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Office of Facilities RegulationPerformance Audit

Presentation for the National State Auditors Association Annual Conference

June 8, 2006

Ernest A. Almonte, CPA, CFE

Auditor General – State of Rhode Island

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Audit Team Members

Robert Voccia – Supervising Auditor Patricia Testa, CPA – Principal Auditor David Naylor – Principal Auditor Andrea Butola, CPA – Principal Auditor Manrique Vargas, CISA – Supervising Information

Technology Auditor Gianfranco Monaco, CISA – Principal Information

Technology Auditor

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Background

During 2004 and 2005 the Department of Health’s (DOH) regulation and oversight of the State’s nursing facilities became the object of intense media and public scrutiny.

News articles detailed deteriorating condition and ultimate death of a nursing home

resident, Office of Facilities Regulation’s (OFR) regulatory response,

and deficient conditions at the facility.

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Background (con’t)

Media reports concluded that:

OFR reluctant to close poorly performing nursing facilities,

regulators were afraid of alienating nursing home interests, and

public’s access to inspection results was delayed.

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Background (con’t)

Several reviews of the regulatory process and the underlying State general laws began.

The Governor commissioned a review.

The Lieutenant Governor, Chairman of the Long Term Care Coordinating Council, established a task force.

The General Assembly’s Joint Legislative Committee on Health Care Oversight began public hearings.

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Background (con’t)

In October 2004 the JCLS directed the Office of the Auditor General to conduct a performance audit of OFR, including:

evaluating policies and procedures, compliance with laws and regulations, and functions, financing and staffing.

The audit was to be completed by February 1, 2005.

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Background (con’t)

Challenges:

Timeframe

Other entities examining same issues

How do we evaluate OFR decisions – no medical expertise

How do we comment without establishing policy or favoring certain proposals (further study)

Cooperation sometimes difficult due to environment

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Objectives, Scope and Methodology

Objective - practices and procedures complied with federal and state laws and regulations and were effective and efficient

Scope – GAGAS, period covered, policies and procedures - did NOT include evaluating professional

judgment - did NOT include evaluating adequacy of laws

Methodology – review laws and regulations, policies and procedures, interviews (DOH, DEA, DHS, AG, Ombudsman), survey files, complaint documentation and financial data

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Background - OFR

The Office of Facilities Regulation (OFR)

Primary responsibility – ensure compliance of all state licensed and federally certified health care facilities.

Wide range of facilities from hospitals to tattoo and body piercing establishments (approximately 690 facilities).

Budget $3.7 million

39 employees including 25 field surveyors

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Findings and Recommendations

The Findings and Recommendations section of the audit report was presented in the following four subsections:

STATE AND FEDERAL SURVEY REQUIREMENTS

COMPLAINT INVESTIGATION REQUIREMENTS

OFFICE OF FACILITIES REGULATION RESOURCES

FISCAL MONITORING OF NURSING FACILITIES

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State and Federal Survey Requirements

Both federal and state laws and regulations govern the regulation of nursing homes.

State laws layer additional requirements over the federal requirements.

OFR can not met additional state requirements.

Federal and state survey requirements are summarized in the following table.

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State and Federal Survey Requirements (con’t)

 Comparison of State and Federal Survey Requirements for Nursing Facilities:

  

Survey requirement 

Federal 

State

     

Annual survey Survey required between 9 to 15 months following the previous survey to achieve an overall average of 12 months

Annual licensing survey required (G.L. 23-17-7 and 23-17-12)

     

Unannounced additional surveys No equivalent requirement 2 required each year in addition to annual licensing survey (G.L. 23-17-12)

     

Substandard care found during annual licensing survey

No equivalent requirement Bi-monthly inspections required for the following 12 months (G.L. 23-17-12)

     

Deficiencies noted during annual licensing survey

Follow-up inspection required – time interval dependent upon the scope and severity of the deficiencies cited

No equivalent requirement

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State and Federal Survey Requirements (con’t)

No interim surveys for most nursing facilities.

Six out of seven facilities cited for substandard care between were not inspected on a bi-monthly basis as required.

No annual licensing inspection for 6 facilities (2003) and 9 facilities (2004)

No annual licensing inspection for 14 of State’s 15 hospitals

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State and Federal Survey Requirements (con’t)

Matters Requiring Further Study Or Legislative Deliberation:

Affirm need for additional state surveys - if so consider risk-based approach (modify statute)

Factors - previous surveys, responsiveness to deficiencies, financial condition, etc.

Risk-based approach allows the OFR latitude to use its resources more effectively.

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State and Federal Survey Requirements (con’t)

No formal policies or procedures to track survey deficiencies throughout the process.

Allegations of favoritism

Complaints by employees and former employees of deleted deficiencies

Dropped in decision making and quality control processes

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Complaint Investigation Requirements

OFR met the Federal timeframes for complaint investigations.

Could not meet the more stringent state requirement (7 days).

The following two tables represent the complaint categories and statistics on compliance with federal and state timeframes.

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Complaint Investigation Requirements (con’t)

Complaint Category Description Timeframes

  Federal   State

Immediate jeopardy Facility’s noncompliance with one or more conditions or requirements indicates immediate corrective action is necessary because serious injury, harm, impairment or death to a resident, patient or client has, or is likely to occur.

2 working days 24 hours

Non immediate jeopardy – high

Facility’s noncompliance with one or more conditions or requirements may have caused, harm that impairs mental, physical and/or psychosocial status.

10 working days 7 days

Non immediate jeopardy – medium

Facility’s noncompliance with one or more conditions or requirements may have caused harm or potential of more than minimal harm that does not significantly impair mental, physical, and/or psychosocial status.

45 working days 7 days

Non immediate jeopardy – low

Complaints that allege discomfort that does not constitute injury or damage. next onsite survey 7 days

Administrative review Complaints not needing an onsite investigation -- further investigative action (written/verbal communication or documentation) initiated and information gathered is adequate in scope and depth to determine that an onsite investigation is not necessary.

  Not applicable

No action necessary Adequate information has been received about the incident/complaint such that the state agency can determine with certainty that no further investigation, analysis, or action is deemed necessary.

  Not applicable

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Complaint Investigation Requirements (con’t)

 Fiscal 2004 Complaints – Compliance with Investigation Timeframes:   

Complaint Category 

Number  Federal Complaint

Investigation Timeframes   State Complaint

Investigation Timeframes 

      Met federal time

requirements

Exceeded federal time requirements

  Met state time requirements

Exceeded state time

requirementsImmediate jeopardy 2   1 1   0 2

Non immediate jeopardy - high 2   2 0   2 0

Non immediate jeopardy - medium 17   4 13   3 14

Non immediate jeopardy - low 783   725 58 * 75 708

Administrative review 7   7 0   0 7

Referral 0   0 0   0 0

Total complaints requiring investigation  811    739  72    80  731

      91% 9%   10% 90%

No action necessary 226            

Total all complaints 1,037            

* All Non immediate jeopardy low complaints exceeding the federal time requirements occurred before January 1, 2004 when the time requirement was 120 days rather than the current requirement which is at the time of the next survey.

 

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Complaint Investigation Requirements (con’t)

Matters Requiring Further Study or Legislative Deliberation:

Complaint investigation requirements outlined in state law are much more stringent than federal law and regulation.

Full compliance requires significant dedicated resources

Competing resources

Ease state timeframe for complaints – additional high risk surveys.

Lessening state survey requirements - resources available more timely complaint investigations

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Complaint Investigation Requirements (con’t)

Matters Requiring Further Study Or Legislative Deliberation:

Federal complaint triage categories (CMS) differ from State law.

Two sets of requirements (burdensome, difficult to interpret and apply)

Consider aligning State and Federal complaint triage categories

State timeframes for investigation could still remain more stringent

 

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Office of Facilities Regulation Resources

Staffing analysis was prepared to support need for additional personnel.

Analysis was incomplete and unsupported.

Failed to accurately document number of additional personnel needed

Clear that additional resources required for compliance

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Office of Facilities Regulation Resources (con’t)

OFR needs additional resources to perform its mandated federal and state functions.

OFR’s mandated responsibilities should be reexamined

Additional resources aligned with statutory provisions

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Fiscal Monitoring of Nursing Facilities

Direct relationship between fiscal soundness and ability to provide consistent quality of care

OFR did not assess or consider financial position

Multiple solutions were being proposed

Report discussed use of financial condition as indicator of increased risk of deteriorating care.

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Fiscal Monitoring of Nursing Facilities (con’t)

The Fiscal Monitoring of Nursing Facilities section of our report was presented in the following subsections:

FINANCIAL INFORMATION CURRENTLY EXISTING

FORM AND LEVEL OF REQUIRED FINANCIAL INFORMATION

RESPONSIBILITY FOR PERFORMING THE FINANCIAL EVALUATION

CRITERIA FOR EVALUATING FINANCIAL CONDITION

UTILIZATION OF THE FINANCIAL DATA TO ENHANCE MONITORING

SOLUTIONS FOR FINANCIALLY TROUBLED FACILITIES

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Fiscal Monitoring of Nursing Facilities (con’t)

Financial Information Currently Existing

The Department of Human Services (DHS) receives annual cost reports from each nursing facility.

Cost report contains detailed financial information (B/S, O/S (Medicaid only))

Cost report is unaudited - audited F/S not required.

Cost reports utilized for rate setting - not to evaluate the financial position.

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Fiscal Monitoring of Nursing Facilities (con’t)

Form and Level of Required Financial Information

Cost reports versus audited financial statements

Cost report provides a valuable and already available source of financial data for analysis.

Trend information regarding increases/decreases in accounts payable and receivable, retained earnings and total capital.

Requiring facilities submit certain supplementary financial information may be sufficient.

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Fiscal Monitoring of Nursing Facilities (con’t)

Form and Level of Required Financial Information (con’t)

Audited financial statements not required by either DOH or DHS Additional cost to facility or State Privately owned, non-profit, corporate chain Financial statements and note disclosures don’t provide detail

contained within cost reports If F/S required - combination of both would likely be required to

effectively analyze the financial data

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Fiscal Monitoring of Nursing Facilities (con’t)

Responsibility for Performing the Financial Evaluation

OFR – DHS – another entity

OFR does not employ fiscal staff

DHS’ Rate Setting Unit (RSU) establishes per diem Medicaid rates

Best suited (level of expertise, past experience) – potential appearance of conflicting responsibilities

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Fiscal Monitoring of Nursing Facilities (con’t)

Criteria for Evaluating Financial Condition

Criteria for evaluating financial condition does not exist in law or regulation.

Criteria should be straightforward and capable of objective measurement

Significant operating losses for two successive years Frequent requests for advances on Medicaid reimbursements Unfavorable working capital ratios High proportion of accounts receivable more than 90 days old Increasing accounts payable, unpaid taxes and/or payroll related costs Minimal or decreasing equity and/or reserves High levels of debt and high borrowing costs 

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Fiscal Monitoring of Nursing Facilities (con’t)

Utilization of Financial Data to Enhance Monitoring

State law currently requires the Director of DOH to establish, by regulation, criteria to determine the frequency of unannounced inspections

Law appears to allow DOH to establish a more risk-based approach - which could incorporate financial condition

Generate financial rating factor (RSU) for use in a risk-based model

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Fiscal Monitoring of Nursing Facilities (con’t)

Solutions for Financially Troubled Facilities

Additional regulatory oversight versus financial assistance.

Public disclosure or not

Consider ownership (privately owned, non-profit, corporate chain)

Capacity of system – close versus assist

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Impact of Audit

Results of our audit presented to Joint Committee on Health Care Oversight at public hearing

Legislation enacted incorporating various recommendations

OFR budget was modified increasing authorized positions

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Office of Facilities Regulation

A complete copy of the audit report is available at the Office of the Auditor General’s website.

www.oag.ri.gov

QUESTIONS?