SECTION 1. Section 40-8-19 of the General Laws in Chapter 40-8 entitled "Medical Assistance" is hereby amended to read as follows:

40-8-19. Rates of payment to nursing facilities. -- (a) The rates to be paid by the state to nursing facilities licensed pursuant to chapter 17 of title 23, and certified to participate in the title XIX medicaid program for services rendered to medicaid-eligible residents, shall be reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities in accordance with 42 U.S.C. section 1396a(a)(13). The department of human services shall promulgate or modify principles of reimbursement to be consistent with the provisions of this section and title XIX, 42 U.S.C. 1396 et seq., of the Social Security Act.

(b) For the period ending January 1, 1991 through June 30, 1993, the rates paid by the Rhode Island medical assistance program for services provided to program beneficiaries in nursing facilities licensed pursuant to chapter 17 of title 23, shall have been based on the costs calculated in accordance with facility base years established under the Principles of Reimbursement, TN No. 92-17, adjusted by the percentage change in the national nursing home input price index granted on January 1 of each year subsequent to such base years, except that no such adjustment shall be made on January 1, 1994 and that facilities commencing operation (including total replacement facilities) subsequent to calendar year 1991 shall have had their first six (6) months of operation as their base period.

(1) Effective July 1, 1993, allowable costs shall be divided into the following seven (7) cost centers:

(i) Fixed property, which will include real estate, personal property, and fire district taxes;

(ii) Other property related, which will include interest, rent/lease, amortization of leasehold improvements, and depreciation;

(iii) Management related, which will include all salaries and personnel fees for administrators, managers, officers/owners, other administrative salaries, employer's share of health benefits for such personnel, other fringe benefits for such personnel, home office/central services, computer payroll and data processing charges, accounting/auditing fees, legal services, payroll taxes for such personnel, workers' compensation, group life, pension and retirement insurance for such personnel, utilization review, consultants, pharmacist salaries and services, and other salaries and fees exclusive of salaries and purchased services enumerated in the labor related cost center and of repairs; medical director salaries/fees; physician salaries/fees; salaries;

(iv) Energy, which will include fuel, gas, and electricity;

(v) OBRA 87, which will include reasonable costs of the following expense elements: medical director; physician salaries/fees, social worker salaries/fees; recreational activities salaries; quality of life; scope of services and activities under plan of care; resident assessment; provisions of services and activities; in-service education/training; physician supervision and clinical records; social services; general rights; transfer and discharge rights; access and visitation rights; equal access to quality care; admission policy; protection of resident funds; posting of survey results; administration; licensing and life safety code; and sanitary and infection control and physical environment;

(vi) Labor related, which will include all salaries and personnel costs for nonadministrative and nonmangement employees including the employee's share of health benefits, other employee fringe benefits, payroll taxes, workers' compensation, group life, pension, and retirement insurance for those employees. This classification shall include employee costs and/or purchased service costs for the following categories: dietary, laundry and linen, housekeeping, RN's, LPN's, aides and orderlies, physical therapy, and other therapeutic services, recreational activities, social workers, and plant operation and maintenance; and

(vii) All other, which includes all other allowable costs not specifically covered by subsections (a) -- (f).

(2) For the fiscal year ending June 30, 1994, and each succeeding fiscal year, per diem maximum allowable costs for each cost center applicable during such fiscal year shall be as follows:

(i) For fixed property and OBRA 87, the maximum shall be equal to the cost at the one hundredth (100th) percentile of all continuously operating facilities arrayed in each cost center for calendar year 1991;

(ii) For labor related and all other, the maximum shall be equal to the cost at the eightieth (80th) percentile of all continuously operating facilities arrayed in each cost center for calendar year 1991;

(iii) For the energy and management related cost center, the maximum shall be equal to the cost at the seventy-fifth (75th) percentile of all continuously operating facilities arrayed in the cost center for calendar year 1991; provided, however, that for the fiscal year ending June 30, 1997, and each succeeding fiscal year, the per diem maximum allowable costs for the management related cost center shall be equal to the cost at the eightieth (80th) percentile of all continuously operating facilities arrayed in each cost center for calendar year 1991, such cost center ceiling to be adjusted by the national nursing home price index percentage increase granted on January 1, 1992 and January 1, 1993, and on an annual basis, commencing with the fiscal year beginning July 1, 1994 and each fiscal year thereafter to be adjusted on an annual basis consistent with the provisions of subdivision (3);

(iv) For the other property related cost center, the maximum allowable cost will be set at the rate of $18.97, for facilities licensed, under construction or that have made a significant financial commitment by July 1, 1993, or that will have submitted certificate of need applications by June 1, 1993 that will have been approved by September 30, 1993, and for future renovations to the existing bed supply; provided, however, that the reimbursement for depreciation and interest costs attributable to any future additions of bed capacity that exceed the lesser of ten (10) beds or ten percent (10%) of bed capacity or to construction of new facilities will be limited to a maximum equal to the cost at the seventieth (70th) percentile of all continuously operating facilities arrayed in the cost center for calendar year 1991. For those facilities to which the eighteen dollars and ninety-seven cents ($18.97) other property related maximum applies, the cost basis set forth in the principles of Reimbursement TN92-17 and a fifteen dollar ($15.00) maximum shall apply upon change of owner/operator to the new purchaser and/or operator of the facility. All costs, including salaries, must be absorbed within these group ceilings, except that the director may promulgate principles of reimbursement that permit increases in administrator salaries that may be accommodated within the combined cost center ceilings for the labor related and management cost centers. The total ceiling maximum will be the sum total of the seven (7) cost center ceilings.

(v) Notwithstanding any other provision to the contrary, for the fiscal year ending June 30, 2000, and each succeeding fiscal year, the other property related cost center for nursing facilities meeting each of the criteria below shall be subject to the maximum allowable rate of eighteen dollars and ninety-seven cents ($18.97):

(A) the facility must be certified to participate in Medicaid and in continuous operation and under the same ownership for reimbursement purposes since July 1, 1967; and

(B) costs for renovating the existing facility to modernize and to comply with fire safety codes make the costs of renovation fiscally unsound;

(C) if fewer replacement beds are constructed than are licensed in the existing facility, the license for the excess beds must be surrendered to the department of health;

(D) the certificate of need for the replacement beds must be granted no later than January 1, 2001;

(E) the existing facility must cease operations at the time the replacement beds are licensed; and

(F) recapture of depreciation will be paid to the state upon the sale of the existing facility.

(3) (i) Notwithstanding any other provision to the contrary, the national nursing home price index percentage increase granted on January 1, 1993 shall cover the period January 1, 1993 through June 30, 1994. Commencing with the fiscal year beginning July 1, 1994 and each fiscal year thereafter, except for the fiscal year beginning July 1, 1996 for which no such price index increase shall be applied, the annual percentage increase shall be applied to all cost center ceilings; and provided further that all cost center ceilings shall be increased by an additional nine-tenths of one percent (.9%) effective on July 1, 1999. Individual cost center rates will be adjusted by the percentage change in the national nursing home price index for the twelve (12) month period ending the previous April; provided, however, that no such price index adjustment shall be applied for the fiscal year beginning July 1, 1996; and provided further that all cost center ceilings shall be increased by an additional nine-tenths of one percent (.9%) effective on July 1, 1999. The annual percentage increase shall not apply to any facility cost center rate being held harmless pursuant to the provisions of subdivision (6).

(ii) The amount of percentage change to be utilized will be the index as reported by the health care financing administration on the first date it is available in the month of April of each year.

(4) The base year system established under the Principles of Reimbursement, TN #92-17, promulgated by the department of human services will be continued as follows: Commencing with the reporting year 1991, and with every reporting year thereafter, one-third (1/3) of the participating nursing facilities will have a new base year. The prospective rate of each nursing facility with a new base year will be recalculated after the completion of a desk audit of the BM-64 cost report, and will be effective July 1 of the year subsequent to the year in which the cost report was submitted. The recalculated rate will reflect the actual allowable costs as determined by the audit updated by the national nursing home input price index percentage increase(s) for the year(s) subsequent to the audited year to produce the prospective rate, except that no such price index adjustment shall be applied for the fiscal year beginning July 1, 1996; and provided further that there shall be an additional price index adjustment of nine-tenths of one percent (.9%) effective on July 1, 1999; provided, however, that the new prospective rate shall not exceed the maximum rates established for each cost center ceiling.

(5) Each nursing facility will report in account No. 470 the expenditure for health care provider assessment. The costs in this line item attributable to program revenue received will be fully recognized for reimbursement. An additional per diem rate will be calculated and added to each nursing facility rate to recognize the reimbursement.

(6) (i) Effective for the year ending June 30, 1994, and for each fiscal year thereafter, to encourage nursing facilities to accept and serve medicaid patients, all participating providers that had an overall medicaid occupancy for the preceding calendar year (e.g. calendar year 1992 for the fiscal year ending June 30, 1994) of eighty percent (80%) or greater will be allowed a .75 cent ($0.075) participating incentive factor per medicaid patient day, and all participating providers that had an overall medicaid occupancy for the preceding calendar year between fifty percent (50%) or greater but less than eighty percent (80%) will be allowed a .35 cent ($0.035) participating incentive factor. The participating incentive factor shall be subject to the ceiling maximum. With respect to state fiscal year ending June 30, 1999, each nursing facility duly licensed and participating as of June, 1999 shall be paid a one-time supplemental medicaid participating incentive factor of three dollars and twenty-one cents ($3.21) per day for each medicaid patient day in calendar year 1997 as reported on the facility's BM-64 cost report for calendar year 1997.

(ii) Effective July 1, 1993, each nursing facility shall receive a prospective rate made up of the allowed rates in each of the seven (7) cost centers, the rate attributable to the health care provider assessment, and, subject to the ceiling maximum applicable to the seven (7) cost centers in the aggregate, each nursing facility eligible shall receive the participating incentive factor. Provided; that for the fiscal year ending June 30, 1994, no nursing facility rate shall be adjusted in the energy, labor related, management related, all other, and other property related cost centers below the rate it was receiving or would have received in those cost centers on June 30, 1993, except for those changes resulting from the normal base year cycle audits and appeals; for the fiscal year ending June 30, 1995, no nursing facility's rate shall be adjusted in the energy, labor related, management related, all other, and other property related cost centers below the rate it was receiving or would have received in those cost centers on June 30, 1994, except for changes resulting from the normal base year cycle audits and appeals; for the fiscal year ending June 30, 1996, no nursing facility's rate shall be adjusted in the energy, labor related, management related, all other, and other property related cost centers below the rate it was receiving or would have received in those cost centers on June 30, 1995, except for changes resulting from the normal base year cycle audits and appeals. Provided, however, that for facilities under construction as of June 30, 1993, the reimbursement rate during the period from July 1, 1993 through June 30, 1995 shall be the lower of their actual cost per day during the first six (6) months of operation or the maximums in effect as of June 30, 1993.

(iii) (A) For the state fiscal year ending June 30, 2002, there shall be added an interim per diem increase equal to three dollars and seventy-one cents ($3.71) per day to each nursing facility's medicaid per diem rate. This increase will be in addition to the July 1, 2001 inflationary increase provided by the principles of reimbursement.

(B) The interim per diem will add three dollars and seventy-one cents ($3.71) to the labor related expenses cost center per diem, as inflated, and the cost center ceiling as of July 1, 2001.

(C) The additional interim per diem must have been or must be expended by the nursing facility to increase wages and/or staffing; pay payroll taxes and workers' compensation on such payroll; and, enhance, expand or maintain new and existing fringe benefits. The interim per diem increase shall remain in the facility's rate after June 30, 2002 and until the facility's rate is recalculated after its next base period, to the extent it will have actually been expended by the nursing facility to increase wages and/or staffing; pay payroll taxes and workers' compensation on such payroll and enhance, expand or maintain new and existing fringe benefits prior to July 1, 2002. As defined in this section, any amount of this per diem not expended for these reasons shall be subject to retroactive repayment to the state during the two (2) six (6) month base periods described in this section. In order to determine that the amounts provided in the interim per diem are expended on labor related costs, each participating nursing facility shall submit a six (6) month labor report, on forms provided by the rate setting unit of the department of human services, for the six (6) month periods ending December 31, 2001 and June 30, 2002. The six (6) month report(s) shall be filed no later than ninety (90) days from the date in which the six (6) month period is to be completed.

(D) In the event it is determined that a facility has not expended the per diem in the manner described above, a retroactive adjustment will be made. The retroactive adjustment will be payable in equal monthly installments over a six (6) month period starting with the month subsequent to the adjustment becoming final. The retrospective adjustment shall be calculated as the excess, if any of: (I) the product of Medicaid rate in the labor related cost center and the total bed days provided in the facility in each six (6) month period over; (II) the facility's actual expenditures in the labor related cost center for each six (6) month period. The retrospective adjustment shall be calculated as the excess, if any of: (1) the product of the Medicaid rate in the labor related cost center minus three dollars and seventy-one cents ($3.71) and the total bed days provided in the facility in each six (6) month period; plus the product of the Medicaid bed days provided in the period and three dollars and seventy-one cents ($3.71), over (2) the facility's actual expenditures in the labor related cost center for each six (6) month period. The difference between the retrospective adjustment as so calculated and three dollars and seventy-one cents ($3.71) will remain in the facility's rate after June 30, 2002, until the facility's rate is recalculated after its next base period.

(E) The provisions of subparagraphs (b)(6)(iii)(A)--(E) are expressly conditioned on, and are subject to, the approval of the U.S. Department of Health and Human Services, Health Care Financing Administration, and any terms and conditions expressed in such approval.

(7) Every nursing facility that participates in the medical assistance program shall, within ninety (90) days of passage, make application for refinancing of existing long term debt through the Rhode Island economic development corporation to the extent that the final interest rate achievable shall be lower than the nursing facility's existing rate. Notwithstanding the provisions of chapter 64 of title 42 or any other provisions of the general laws to the contrary, the Rhode Island economic development corporation is hereby authorized and empowered to participate in the refinancing of long term debt of nursing facilities as provided in this subsection.

(8) Every nursing facility that participates in the medical assistance program shall, within ninety (90) days of passage file an appeal with the department of business regulation for workers' compensation rate relief on the basis of worker classification revisions.

(9) If a facility fails to file such an appeal with the department of business regulation for workers' compensation rate relief, the reimbursement rate in the labor and payroll related cost center will be reduced by an amount equal to the medicaid proportion of the cost that would have been saved had the facility filed and been successful in such appeal.

(10) All of the medicaid proportion of reductions of costs from refinancings and worker compensation savings achieved through the cooperative efforts of the department and individual facilities, including rebates for prior years workers' compensation costs, will be paid in their entirety to the state forthwith after such savings are realized by the facility.

(11) Rates determined under this section shall be in compliance with all applicable federal laws and regulations and any necessary Title XIX and state plan approval.

(12) It is the intent of this chapter that quality health care be delivered with full recognition of the need for cost containment. To the extent the state identifies any indication of violations of the cost containment philosophy inherent herein, it may disallow the costs involved subject to the right of the affected nursing facility to appeal such disallowance in a hearing before an adjudicative hearing officer of the Rhode Island department of human services. The appeal shall be conducted in accordance with chapter 35 of title 42. Costs of such appeals will be borne by the appellants. In such proceedings, the burden of proof shall be on the nursing facility to rebut the state's finding by clear and convincing evidence.

SECTION 2. This act shall take effect upon passage.