Audit report, for the year ended June 30, 1998, McKettrick Health Services, Inc., Home Office, Nursing Facilities Services Program

DEPARTl\D(N1' ()F,AunITSANi>AGCOUNl'S

Medicaid

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TABLE OF CONTENTS

LETTER OF TRANSMITTAL

i

IN'TRODUCTION

1

FINDINGS AND RECOMMENDATIONS

6

Summary of Audit Findings Affecting Allowable Costs 9

Schedule ofAllowable Costs 10

Summary ofAllocations to Chain Components 11

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

MICHAEL A. PLANT
DIRECTOR

August 17, 1999

Members ofthe 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 McKettrick Health Services, 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 of Medical Assistance Nursing Facility Services Program and is not to be used or relied upon for any other purpose.
Respectfully Submitted,
~...~ t.d.~*Russell W. Hinton State Auditor
RWH/krlbw

1998 Audit Report: McKettrick 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 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. Tb,~se cost reports include financial, patient census, and other information.
A home office such as McKettrick Health Services, Inc., does not provide medical services directly to individuals. Instead, a home office provides a variety ofadministrative 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

Nursing Facility Services Program

Home Office Information
Audit Objectives

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 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 fmancial, 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.

McKettrick Health Services, 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 ofwhich are nursing homes, both 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 the two components of the chain organization:



Lake Crossing Health Center



New London Health Center

The purpose of this audit was to determine whether McKettrick Health Services, Inc., maintained adequate documentation to support the allowable costs reported in its Home Office Cost Report for the .

1998 Audit Report: McKettrick Health Services, Inc.

3

Scope and Methodology

year ended June 30, 1998; and to determine whether McKettrick Health Services, 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 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

state laws, regulations, policies and procedures

gove~g 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.

To accomplish these objectives, we performed 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-

4

Nursing Facility Services Program

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 ofAudits and Accounts is responsible for providing the Department ofMedical Assistance with information regarding the accuracy of cost information for McKettrick Health Services, Inc., and the allQcation of its 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 McKettrick Health Services, Inc. The allocation of these audit adjustments among the chain components is shown in the Summary ofAllocations to Chain Components on page 11. 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 of the 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

1998 Audit Report: McKettrick Health Services, Inc.

5

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 Facility Services Program

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 home 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

$

317

(317)

Net Adjustment to Allowable Costs

$,=========Q=

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. 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 ofpayroll taxes.
(DMA Compensation Ceilings; HCFA 15-906)

1998 Audit Report: McKettrick Health Services, Inc.

7

Position Title

Total

Guideline

Compensation Ceiling (A)

Excess

Chief Executive Officer Payroll Taxes
Chief Operating Officer Payroll Taxes
Office Supervisor Payroll Taxes

$ 204,598 $ 80,764 $ (123,834)

7,704

6,178

(1,526)

178,194

67,344

(110,850)

6,524

5,152

(1,372)

39,908

25,132

(14,776}

2,945

1,923

(1,022)

$ 439873 $ 186493 $ (253380)

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

ALLOWABLE COSTS Pooled Administrative Expenses

$ (253380)

Finding No.3

Home Office Costs Paid by Chain Components
Allowable costs claimed bya 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 co~ts 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 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)

8

Nursing Facility Services Program

ALLOWABLE COSTS Pooled Administrative Expenses

$===42i!:::!::77:=7=

1998 Audit Report: McKettrick Health Services, Inc.

9

SUMMARY OF AUDIT FINDINGS AFFECTING ALLOWABLE COSTS

FINDING NUMBER

ALLOWABLE COSTS

Directly Allocated Costs

1

Costs Applicable to Specific Chain

Components

$

Pooled Administrative Expenses

1

Costs Applicable to Specific Chain

$

Components

(317)

2

Excess Compensation

(253,380)

3

Home Office Costs Paid by Chain Components

4,777

Total Audit Findings Affecting Allowable Costs

$

317
(248,920) (248603)

10

Nursing Facility Services Program

SCHEDULE OF ALLOWABLE COSTS

Directly Allocated Costs
Pooled Costs Administrative Expenses
Total Allowable Costs

COST REPORT TOTALS

FIELD AUDIT FINDINGS

AUDITED TOTALS

$

317 $

317

$ 485,373

(248,920)

236,453

$ 485373 $ (248603) $ 236770

1998 Audit Report: McKettrick Health Services, Inc.

11

SUMMARY OF ALLOCATIONS TO CHAIN COMPONENTS

ALLOCATION OF ADmSTMENTS TO: ALLOWABLE COSTS:

DIRECTLY ALLOCATED
COSTS

GEORGIA NURSING HOMES

Lake Crossing Health Center $

317

New London Health Center

ADMINISTRATIVE EXPENSES

$

(115,566)

(133,354)

TOTAL ALLOCATION

$,===3==17= $'=====(l::2::4E8!:l::39:=!20=:.!:)