Audit report, for the six months ended June 30, 1997, Newcare Health Corporation, Home Office, Nursing Facilities Services Program

DEPARTMENT OF AUDITS AND ACCOUNTS Medicaid and Local Government Audits
AUDIT REPORT . . FORTIIESIX MONTHS ENDED JUNE 30, 1997
NEWCARE HEALTH CORPORATION
HOME OFFICE NURSING FACILITY SERVICES PROGRAM

TABLE OF CONTENTS

LETTER OF TRANSMITTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . .. I

INTRODUCTION

1

FINDINGS AND RECOMMENDATIONS

6

Summary of Audit Findings Affecting Allowable Costs 10

Schedule of Allowable Costs 11

Summary of Allocations to Chain Components . . . . . . . . . . . . . . . . . . . . . . . . . 12

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

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

June 10, 1998

Members of the Board of Medical Assistance, and The Honorable Dr. William R. Taylor, Commissioner Department ofMedical Assistance 2 Peachtree Street, N.W., 40th Floor Atlanta, Georgia 30303
Ladies and Gentlemen:
This report provides the results of our audit of NewCare Health Corporation, a home office with chain components participating in the Nursing Facility Services Program for the six months ended June 30, 1997. 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,

CLV/dc/bw

Claude L. Vickers State Auditor

1997 Audit Report: NewCare Health Corporation

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 financial, patient census, and other information.
A home office such as NewCare Health Corporation 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
Home Office Information
Audit Objectives

Nursing Facility 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 ofAudits and Accounts has accepted the responsibility of auditing Medicaid providers and home offices.

NewCare Health Corporation filed a Home Office Cost Report with

the Georgia Department of Medical Assistance for the six months

ended June 30, 1997. The Home Office Cost Report listed thirteen

chain components, eleven of which are nursing homes, six 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 ofthe chain organization:



Emory Nursing Center, Inc.



Fitzgerald Nursing Center, Inc.



Fort Valley Nursing Center, Inc.



Pleasant View Nursing Center



Whigham Health & Rehabilitation, Inc.



Windward Nursing Center, Inc.

The purpose of this audit was to determine whether NewCare Health Corporation maintained adequate documentation to support the

1997 Audit Report: NewCare Health Corporation

3

Scope and Methodology

allowable costs reported in its Home Office Cost Report for the six months ended June 30, 1997; and to determine whether NewCare Health Corporation 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 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 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 of the 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 of amounts and disclosures included in the Home Office Cost Report. We also reviewed, on a test basis, evidence supporting these amounts and

4

Nursing Facility 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 (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 ofcost information for NewCare Health Corporation and the allocation of its costs among its chain components for the six months ended June 30, 1997. As a result of our audit, we have recommended that the Department of Medical Assistance make adjustments to the allowable costs claimed by NewCare Health Corporation. The allocation ofthese audit adjustments among the chain components is shown in the Summary ofAllocations to Chain Components on page 12. 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.
If the 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 ofMedical Assistance for reconsideration

1997 Audit Report: NewCare Health Corporation

5

ofthis 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

FINDINGS AND RECOMMENDATIONS

Finding No.1

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 ofMedical 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 Insurance Expense Legal Fees Rental and Leasing Pooled Administrative Expenses Insurance Expense Legal Fees Rental and Leasing
Net Adjustment to Allowable Costs

$

1,000

2,208

1,993 $

$ (1,000) (2,208) 0,993)

$

5,201
(5,201)
o

Finding No.2

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 home office implement policies and procedures to ensure that costs are recorded in the period in

1997 Audit Report: NewCare Health Corporation

7

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:

Allowable Costs

June 30, 1997 Balance Accrued Wages Prepaid Insurance

$ (58,125) (22,944)

Total Adjustment to Allowable Costs

$===:!(~8:!:l1~06~9==)

ALLOWABLE COSTS Pooled Administrative Expenses

$==~(8:=:!1=0~6~9=)

Finding No.3

Assets Leasedfrom Related Party

Documentation examined during the audit showed that a building used in health care operations was leased from a related party. Federal regulations provide that reimbursement to a provider leasing facilities or equipment from a related organization is limited to the costs of ownership of the leased assets. We recommend that the home office implement policies and procedures to ensure that reimbursable costs claimed for assets leased from a related party are limited to the costs of ownership. We recommend that the Department of Medical Assistance make the following adjustment to decrease allowable costs to the cost to the related party.
(HCFAPub. 15-1 Sections 1011.5, 1212)

ALLOWABLE COSTS Pooled Administrative Expenses

$===:!(c!f5==6=42~4==)

8

Nursing Facility Services Program

Finding No.4

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 of Medical Assistance make the following adjustment to remove the non-patient care expenses from allowable costs.
(HCFA Pub. 15-1 Sections 2102.3, 2134.9, 2134.10)

ITEMS Legal Fees Vehicle Lease Expense

$

(14,945)

(1,670)

$

(] 66] 5)

ALLOWABLE COSTS Pooled Administrative Expenses

$

(]66]5)

Finding No.5

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 ofMedical 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)

1997 Audit Report: NewCare Health Corporation

9

Position Title
Chief Executive Officer Payroll Taxes
Chief Financial Officer

Total

Guideline

Compensation Ceiling (A)

Excess

$ 212,579 $ 33,333 $ (179,246)

4,757

2,550

(2,207)

95,625

50,000

(45,625)

$ 312961 $ 85883 $ (227078)

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

ALLOWABLE COSTS Pooled Administrative Expenses

$ (227078)

Finding No.6

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

ALLOWABLE COSTS Pooled Administrative Expenses

$===!!2~2==5~60~6=

10

Nursing Facility Services Program

SUMMARY OF AUDIT FINDINGS AFFECTING ALLOWABLE COSTS

FINDING NUMBER

ALLOWABLE COSTS

Directlv Allocated Costs

1

Costs Applicable to Specific Chain

Components

Pooled Administrative Expenses

$===5=,2=01=

1

Costs Applicable to Specific Chain

Components

2

Accrual Basis of Accounting

3

Assets Leased from Related Party

4

Costs Not Related to Patient Care

5

Excess Compensation

6

Lack of Sufficient Documentation

$

(5,201)

(81,069)

(56,424)

(16,615)

(227,078)

(225,606) $ (611,993)

Total Audit Findings Affecting Allowable Costs

$ (606,792)

1997 Audit Report: NewCare Health Corporation

11

SCHEDULE OF ALLOWABLE COSTS

Directly Allocated Costs
Pooled Costs Administrative Expenses
Total Allowable Costs

COST REPORT TOTALS

FIELD AUDIT FINDINGS

AUDITED TOTALS

$ 69,470 $

5,201 $ 74,671

1,035,456

(611,993)

423,463

$ 1,104,926 $ (606,792) $ 498,134

12

Nursing Facility Services Program

SUMMARY OF ALLOCATIONS TO CHAIN COMPONENTS

ALLOCATION OF ADWSTMENTS TO:

DIRECTLY ALLOCATED
COSTS

POOLED COSTS;

ALLOCATION STATISTICS(l)

ADMINISTRATIVE EXPENSES

GEORGIA NURSING HOMES

Emory Nursing Center, Inc. Fitzgerald Nursing Center Fort Valley Nursing Center, Inc. Pleasant View Nursing Center Whigham Health & Rehabilitation, Inc. Windward Nursing Center, Inc.
TOTAL GEORGIA NURSING HOMES $

$
o$

511 $ (12,390)
831 1,289
200 1,192
(8,367) $

(22,622) (63,091) (36,846) (57,091)
(8,847) (52,789)
(241,286)

TOTAL OTHER COMPONENTS

(5,201)

8,367

(370,707)

TOTAL ALLOCATION

$

(5,201) $ = = = = = 0 $

(611,993)

(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.