Audit report for the year ended June 30, 1998, Healthcare Enterprises, Inc., Home Office, Nursing Facilities Services Program [June 30, 1998]

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TABLE OF CONTENTS

LETTER OF TRANSMITTAL

i

INTRODUCTION

1

FINDINGS AND RECOMMENDATIONS

5

Summary of Audit Findings Affecting Allowable Costs 11

Schedule of Allowable Costs 12

Summary of Allocations to Chain Components . . . 13

Report Prepared By:
State ofGeorgia Department ofAudits and Accounts Medicaid and Local Government Audits Division 254 Washington Street, S. Jr., 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

MICHAEL A. PLANT
DIRECTOR

August 17, 1999

Members of the Board of Community Health, and The Honorable Russ Toa1, Commissioner Georgia Community Health 2 Peachtree Street, N.W., 40th Floor Atlanta, Georgia 30303
Ladies and Gentlemen:
This report provides the results of our audit of Healthcare Enterprises, Inc., a home office with chain components participating 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 ofthe Georgia Department ofMedical Assistance Nursing Facility Services Program and is not to be used or relied upon for any other purpose.
Respectfully Submitted,
~ :~_tJ.~ Russell W. Hinton State Auditor
RWHIkr/bw

1998 Audit Report: Healthcare Enterprises, 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 fmancial, patient census, and other information.
A home office such as Healthcare Enterprises, 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
HomeOfflce Information Audit Objectives

Nursing Facility Services Program
Report it submits to the Department of Medical 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 ofauditing Medicaid providers and home offices.
Healthcare Enterprises, Inc., filed a Home Office Cost Report with the Georgia Department of Medical Assistance for the year ended June 30, 1998. The Home Office Cost Report listed two chain components, both are nursing homes in Georgia. In addition to the audit of the "home office cost report, we have completed an audit of a provider cost report filed by Geriatric Care of Georgia, Inc.
The purpose of this audit was to determine whether Healthcare Enterprises, Inc., maintained adequate documentation to support the allowable costs reported in its Home Office Cost Report for the year ended June 30, 1998; and to determine whether Healthcare Enterprises, Inc., complied with the federal and state laws, regulations, policies and procedures for the Nursing Facility Services

1998 Audit Report: Healthcare Enterp_ri_s_es_.,_In_c_"

3

Program in effect for that period. The specific objectives ofthis 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
u
state laws, regulations, policies and procedures

governing the Georgia Nursing Facility 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.

Scope and Methodology

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 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

4

Nursing Facility Services Program

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 Healthcare Enterprises, Inc., and the allocation ofits costs among its chain components for the year ended June 30, 1998. As a result of our audit, we have recommended that the Department of Medical Assistance make adjustments to the allowable costs claimed by Healthcare Enterprises, Inc. The allocation ofthese audit adjustments among the chain components is shown in the Summary ofAllocations to Chain Components on page 13. In our separate audits of the chain components, we have recommended that the Department ofMedical Assistance adjust the allowable costs claimed by each chain component for its share ofthe adjustments to the home office's allowable costs.
Ifthe Department ofMedical 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 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.

1998 Audit Report: Healthcare Enterp_ri.s.es._.,._I.n.c.,..

5

Finding No.1

FINDINGS AND RECOMMENDATIONS

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 hom~ 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)

ALLOWABLE COSTS Directly Allocated Costs Pooled Administrative Expenses

$

1,450

0,450)

Net Adjustment to Allowable Costs

$'===d:6

Finding No.2

Lack ofSufficient Documentation

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 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 ofMedical Assistance make the following adjustment to remove the undocumented expenses from allowable costs.
(HCFA Pub. 15-1 Section 2304)

ALLOWABLE COSTS Pooled Administrative Expenses

$,==::!={]~6~6~9=56!:)

6

Nursing Facility Services Program

Finding No.3

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, 2105.10)

ITEMS Insufficient Funds Charges Tax Penalty

$

(249)

(393)

$

(647)

ALLOWABLE COSTS Pooled Administrative Expenses

Finding No.4

Expense Reimbursements
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 home office 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)

1998 Audit Report: Healthcare Enterp_ri_se_s_,_In_c_.

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ALLOWABLE COSTS Pooled Administrative Expenses

$,===={2!ili::7!:::!:6=.=)

Finding No.5

Gain on Sale ofAssets

Documentation examined during the audit showed that the home office recorded a gain of $1,036 from the sale of fixed assets, the cost of which was included in allowable costs. Federal regulations provide that the amount of gain included in determining allowable costs is limited to the amount of depreciation previously included in allowable costs. We recommend that the home office implement policies and procedures to ensure that allowable costs claimed are reduced by the amount of any gains from the sale of fixed assets. We recommend that the Department of Medical Assistance make the following adjustment to reduce allowable costs claimed by the amount of expense reimbursements received.
(HCFA Pub. 15-1 Section 130)

ALLOWABLE COSTS Pooled Administrative Expenses

$'=='!l::::!::l:l:!::!,O::::!36:.=)

Finding. No.6

Excess Depreciation
Documentation examined during the audit in support offixed 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)

8

Nursing Facility Services Program

ALLOWABLE COSTS Pooled Administrative Expenses

$'==::::!ci{]=,=,=13:!::!:0=r:)

Finding No.7

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 procedur,es 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 ofthe DMA guidelines, plus related employer's share ofpayroll taxes. (DMA Compensation Ceilings; HCFA 15-906)

Position Title

Total

Guideline

Compensation Ceiling (A)

Excess

Administrative Assistant Payroll Taxes
Bookkeeper Payroll Taxes

$

34,141 $ 16,480 $ (17,661)

2,612

1,261

(1,351)

34,264

16,480

(17,784)

2,979

1,261

(1,718)

$

73996 $ . 35482 $

(3 8 5 1 4)

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

ALLOWABLE COSTS Pooled Administrative Expenses

$====l'=:!:3!:!:l8==51:!::i:li==

1998 Audit Report: Healthcare Eoterp_rl_s.e.s.,.I.o.c...

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Finding No.8

Expense Applicable to a Related Facility
Allowable costs claimed included lease expense applicable to a related facility. 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 and the related facility implement policies and procedures to ensure that all costs are included in allowabl~ costs of the facility to which they apply. We recommend that the Department of Medical Assistance make the following adjustment to remove from allowable costs the expenses applicable to the related facility.
(HCFAPub.15-1 Section 2304)

COST CENTER Pooled Administrative Expenses

$'==:Ir:::!(2~2~4~2~2!::l!:)

RELATED FACILITY Atlanta Occupational Health Center

$=~2~2!:!4~22==

Finding No.9

Home Office Costs Paid by Chain Components
Allowable costs claimed by a component of the home office included amounts incurred for the benefit of the entire chain. 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 and its chain components implement policies and procedures to ensure that costs incurred for the benefit of the entire chain are included in home office allowable costs rather than in a chain component's allowable costs. We recommend that the

10

Nursing Facility Services Program

Department of Medical Assistance make the following adjustment to increase allowable costs for expenses paid by a chain component which benefited the entire chain.
(HCFA Pub. 15-1 Section 2150.3)

ALLOWABLE COSTS Pooled Administrative Expenses

$,==::!=15~61~Q=

1998 Audit Report: Healthcare EDterp_ri_se_s_,I_D_co

ll

SUMMARY OF AUDIT FINDINGS AFFECTING ALLOWABLE COSTS

FINDING
NUMBER

ALLOWABLE COSTS

Directl.v Allocated Costs

1

Costs Applicable to Specific Chain

Components

$

1,450

Pooled Administratiye Expenses

1

Costs Applicable to Specific Chain

Components

$

(1,450)

2

Lack of Sufficient Documentation

(16,695)

3

Costs Not Related to Patient Care

(642)

4

Expense Reimbursements

(276)

5

Gain on Sale ofAssets

(1,036)

6

Excess Depreciation

(1,130)

7

Excess Compensation

(38,514)

8

Expenses Claimed by a Related Facility

(22,422)

9

Home Office Costs Paid by Chain Components

15,610

(66,555)

Total Audit Findings Affecting Allowable Costs

$====lr::!(6:=!:5t::::!::]!!:=05~)

12

Nursing Facility Services Program

SCHEDULE OF ALLOWABLE COSTS

Directly Allocated Costs

COST REPORT TOTALS

FIELD AUDIT FINDINGS

AUDITED TOTALS

$

1,450 $

1,450

Pooled Costs Administrative Expenses
Total Allowable Costs

$ 211,386

(66,555)

144,831

$ 211,386 $ (65105) $ 146281

1998 Audit Report: Healthcare EBterp_ris_e_s_,I_B_c_o

13

SUMMARY OF ALLOCATIONS TO CHAIN COMPONENTS

ALLOCATION OF ADJUSTMENT TO: ALLOWABLE COSTS:

GEORGIA NURSING HOMES
Geriatric Care Of Georgia, Inc. Georgia Health Care, Inc.

DIRECTLY ALLOCATED
COSTS

ADMINISTRATIVE EXPENSES

$

1,450 $

(45,039)

(21,516)

TOTAL ALLOCATION

$===1=4!::!:!5Q~ $===:::!:!(6:!:!6=5=55!=!:)