Related to Patient Care Lel:al Fees 2 Costs Not Related to Patient Care 2,649 (4,500) 1,234 (8,857) $ (11,620) (21,601) (9,474) (33,221) (970) (3,997) 12 Nursing Facilities Services Program FINDING NUMBER POOLED COSTS Travel and Entertainment 2 Costs Not Related to Patient Care Convention and Education 2 Costs Not Related to Patient Care Management Fees 6 Allocations from Home Office Interest Expense - Capital Related 5 Incorrect Expense Classifications Net Audit Findings Affecting Pooled Costs (858) (18,852) (43,662) 21,601 $ (89.433) 1996 Audit Report: Columbus Professional Health Services, Inc. 13 SCHEDULE OF ALLOWABLE COSTS COST REPORT TOTALS FIELD AUDIT FINDINGS AUDITED TOTALS DIRECTLY ALLOCATED COSTS Salaries and Wages $ Payroll Taxes Contracted Services Supplies and Postage Total Directly Allocated Costs $ 63,515 $ 7,645 735 925 72,820 $ (2,649) $ (2,649) $ 60,866 7,645 735 925 70,171 POOLED COSTS Salaries and Wages $ Sick Pay Employee Insurance Other Employee Benefits Payroll Taxes Depreciation and Amortization Rental and Leasing Utilities Communications Repairs and Maintenance Taxes and Licenses Insurance Supplies and Postage Legal Fees Accounting Fees Travel and Entertainment Transportation 227,467 $ 8,326 (1,998) (24,846) 6,682 32,586 17,599 3,579 1,934 (1,311 ) 1,569 703 2,162 6,462. 5,075 2,201 18,852 (9,474) $ (33,221) (970) (3,997) (858) (18,852) 217,993 8,326 (1,998) (24,846) 6,682 32,586 (15,622) 3,579 964 (1,311) 1,569 703 2,162 2,465 5,075 1,343 0 14 Nursing Facilities Services Program COST REPORT TOTALS FIELD AUDIT FINDINGS AUDITED TOTALS Dues and Subscriptions Management Fees Data Processing Property Consulting 3,113 228,653 11,716 1,045 (43,662) 3,113 184,991 11,716 1,045 Total Pooled Administrative Expenses $ 551,569 $ (111,034) $ 440,535 Interest Capital Related $ 0 $ 21,601 $ 21,601 Total Pooled Costs $ 551,569 $ (89,433) $ 462,136 1996 Audit Report: Columbus Professional Health Services, Inc. 15 SUMMARY OF ALLOCATIONS TO CHAIN COMPONENTS ALLOCATION OF ADJUSTMENTS TO: POOLED COSTS: DIRECTLY ALLOCATED COSTS(1) ALLOCATION STATISTICS(2) ADMINISTRATIVE EXPENSES INTEREST EXPENSE CAPITAL GEORGIA NURSING HOMES Oak Manor Nursing Home, Inc. Pine Manor Nursing Home, Inc. $ (1,478) $ (1,171) (2,440) $ (1,944) (52,205) $ 10,156 (41,585) 8,090 TOTAL GEORGIA NURSING HOMES $ (2,649) $ (4,384) $ (93,790) $ 18,246 TOTAL OTHER COMPONENTS 4,384 (17,244) 3,355 TOTAL ALLOCATION $ (2,649) $ 0$ (111,034) $ 21,601 (1) Adjustments were made to Nurse Aide Testing and Training costs which had been directly allocated to the components. (2) Adjustments were made to the pooled cost allocation statistics shown on the cost report fIled by the home office. The amounts in this column reflect the reallocation of the as-fIled home office costs.