Audit report for the year ended June 30, 1998, Johnson County Nursing Home, Medicaid provider no.00141644A, Nursing Facilities Services Program [June 30, 1998]

TABLE OF CONTENTS

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5

Summary of Audit Findings Affecting Allowable Costs and Patient Day Statistics 11

Schedule ofAllowable Costs and Patient Day Statistics

13

Report Prepared By:
State o/Georgia
Department 0/Audits 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

MICHAEL A. PLANT
DIRECTOR

July 27, 1999

Members of the Board of Community Health, and The Honorable Russ Toal, 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 Johnson County Nursing Home, provider number 00141644A, 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,
~uL~" Russell W. Hinton State Auditor
RWH/nwd/teh

1998 Audit Report: Johnson County Nursing Home

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. 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

Johnson County Nursing Home, a 59-bed long-term health care facility located in Adrian, 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. The facility was owned by T, T & B Enterprises and operated as a component of Taylor and Bird, Inc., a chain organization which filed a Home Office Cost Report with DMA for the year ended June 30, 1998.

2

Nursing Facility Services Program

Audit Objectives

The purpose of this audit was to determine whether Johnson County Nursing Home 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 Johnson County Nursing Home 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 reported 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.

Scope and Methodology

To accomplish these objectives, we performed 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 disclosures included in the Nursing Home Cost Report. We' also reviewed, on a test basis, evidence supporting these amounts and disclosures and

1998 Audit Report: Johnson County Nursing Home

3

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.
In accordance with Section 1002 of Policies and Procedures for Nursing Facility Services, the Department of Medical Assistance has calculated the payment rate for Johnson County Nursing Home 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 depreciatipn 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 Johnson County Nursing Home, 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 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 depreciation and amortization and lease expense. We have included fmdings related to these matters in our report.
.The Department of Audits and Accounts is responsible for providing the Department of Medical Assistance with information regarding the

4

Nursing Facility Services Program

accuracy of cost and patient data for Johnson County Nursing Home 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 findings. 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: Johnson County Nursing Home

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Finding No.1

FINDINGS AND RECOMMENDATIONS
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 of when they are paid. We recommend that the provider 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)

Adjustments to Balance Sheet Accounts: June 30,1997 Balance
Accounts Payable Accrued Payroll Taxes
June 30, 1998 Balance Accrued Retirement Plan Contributions Total Adjustment to Allowable Costs

Allowable Costs

$

(595)

(3,685)

$

(4,280)

$

426

$

(3,854)

COST CENTER Routine Services Special Services Dietary Laundry and Housekeeping Operation and Maintenance ofPlant Administrative and General
Total Adjlistment to Allowable Costs

$

(3,420)

22

(229)

38

(310)

45

$........==='*(3~,8=54"'=f)

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Nursing Facility Services Program

Incorrect Expense Classifications

Finding No.2

Documentation examined during the audit showed that some of the expenses were not classified in accordance with the 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 Administrative Supplies Dietary Supplements Employee Benefits Housekeeping Supplies Lease Expense Linen Replacement Medical Records Supplies Dietary Dietary Supplements Lease Expense Laundry and Housekeeping Housekeeping Supplies Linen Replacement Operation and Maintenance ofPlant Repairs and Maintenance Administrative and General Administrative Supplies Employee Benefits Lease Expense Medical Records Supplies Property Taxes Repairs and Maintenance

$

(154)

(7,870)

(353)

(539)

(669)

(516)

(285) $ (10,386)

$

7,870

(1,526)

6,344

$

539

516

1,055

828

$

154

353

(947)

285

(81)

(828)

(1,064)

1998 Audit Report: Johnson County Nursing Home

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Property and Related Expenses Lease Expense Property Taxes

$

3,142

81

3,223

Total Adjustment to Allowable Costs

$===0

Lack ofSufficient Documentation

Finding No.3

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 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 Routine Services Dietary Operation and Maintenance ofPlant Administrative and General
Total Adjustment to Allowable Costs

$

(232)

(65)

(2,524)

(120)

$==~(2~,9==41,*)

Recalculation ofAncillary Services Cost Adjustment

Finding No.4

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-IA as total cost per books, total charges,

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Nursing Facility Services Program

Medicaid charges, total patient days, and Medicaid patient days. These findings required the recalculation of 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)

Ancillary Services
Physician Care Physical Therapy Occupational Therapy Medical Supplies
COST CENTER Special Services

Adjustment Per Cost Report

Recalculated Adjustment

Audit Finding

$

(35,284) $ (35,313) $

(10,432)

(10,460)

(93,663)

(93,885)

(1,299)

(1,310)

( 29) ( 28) (222) (11)

$ (140,678) $ (140,968) $

( 290)

$

( 290)

Fixed Asset Purchases Claimed as Expense

Finding oNo. 5

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; DMA Policies and Procedures, Appendix. D)

1998 Audit Report: Johnson County Nursing Home

9

COST CENTER Operation and Maintenance ofPlant Cost of Fixed Equipment Property and Related Expenses Allowable Depreciation Expense
Total Adjustment to Allowable Costs

$

(1,800)

70

$_ _..:..;(1;.:..,7_3.0.)

Finding No.6

Allocationsfrom Home Office
The provider was a component of a chain organization for the year ended June 30, 1998. 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 the provider 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 of Medical 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)

COST CENTER Administrative and General Functionally Allocated Costs Pooled Costs Allocation Statistics Administrative Expenses

$

(466)

174 (3,010)

Total Adjustment to Allowable Costs

$==~(3.6,3==02~)

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Nursing Facility Services Program

Costs Not Related to Patient Care
Finding Allowable costs claimed included payments which were not considered to be for No.7 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 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.l5-1 Sections 2102.1, 2102.3, 2139; DMA Policies and Procedures Section
1002.1 (k

ITEMS Contributions to Political Action Committee Donations Late Fees Non-Sufficient Funds Charges

$

(88)

(50)

(6)

(500)

$

(644)

COST CENTER Administrative and General

$===*(64~4)

Patient Day Statistics

Finding No.8

The provider stated on the cost report that it furnished 21,153 patient days of service. Census records examined during the audit showed that the patient days shown on the cost report were accurate.
(HCFA Pub. 15-1 Section 2304)

1998 Audit Report: Johnson County Nursing Home

11

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Nursing Facility Services Program

Administrative and General

1

Accrual Basis of Accounting

2

Incorrect Expense Classifications

3

Lack of Sufficient Documentation

6

Allocations from Home Office

7

Costs Not Related to Patient Care

$

45

(1,064)

(120)

(3,302)

(644)

Property and Related Expenses

2

Incorrect Expense Classifications

$

3,223

5

Fixed Asset Purchases Claimed as Expense

70

Total Audit Findings Affecting Allowable Costs

$

(5,085)
3,293 (12,761)

1998 Audit Report: Johnson County Nursing Home

13

SCHEDULE OF ALLOWABLE COSTS AND PATIENT DAY STATISTICS

ALLOWABLE COSTS

COST REPORT TOTALS

FIELD AUDIT FINDINGS

AUDITED
TOT~S

Routine. Services

$

585,400 $

(14,038) $

571,362

Special Services

57,954

(268)

57,686

Dietary

179,886

6,050

185,936

Laundry and Housekeeping

86,032

1,093

87,125

Operation and Maintenance ofPlant

98,760

(3,806)

94,954

Administrative and General

237,771

(5,085)

232,686

Property and Related Expenses

84,179

3,293

87,472

Total Allowable Costs

$ 1,329,982 $

(12,761) $

1,317,221

PATIENT DAY STATISTICS

21,153

21,153