"'f' I A$oo.mf . ; RI ~----iiiiiiiiiiiiiiliiiiBiiiiiiiiiiiiiii'iiiiiiiiiiiiii'iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii iiiiiiiiiiiiiiiiiiiiiiiiiiiiii~ CS57 trtb1f, DEPARTMENT OF.AUDITSAND ACCOUNTS Medicaid and Local Gover:nmenfAudits . . ..AUDrrREPORT . lfORTHEYEARENDEDJUNE>30, 1996 .COMMUNITCAREoF AMERIC.A,lNC~ . ... NURSINGFACILI'fIESSERVl~E~~~gd~~ TABLE OF CONTENTS LETTER OF TRANSMITTAL i e INTRODUCTION 1 e- -. FINDINGS AND RECOMMENDATIONS 6 Summary of Audit Findings Affecting Allowable Costs e 14 Schedule of Allowable Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Summary of Allocations to Chain Components 21 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 :::LAUDE 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 December3,1997 Members of the Board ofMedical 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 Community Care of America, Inc., a home S 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 ofthe Georgia Department ofMedical Assistance Nursing Facilities Services Program and is not to be used or relied upon for any other purpose. Respectfully Submitted, CLV/mn/bw Claude L. Vickers State Auditor 1996 Audit Report: Community Care of America, 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 ofGeorgia 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 ofMedical 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 Community Care of America, 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 Nursing Home Cost 2 HomeOfflee Information Nursing Facilities Services Program Report it submits to the Department ofMedical Assistance. The costs that an individual chain component may include in its costs report are determined by an allocation of the 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 of Medical Assistance, the Department of Audits and Accounts has accepted the responsibility of auditing Medicaid providers and home offices. Community Care of America, 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 61 chain components, 55 of which are nursing homes, 6 of which are in Georgia. In addition to the audit of the home office cost report, we have completed audits of provider cost reports filed by six components of the chain organization: Community Care of America at College Park Community Care of America at Conner Community Care of America at Dublin Community Care of America at Macon Community Care of America at Marietta Countryside Health Center 1996 Audit Report: Community Care of America, Inc. 3 Audit Objectives Scope and Methodology The purpose ofthis audit was to determine whether Community Care ofAmerica, Inc., maintained adequate documentation to support the allowable costs reported in its Home Office Cost Report for the year ended June 30,1996; and to determine whether Community Care of America, 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: determine 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; determine 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 performed a limited review of the home office's internal control structure to the extent necessary to plan our audit. We interviewed home office personnel and examined 4 Nursing Facilities Services Program records and documentation to determine the adequacy ofamounts and disclosures included in the Home Office 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 (HCFA 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 Community Care of America, 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 Community Care of America, Inc. The allocation of these audit adjustments among the chain components is shown in the Summary of Allocations to Chain Components on page 21. 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. Ifthe Department of Medical Assistance implements the recommendations in this report and the individual chain component audit 1996 Audit Report: Community Care of America, Inc. 5 reports by adjusting the allowable costs used in calculating the billing rate of each individual nursing home provider, that provider may 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 Finding No.1 FINDINGS AND RECOMMENDATION Lack ofSufficient Documentation Some of the expenses included in allowable costs were not supported by adequate documentary evidence. Federal regulations provide that cost infonnation 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 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) DIRECT COSTS Salaries and Wages Employee Insurance Depreciation and Amortization Communications Taxes and Licenses - Non-Capital Related Supplies and Postage Legal Fees Travel and Entertainment Miscellaneous $ (393,402) (52,000) (83,058) (238) (1,328) (3,411) (14,364) (16,408) (402) Total Adjustment to Allowable Costs $ (564,611) POOLED COSTS Depreciation and Amortization Repairs and Maintenance Total Adjustment to Allowable Costs $ (31,758) (5,295) $=======(3=:7=,0=53:=) 1996 Audit Report: Community Care of America, Inc. 7 Finding No.2 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. A detailed listing of employees who received compensation in excess of allowable amounts has been provided to the home office. 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 of payroll taxes. (DMA Compensation Ceilings; HCFA 15-906) DIRECT COSTS Salaries and Wages Payroll Taxes $ (358,646) (5,200) Total Adjustment to Direct Costs $ (363,846) POOLED COSTS Salaries and Wages Payroll Taxes Total Adjustment to Pooled Costs $ (1,007,987) (21,744) $ (1,029,731) Finding No.3 Costs Applicable to Specific Chain Components Allowable costs claimed by the home office included expenses applicable to specific 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. We recommend that the home 8 Nursing Facilities Services Program office implement policies and procedures to ensure that costs applicable to specific chain components are directly allocated to the individual chain components. We recommend that the Department of Medical Assistance make the following adjustment to reclassify the costs applicable to a specific chain component from pooled costs to directly allocated costs. (HCFA Pub. 15-1 Section 2150.3B) DIRECTLY ALLOCATED COSTS Travel and Entertainment POOLED COSTS Travel and Entertainment Net Adjustment to Allowable Costs $ 24,225 (24,225) $====0= Finding No.4 Home Office Costs Paid by Chain Components Allowable costs claimed by a component of the home office included amounts incurred for other 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 ona basis to equitably allocate the costs over the chain components or activities receiving the benefits of the costs. We recommend that the home office and its chain components implement policies and procedures to ensure that costs incurred for the benefit of select chain components are included in home office allowable costs and allocated to those components rather than in a chain component's allowable costs. We recommend that the Department of Medical Assistance make the following adjustment to increase allowable costs for expenses paid by a chain component which benefited other components. (HCFA Pub. 15-1 Section 2150.3) 1996 Audit Report: Community Care of America, Inc. 9 DIRECT COSTS Other Employee Benefits $===15:,24=4= Finding No.5 Excess Depreciation Documentation examined during the audit in support of fixed assets and depreciation showed that either the property was not included in the proper class or depreciation was not calculated in accordance with DMA guidelines. DMA Policies and Procedures require the use ofminimum required asset lives. We recommend that the home office implement policies and procedures to ensure that depreciation expense is calculated in accordance with DMA guidelines. We recommend that the Department of Medical Assistance make the following adjustment to reduce allowable costs claimed by the amount ofdepreciation expense claimed in excess of the total allowable. (DMA Depreciation Guidelines, DMA Policies and Procedures Section 1002.1(k)) DIRECT COSTS Depreciation and Amortization $.==(=::9=,0=39=) Finding No.6 Accrual Basis ofAccounting Documentation examined during the audit showed that amounts recorded for certain expenses did not reflect actual amounts incurred for the period under review. Federal regulations provide that expenditures ... are recorded in the period in which they are incurred, regardless ofwhen they are paid. We recommend that the home office implement policies and procedures to ensure that costs are recorded in the period in which they are incurred. We recommend that the Department of Medical Assistance make the following adjustment to decrease allowable costs claimed for expenses not applicable to the year under review. (HCFA Pub. 15-1 Section 2302.1) 10 Nursing Facilities Services Program Adjustments to Balance Sheet Accounts: June 30, 1995 Balance Accrued Taxes June 30, 1996 Balance Accounts Payable Total Adjustment to Allowable Cost DIRECT COSTS Depreciation and Amortization POOLED COSTS Taxes and Licenses - Non-Capital Related Allowable Costs $ (14,376) (9,738) $=====(2=4,=1=14::::) $==(=:9=,7=38:=) $=====(1=4=,3:::::76:=) Finding No.7 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, 2102.1, 2134.9, 2136.2; DMA Policies and Procedures Section 1002. 1(k)) 1996 Audit Report: Community Care of America, Inc. ITEMS Acquisition Costs Dues Late Fees Legal Expenses Marketing Expense Personal Purchases Stock Issue Costs Vehicle Expense DIRECT COSTS Communications Taxes and Licenses - Non-Capital Related Contracted Services Supplies and Postage Travel and Entertainment Dues and Subscriptions Miscellaneous Total Adjustment to Allowable Costs POOLED COSTS Salaries and Wages Payroll Taxes Taxes and Licenses - Non-Capital Related Contracted Services Supplies and Postage Legal Fees Travel and Entertainment Dues and Subscriptions Total Adjustment to Allowable Costs 11 $ 291,786 11,458 117 4,767 164,235 33,410 13,510 24,311 $ 543,594 $ (400) (1,675) (1,259) (3,394) (52,972) (5,042) (117) $====:!:::::(6=4=,8=59:::) $ (217,920) (26,985) (8,250) (63,864) (113,070) (4,767) (37,463) (6,416) $ (478,735) 12 Nursing Facilities Services Program Finding No.8 Duplicate Costs The home office cost report submitted to the Department of Medical Assistance included costs directly allocated to non-Georgia facilities. These same costs were also reported in the total pooled costs allocated to all facilities managed by the home office. 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 directly allocated costs are not duplicated in pooled costs. We recommend that the Department of Medical Assistance make the following adjustments to remove the duplicated costs from allowable pooled costs. (HCFA Pub. 15-1 Section 2304) POOLED COSTS Employee Insurance Depreciation and Amortization Utilities Communications Repairs and Maintenance Taxes and Licenses - Non-Capital Related Insurance Travel and Entertainment Convention and Education Dues and Subscriptions Minor Equipment Total Adjustment to Allowable Costs $ (547) (24,002) (103) (12,181) (3,349) (80) 51 (6,005) (329) (160) (3,732) $=:::::::!:::(5=0=.4==:37=) Finding No.9 Investment Income Offset Documentation examined during the audit showed that the provider earned investment income. Federal regulations provide that interest expense must be 1996 Audit Report: Community Care of America, Inc. 13 reduced by certain investment income. We recommend that the home office implement policies and procedures to ensure that interest expense claimed is reduced by such investment income. We recommend that the Department of Medical Assistance make the following adjustment to reduce allowable costs by the amount of investment income offset against interest expense. (HCFA Pub. 15-1 Section 202.2) POOLED COSTS Non-Capital Related Interest Expense $=====(1=4=.4==:99=) 14 Nursing Facilities Services Program SUMMARY OF AUDIT FINDINGS AFFECTING ALLOWABLE COSTS FINDING NUMBER DIRECTLY ALLOCATED COSTS Salaries and Wares 1 Lack of Sufficient Documentation 2 Excess Compensation $ (393,402) (358,646) $ (752,048) Employee Insurance 1 Lack of Sufficient Documentation (52,000) Other Employee Benefits 4 Home Office Costs Paid by Chain Components 1,244 Payroll Taxes 2 Excess Compensation (5,200) Depreciation and Amortization 1 Lack of Sufficient Documentation 5 Excess Depreciation 6 Accrual Basis of Accounting $ (83,058) (9,039) (9,738) (101,835) Communications 1 Lack of Sufficient Documentation 7 Costs Not Related to Patient Care $ (238) (400) (638) 1996 Audit Report: Community Care of America, Inc. 15 FINDING NUMBER DIRECTLY ALLOCATED COSTS Contracted Services 7 Costs Not Related to Patient Care (1,259) Supplies and Postage 1 Lack of Sufficient Documentation 7 Costs Not Related to Patient Care $ (3,411) (3,394) (6,805) Legal Fees 1 Lack of Sufficient Documentation (14,364) Travel and Entertainment 1 Lack of Sufficient Documentation 3 Costs Applicable to Specific Chain Components 7 Costs Not Related to Patient Care $ (16,408) 24,225 (52,972) (45,155) Dues and Subscriptions 7 Costs Not Related to Patient Care (5,042) Miscellaneous 1 Lack of Sufficient Documentation 7 Costs Not Related to Patient Care $ (402) (117) (519) Taxes and Licenses - Non-Capital Related 1 Lack of Sufficient Documentation 7 Costs Not Related to Patient Care $ (1,328) (1,675) (3,003) Net Audit Findings Affecting Directly Allocated Costs $ (986,624) 16 Nursing Facilities Services Program FINDING NUMBER POOLED COSTS Salaries and Wares 2 Excess Compensation 7 Costs Not Related to Patient Care (1,007,987) (217,920) $ (1,225,907) Employee Insurance 8 Duplicate Costs (547) Pa.vroll Taxes 2 Excess Compensation 7 Costs Not Related to Patient Care $ (21,744) (26,985) (48,729) Depreciation and Amortization I Lack of Sufficient Documentation 8 Duplicate Costs $ (31,758) (24,002) (55,760) Utilities 8 Duplicate Costs (103) Communications 8 Duplicate Costs (12,181) Repairs and Maintenance 1 Lack of Sufficient Documentation 8 Duplicate Costs $ (5,295) (3,349) (8,644) 1996 Audit Report: Community Care of America, Inc. 17 FINDING NUMBER POOLED COSTS Contracted Services 7 Costs Not Related to Patient Care Insurance 8 Duplicate Costs SUBPUes and Postage 7 Costs Not Related to Patient Care Legal Fees 7 Costs Not Related to Patient Care Travel and Entertainment 3 Costs Applicable to Specific Chain Components 7 Costs Not Related to Patient Care 8 Duplicate Costs Dues and Subscriptions 7 Costs Not Related to Patient Care 8 Duplicate Costs Minor Equipment 8 Duplicate Costs (63,864) 51 (113,070) (4,767) $ (24,225) (37,463) (6,005) (67,693) $ (6,416) (160) (6,576) (3,732) 18 Nursing Facilities Services Program FINDING NUMBER POOLED COSTS Training and Education 8 Duplicate Costs Taxes and Licenses - Non-Capital Related 6 Accrual Basis of Accounting $ 7 Costs Not Related to Patient Care 8 Duplicate Costs Non-Capital Related Interest Expense 9 Investment Income Offset Net Audit Findings Affecting Pooled Costs (329) (14,376) (8,250) (80) (22,706) (14,499) $ (1,649,056) 1996 Audit Report: Community Care of America, Inc. 19 SCHEDULE OF ALLOWABLE COSTS COST REPORT TOTALS FIELD AUDIT FINDINGS AUDITED TOTALS DIRECTLY ALLOCATED COSTS Salaries and Wages $ 1,117,279 $ Employee Insurance 53,474 Other Employee Benefits Payroll Taxes 29,829 Depreciation and Amortization 206,469 Utilities 175 Communications 38,779 Repairs and Maintenance 4,975 Contracted Services 827,210 Insurance 159 Supplies and Postage 33,675 Legal Fees 140,958 Accounting Fees 34,495 Advertising 2,536 Travel and Entertainment 104,401 Dues and Subscriptions 7,992 Miscellaneous 77,520 Minor Equipment 3,733 Training and Education 3,941 Taxes and Licenses - Non- Capital Related 3,614 Interest Capital Related 45,606 (752,048) $ (52,000) 1,244 (5,200) (101,835) (638) (1,259) (6,805) (14,364) (45,155) (5,042) (519) (3,003) 365,231 1,474 1,244 24,629 104,634 175 38,141 4,975 825,951 159 26,870 126,594 34,495 2,536 59,246 2,950 77,001 3,733 3,941 611 45,606 Total Directly Allocated Costs $ 2,736,820 $ (986,624) $ 1,750,196 POOLED COSTS Salaries and Wages $ 2,621,996 $ (1,225,907) $ 1,396,089 Employee Insurance 539,352 (547) 538,805 Payroll Taxes 200,401 (48,729) 151,672 Depreciation and Amortization 412,282 (55,760) 356,522 20 Nursing Facilities Services Program COST REPORT TOTALS FIELD AUDIT FINDINGS AUDITED TOTALS Utilities Communications Repairs and Maintenance Taxes and Licenses Contracted Services Insurance Supplies and Postage Legal Fees Accounting Fees Advertising Travel and Entertainment Dues and Subscriptions Miscellaneous Minor Equipment Training and Education Taxes and Licenses - Non- Capital Related 18,702 324,920 38,219 4,116 198,443 7,230 381,705 107,547 6,319 10,473 475,789 15,118 (4,304) 6,050 15,768 73,477 (103) (12,181) (8,644) (63,864) 51 (113,070) (4,767) (67,693) (6,576) (3,732) (329) (22,706) 18,599 312,739 29,575 4,116 134,579 7,281 268,635 102,780 6,319 10,473 408,096 8,542 (4,304) 2,318 15,439 50,771 Total Pooled Administrative Expenses $ 5,453,603 $ (1,634,557) $ 3,819,046 Interest Non-Capital Related $ 14,499 $ (14,499) $ 0 Total Pooled Costs $ 5,468,102 $ (1,649,056) $ 3,819,046 1996 Audit Report: Community Care of America, Inc. 21 SUMMARY OF ALLOCATIONS TO CHAIN COMPONENTS ALLOCATION OF ADJUSTMENTS TO: DIRECTLY ALLOCATED COSTS POOLED COSTS: ALLOCATION STATISTICS(I) ADMINISTRATIVE EXPENSES JEORGIA NURSING HOMES (RELATED) :ommunity Care of America at College Park :ommunity Care of America at Conner :ommunity Care of America at Dublin :ommunity Care of America at Macon :ommunity Care of America at Marietta :ountryside Health Center $ (140,339) $ (74,775) (174,887) (180,261) (154,836) (84,729) (176) $ (83) (204) (253) (217) (11,827) (5,836) (13,982) (17,110) (14,598) 'OTAL GEORGIA NURSING HOMES (RELATED) $ ~ountryside Health Center (2) 'OTAL GEORGIA NURSING HOMES $ (809,827) $ 0 (809,827) $ (933) $ 24,115 23,182 $ (63,353) (8,552) (71,905) ~OTAL OTHER COMPONENTS ~OTAL ALLOCATION (176,797) $ (986,624) (23,182) 0 (1,577,151) (1,649,056) (I) 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. (2) This facility was a non-related facility during a portion of the year.