Northampton County Financial, Clinical and Operational

Northampton
County
Financial, Clinical and Operational Assessment
of Gracedale Nursing Home
July 30, 2010
200 Dryden Road
Suite 2000
Dresher, PA 19025
(215) 441- 7700
Fax (215) 441- 4255
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Northampton County
FINANCIAL, CLINICAL AND OPERATIONAL ASSESSMENT
Of Gracedale Nursing Home
July 30, 2010
Table of Contents
Section 1
Executive Summary
Section 2
Review of Options and Proforma Analysis Assessment
Exhibit 2.1
Exhibit 2.2
Exhibit 2.3
Exhibit 2.4
Exhibit 2.5
Section 3
Clinical Reimbursement Assessment
Section 4
Clinical / Nursing, Therapy and Social Services Assessment
Section 5
Marketing Assessment
Exhibit 5.1
Section 6
Business Office and County Services Assessment
Section 7
Environmental Services Assessment
Section 8
Dietary Assessment
Exhibit 8.1
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SECTION 1
EXECUTIVE SUMMARY
Northampton County requested that Complete HealthCare Resources – Eastern, Inc.
(“CHRE”) conduct a Financial and Operational Assessment Consultation of the
Gracedale Nursing Home (“Gracedale”), the county-owned skilled nursing facility.
Northampton County requested this consultation since the facility has not shown
consistent financial performance and has required significant county contributions in
recent years. This assessment was requested to consider and evaluate numerous
options, including indentifying operational and financial improvements that Gracedale
can implement. The overall goal is to improve the financial performance of the
facility, thereby reducing or eliminating county contributions. Options include
implementing the revenue enhancements and expense reduction recommendations,
contracting with a professional management company to assist the internal
management team at Gracedale with those recommendations, and the lease or sale
of the Gracedale operations. Only the last two options would ensure elimination of
any future financial support of the Gracedale operations by Northampton County.
The assessment of Gracedale included operational, financial and marketing
consultations in order to identify opportunities for revenue enhancement, expense
reductions and improved financial performance. Recommendations are provided to
aid in developing a plan of action to improve the financial stability of the facility.
Site visits were scheduled from mid May through June, and consisted of
observational review, interview of facility staff, discussions with county staff and
analysis of facility and county documents pertaining to the Gracedale operations. In
order to accurately assess the operation of this facility, a list of operational and
financial documents was requested by CHRE to be made available for comparison
analysis. The quality and accuracy of this report is dependent upon the information
available for review by the CHRE consulting team.
As requested by the Committee, we evaluated several different options during the
course of the assessment, as more fully described in Section 2 of this report. Below
is a summary of the options and our recommendation to the Committee regarding
Gracedale:
Scale back the size of the Facility - This option would result in reducing the bed count
and census to a lower level. We believe this is not a good alternative. There are
opportunities to increase census and revenues at Gracedale, and due to certain fixed
costs that cannot be reduced, achieving profitability is usually more difficult when
reducing revenues or downsizing.
Close the facility, over a period of years - We do not recommend this option as
Gracedale would incur substantial losses during the wind-down of the operations,
and Northampton County would not benefit from proceeds it would receive on a sale
or lease of the facility. In addition, there is not a sufficient supply of unoccupied beds
in the remaining Northampton County based skilled nursing facilities to accommodate
the discharge of 600+ residents from Gracedale and admission to other facilities.
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Closure of Gracedale and construction of replacement facilities - We evaluated this
option, but do not believe it is in the best interest of Northampton County. Either
Northampton County would incur significant debt to build the replacement facilities
(likely in the $40 million - $50 million range) if it built the facilities on its own behalf, or
it could be built by a private operator. In either situation, Northampton County would
not receive any significant funds for the existing facility or its licenses, compared to a
sale or lease of the existing facility.
Modify services policies, procedures or management of the facility and Partner with
Neighboring County(s) to provide “back room” functions - The objective of this option
was to determine if there were sufficient areas to improve the operational and
financial performance of Gracedale by enhancing revenues or reducing operational
expenses to eliminate required ongoing funding of operating losses of Gracedale by
Northampton County
Opportunities for improvement were identified in the following areas and are detailed
in the individual report sections within this report. Revenue enhancement
opportunities have been identified relative to Census Development and Census
Management. Key expense reduction opportunities have been identified relative to
nursing staffing levels, dietary staffing and supplies, housekeeping and laundry
staffing. Improvements in the operational and financial performance of Gracedale
can be achieved through:
•
Increased census through improved admissions process and dedicated
business development team
•
Increased Medicare reimbursement through improved Resource Utilization
Group (“RUG”) mix and increased Medicare census
•
Decrease in staffing, including Dietary, Housekeeping, Laundry and Nursing
•
Reductions in bad debt from improved Admissions, Medicaid Pending, Billing
and Collection processes
•
Reductions in supply expense, including Dietary and Nursing
As noted in Section 2, a Proforma was prepared based upon operational and
financial changes and adjustments identified using the year ended December 31,
2009 as the baseline for measurement. As noted above, implementation of all the
recommendations noted in this report should result in increasing EBITDAR (Earnings
Before Interest, Taxes, Depreciation, Amortization and Rent) by approximately
$2,567,000 after taking into consideration a management fee of 1.25% of revenue.
The financial impact of most of these recommendations can largely be achieved
within a six to twelve month period. The reduction in staffing may take longer or
shorter, depending if Gracedale elects to make the staffing adjustments
recommended through attrition or through a one-time layoff, or some combination of
attrition and layoff. This result is unlikely to be achieved if only selective
recommendations noted in this report are implemented. For further details, see the
P&L Trend and Proforma Analysis on Exhibit 2.1. The projected EBITDAR margin of
4.45% falls below the targeted expected range of 8% -12% for a facility the size of
Gracedale and its occupancy level, but is expected given the significant employee
benefits provided to the staff.
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There were notable risk factors that were identified in Section 2 that could impact the
future results of Gracedale and the proposed proforma. These risk factors include
health and pension expense. As noted above, the Proforma EBITDAR of $2,758,000
was based on operating results of 2009 as the base year for comparative purposes.
County officials have prepared a preliminary budget for Gracedale for 2011, which
indicates a $4.6 million increase in benefit costs in excess of 2009 levels (see Table
2.1a in Section 2). Adjusting fringe benefits costs to the budgeted 2011 levels would
take the proposed Proforma from an operating profit of approximately $2,758,000 to
an operating loss of approximately ($1,860,000) as noted in Table 1.1.
Table 1.1 (in Thousands)
Category
Revenue
Operating
Expenses
EBITDAR*
EBITDAR
Margin %
Proforma
Proforma
Baseline Adjustments Balance
$59,310 $ 2,676
$61,986
59,119
$
191
0.30%
2011
Benefit Adjusted
Increase Proforma
$
0 $61,986
109
59,228
4,618
$ 2,567
$ 2,758
(4,618) ($1,860)
4.45%
63,846
(3.0%)
Baseline was based on 2009 operating results. EBITDAR for baseline 2009 is pre-county contribution,
capital expenditures or debt service of $643k on debt of $5.5 million
EBITDAR = Earnings Before Interest, Taxes, Depreciation, Amortization and Rent
The adjusted projected loss of ($1,860,000) would be further increased when the
allocated debt service of $643,000 and annual capital expenditures costs are
included. Based upon operating losses that are expected to continue at Gracedale
due to substantial increases in employee benefits costs, and minimal increases in
reimbursement rates from the primary funding source (Medicaid), it appears likely
that significant ongoing contributions will be required by Northampton County to
overcome the operating and cash flow losses that will be incurred by Gracedale if the
facility continues to be owned and operated by Northampton County.
Alternative Ownership of Gracedale through the Sale or Lease of Gracedale
In an Alternative Ownership restructuring, which can be accomplished either through
the outright sale of the facility or through a lease, Northampton County would have
no ongoing financial obligation for the operation of the facility. The County would
receive a lump sum payment in sale or on ongoing monthly payment in the case of a
lease. See Section 2 further for discussion.
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The table below summarizes the key differences between a sale and lease:
Issue
County retains ownership of building
Lump sum proceeds received upfront
Ongoing proceeds from payment stream
County has administrative oversight over
highly regulated facility
County has financial obligation to fund
operating losses through county
contributions
County has obligation to fund capital
improvements in facility
County benefits from “cash run-off”
County controls “mission” of Gracedale
Freeze of pension plan obligations
pertaining to transferred employees
Facility on tax roll for County real estate
taxes
Facility on tax roll for School District and
local municipality real estate taxes
End of new claims for workers
compensation
End of new claims for health insurance
Lump sum proceeds received upfront
Ongoing proceeds from payment stream
Lease
Gracedale
Yes
No
Yes
No
Sell
Gracedale
No
No
No
No
No
No
No, “triplenet” lease
Yes
Yes (1)
Yes
No
Yes
Yes (1)
Yes
No (2)
Yes
No (2)
Yes
Yes
Yes
Yes
No
Yes
Yes
No
No
Recommendation:
The objective of the Committee was to determine the best strategy to eliminate any
ongoing county contribution to the operations of Gracedale. Despite identifying a
significant number of ways to improve the financial performance of Gracedale, the
current cost structure and reimbursement environment is such that Gracedale is
unlikely to operate profitably, and thus will continue to require significant contributions
from Northampton County to sustain its operations under county ownership.
We therefore recommend that Northampton County consider the implementation of
an Alternative Ownership restructuring strategy (sale or lease) as the best strategy to
guarantee no required contributions from Northampton County to fund cash flow
losses at Gracedale. We believe a Lease option as the alternative ownership
structure may be the most acceptable course of action to Northampton County
officials and residents.
As noted under Section 2, under a lease arrangement, Northampton County would
be relieved of its administrative, operational and financial obligations of Gracedale;
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receive a steady stream of cash flow in the form of lease payments, but still retain
ownership of the building, which may have broader support by county residents.
Regardless of the decision made by Northampton County officials, we recommend a
decision be announced by County officials in the very near future. The uncertainty
regarding the future of Gracedale, along with the resultant adverse publicity, has
impacted census development. Any delay in a decision by the County will continue
to impact Gracedale’s ability to increase census, and will make it more difficult to
recover if census continues to decline.
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SECTION 2
REVIEW OF OPTIONS AND FINANCIAL ANALYSIS
In this section we have reviewed the various options available to Northampton
County regarding the future of Gracedale. The options include facility operational
changes, sharing of services, closure and alternative ownership. Each option will be
explained in detail below. The last option involving alternative ownership requires
additional explanation of the County’s role in providing long term care services and
more specifically, those services for the indigent population.
With the implementation of Federal and State programs, namely Medicare and
Medicaid, facilities are no longer called upon to take care of indigent clients. As a
pre-requisite for nursing home placement, all individuals must be assessed and found
to be needing nursing home services by a licensed physician. Individuals who meet
that eligibility, but do not have funds to pay for their stay can apply to be covered by
State and Federal programs which can assist with payment. A truly indigent person
is a rarity. Counties are not required to own or operate a nursing facility in
Pennsylvania, and many do not. The County can make provisions at the time of
alternative ownership to ensure that any new owners assist the County in fulfilling the
obligation of serving the truly indigent population or otherwise contract with a third
party to provide the required care for the truly indigent population. We recommend
that the County Solicitor investigate the legal requirement of Northampton County to
operate a nursing home or if it can satisfy its obligation by contracting with a thirdparty to provide for the truly indigent population.
As part of the Financial, Clinical and Operational Assessment that Complete
HealthCare Resources – Eastern, Inc. (“CHRE”) conducted for the operations of the
Gracedale Nursing Home (“Gracedale”) on behalf of Northampton County, we
evaluated the following options:
•
•
•
•
•
•
•
•
Modify services, policies, procedures or management of the facility
Partner with a neighboring county(ies) in providing “backroom” functions to
the facility
Scale back the size of the facility
Close the facility, over a multi-year period
Lease the facility
Sell the facility
Any prudent combinations of the above
Other options
Our first step in the evaluation process was to gain an understanding of the main
issues facing Gracedale from key Northampton County officials and the facility
management. Representatives of CHRE met with committee members assigned by
Northampton County to evaluate the best course of action by Northampton County
regarding the future of Gracedale. The committee consists of:
1.
2.
3.
4.
John Stoffa, County Executive
Vic Mazziotti, Director of Fiscal Affairs
Margaret (Peg) Ferraro, County Council (absent from first meeting)
Tom Harp, Deputy Director of Administration
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5. Ross Marcus, Director of Human Services
6. John Mehler, Aging Administrator
7. Marvin Granda, Gracedale Administrator (absent from first meeting)
During our meeting, we discussed their perceptions of the issues facing Gracedale
and the overall objectives of Northampton County regarding financial contributions to
support the financial losses Gracedale has experienced the past few years, including
the substantial outlays of cash by Northampton County to fund capital improvements
to the building. The following were the key issues identified by the Committee:
•
Concerns on the significant capital improvement outlays in recent years and if
that would continue
•
Lack of increases in Medicaid reimbursement
•
Loss or reduction in revenues due recent census declines, including loss of
Disproportionate Share revenue
Regarding the ongoing financial support of Gracedale, the main objective of the
committee was to find the best solution to fully eliminate the County’s contribution to
Gracedale, regardless of the recommended outcome.
We also conducted individual telephone interviews with several members of the
Northampton County Council to solicit their opinions regarding the issues facing
Gracedale. The following are key concerns or ideas expressed:
•
Concensus that operating losses experienced by Gracedale is of greatest
concern
•
Mixed opinion on whether County has legal or moral obligation to operate a
nursing home
•
Mixed opinion on whether to retain ownership of Gracedale, despite funding
operating losses at taxpayers’ expense versus an alternative ownership
•
Concensus that an experienced operator run Gracedale if County pursued
alternative ownership
Having gained an understanding of the perceptions of key county officials on the
issues and understanding the objectives of Northampton County regarding ongoing
financial support, we conducted our Financial, Clinical and Operational Assessment
of Gracedale, with the focus on gathering supporting information to evaluate each of
the options noted above. The following is a summary of CHRE’s evaluation of the
various options, noting the advantages and disadvantages of each option, and any
economic impact to the operations of Gracedale and financial support of
Northampton County.
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Option 1 - Modify Services, Policies, Procedures or Management of the Facility
While the residents of Northampton County have many options and choices for
skilled nursing services in Northampton County as noted in Table 5.1 of the
Marketing Assessment, CHRE recognizes that there is generally strong public
support for a county to continue operating the “county nursing home”, even if it
requires county financial contributions and taxpayer support. This support comes
from a wide range of constituents, including:
•
•
•
•
•
Current residents of the facility
Family members of current residents
Past residents or family members with strong emotional ties and memories
associated with the county home
Existing staff members
County officials
As a result, our primary objective was to determine if the operational results of
Gracedale could be improved to allow Gracedale to fully fund its operations without
any ongoing county contribution. As noted on Exhibit 2.1, P&L Trend and Proforma,
and supported by the analysis contained in the other sections of this report, we have
identified numerous areas for financial improvement that, if implemented and
achieved, would allow Gracedale to generate sufficient earnings to eliminate ongoing
county contributions, and perhaps allow Gracedale to contribute funds to
Northampton County.
The following is a summary of key findings noted in the various sections of this
report:
Section 3 - Clinical Reimbursement
•
Increase Average Length of Stay (“ALOS”) by up to six days; potential
increase in revenues of $1,003,000 and net earnings of $328,000
•
Prior to discharging resident from Part A therapy services, the RNAC and
Rehab Manager should review the clinical status of resident
•
Review restorative program procedures to accurately capture all pertinent
resident needs and subsequently decrease CMI
•
Revise the current CMI review process to ensure the rehab RUG distribution is
even across all picture dates. Implement review of all residents three weeks
prior to the scheduled MDS to ensure that assessments are scheduled
appropriately to capture maximum reimbursement in accordance with
applicable regulations
•
Provide formal in-servicing in use of the Care Tracker system and proper
coding
•
Re-assign responsibility for the completion of MDS, eliminating RN
Supervisor’s role in completing sections of the MDS; instead, have it
completed by MDS Coordinator
•
Implement plan for preparation of MDS 3.0 for the October 1, 2010 transition
date
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•
Implement MDS completion worksheets for each discipline for incorporation
into the medical record
•
Improvement in Part B utilization, estimated revenue of $351k
Section 4 – Nursing, Therapy and Social Services
•
Increase LPN Shift Differential on evening shift from $0.50 to $1.35 to aid in
recruitment, reducing agency hours
•
Review current tracking system used to verify Nursing overtime has been
approved and to better manage overtime to ensure effectiveness of the
process and implement changes if needed
•
Centralize the scheduling function to a lower-price clerical position, freeing up
RN staff for direct care or other duties. Add 1 FTE or cost of ($44,262)
•
Reassign criminal background checks and tuition reimbursement program to
Human Resources rather than RN staff: frees up RN staff to provide quality
assurance and clinical oversight
•
RN Supervisor position – Eliminate for day shift, Monday through Friday; add
0.4 FTE for weekend; net savings of 1.6 FTEs or approximately
$163,500($204,366 -$40,873). This savings is included in total direct care
savings noted below.
•
Add 1 FTE LPN Restorative Nurse at cost of ($60,639) to allow more oversight
and effective implementation of the restorative program. Add 1 FTE
Restorative Aide at cost of ($38,540). Expand restorative focus to all shifts
using nurse aides
•
Eliminate 3 FTE Unit Clerk position at savings of $125,294 through sharing
across units
•
Hire part-time Transport Aide to perform duties currently done by Restorative
Aides or Nurse Aides. Savings of $10,000
•
Adjust direct care staffing to approximately 3.40 Hours Per Patient Day,
reducing by approximately 32 FTEs at projected savings of $1,837,042,
including reduction of agency and overtime. Gracedale management reports
some of this staff reduction has been implemented as of the date of this report.
•
Expand exercise program to weekly, capturing first 15 minutes and last 15
minutes
•
Train direct care Nurses Aides to document restorative toileting in CareTracker
•
To control incontinence supply expense, conduct measurements of each
resident to assure they receive the correct size brief
•
Assess all residents for possible toileting programs to increase functional
elimination, increase dignity and capture on the MDS
•
Ensure that all direct care staff is trained on IV management in order to target
admissions for census development
•
Consider purchasing oxygen conservers; estimated annual savings of $40,000
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•
Perform cost comparison of Glucose monitoring system to ensure facility is
receiving best price
•
Consider Medicare billing of wound care supplies through alternative firm
•
Pursue Wound Care certification for minimum of one of the RN staff to
increase facility-based knowledge on protocols
•
Perform comparative cost analysis of Wound care vacs suppliers (KCI vs.
Joerns)
•
Perform cost comparison of autoclave upkeep vs. purchasing of disposable
supplies
•
Consider adding a few additional electric low beds to reduce rental costs
Section 5 – Marketing
•
Change the Admissions/Inquiry process
•
Greater use of the “quick admit” process created by Gracedale staff
•
Implement “Direct Admit” program for admissions directly from Emergency
Room, Physician office or home
•
Expand market share of recently-implemented Intravenous Therapy program
and fully train staff on clinical treatment
•
Review reasons for discharge of residents to determine if some residents
could be retained by facility with implementation of new clinical programs.
Provide training where appropriate
•
Continue current efforts to increase number of contracts with Commercial
Insurance and HMO providers
•
Implement an effective inquiry management or sales tracking system
•
Consider creating a separate Business Development Department with four
FTEs (some positions transferred from Social Services), with dedicated
external Business Development Specialist for outside marketing efforts to
referral sources and a Clinical Liaison resource for discharge planners
•
Develop comprehensive Strategic Marketing Action Plan (SMAP) and
marketing budget
•
Develop a comprehensive advertising strategy as part of the SMAP
•
Immediately develop and implementation a Census Recovery Action Plan to
beginning building census to prior levels
•
Perform competitive analysis of key competitors, including comparison of room
rates, adjusting Gracedale’s where appropriate. Review competition’s
services for opportunities to expand services provided by Gracedale or
capitalize on competitors’ weakness
•
Improve collections by requiring resident to pay first month’s services prior to
or at admission, including estimated “patient responsibility” portion for
Medicaid or Medicaid Pending admissions
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Section 6 – Business Office
•
Review Collection policies to ensure pro-active procedures in the early stages,
and include use of small claims court and continued use of County Solicitor.
•
Collect first month’s patient responsibility portion, including MA Pending
residents.
•
Consider creating a MA Pending classification category for billing and AR
purposes.
•
Implement comprehensive AR review and write-off process and write off
existing uncollectible account
Section 7 - Environmental Services
•
Reduction of 15 FTEs in Housekeeping; savings of $500,000+ annually.
Some of FTE reduction could come in the form of eliminating overtime,
resulting in greater savings. Consider outsourcing housekeeping and laundry
service
•
Conduct time study to evaluate the maintenance tasks performed by
Housekeeping staff
•
Purchase autoscrubber for use in Tower Unit to enable reduction in staffing
•
Reduce Laundry FTEs, saving $176,000
•
Evaluate providing laundry service to neighboring county-owned facilities or
other facilities in Northampton County due to capacity of laundry equipment
•
Consider changing vendor used in testing of the fire alarm system
•
Engage third-party to evaluate intermediate and long-term capital needs of the
facility
•
Use of spend-down sheets to monitor expense to budget monthly
Section 8 - Nutritional/Dietary
•
Use of spend-down sheets to monitor expense to budget monthly
•
Consider participating in a Group Purchasing Organization (“GPO”) program to
save on food costs and labor costs incurred by Sodexo for bidding weekly
orders. Estimated savings of approximately $15,000
•
Investigate and implement online food ordering, reducing ordering time
•
Eliminate 4 FTEs of dietary line staff and add 1.5 FTE Dietetic Technician at
net savings of $33,618 per year
•
Implement changes to supplement usage, resulting in estimated savings of
$105,000
•
Evaluate reduction of licensed beds and convert unused rooms into additional
dining to enhance the dining experience
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•
Implement an automated menu system such as Geri Menu. Estimated
ongoing annual savings of approximately $47,000
•
Utilize CareTracker to track resident weight
•
Consider installing surveillance cameras in food storage area
The above recommendations are quite extensive, but are not unexpected
considering the size of Gracedale’s organization, with over 600 residents; over 700
employees and approximately $60 million in revenues. The nursing home industry is
highly regulated, overseen by various entities (PA Department of Health; Center for
Medicare and Medicaid Services, Office of Inspector General, among others), and it
is difficult to expect a single individual (the facility Administrator) to keep on top of
everything without sufficient support
If Northampton County’s decision is to continue operating Gracedale as a county
nursing home, CHRE recommends the Northampton County consider contracting
with a full-service management company to provide support to Gracedale’s
management team in implementing the above recommendations, as well as
remaining operationally, clinically and financially sound in the future.
In the past, Gracedale has engaged various consultants on a piece-meal basis.
While Gracedale has achieved good survey and clinical results, the use of
consultants has not resulted in proven measureable results for Gracedale to become
an operationally-efficient and financially-sound business. The interdependence and
interplay of the various departments within a nursing home requires looking at all
aspects of the facility in developing strategies, not just a small component.
A full-service management company will serve as an intermediary between the
facility and the governing body, generally the Board of Directors, Board of
Commissioners or County Council. In some cases the governing body may delegate
its oversight responsibility, such as to the management of a county department or
representatives of the county government. In the case of Northampton County, the
county department may be Human Services, with additional representation by County
Council who has specific oversight of the Human Services Department. The
management company would report to the designated group on a periodic basis,
typically monthly, on the financial, clinical and operational status of the facility.
A full-service management company will provide support to Gracedale’s facilitybased management team, from the Administrator and Director of Nursing and Direct
Care nursing staff to the various department heads, including Dietary, Maintenance,
Housekeeping, Laundry, Activities, Social Services, Business Office, and Marketing/
Business Development. A full-service management firm should provide the following
consultants to the facility:
•
•
•
•
•
•
Operations-oriented consultant, heading up the team
Nurse consultants
Reimbursement consultant
Business Office consultant
Dietary consultant
Environmental consultant
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A full-service management company, through its consultants, will support the internal
management team of Gracedale in all aspects of the facility’s operations, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Management and Administration
Nursing Services Assessment and Support
Quality Assurance and Improvement Programs
Regulatory and Corporate Compliance
Accounting and Financial Services
Third Party Reimbursement Services
Budget Development
Social Services Assessment and Support
Activity Department Assessment and Support
Dietary Services Assessment and Support
Environmental Services/Safety Assessment and Support
Marketing/Business Development Assessment and Support
Human Resources Review and Support
Information Technology Review and Support
CHRE believes that Gracedale, with the support of a full-service management
company, can improve its financial performance and operational efficiency through
the implementation of the recommendations noted above, and proactively addressing
issues or regulatory changes as they arise in the future.
The following is a summary of the key improvements to the operations and financial
performance of Gracedale compared to the year ended December 31, 2009 (in
thousands dollars) if the recommendations noted above are implemented. The yearended December 31, 2009 was used for the basis of comparison and baseline for
development of the Proforma analysis (rather, interim 2010 financials) as it
represented a full year of operating results, and the census days are closer to the
proforma census used than 2010 census.
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We have identified opportunities for financial improvements to Gracedale, that if
successfully implemented, would improve the baseline results over 2009 results by
approximately $2.6 million. The proforma EBITDAR of approximately $2,758,000
noted above would go toward the funding of interest and principal for bond payments
of approximately $643,000 allocated to Gracedale, as well as the capital
improvement requirements of Gracedale.
The EBITDAR noted above was based upon the 2009 baseline results, including
fringe benefits. Below we have discussed several risk factors that can have a
significant impact on the ability of the Gracedale to achieve the proforma results.
These risk factors include health insurance expense and pension expense. We have
been informed by county representatives that the budgeted 2011 fringe benefit
expenses have increased by approximately $4.6 million over 2009 levels (see Table
2.1a below. As shown in this table, non paid time off benefits (vacation, sick, holiday,
personal) increased by approximately 55% from 2008 to the 2011 budgeted
amounts, including a 1,773% increase in pension costs.
Using 2011 budgeted fringe benefits as the baseline rather than 2009 fringe benefits
results in an EBITDAR Loss of approximately ($1,860,000), instead of positive
earnings of $2,758,000.
Due to unique factors impacting pension expense, there generally are wide swings in
the amount of required contributions to a defined benefit plan from year to year. It
would not be anticipated that the 2011 level of pension expense would continue
indefinitely into the future. When evaluating the future of Gracedale, we recommend
the County consider utilizing a five- or ten-year moving average of pension
contributions in its analysis to smooth out changes in economic or actuarial factors
that cause the large swings in the pension expense, either upwards or downwards.
Risk Factors
Achievement of this financial proforma is based upon the assumptions contained in
the proforma, or as otherwise noted in the various assessment sections of this report.
There are considerable risks that the nursing home industry as whole faces, or that
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Gracedale faces as a separate facility, that could impact the ability to achieve these
results. These include, but are not limited to:
Medicare Reimbursement - As noted in Section 3 – Clinical Reimbursement
Assessment, the current Medicare reimbursement rate is approximately $437 per
resident day, resulting in projected revenue of approximately $10.4 million based
upon the proposed payor mix. Medicare is a federally funded program. Due to the
significant annual federal deficits and total federal deficit in excess of $13 trillion,
there could be pressure to significantly reduce the Medicare program outlay, such as
what was enacted in 1999 with the implementation of the Prospective Payment
System (PPS), when the average Medicare reimbursement went from approximately
$400 per day to $300 per day. A similar $100 per day decrease would result in a loss
of revenue of approximately $2.4 million from the amount reflected in the P&L Trend
and Proforma on Exhibit 2.1, most of which would fall to the bottom line, as it will be
difficult for the facility to implement any substantial further staffing or cost reductions,
other than those already recommended in this report.
Medicaid Reimbursement – The Medicaid program is a state program, largely
funded by the Commonwealth of Pennsylvania, with some matching funding by the
federal government. Like the federal government, Pennsylvania has experienced
budget difficulties as a result of the economic downturn in recent years. While the
state is mandated to maintain a balanced budget, the ability to balance the budget
during economic downturns through tax increases is severely curtailed, so the only
alternative is expense reductions. As noted on Table 3.1 of Section 3 - Clinical
Reimbursement Assessment, the recent inflationary increases in the Medicaid rate
have been approximately 1% per year, while wage increases have gone up over 4%
per year, and inflationary increases in other operating expenses (see Health
Insurance and Pension Expense below) have generally exceeded 1%. If this pattern
of revenues increasing at a substantially lesser rate than expenses would continue to
persist for the foreseeable future, the operating margin would continue to deteriorate.
Health Insurance - Health Insurance is a significant operating expense for
Gracedale, given the number of staff that are employed, and the relatively low
contribution made by employees compared to typical non-county operated nursing
facility. Health insurance costs (Health/Medical and Vision/Prescription) totaled
approximately $5,912,000 in 2008 and $5,625,000 in 2009, with the decline in 2009
largely attributable to a reduction in staff due to census declines. The health
insurance industry, despite of and possibly due to the recent passage of national
health insurance legislation, has seen increases significantly above the rate of
inflation. Continued increases in health insurance premiums in excess of increases
in reimbursement rates, without an equal increase in employee contributions, will
have a negative impact on the operating margins of Gracedale. This risk factor is
evidenced by the significant increase since 2008 as shown in Table 2.1a above.
Health & Dental and Vision and Prescription expense have each increased over 20%
from 2008 to the 2011 budgeted amounts, far in excess of general inflationary costs.
OPEB - Other Post Employment Benefits (“OPEB”) are offered to all Northampton
County employees, including Gracedale employees. This represents primarily health
insurance offered to retirees of Gracedale until eligible for Medicare at age 65, a
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benefit that most non-county facilities do not offer. Gracedale incurred or was
allocated OPEB, pertaining to existing staff and current retirees of approximately
$2,318,000 and $2,286,000 in 2008 and 2009, respectively. OPEB experiences the
same inflationary pressures that health insurance experiences, as it is a form of
health insurance. As noted in Table 2.1a, OPEB expense has increased well over
20% from 2008 to the 2011 budgeted amounts, far in excess of general inflationary
costs projected during the same time period. Unless this benefit is eliminated, future
increases in OPEB health insurances costs in excess of reimbursement increases
will have an adverse impact on the operating margins of Gracedale. In addition,
Northampton County will incur some level of OPEB into the future related to the
operations of Gracedale, regardless whether Gracedale is sold, for current retirees
and existing staff that have met eligibility requirements. Northampton County has
engaged the Hay Group, a consulting firm with a specialty in the evaluation of
employee benefit plans, to study the OPEB expense exposure at Gracedale.
Pension Expense - As a result of the current economic environment; significant
decrease in the various equity and bond markets; changes in investment earnings on
income-producing investments, and changes in actuarial assumptions as a result, the
pension expense has risen significantly since 2008. In 2008, pension expense for
Gracedale was approximately $192,000; for 2009, the pension expense was
approximately $2,073,000. Based upon the April 2010 year-to-date financials, the
annualized amount for 2010 is in excess of $4 million. While the required
contributions fluctuate significantly over the course of the normal business cycle,
there are significant concerns raised by economists as to the future long-term levels
of growth in the United States economy and the related investment market. As
returns in investments play a key factor in the determining pension requirements,
there may be a sustained level of pension contributions to fund the pension benefits
committed to current and future retirees. In addition, Northampton County will incur
some level of pension costs into the future related to the operations of Gracedale,
regardless whether Gracedale is sold, for current retirees and existing staff that have
met eligibility requirements. Northampton County has engaged the Hay Group, a
consulting firm with a specialty in the evaluation of employee benefit plans, to study
the pension expense exposure at Gracedale.
Regulatory Requirements - The nursing home industry is a highly-regulated
industry, overseen at both the state level through the Pennsylvania Department of
Health (“DOH”) and the federal level through the Center for Medicare and Medicaid
Services (“CMS”). In addition, there are other regulatory agencies, such as the Office
of Inspector General (“OIG”) and the Occupational Safety and Health Administration
(“OSHA”) that promulgate regulations that have impact on the operations of nursing
homes and that also have economic consequences. This could be changes in
staffing levels or training and education requirements that could increase wage costs;
requiring mandatory employee benefits that exceed the costs of current benefits, or
other regulatory changes that increase either staffing costs or supplies expense.
Capital Improvements - Gracedale has incurred significant capital improvements
over the past few years and is an aging facility. Due to the size of the facility, the
replacement of major systems requires a substantial outlay of funds. While in most
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years the expected outlays should be in the $500,000 - $725,000 range, this could
increase significantly in certain years, as experienced by Gracedale in 2008, 2009,
and 2010. Above-normal outlays may require contributions by the county.
The following is a summary of the pros and cons of continued ownership and
operations of Gracedale by Northampton County:
Table 2.2
Pros
Cons
Retain ownership of the facility, so it is
easier to gain community support for
ongoing ownership of Gracedale
Retain time-consuming oversight of
administrative duties of highlyregulatory business for county services
not mandated
Opportunity for Gracedale to contribute
to County if suggested
recommendations are fully
implemented and achieved. Results in
less funding by taxpayers of county
Potential for significant county
contribution based upon the adverse
impact of risks factors noted or other
financial declines
Option 2 – Partner with Neighboring County(s) for providing “back room”
functions to the facility
As part of the Financial, Clinical and Operational Assessment, we investigated and
evaluated the possibility of partnering with neighboring county-owned nursing
facilities to provide shared services between the facilities, with the primary benefits
achieved from an economy-of-scale perspective. This would be achieved by
consolidating certain staff functions, as well as benefiting from group purchasing,
something many non-county facilities benefit from on a larger scale by participating in
Group Purchasing Organizations. Any recommendations in this Option 2 can easily
be implemented along with Option 1, as Northampton County would still retain
ownership of the Gracedale operations.
During the course of the evaluation of Option 2, we investigated the following
services or functions that Gracedale could either partner with or outsource to other
county nursing home facilities:
•
Gracedale provide laundry services to other county (and non-county) facilities
due to excess capacity of the laundry equipment owned by Gracedale. (See
Section 7 – Environmental Services Assessment for detailed commentary.)
We believe this warrants further investigation, but there are several issues to
be addressed, as noted in Section 7, before proceeding.
•
Gracedale to partner with Cedarbrook for staff development at Cedarbrook’s
site (See Section 4 – Nursing, Therapy and Social Services for detailed
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commentary). Based upon key points identified, we recommend that
Gracedale not proceed with outsourcing of staff development.
•
Consolidating purchasing and contract negotiations for items such as food
service, pharmacy, therapy and other consulting services.
•
It would be worthwhile for Gracedale to explore negotiating pricing certain
common services collectively, whether with other county facilities, or perhaps
as a member of a Group Purchasing Organization (“GPO”). Participation in a
GPO may result in even greater price savings due to the greater number of
facilities participating, as the resultant higher volume of purchases serves as
leverage. Investigation of this should be undertaken in greater detail.
•
Outsourcing billing and collection functions to Cedarbrook (See Section 6 –
Business Office and County Services Assessments for detailed commentary).
While there might be a potential savings in staffing costs identified in the outsourcing
and consolidation of the billing and collection function noted in Section 6, Business
Office and County Services Assessment, we recommend that Gracedale proceed
with caution when considering this option. Cash flow is the key and “lifeblood” of any
entity, whether it is a governmental entity or a business. The billing and collections
aspects are key components, which should be closely monitored and supervised.
We believe the management team at Gracedale should maintain responsibility for
timely, accurate and proper billing of revenue and collection of the receivables.
Outsourcing of the billing can diminish the sense of responsibility, and therefore, we
recommend Gracedale not pursue this option. The potential saving from reduced
FTEs can quickly and easily be offset by lack of collections and bad debt write-offs.
Option 3 – Scale Back the Size of the Facility
In recent years, the census had steadily declined at Gracedale, and there has been a
notable drop in 2010. The Committee, as part of the evaluation, had requested
whether the bed complement at Gracedale should be reduced or the facility “rightsized” to reflect the current reality that Gracedale is experiencing. The Committee
also felt that by reducing the bed count, it would allow Gracedale to potentially
achieve the 90% occupancy levels required to be eligible for Disproportionate Share
revenue.
As CHRE consultants performed the assessment, we considered whether Gracedale
was a candidate to be right-sized. Typically a facility is right-sized for:
•
an expected permanent facility census decline due to declining population in
the target market area ; or
•
inability to recruit adequate staff while maintaining cost effectiveness
As we performed the Marketing Assessment, we evaluated whether Gracedale’s bed
complement should be decreased or “right-sized” due a permanent market decline.
As noted in Section 5, Marketing Assessment, the senior population within a ten-mile
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radius is increasing, and the average occupancy of all Northampton County skilled
nursing facilities is approximately 90%. Since the population is not decreasing, we
believe that Gracedale can achieve and sustain the 90%+ census level noted in the
Marketing Assessment. Through effective management and the implementation of
strong Marketing Plan and changes in policies and procedures in the admissions
process, we believe that Gracedale can achieve the suggested targets.
As noted in Section 4, Nursing, Therapy and Social Services, there is more than
sufficient or required nursing staffing currently employed in the facility, or provided
through agency, to support an in-house census of 655 that is suggested in the
Marketing Assessment. Staff costs are high, when factoring in employee benefits at
62% for 2009 (when including the impact of paid time off such as Vacation, Holiday,
Sick Leave, and Personal Days), and perhaps significantly higher in 2010 due to
substantial increases in pension and health insurance costs. These high employee
costs make it difficult to achieve profitability, but is not unattainable, as noted in the
Proforma. There are means to address the high employment costs, one of which is
the implementation of a two-tier wage and benefit system whereby at a transition, all
existing facility staff at that time retain their existing benefits, but all new hires after
that time receive more market-based benefits. This could include the following:
•
•
•
•
•
•
Higher contributions to health insurance (10% - 25% of premiums)
Elimination of eligibility in OPEB
Higher contributions to pension plan
Reduced maximum vacation days and longer period of time to reach
maximum
Lower annual sick days and a cap on carry over
Reduced number of Holidays and Personal Days
By implementing a two-tiered approach to employee compensation, current
employees are not impacted, but over an extended period of time with turnover, the
cost of the facility-wide benefit package will be reduced and approach the market.
Due to the low rate of turnover that Gracedale probably realizes, it will take an
extended period of years to achieve the full results.
As neither of the two main reasons to right-size Gracedale is applicable, CHRE
believes that implementing the recommendations noted in the Marketing
Assessment, which should lead to higher census, is the most appropriate course of
action at this time. As with any business enterprise, there are a certain amount of
fixed costs, regardless of the volume of business. As revenues decrease, as they
would in the case of the implementation of right-sizing, the operating margins would
decrease as these fixed costs become a greater percentage of operating costs. Very
few businesses, including the auto industry and the steel industry, have been able to
right-size themselves to profitability.
Therefore, CHRE recommends that Gracedale implement the recommendations in
the Marketing Assessment to increase census to prior levels, and not consider rightsizing at this time beyond the 33 beds that have recently (or are in the process of)
been taken off-line or “parked”, as indicated by Marvin Granda, Gracedale
Administrator. We recommend evaluating the status of these beds and the impact on
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Disproportionate Share calculations with DPW, as they may still use the higher 725bed count in calculations if the beds are not officially turned in and removed from the
licensed total (e.g., go from 725 licensed beds to 692 licensed beds).
If circumstances change in the future, then of course, Gracedale should evaluate its
options, including a lower optimal census and distribution by unit to maximize the
efficiency of staffing.
Option 4 – Close the facility, over a multi-year period
CHRE does not recommend that Northampton County pursue this option for several
reasons. Foremost, Northampton County would most likely not benefit from this
course of action in receiving proceeds as they would in the lease or sale of
Gracedale. In addition, Gracedale would most likely sustain even greater operating
losses from operations due to:
•
declining revenues over a period of several years, while fixed costs remained
constant;
•
employees would exhaust their accrued paid-time off, including sick leave,
rather than risk losing the benefit, increasing cash outlays (and something
Gracedale is most likely experiencing currently due to the uncertainty of the
future of Gracedale);
•
costs incurred to implement a comprehensive plan and to transition the
residents to alternative facilities, especially the hard-to-place residents.
The other factor to take into consideration is where the current over 600 residents
would be placed. As noted in Table 5.1 of the Marketing Assessment, other than
Gracedale, there are 1,518 skilled nursing beds in the other 14 Northampton Countybased skilled nursing facilities. Within these 14 facilities, the number of unoccupied
beds is only 157 (1,528 licensed beds less 1,361 occupied). The closure of
Gracedale would result in 450 to 500 residents that could not be absorbed into
Northampton County-based facilities, requiring the residents to be placed outside of
the county. This would result in a public outcry, especially when combined with the
layoff of nearly 800 employees, most of whom are residents and taxpayers of
Northampton County.
Based upon the above, CHRE recommends that Northampton exclude this option for
consideration in determining the future of Gracedale. The only reason to consider
this option would be in conjunction with an additional option noted in Option 7 –
Other Options in the section titled Closure of Gracedale and Construction of
Replacement Facilities.
Options 5 and 6 - Lease or Sell Gracedale
While CHRE believes that Gracedale can be operated profitably and can eliminate
the need for county contributions based upon the operating assumptions used for the
P&L Trend and Proforma in Exhibit 2.1, there are still risks that there were identified
in Option 1 that could adversely impact the operating results of Gracedale. While
Northampton County continues to own and operate Gracedale, the County has the
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financial obligation to support the operations of Gracedale. The only alternative that
would fully eliminate any obligations of Northampton County to the operations of
Gracedale is to transfer the operations of Gracedale to a third-party operator.
This can be accomplished by either:
•
Transfer of the bed licenses and operations of Gracedale to a third-party
operator and lease the facility to the new operator (“New Operator”)
•
Sell Gracedale, along with licensed beds, building, and FF&E to a third-party
operator (New Operator)
The main benefits to Northampton County would be the same in either case. In
either a sale or lease of the operations, the benefits to the county include:
•
No longer financially obligated to fund operating or cash flow losses – that is
the responsibility of the New Operator
•
County not responsible to fund capital improvements. That would be the
responsibility of the Lessee under a “triple-net” lease in the case of a lease or
the New Operator as owner of the building in a sale
•
Cease administrative oversight of the highly-regulated nursing home
operations, allowing County management and Council members to focus
efforts on other pressing matters
•
County would receive the cash runoff in months after the transition date. Cash
runoff is net proceeds from collection of Accounts Receivable (generally not
transferred or sold to new Operator) less disbursement after transition for the
final accrued payroll, payout of any accrued and eligible Vacation, Sick Leave
and Personal Days; disbursement for any open Accounts Payable or accrued
expenses; payments for any accrued self-insured health or workers’
compensation insurance obligations. We have performed a preliminary
analysis of the cash runoff, and estimate it to be approximately $1,466,000
(excluding potential payouts for self-insured workers’ compensation expenses,
pension and OPEB expense) as shown in Exhibit 2.3. Please note that
amounts can vary significantly depending on amount of accrued vacation;
accrued payroll, and other matters.
•
Factors that determine current and future pension costs would “freeze” for
transferred employees. This would include years of service and wages in
determining last and highest years.
•
No new claims incurred for health insurance or workers’ compensation as of
the transition date. In many cases, a county’s nursing home has a significantly
higher claims experience than the other governmental agencies, thus having
an adverse impact on the overall claims history and cost to the county.
The main difference for these two options is the flow of funds on the transfer. In a
sale, the County would receive a lump sum payment for the purchase, and then
would receive no ongoing funds from the Buyer other than real estate taxes. In a
lease, the County would not receive a large lump sum payment upfront, but
payments over an extended period of time in the form of lease payments. At the end
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of the lease period, the building would revert back to the County, or the County could
re-lease or sell the facility at that time.
In Table 2.3, we have summarized the differences between the three main options
facing Northampton County regarding the future of Gracedale. These three options
are 1) retain ownership of Gracedale; 2) lease Gracedale to a New Operator; and 3)
sell Gracedale to a third-party operator.
Table 2.3 Comparison of Main Options – Keep, Lease or Sell Gracedale
Issue
County has administrative oversight over
highly regulated facility
County has financial obligation to fund
operating losses through county
contributions
County has obligation to fund capital
improvements in facility
County benefits from “cash run-off”
County controls “mission” of Gracedale
Freeze of pension plan obligations
pertaining to transferred employees
Facility on tax roll for County real estate
taxes
Facility on tax roll for School District and
local municipality real estate taxes
End of new claims for workers
compensation
End of new claims for health insurance
Keep
Gracedale
Yes
Lease
Gracedale
No
Sell
Gracedale
No
Yes
No
No
Yes
No
No
Yes
No
No, “triplenet” lease
Yes
Yes (1)
Yes
Yes
Yes (1)
Yes
No
No (2)
Yes
No
No (2)
Yes
No
Yes
Yes
No
Yes
Yes
(1) – If Northampton County retained ownership of Gracedale, it would have direct
control to set the mission of the facility, such as its Medicaid orientation/mix; care for
indigent; staffing levels, retention of employee wage rates and employee benefits
(with some notable exceptions); retention of specialty units, priority of admission and
priority of hire for Northampton County residents, etc. Under a Lease or Sale,
Northampton County could negotiate or contractually obligate New Operator to meet
certain county expectations regarding these matters in Transfer Agreement. The
extent of requirements could impact amount of lease payment or purchase price.
(2) As Northampton County, a tax-exempt entity, retains ownership of the real
estate, there generally would not be real estate taxes assessed to the Lessee. The
Lessee could, however, make a Payment in Lieu of Taxes (PILOT) to the County,
school district and local municipality. This generally would reduce amount of rent
Lessee/New Operator would be able to pay to the County, but aid in gaining
community support as the school district and local municipality would receive cash
benefits.
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The main question is what sales proceeds or cash flow can Northampton County can
generate from the sale or lease of Gracedale.
Sale of Gracedale
Potential buyers of nursing home facilities generally base their valuation using two
key metrics, a price per bed and a multiple of earnings.
Price per Bed Approach
In valuing a facility’s fair market value on a price per bed basis, many factors go into
the determination of the fair market value of a skilled nursing facility based upon a
per bed price. This includes:
•
Geographic location of the facility – Pennsylvania-based facilities generally
have greater value on a per bed basis than facilities in the south west; but
lesser value than New York and New Jersey-based facilities
•
Urban vs. Rural - Urban facilities generally have higher valuations than rural
facilities
•
Age and condition of the physical plant
•
Recent sales
There have been four sales of county-owned homes in Pennsylvania in the past year.
The facilities are:
Name of
Facility
Laurel Crest
Lackawanna
Healthcare Ctr.
Mountain View
Manor
Weatherwood
Total/Average
Name of
County
Cambria
Lackawanna
Licensed
Beds
370
272
Sale
Price
$14,250,000
$13,400,000
Price per
Bed
$38,513
$49,265
Northumberland 271
$9,984,000 *
$36,841
Carbon
$11,050,000
$48,684,000
$55,250
$43,831
200
1,113
*Based on 100% financing provided by Seller to Buyer
Based on the range of price per bed for the four facilities noted above, Gracedale’s
estimated value, with 725 licensed beds, is estimated in the range of $26,700,000 to
$40,050,000. Based upon the average of the recent sales, Gracedale’s valuation,
based upon a price per bed approach, is estimated at approximately $31,710,000.
Multiple of Earnings
The second common approach used by buyers of skilled nursing facilities in the
valuation process is a multiple of earnings based upon Earnings Before Interest
Taxes Depreciation and Amortization (“EBITDA”). A common variation of this is
EBITDAR, where the “R” represents Rent. This is used in the case where the real
estate component of an acquisition is separate from the operating component,
whereby the facility or real estate is owned by a separate entity and leased to the
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licensed operator of the facility. There may or may not be common ownership of both
entities.
The Multiple of Earnings used in valuation is also subjected to variations based upon
the geographic location of the facility, the age and condition of the physical plant, as
well the state of the economy. In 2006 and 2007, prior to the downturn in the
economy, the value used for multiple earnings generally ranged from 7.5 to 8.5 times
earnings. For example, a facility with an EBITDAR of $1,000,000 would have a
valuation in the range of $7.5 million to $8.5 million.
In today’s market, given the recent decline in the economy, restrictions in the credit
market, and reimbursement pressures due to state and federal budget deficits,
valuations of skilled nursing facilities are generally based on a range of 6.5 times
earnings to 7.5 times earnings. As noted in Exhibit 2.1, Proforma, the EBITDAR for
Gracedale was approximately $190,000, which would only result in a valuation
slightly in excess of $1 million. In cases of facilities that are operated inefficiently or
are burden with excess costs and therefore have little or negative earnings, generally
estimated “proforma earnings” are used instead. The valuation based on the
proforma earnings are often discounted in reaching an agreed upon purchase price,
otherwise the Buyer would gain no upside in turning around the operations of the
facility, and would have significant risk if the proforma earnings could not be attained.
As noted in Exhibit 2.2, a proforma income statement has been prepared for the
Gracedale facility as if it was operated by a for-profit non county operator. Proforma
adjustments made include:
•
Medicaid rate to a non-county rate
•
IGT/Bed Tax Assessment and expense base upon non-county ownership
•
Eliminate some of the ancillary revenues (Refund, Interagency meals, etc)
•
Eliminate the County Indirect cost allocation
•
Add Maintenance, HR/Payroll, IT and Accounting expense to replace county
services
•
Add employee benefit costs for Maintenance and HR/Payroll for FTEs added
•
Increase health insurance expense for indemnity plan (county self-insured)
•
Add sales taxes on supplies to taxable status (county is tax exempt)
•
Increase Liability insurance ( county expense low due to sovereign immunity)
•
Add real estate taxes
•
Eliminate OPEB expense
•
Eliminate pension expense and replace with 401(k) employer match
•
Adjustment of management fee expense to 4% of revenue, minimum
percentage that lenders ( such as banks, REITs and HUD) and appraisal/
valuation firms will used in determining valuation
Page 27 of 116
Based on the above adjustments, the proforma EBITDAR earnings of Gracedale
operated by a non-county for-profit operator is approximately $4,225,000. Based on
range of multiples of 6.5x to 7.5x is approximately $27,462,000 to $31,687,000.
Based upon the above analysis, an estimate of the fair market value of Gracedale,
based on the assumptions noted, is most likely in the range of $30.0 million to $32.0
million. If Northampton County were to place certain restrictions on a buyer
regarding staff and benefit reductions, or other requirements to be included in a
purchase agreement, it may reduce proforma EBITDAR, and therefore, the estimated
valuation.
The above values are based on rules of thumb. CHRE recommends that
Northampton County engage a qualified appraisal firm with expertise in the valuation
of skilled nursing facilities, perform a more detailed appraisal. A list of some qualified
firms that Northampton County may want to solicit in a RFP process is contained on
Exhibit 2.4. Typically, an appraisal firm will look at three common methodologies:
•
•
•
Sales approach – looking at comparable sales as indicator of market place
Replacement or Cost approach – looking at cost to replace the facility
Income approach – looking at earnings and applying a capitalization rate
(the inverse of a multiple of earnings)
This appraisal will help to determine fair market value of Gracedale and can serve as
the basis point for negotiations with a potential buyer.
Typical assets included in a sale include the nursing home building, land and land
improvements; all furniture, fixtures and equipment (“FFE”) used in the operations of
the business entity; transportation vehicles; existing inventory and supplies at date of
transition; transfer of the license to operate the 725 beds and any other transferable
licenses and permits; Resident Trust Fund cash balances; and medical records/
patient records of existing residents. Typical assets not acquired include Cash other
than Resident Trust Fund balances; Accounts Receivable and other third-party
receivables, and pre-paid assets. Any liabilities are normally not assumed, but in
some cases, rather than Seller paying off eligible accrued vacation, sick and personal
leave day; the Buyer will assume those liabilities, with a corresponding reduction of
the purchase price. This is done primarily for the benefit of the staff, so they have a
vacation bank to take time-off immediately, rather than waiting a year until the
accrued sufficient time.
As the Gracedale facility resides on a larger county-owned parcel, the Gracedale
facility will need to be sub-divided as part of any sales transaction. An interested
Buyer would want to ensure that there was sufficient land, along with the land
improvements, to meet any impervious coverage requirements and parking space
requirements that the local municipality may have. The parking should be sufficient
to accommodate the needs of the staff and visitors at the peak period, typically
shortly prior to transition for the Day Shift to the Evening Shift. Also for consideration
would be the transfer of some additional acreage to allow the Buyer to provide
additional services, such as assisted living or independent living on the campus.
Further evaluation should be conducted, but the proposed sub-division should
probably be about twenty (20) to twenty-five (25) acres.
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Lease Option or Lease to Purchase
In a lease arrangement, Northampton County would transfer the existing licenses for
the 725 skilled nursing beds to a new operator, who in turn, would enter into a longterm lease of the building and existing FF&E with Northampton County. The lease
agreement would be on a triple-net basis, in that the Tenant would be responsible
for:
•
•
•
Maintenance and all capital improvements
Property and general liability insurance
Real estate taxes (if applicable)
The above are in addition to the new operator being responsible for all operating
expenses to operate the facility as a skilled nursing facility, as well as the lease
payment to Northampton County. A typical lease term would be ten (10) years, with
perhaps two options to renew for additional five (5) year increments, or up to 20
years. At the expiration of the lease term, Northampton County could either 1) renew
the lease with current tenant, setting new terms; 2) lease facility to new operator; 3)
take the facility back, along with license for the 725 beds and operate it as a countyowned facility; or 4) sell the facility.
Rent for skilled nursing facilities are generally a based upon a price per bed, either on
a monthly or annual basis. On an annual basis, rents generally range from $3,500
per bed to $5,000 per bed. Using $4,200 per bed, this would translate to an annual
rent of $3,045,000, or monthly rent of $253,750, based upon 725 licensed beds. The
lease payment would represent an interest rate factor rate of 9.5% - 10.15% based
on the estimated range of values noted above of $30 million to $32 million. As
Gracedale will requirement financial improvement to achieve the proforma earnings
noted, the County may want to consider a slightly lower rent in the first two years until
the earnings stabilized.
A variation on the Lease option is to enter into a Lease to Purchase agreement. This
is similar to the Lease Option, but the Tenant would have the option to purchase the
facility from Northampton County on or after some trigger point during the term of the
lease. The purchase price could either be established up front upon mutual
agreement, or based upon an agreed upon process; such as a multiple of EBITDAR
at time of transfer or based on one or more appraisals (both Buyer and Seller obtain
independent appraisals as basis for negotiation) at the time of transfer to establish
fair market value. In 2005, McKean County entered into this type of agreement for
the Lease to Purchase transfer of its then county home, Sena Kean Manor, to
McKean Care Services, an affiliate of CHRE. The facility was leased from McKean
County from May 2005 to July 2006, at which time the facility was purchased after
appraisals were obtained and a mutually agreed upon price was established. While
this appears to be the only transaction for the lease of a county-owned facility in
Pennsylvania, the lease of a nursing home facility is a common practice. There are
numerous national healthcare Real Estate Investment Trusts (“REIT”) as well as
regional firms specializing in acquiring the real estate component of a nursing home
business and leasing the facility to a licensed operator.
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The benefit from the Lease Option (or Lease to Purchase option) is that Northampton
County still retains ownership of the Gracedale building, while absolving itself of the
ongoing financial obligations to fund operating losses, and dealing with the
administrative and regulatory issues faced in operating a nursing home. In addition,
as with a sale, Northampton County would also benefit from the cash run-off
proceeds noted in Exhibit 2.3.
Option 7 – Other Options
As part of its scope of work for the Financial, Clinical and Operational Assessment of
Gracedale, CHRE indicated it would evaluate other options other than the ones
specifically requested by Northampton County in its RFP for this assessment. We
have considered the following options for Northampton County for consideration for
the future of the Gracedale facility:
Closure of Gracedale and Construction of Replacement Facilities
In exploring the option of the closure of Gracedale noted under Option 4, CHRE
identified a possible variation of this option that would address many of the
disadvantages noted in Option 4. This includes the inability of the other Northampton
County facilities to fully absorb the 600+ residents that Gracedale would need to
place in alternative settings; the layoff of all employees of Gracedale due to a
complete closure of the facility; and operating losses from a wind down of the
operations over a period of time.
One variation of the outright closure of Gracedale would be construction of
replacement facilities and the transfer of Gracedale residents to those replacement
facilities upon completion. There are several reasons why this could be a positive
alternative, and there some negatives to point out as well.
Gracedale’s Towers building was constructed in 1974, so it is approximately 36 years
old, and the other units are substantially older than the Tower units. There has been
significant advancements in the design of the major mechanical and electrical since
Gracedale was constructed, resulting in significant improvements in the efficiencies
of these systems. Another factor is the amount of annual capital improvements the
existing facility requires as a result of its age. In recent years, Gracedale has
incurred in excess of $4 million to upgrade major system components, largely funded
by Northampton County contributions. These capital upgrades may continue to be
substantial in future years (see Section 7, Environmental Services Assessment for
further discussion and recommendations). A newly-designed and constructed facility
could take advantage of these improvements, resulting in a reduction in utility costs,
particularly in a time period where utility costs are expected to increase significantly
as a result of de-regulation in Pennsylvania.
In addition, Gracedale’s room layout consists of large three- and four-bed units, many
without bathrooms with approximately 72% of the 725 beds in these types of units. In
comparison, most of Gracedale’s competitors have mostly semi-private units, with a
reasonable number of private units. There has also been a trend in the industry of
Page 30 of 116
creating a specialty short-term rehabilitation unit, consisting primarily of private or
semi-private units, to take advantage of the seniors that require rehabilitative therapy
services under the higher reimbursed Medicare program. These rehabilitation units
and their amenities are typically upgraded over the normal nursing home unit, and
include a spa-like shower room. The design and construction of a replacement
facility would allow the facility to take advantage of the trends in the industry, while
addressing the competitiveness issue of the three- and four-bed units.
One possible outcome under this alternative is that either Northampton County for its
account or a third-party operator(s) construct three 180-bed replacement skilled
nursing facilities at three separate locations within Northampton County. A CHREmanaged affiliate (Timber Ridge) recently completed the construction of a 180-bed
replacement facility, replacing the former Luzerne County facility known as Valley
Crest. The total project cost, including land, building, new FF&E and transaction
costs, approximated $14.0 million, or approximately $78,000 per bed. Costs in
Northampton County may be higher or lower than these costs, due to cost-of living
adjustment factor for land costs and construction costs. The construction costs may
also be substantially higher if built for ownership Northampton County if required to
conform to the requirements of the Davis-Bacon Act.
Items or factors to take under consideration for this alternative include:
•
Site selection for the three sites, one could be on adjacent grounds to
Gracedale owned by Northampton County, with two other sites in strategic
locations to serve other Northampton County residents
•
Approval from DPW for relocation of licenses to replacement facilities
•
Possible grant from DPW to fund costs due to downsizing of licenses (from
725 to 540)
•
Facilities designed with state-of-art mechanical and electrical systems and
rehabilitation units, largely semi-private with some private units
•
Benefits existing nursing home facilities by absorbing excess residents (go
from approximately 650 to 540; 110 residents can be absorbed by existing
facilities, increasing their occupancy % and profitability)
•
Minimizes staff reductions or layoffs as replacing significant number of beds
and creating three facilities; other facilities may need to increase staff to serve
additional 110 residents absorbed
•
Three replacement facilities go on tax rolls for County, school district and local
municipalities (if built and owned by third-party rather than by Northampton
County)
•
Northampton County can use vacated Gracedale facility for alternative use or
sell the building (there would be required non-compete restriction for use as
skilled nursing facility if replacement facilities built by third-party operator).
•
Need to coordinate timing of construction of all three so discharge of residents
occurs in short time period to minimize any losses during wind-down and
transition of residents to new facility
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•
Northampton County benefits from the cash run-off previously noted
•
If replacement facilities are built by Northampton County, the county would
incur considerable increase in debt ($42 million plus) or if built by third-party
operator, minimal funds could be paid to the county for purchase of the license
due to debt incurred by new operator for construction of facility
CHRE recommends that Northampton County further investigate this option as
possible alternative to the future of Gracedale. This would be a favorable alternative
compared to the outright closure of Gracedale. The disadvantage to this option is
that there would be minimal proceeds received by Northampton when compared to
the lease or sale options noted above, or it would incur substantial to build the
replacement facilities on its own account.
Page 32 of 116
SECTION 3
CLINICAL REIMBURSEMENT ASSESSMENT
As part of the Financial, Clinical and Operational Assessment for Gracedale, we have
reviewed the two key reimbursements for Gracedale: the Medicaid reimbursement
system and the Medicare system. The following is our analysis of these two
components of revenue.
Pennsylvania Medicaid Reimbursement
Medicaid reimbursement for skilled nursing facilities is directly administered by the
Pennsylvania Department of Public Welfare (DPW). Until June 30, 2006, the
reimbursement for county-owned nursing home facilities for Medicaid residents was
the same system as non-county owned facilities. There were three main components
for reimbursement:
•
•
•
Base Room and Board, with several subcomponents
ƒ Resident Care (based upon Case Mix Index (“CMI”)
ƒ Other Resident Care
ƒ Administrative Costs
ƒ Capital Per Diem (cost for building, major moveable equipment
purchases and real estate taxes
Bed Tax Assessment and/or IGT revenue
Disproportionate Share revenue (if occupancy and mix are above certain
thresholds)
Commencing with the state’s fiscal 2006/2007 year, county-owned nursing facilities
went on their own reimbursement system for Room & Board (“R&B”), based upon
Certified Public Expenditures. The base R&B rate for each county-owned facility was
set based on the April 2006 rate, which was predicated largely on the CMI of the
facility in effect at that time. Unlike non-county-owned facilities that have
experienced increases in their R&B rates as a result of CMI increases from higher
acuity residents, county-owned facilities do not receive an increase in base R&B
rates for higher acuity. Commencing July 2006 and annually thereafter, county
facilities receive only inflationary increases in their R&B rates. The April 2006 base
rate for each county-owned facility was based on the CMI as of the 11/1/2005 picture
date. Counties with high CMIs at that time locked in at a high rate, while counties
with relatively low CMIs were locked in to a low rate, with only minimal inflationary
increases since that time.
The average state-wide CMI in effect for the April 2006 rate was 1.33; for the
proposed July 2010 rate (prior to the proposed change in the reimbursement noted
hereafter), it is 1.52. Per Table 3.1 below, the CMI for Gracedale for the April 2006
rate was 1.27, which was 0.06 below the state average. Gracedale’s current rate is
1.41. Despite an increase in CMI by 0.14 over this time period, Gracedale has not
experienced a commensurate increase in their base R&B board rate due to the
county-based reimbursement system. This is illustrated by Table 3.1 below, where
the CMI and Medicaid rates for Gracedale are compared to Conestoga View, a
similar facility.
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Table 3.1
Period
04/2006
07/2006
07/2007
07/2008
07/2009*
07/2010*
Base
Gracedale Rate/Prior Inflationary
CMI
Year Rate
Increase
1.27
$191.97
1.26
$191.97
4.00%
1.27
$199.65
3.00%
1.31
$205.64
1.00%
1.42
$207.70
1.00%
1.41
$209.78
0.97%
Final
R&B Rate
$191.97
$199.65
$205.64
$207.70
$209.78
$211.81
Conestoga
Conestoga View Base
View CMI
R&B Rate
1.13
$187.49
1.12
$195.39
1.29
$219.21
1.38
$231.12
1.40
$235.54
1.47
$236.85
* Proposed rates published by PA Dept of Public Welfare (“DPW”), subject to change
As illustrated by the above Table 3.1, there is a significant difference in the rate of
change in Medicaid reimbursement rate between Gracedale and Conestoga View.
While the Medicaid R&B rate increase by $19.84 or 10.3% (from $191.97 to $211.81)
over this period for Gracedale, the comparable increase for Conestoga View was
$49.36 or 26.3% (from $187.49 to $236.85). If Gracedale was not reimbursed under
the county-owned methodology, the Medicaid R&B rate for July 2010 would be
approximately $227.97, a difference of $16.16 per Medicaid day. Based on an
estimated annual in-house Medicaid census of 192,000 days, this represents
approximately $3.1 million in lost opportunity for revenue for Gracedale when
compared to the non-county reimbursement system. This lost revenue opportunity
as a result of the difference between county and non-county reimbursement is
beyond the control of Gracedale and its management team as a county-owned
facility. There would need to be a change of ownership of Gracedale to a non-county
operator for Gracedale to be reimbursed at the higher Medicaid rate noted. At the
same time, Gracedale has had to adjust staffing levels for nursing direct care due to
the increased acuity, and therefore, healthcare needs of its residents. The rate of
$227.97 is down from the comparable non-county rate of $233.50 Gracedale would
have achieved in the 2009/2010 fiscal year due to a change in the reimbursement
system effective July 1, 2010. See commentary under “Change to 5.12.44 Grouper”
below.
To partially offset this difference in reimbursement between county-owned and noncounty owned facilities, DPW instituted a program known as “Pay 4 Performance,”
whereby on a quarterly basis, county facilities that have seen an increase in their CMI
participate in pool of funds. If a facility’s CMI remained the same or went down for
the quarter, they would not be eligible. The amount of distribution for eligible facilities
can swing widely, depending on the number of county facilities that are eligible. The
fewer the number of county facilities whose CMI went up, the higher the
reimbursement for those eligible as the pool of funds is spread over fewer
participants. Conversely, if many county facilities saw their CMI increase for the
quarter, the distribution to each facility would be less due to a greater number of
participants. Gracedale received approximately $603,176 and $1,034,302 for 2009
and 2008, respectively.
According to Dave Pinter, Fiscal Administrator, Gracedale has not received any Pay
4 Performance revenue through April 2010 for the calendar year 2010. The CMI for
the picture date May 1, 2010 decreased from 1.42 to 1.41, so Gracedale will not
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participate in the next distribution. As noted in the Clinical Reimbursement analysis
in the following sections, there are opportunities to increase the CMI; but as the CMI
increases, it will become more difficult to continue to increase or sustain the level of
CMI, and as result, the ability to participate in any Pay 4 Performance distributions
will become increasingly difficult and erratic. Therefore, reliance on and budgeting
for the receipt of the same levels of Pay 4 Performance revenues as received in the
past should be carefully evaluated. Management believes they will achieve and
qualify for reimbursement of the Pay 4 Performance in future quarters and years. For
purposes of the proforma, we have used 50% of 2009 levels, or approximately
$302,000 in the proforma to be conservative. If Gracedale is able to qualify for Pay 4
Performance in all subsequent quarters, any revenue earned in excess of $302,000
will increase the EBITDAR noted in Table 2.1.
The net impact in net loss revenue from being reimbursed as a county facility is:
“Opportunity” Loss Room and Board
Less 2009 Pay 4 Performance*
Net difference
$ 3,100,000
(603,000)
$2,497,000
*Assuming Gracedale is able to achieve 2009 Pay 4 Performance revenue levels in future years
Other Medicaid-Related Reimbursement
Disproportionate Share Revenue
Under the Pennsylvania Medicaid reimbursement system, there is supplemental
reimbursement for those nursing homes with a disproportionate share of Medicaid
residents. The sliding scale system based on two annual criteria:
1) First, a facility’s overall occupancy must exceed 90% (excluding MA Hospital
Leave days) for the year.
2) The Medicaid mix of actual occupancy must exceed 80% for the year.
A facility that meets the above test is reimbursed annually on a per diem Medicaid
day based on the following scale (reimbursements amounts based on last year’s
rates; rates increase annually):
Table 3.2
Category
Group A
Group B
Group C
Group D
Group E
Group F
MA Mix % Range
>90.0%
88.00% – 89.99%
86.00% - 87.99%
84.00% - 85.99%
82.00% - 83.99%
80.00% - 81.99%
Per Diem
$7.32
$4.96
$2.96
$1.78
$0.92
$0.64
Gracedale received Disproportionate Share (“DISH Share”) revenue of $625,146 and
$665,737 in 2009 and 2008, respectively. The test to determine if a facility qualifies
is based upon its cost report period, and must be for a full year. As Gracedale has
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recorded these revenues on a cash basis, the amounts noted above pertain to the
cost report years 2008 and 2007. Payment is typically made in August or September
of the following cost report year, but has been delayed in the past due to state budget
issues. Based upon 2009 census information provided by Dave Pinter, Fiscal
Administrator, Gracedale is slightly below the eligibility, with an occupancy
percentage of 89.37%. Unless there was an unusually high volume of Medicaid
Pending days in 2008 that were not approved until 2009 which would qualify
Gracedale at the 90% occupancy level, it appears that Gracedale will not be eligible
for DISH Share revenues for the calendar year 2009 that would be paid in 2010.
To be eligible, Gracedale needs to hit an average daily census (excluding Medicaid
Hospital Leave Days) of 652.50, based on the current licensed beds of 725. Due to
recent decreases in census, Gracedale may not achieve this level in 2010 either, and
thus may not receive any cash payments for DISH Share revenues in 2011. While
we believe that Gracedale can obtain the 90% threshold as noted in the Marketing
Assessment section of this report, Gracedale should evaluate taking some of the
unoccupied beds off line and turn them back to the state to reduce the licensed
capacity below the current 725. This would reduce the current target census of
652.50 by 90% of the bed reduction to be eligible for DISH Share, making it easier to
achieve the 90% based upon current census levels. The evaluation must take into
consideration impacts on staffing based upon units sizes and staffing levels per shift
when determining which units from which the beds are taken off-line.
In addition, as noted in the Marketing Assessment, we have identified opportunities
to increase census from current levels, particularly in the Medicare and Medicare
HMO categories. If Gracedale achieves the targeted census levels noted, then
Gracedale would not be eligible for the payment of Disproportionate Share revenue,
as it would fall below the 80% Medicaid mix threshold. The higher Medicare
reimbursement would more than make up for this loss of Disproportionate Share
revenue on both a total revenue and net earnings standpoint.
It should be noted that the Disproportionate Share program is only approved in the
current state plan through the end of 2010/2011 fiscal year (ending June 30, 2011).
Since the program is on a cost report year, the last year of eligibility for Gracedale
under the current program is 2010, unless the program is extended by DPW. In
addition, the current amounts paid have been reimbursed at twice the normal level
due to use of matching funds from the IGT program. As a result, DISH Share
revenues could either be halved in future years or be eliminated entirely, if the
program is not renewed beyond the 2010/2011 fiscal year.
The DISH Share program is particularly susceptible to potential cuts in DPW
Medicaid reimbursement, as only a limited number of providers (69 or approximately
10% of all providers) benefited from this program in 2008/2009 fiscal year.
Gracedale should be careful on being reliant on this income stream or on making
business decisions that have a long-term impact based on the continuance of this
program and related revenues. Any evaluation to take beds off line and return them
to the state should take into consideration the likelihood of the continuance of the
DISH Share program. Once the beds are turned into the state, it is extremely difficult
to increase the licensed bed count subsequently given the current policies of DPW
and Department of Health.
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IGT and Bed Tax Assessment
County nursing homes receive additional reimbursement from DPW from a combined
IGT/Bed Tax Assessment program. Under the Bed Tax Assessment program,
nursing home facilities pay a bed tax, which the state puts into the Medicaid program.
The state then receives some matching funds from the federal government, and pays
the facilities a bed tax revenue. The state benefits from this program by receiving the
matching funds. Most facilities, generally those with 70% or more Medicaid mix,
receive back more than the bed tax expense paid to the state. The current
reimbursement to county facilities is slightly different than non-county homes, as
county homes also receive IGT funds. In 2009/2010, the amount county-owned
facilities received were $8.07 per Medicaid day. Table 3.3 below shows the net Bed
Tax Assessment proceeds Gracedale received in 2008 and 2009.
Table 3.3
Description
Bed Tax Revenue
Bed Tax Expense
Net
2008
$2,232,979
565,858
$1,667,121
2009
$2,173,849
659,236
$1,514,613
Non-county facilities are on a slightly different program, and do not receive IGT
funds. The proposed rates for the Bed Tax Assessment for 2010/2011 are $25.50
and $11.73 for the Supplemental rate according to representatives of PHCA. Given
these rates and Gracedale’s census level and mix for 2009, the net Bed Tax revenue
for Gracedale, had it been a non-county facility, would have been approximately
$1,657,000, or approximately $142,000 higher than the proceeds received by
Gracedale. Please note that Gracedale is currently not eligible for this additional
revenue as it is county-owned. Gracedale would need to be owned and operated by
a non-county entity to qualify for this additional revenue.
A summary of the differences from Gracedale and a non-county operator is noted in
the schedule below:
Room and Board Medicaid rate differential
Pay 4 Performance revenue
IGT/Bed Tax Assessment
Net difference In MA revenue
($3,100,000)
603,000
(142,000)
($2,642,000)
Medicare Reimbursement
Prior to 1999, Medicare reimbursed nursing home facilities on a Cost Plus basis. As
a result of the budget deficits experienced by the federal government in the mid1990s, Congress enacted changes to the Medicare reimbursement system that went
into effect in 1999, which is commonly known as PPS (Prospective Payment
System). Nursing Homes receive a fixed amount for one of 54 diagnosis codes as
determined by a Minimum Data Set (“MDS”) assessment. The rates for facilities’
reimbursement vary by the Metropolitan Service Area the facility is located, with
adjustments for differing wage indexes, and whether a facility is considered in a rural
or urban area.
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Medicare is undergoing changes in the reimbursement system in October 2010, with
an expansion of the RUGs categories to 66 categories under RUG IV. This may
have an economic impact on future levels of Medicare reimbursement, depending on
the distribution of census days a facility achieves in the different RUGs category.
Gracedale’s management team and therapy provider will need to closely monitor this
when the transition goes into effect to minimize any negative impact to Medicare
revenues. Further explanation of the MDS assessment process is noted below in the
Clinical Assessment section of this report.
Clinical Assessment
The following is a summary of findings during a two-day, on-site visit to Gracedale
Nursing Home and upon review of facility records and interviews with facility MDS
Coordinators.
Medicare Part A
A review of the facility’s Medicare Part A residents beginning January 2010 through
April 2010 was completed. During this time period, there were a total of 198 distinct
residents that were skilled. However, it is noted that the overall average length of
skilled stay was 26.67, compared to an Average Length of Stay (“ALOS”) of 33 for
seven (7) Complete HealthCare Resources Eastern, Inc managed facilities for May
2010.
This translates to a lost opportunity for an additional six days per resident of skilled
payment under Medicare Part A, which has a significantly higher reimbursement rate
than other payor classes (average of $437 for Medicare vs. $207.70 for Medicaid, or
approximately $229 per day). If Gracedale merely maintained the same overall total
daily census and given the Medicare Part A census of 54 on May 4, 2010 (date
shortly prior to our on-site visit and review), an increase in the average length of stay
by six days in Medicare would result in additional annual net revenue of
approximately $1,003,000 on 4,380 additional Medicare days (54 residents *365
=19,710 days *33/27 = 24,090 days *$229 rate differential). There would be higher
costs associated with these additional Medicare days. Given a net earnings
differential of $75 per day for Medicare and Medicaid (adjusting for the higher
pharmacy and therapy expenses inclusive in the Medicare rate), the net earnings for
Gracedale would increase by approximately $328,000 (4,380 days * $75 per day
differential). These noted revenues may be less if the residents are assessed at a
lower reimbursed RUGs category for the six additional days.
If Gracedale was able to sustain the census in other all payor types, while increasing
the Average Length of Stay (ALOS) for Medicare residents and thus overall annual
Medicare census days, then total annual revenues would increase by approximately
$1,914,000 (54*365*33/27 *$437 less 54*365*$437) as a result of overall increase in
total census days of 4,380 additional Medicare days. As this would be incremental
revenue, the operating margin on the additional census days should be substantially
higher than the facility’s overall operating margin as the fixed costs of operations
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would be covered. At an operating margin of 20% on these additional revenues, the
net earnings could increase by approximately $383,000.
An interview with the RNAC Supervisor was conducted during an on-site visit on May
12, 2010, indicating that the facility holds a daily Medicare meeting to review those
residents on caseload and those within the 30-day window from discharge. The MDS
Coordinator indicated that they skill residents for nursing when appropriate under
applicable Medicare guidelines. Skilling a resident means that they require daily
observation or intervention by a licensed nurse for a condition that would otherwise
result in a decline in status; however, they must have been a condition in which the
resident was treated for in the recent acute care stay.
The Medicare discharge list indicates that 3 of the 21 residents within the 30-day
window from the last Medicare skilled covered day have 10 or fewer Medicare days
remaining. One resident has only 3 Medicare days remaining. The Medicare roster
under the heading “skilling factor for physical therapy, occupational therapy, and
speech therapy” does not indicate the projected discharge date, and after an
interview held on May 25, it was indicated that it is not determined until the discharge
date is within a week of the review. It is imperative that the disciplines, particularly
the RNAC, are aware of potential therapy discharge dates to review the medical
record and ensure a remaining skilled service is not present prior to discharging from
Part A. It is noted on the Medicare roster that those residents being covered under
nursing services were for diagnosis such as; wound VAC, uncontrolled diabetes and
UTI.
It is also noted that a total of 18 residents were discontinued from Part A and placed
back on multiple times since the beginning of January 2010, several within two weeks
of therapy discharge.
It is recommended that prior to discharging a resident from Part A services for
therapy that the RNAC and rehab manager meet to review the current clinical status
of the resident, including the admitting diagnosis from the acute care facility and
physician’s orders. This would also include a review of the current therapy progress
versus nursing observation on the unit to determine if any inconsistency between the
disciplines is apparent, including assistance required for bathing, dressing, toileting or
eating. At times, what residents are able to do in the therapy room may be different
from what is observed on the 3-11 or 11-7 shifts by the nursing staff and could result
in an extension of the therapy length of stay and ultimately an increase in revenue to
the facility under Medicare.
If a resident remains in the facility for continued care, but is no longer appropriate for
skilled therapy services, it would be in the interest of the facility to ensure that
appropriate restorative nursing programs are in place prior to the discontinuance of
therapy, and that all applicable staff have been educated on the appropriate
techniques required for these programs. This could also result in an increase in
length of stay for PPS, ultimately increasing facility revenue. Under current Medicare
Part A guidelines, an OMRA assessment is completed after therapy services have
discontinued; however, the ARD is not set until day 8, 9 or 10 following the last day of
therapy. Under this current system, the facility has the opportunity to continue with
skilled care if appropriate and be reimbursed at the higher RUG level.
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It is also recommended that if a resident is discharged from therapy services and
remains in the facility with no other skilled service being identified, it is appropriate for
the nursing staff to continue monitoring the resident for a brief period of time to
ensure that any decline in status after therapy discharge is immediately identified,
preventing a break in skilled days, overall extending the average length of stay and
increasing facility revenue under PPS.
It is imperative to review the entire clinical picture prior to discharge from Part A to
determine if any other skilled conditions are relevant from the acute care stay prior to
therapy discharge such as; urological care, ostomy care, wounds, new medications,
discharge teaching or injections.
If a resident is planned to be discharged to home, it is in the interest of the facility to
conduct a therapy home evaluation, if agreeable, to not only ensure a safe and
appropriate discharge but also potentiate the possibility of revising the therapy goals
in the facility and extending the length of stay in such areas as; stair climbing, bathing
or even cooking a meal; again, ultimately increasing facility revenue under PPS.
In a review of the facility’s Medicare RUG grouper distribution from the time period of
1/1/2010 through 3/31/2010, there is a noted increase in the distribution of RUGs to
higher reimbursable groups. Under the current Medicare PPS, each resident that is
determined to be skilled will categorize into one of 53 categories based on physical
functioning, cognition, behaviors, services being provided such as IV, tracheostomy
care and oxygen. These group assignments can also be determined by the amount
of therapy the resident is receiving by any combination of physical therapy,
occupational therapy or speech therapy. Upon review of the trending, it is important
to note that in January of this year the second highest rehab RUG utilized was an
RHC at 192 days reflective of a $354.64 daily rate. The RHC category for the month
of February 2010 increased to 224 days and was the leading RUG billed for Medicare
Part A in the month of February.
Medicare requires a total of five days of treatment for a minimum of 325 minutes to
achieve a rehab high category, whereas a very high rehab category requires a total
of 500 minutes of treatment, a difference of 125 minutes. The minutes can be
provided by any combination of the three therapy disciplines; physical therapy,
occupational therapy and/or speech therapy, resulting in 63 minutes per week or
approximately 12 minutes per day if only two disciplines were treating. This slight
increase in treatment, if clinically appropriate for the resident could have resulted in
an increased revenue of approximately $12,000 for the month of February 2010.
March 2010 reflected a different picture for the Medicare Part A distribution. The
dominating RUG for the month was an RVC at $409.61 daily rate for 356 days with
the RMX following with 291 days, indicating a capture of skilled services prior to
admission to the facility.
When scheduling the PPS assessments, it is imperative to review the current
progress in therapy closely to ensure that the appropriate ARD is selected during the
assessment period with proper utilization of grace days to maximize facility
reimbursement.
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It is noted that the facility has a large amount of RMX with a daily rate of $436.48 at
243 days billed during the month of March 2010. Keep in mind that this is generally
related to the current 53 grouper that defaults the resident into this category due to a
higher reimbursement rate, which will not be in effect with the RUG-IV 66 grouper
being implemented in October of this year.
It would appear that the facility is beginning to trend upward into the higher
reimbursable categories and should ensure that a process is in place through the
MDS Coordinators to review the therapy trackers frequently to ensure the highest
RUG category is attained in accordance with current regulation and based on clinical
needs of the resident individually.
It was noted during an on-site visit on May 25 through observation and review of
current skilled residents that the facility did not have any in-house residents with IV
fluids. In a discussion with staff during this day, it was noted that the facility generally
does not accept IV fluid interventions, but it was indicated to the Business
Development Specialists that the facility is beginning to train the licensed staff in
preparation to accept residents of this acuity. This could lead to a large increase in
revenue if the facility expanded the clinical capabilities to include these types of
services for both PPS and Medicaid under the current payment system for both
Medicare Part A and Medicaid. As an example, a RUG of RHC or rehab high
reimburses the facility at $354.64 daily. If this resident would have received an IV
antibiotic within the facility, the RUG could have been calculated at an RMX
reimbursable at $436.48 daily or a difference of $81.84 daily increased revenue to
the facility. In subsequent discussions held in late June 2010 with Marvin Granda,
Administrator, he indicated that Gracedale recently had implemented a program to
address this issue.
As part of our evaluation of Medicare reimbursement, we reviewed the overall
distribution of Medicare RUGs achieved by Gracedale for 2009 and March 2010 year
to date, and compared the distribution to CHR affiliated owned facilities and several
managed facilities.
Based upon Gracedale’s RUG’s distribution, the weighted average Medicare rate
was $426.38 and $436.37 for the year ended December 31, 2010, and three-month
period ended March 31, 2010, respectively. These rates are fairly high compared to
the average skilled nursing facility, but as noted previously, a facility’s overall
Medicare rate is impacted by the MSA it is located as a result of the impact of the
wage index on the rate. To evaluate the rate, we compared the distribution of the
RUG’s mix among the higher reimbursed therapy categories to other facilities. Under
the current RUG’s distribution, therapy categories are broken out into five main
groupings:
•
•
•
•
•
Ultra High
Very High
High
Medium
Low
The following tables provide a comparison of Gracedale’s distribution to other skilled
nursing facilities:
Page 41 of 116
Table 3.4 Gracedale Medicare RUGs distribution
Table 3.5 Medicare Distribution by Therapy Category
While it appears that the distribution of Medicare RUGs days in the Ultra High and
Very High categories is falling short compared to the benchmark facilities, Gracedale
Page 42 of 116
has offset much of this impact by having a relatively high distribution of RUG days in
some of the higher reimbursed categories, such as RMX (19.4% of the therapy days)
at a rate of $436.48; RVX (13.9% of therapy days) at a rate of $454.91 and RUX
(12.8% of therapy days) at a rate of $601.15. The distribution in these higher rate
RUG categories helps to mitigate the higher percentage of days in the Medium and
Low categories, but there remains an opportunity for further improvement in the
overall Medicare rate if the distribution of days in the Low and Medium categories
moves to the higher Ultra High and Very High categories.
The average therapy cost per minute is $.90 based on the current CMS weekly
required therapy minutes. The cost of the Therapy contract is consistent to the cost
of other contracts reviewed from Genesis, and appears to be a fair rate.
As noted in more detail below in the Pending Changes in Reimbursement and
Regulation portion of this Clinical Reimbursement Assessment, the Medicare
reimbursement system will be changing effective October 1, 2010 to the RUG-IV
grouper. We recommend that Gracedale’s RNACs work closely with the therapy
provider over the coming months to implement a plan for the transition to RUG IV to
minimize any potential adverse impact in going to the new system.
As noted previously, the ALOS for Medicare residents is less than comparable
facilities, and thus it appears Gracedale is discharging them early, and forgoing
potential additional revenue earned for the additional days for restorative teaching
and other services. These services are generally reimbursed at lower paying RUGs
categories. Retaining the residents on Medicare for additional six days at the lower
rate may decrease the overall average Medicare rate, but would result in overall
incremental revenue as previously noted.
Medicare Part B
Based on the 2010 Budget for Medicare Part B and Part B Co-Insurance
($1,179,000) the average non-Medicare Part A resident (602 daily) is averaging
$1,958 annually for Part B revenue. Similar county facilities can experience an
average non-Medicare Part A resident to receive $2,500 to $3,000 annually. This will
fluctuate based on the number of MA residents without Part B service.
Gracedale could realize a substantial net revenue gain by increasing the Part B
services through better communication with the interdisciplinary team led by the
Restorative Nursing Manger. Weekly case-mix index meetings and proper resident
screenings prior to the Quarterly and Full Assessment periods should result in a
greater number of physician ordered therapy evaluations. We can project that at the
current therapy contract paid rate for Part B services of 70% and assuming that half
the Part B eligible residents have the proper Co-Insurance plan that will pay the 20%
not paid by Medicare, the facility will net approximately $15,000 for every additional
$100,000 billed.
We reviewed the Part B utilization at Conestoga View, a comparable facility.
Conestoga View Part B review is approximately $7.00 PPD in 2010. This would
translate to approximately $351,000 of additional revenue. Our proforma reflects this
Page 43 of 116
amount as a favorable revenue adjustment, with a corresponding increase in therapy
expense at 73% of the revenue adjustment.
CMI (Case Mix Index)
Findings
As noted at the beginning of this Reimbursement Assessment section, the facility is
operated as a county facility and therefore is reimbursed based on this model.
The most recent CMI reflects a 1.41 for MA residents, noting a slight decline since
the previous picture date. Currently, under the pay for performance model that the
county-affiliated facilities are subject to, the facility would not be eligible for Pay 4
Performance sharing that is based on the most recent picture date that dropped.
See Pending Changes in Reimbursement and Regulation below for the projected
change in Gracedale’s CMI as a result of the changes in the Medicaid reimbursement
system.
The current MA rate for the facility is $207.70 per resident day. DPW has posted
proposed rates for both the 2009/2010 period as well as the 2010/2011 for countyowned facilities. The proposed rates are $209.78 and $211.81 for the periods July
2009-June 2010 and July 2010-June 2011, respectively. These are proposed rates,
and are subject to change, particularly in light of the state’s budget shortfalls. During
an interview with the MDS Coordinator manager on May 25, it was indicated that the
facility is preparing to transition to the proposed case mix system under Pennsylvania
in which the most recent assessment will be utilized for case mix purposes.
A review of the February 2010 CMI report submitted to Myers and Stauffer on
3/15/2010 reveals a large amount of RMC (2.07), which greatly increases the
facility’s CMI; however, it is cautioned that under the revised case mix system, the
most recent assessment will be utilized to determine the facility’s CMI. It is also
noted that a large number of RUGs are listed as a “1” end split, reflecting a lack of
two restorative programs during the assessment period; specifically, those in the
reduced physical functioning, impaired cognition and behavior categories. By
ensuring two programs are implemented, it can increase the facility’s CMI at the
lower categories and ultimately increasing the overall facility CMI. The same is noted
for the clinically complex category. The 2/1/2010 CMI report reflects a large number
of residents with a “1” end split. This category is directly related to signs/symptoms
of depression and should be researched to ensure that those residents with
depressive indicators are identified and reviewed to capture a higher RUG for the
CMI.
During the initial tour of the facility on May 12, 2010, it was noted the facility is
utilizing Care Tracker for the nurse aide documentation. The MDS Coordinator
manager confirmed that the facility does utilize this system for documentation
purposes related to ADL, measurements and bowel/bladder. The manager indicated
that the staff meets consistently twice a week to review new admissions and
significant change residents in order to achieve maximum reimbursement.
Page 44 of 116
Recommendations
It is recommended to revise the facility’s current review process to ensure that the
rehab RUG distribution is even across all picture dates as not to incur a sharp dip
from quarter to quarter. It is strongly recommended that the facility focus on
programs such as restorative nursing and mood/behavior documentation, as these
will become imperative to maintaining and/or increasing the CMI from July 1, 2010
forward, as well as rehab RUG utilization. The manager indicated that the staff
consistently meets twice a week to review new admissions and significant change
residents in order to achieve maximum reimbursement. We recommend ensuring
that this process includes a review of all residents three weeks prior to the scheduled
MDS to be certain that assessments are scheduled appropriately to capture
maximum reimbursement in accordance with applicable regulation.
With experience in Care Tracker, it is recommended that the facility, in coordination
with Staff Development, create a formal in-servicing program as well related to Care
Tracker and appropriate coding to provide new employees, as well as current
employees ongoing, training to ensure accuracy in the documentation and allow the
MDS Coordinators to focus on other areas of the MDS process such as RAP
documentation and the care planning process.
MDS Completion
Findings
During on-site visits on May 12 and May 25, interviews were conducted with the MDS
Coordinator Manager to discuss the facility’s practices for MDS scheduling and
completion. During the visit on May 25, it was noted that after a review of 10 MDS
assessments, compliance is maintained for MDS completion and submission.
The facility currently staffs a total of 8 FTEs for the RNAC positions, with one FTE as
RN Case Manager and one FTE as RNAC Supervisor. During an interview with the
RNAC Supervisor on May 12, it was identified that the RN Case Manager along with
one FTE RNAC are responsible for oversight of the facility’s Medicare/Insurance
MDS completion, and the remaining 5 FTE are accountable for the remaining
residents of the facility. The RNAC Supervisor does not have an assigned unit for
MDS completion at this time and is accountable for oversight of the facility QI/QM
and submission to the state database.
It was also identified that the facility utilizes the unit RN Supervisor to complete the
nursing related sections of the MDS and care planning, as the RNACs serve solely
as coordinators of the process being held accountable for scheduling assessments,
communication to each discipline and frequent auditing of full assessments to ensure
accuracy and highest practicable reimbursement under both Medicare and Medicaid
as it relates to the CMI. The MDS Coordinators have overall accountability of
compliance for completion as well as scheduling and communication of assessments/
care planning to the interdisciplinary team. Based on analysis of the census of
5/4/2010 the following was observed:
Page 45 of 116
Location
North East 1
North East 2
North West 1
North West 2
South East 1
South West 1
South West 2
Tower 3
Tower 4
Tower 5
Tower 6
Tower 7
Tower 8
Tower 9
Tower 10
Totals
Medicare
2
1
2
2
3
1
5
6
5
5
3
4
5
4
6
54
Insurance
0
0
0
1
0
1
0
1
0
0
1
1
0
0
0
5
Total
Census
36
39
38
37
34
35
39
43
45
47
44
45
49
50
47
628
Recommendations
Under the current setup for MDS staffing there are two FTEs overseeing the
completion process for the Medicare/Insurance residents totaling 59 residents on the
5/4/2010 census date, leaving 569 residents for the remaining 5 FTE positions that
currently are assigned units, as the RNAC Supervisor currently is not assigned a unit
within the facility for oversight. On average this translates to approximately 113.8
residents per FTE for oversight of the MDS process.
As an alternative model, it is recommended to re-align the MDS completion process
and eliminate the RN Supervisor’s role as it relates to completion of sections of the
MDS, allowing them to focus on the clinical needs of the residents in their role and
increasing acuity within the facility, ultimately increasing revenue by capturing higher
RUG categories on the MDS in relation to PPS and/or Medicaid.
While the RN Supervisor would remain accountable to update the plan of care with
the day-to-day changes, the MDS Coordinators would have accountability for
scheduling the OBRA-required assessments on a monthly basis to maximize facility’s
reimbursement under the case mix system. The MDS Coordinator would be
accountable for completing the nursing-related sections of the MDS, RAP completion
of nursing-related fields when applicable as well as care plan development and
update for both OBRA and PPS assessments for their assigned units.
The RNAC Supervisor FTE would remain in this model and be accountable for PPS
scheduling within the facility, as well as attending and coordinating a weekly
Medicare meeting; however, would also be assigned one unit of the facility,
approximately 41.8 residents. The RNAC Supervisor would continue to be
accountable for submission to the state database to ensure compliance with RAI and
Pennsylvania regulation.
Page 46 of 116
The RNAC clerical position would remain and would be accountable for scheduling
the care planning process with family, based on the MDS schedule for both skilled
and OBRA-required assessments when applicable; Medicare cut letters based on
communication with the unit RNAC for both A and B; ensuring Medicare certifications
are obtained and are timely in accordance with Medicare regulation as well as filing
of MDS documentation following the interdisciplinary team meeting.
By re-aligning this process and assigning units to the remaining 7 FTEs it would
reduce the overall resident caseload per FTE. On average, for a census of 628 and
a total of 15 units, there are approximately 41.8 residents per unit based on the
census of 5/4/2010 with an average of 3.9 being under skilled care. This would bring
the total census for the remaining 7 FTE to 586.2 translating to approximately 83.7
residents per RNAC FTE in correlation with completion of the MDS process,
ultimately a reduction of approximately 20 residents per RNAC.
This re-alignment would also set the facility in a favorable position from a staffing
point in the event of an increase in Medicare/Insurance census and with the
implementation of the MDS 3.0 and RUG-IV in October of this year. With the current
industry standard of 25-35 skilled residents per MDS Coordinator, any increase in the
current staffing model of 2 FTE would not be feasible for maximization of revenue or
compliance with MDS completion.
Pending Changes in Reimbursement and Regulation
With the implementation of MDS 3.0 approaching on October 1, 2010, it is
recommended that the facility review its overall current practice with completion of
the MDS process in preparation for this transition. The MDS 3.0 will entail multiple
interview processes including the PHQ-9 based off the DSM-IV, CAM interview for
delirium and the BIMS for memory ability. The facility should develop a standard set
of templates to be utilized in this process so that consistency is maintained
throughout the facility with all assessments being completed.
These interview processes rely on the resident’s ability to be understood, and based
on the CMS and RAND studies of the MDS 3.0, it has been determined that
approximately 75% of the facility’s population should be interviewed based on this
observation. The facility should also implement MDS completion worksheets for
each discipline to incorporate into the medical record as part of the supportive
documentation for MDS completion that incorporate these interview processes, as
noted above.
The MDS 3.0 also incorporates interview-based questions for activities termed the
PAT or Preference Assessment Tool in which the facility will need to ensure that a
very specific plan is in place and tailored to the individual resident preference while at
the facility.
Nursing is also affected by the interview-based model in the MDS 3.0 in which
Section J for pain is now an interview question. It utilizes the pain scale,
incorporating the resident’s voice to relay the information rather than the current
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practice of reviewing the medical record, including the medication administration
record and staff interview.
The interview process is one aspect of change that is faced by all facilities across the
country related to the MDS 3.0; however, the increased number of assessments is
also identified as being an area for review as well. The MDS 3.0 has incorporated an
assessment for all discharges, replacing the tracker that was completed under the
2.0 model, as well as the addition of an entry record that cannot be combined with
any other assessment. The PPS scheduled assessments remain the same, as well
as the use of grace days; however, there are additional therapy requirements under
the MDS 3.0 model.
The MDS 3.0 incorporates not only the PPS scheduled assessments, but also a “start
of therapy” and “end of therapy” assessment. One significant change on the MDS
3.0 is that all minutes provided are required to be reported as individual, concurrent
and group on all assessments with therapy being provided. The facility will need to
ensure that the current therapy provider is aware of these changes associated with
the MDS 3.0 on all assessments. For each therapy discipline, the total minutes used
for RUG-IV classification include all minutes in individual therapy, one-half of the
minutes in concurrent therapy, (although total minutes received is documented on
each resident’s MDS), and all minutes in group therapy. For Medicare Part A, there is
a limitation that the group minutes cannot exceed 25% of the total minutes and is
calculated by:
•
Add the individual minutes, one-half of the concurrent minutes, and the group
minutes and record as Total Minutes.
•
When the 25% group therapy limitation applies (i.e., for Medicare Part A
residents), calculate the adjusted total minutes as follows;
•
If group minutes divided by total minutes is greater than 0.25, then add
individual minutes and one-half of concurrent minutes, then multiply this sum
by 1.33, and record as adjusted minutes.
This is completed for each therapy discipline including physical therapy, speech
therapy and occupational therapy. If therapy minutes are reported on the MDS over
the allotted amount, the minutes will automatically be reduced based on Medicare
guidelines for concurrent and group minutes. It is recommended that the
Administration and Rehabilitation Manager discuss this process change to ensure
that accurate reporting is in place prior to MDS 3.0 implementation and that a clear
understanding is appreciated by both the facility and therapy team.
Along with the implementation of MDS 3.0 on October 1, 2010, the RUG-IV will be
implemented for payment under the Medicare Part A criteria for PPS. The RUG-IV
grouper contains a total of 66 groupers with one large change being in the Special
Care category. Under the RUG-IV grouper, this category is divided into two
categories - Special Care High and Special Care Low. Conditions such as cerebral
palsy, multiple sclerosis, Parkinson’s disease and ulcer care are classified into this
category, which is reimbursed at a lower rate than under the previous RUG-III
payment system. Extensive services criteria remains in effect and can be
Page 48 of 116
appreciated as an increase in revenue utilizing the “X” categories; however, there are
several changes associated with this category under the MDS 3.0 model. To capture
extensive services (ventilator, IV, tracheostomy, suctioning) under the RUG-III MDS
2.0 model, the resident could have received these services while in the acute care
stay, yet the facility was able to be reimbursed at this level.
However, under the RUG-IV MDS 3.0 model, extensive services has been reduced to
tracheostomy care, ventilator dependency or infection isolation. To capture the
extensive service category, the services have to be provided while a resident is at the
facility. The facility will no longer be able to capture IV antibiotics in the extensive
services category, not only if the resident did not receive them in the facility, but
RUG-IV places this item in the clinically complex category at a reduced rate.
The facility should review current Medicare Part A documentation practices and
ensure that, at a minimum, daily documentation is present by a licensed nurse in
accordance with Medicare guidelines and that the documentation is directly related to
the resident’s skilling factor. This will become imperative particularly for placement in
the Special Care High category under the RUG-IV model which includes criteria such
as; pneumonia, diabetes, vomiting, fever, weight loss, parenteral/IV feeding and
COPD.
With the implementation of the 5.12 – 44 grouper utilizing the latest MDS assessment
for case mix, it is more imperative than ever to ensure that the facility’s MDS
Coordinators have a clear understanding of what categorizes into each RUG
category. Complete Healthcare Resources-Eastern, Inc., has developed quick
reference guides for both the RUG III and RUG IV systems for PPS as well as for the
5.12 – 44 grouper for Medicaid. Each of our ten facilities have been provided with
this reference guide, as well as formalized training on the grouper systems by the
Senior Director of Clinical Reimbursement and Clinical Reimbursement Specialist.
As mentioned above, it is imperative to focus on the restorative nursing programs
which are now required six days a week for 15 minutes per program to classify into a
restorative nursing RUG where previously it only required five days. Mood and
behavior capture is also imperative in maintaining a balanced CMI quarter to quarter
and provides an avenue to achieve an increase in CMI. Since the implementation of
the latest assessment, rehabilitation RUGs will not carry the facility for any period
greater than one quarter, making capture in these other areas imperative under the
new system of reimbursement.
Medicaid Rate – Non-County
Under a non-county affiliation and reflecting the most recent CMI of 1.41 for 2/1/2010
the facility’s MA rate could have been realized at $233.50 per resident per day for the
2009/2010 period. With the implementation of the proposed change in the
reimbursement system, including the implementation of the 5.12.44 Grouper
(compared to existing 5.01 system; see further discussion in Pending Changes in
Reimbursement and Regulations below) and the use of the latest quarterly MDS
assessment regardless of type, the rate is estimate at $227.97. Comparing the
estimated non-county rate of $227.97 to the proposed county rate of $211.81 for
Page 49 of 116
2010/2010, results in a rate differential of $16.16 per day and based on the 2/1/2010
MA census of 524, results in a differential of revenue on annualized basis of
approximately $3,091,000.
Under the non-county system, each increase of .01 in the CMI translates to
approximately $1.13 per resident per day for Gracedale. Complete Healthcare
Resources-Eastern, Inc., operates a 446-bed facility in which the CMI for the
2/1/2010 picture date reflected a 1.47 with an overall state average reflective of a
1.50. Therefore, an increase to this CMI level of 1.47 under the non-county system
could result in additional increase in revenue of approximately $1,297,000 ($1.13 x 6
increase in CMI from 1.41 to 1.47 x 524 MA census x 365 days), increasing the
difference in MA reimbursement for County vs. non-county of $3,091,000 noted
above.
Page 50 of 116
SECTION 4 NURSING, THERAPY AND SOCIAL SERVICES
ASSESSMENT
An operational assessment was completed at Gracedale Nursing Home (GNH)
located in Nazareth, Northampton County, Pennsylvania in May 2010. The
assessment team consisted of six Registered Nurses with various backgrounds in
long term care. During the course of the clinical assessment, interviews and
discussions were held with key members of the Nursing Management Team.
Reviews of staffing practices, processes, supply usage and equipment utilization
were completed.
Clinics
The facility has on-site clinics where physicians come to see their patients that
include Podiatry, Surgical F/U and debridement, Eye, Dental, Orthopedics, Psychiatry
and Genito-urinary. An RN Clinical Coordinator is in charge with a Clerk to support
and coordinate appointments.
No recommendations at this time. This arrangement saves transport costs.
Scheduling
The facility has no designated “Scheduler” position to do the master nursing
schedule. This is accomplished by three Nursing Supervisors who complete the
scheduling for their respective shift. FT staffs have schedules set. PT staffs fill in per
shift needed on days, evenings or nights. Per interview, Agency is used for
Professional services only and the facility has recently “cut down” to 3-4 agency staff
/ day. Weekends are “hard to fill”.
The facility has approximately 10 paid Holidays which are paid at double time and a
half. Holiday time off, such as Christmas and New Year is granted by seniority. Staff
gets every other weekend off.
Recommendations
Assign one clerical person to be designated as a staffing coordinator. This will free
up Nursing Supervisors to concentrate on clinical issues, such as IV Therapy which
will add additional admission possibilities, increase ability to maximize Medicare
reimbursement and maximize the facility’s CMI. Several innovative ideas have been
tried to fill difficult schedules such as weekend work. Cost compare whether various
approaches might be most cost effective than filling weekend slots with Agency staff
at an average of $46.92/hour.
Page 51 of 116
Staffing
Agency Utilization:
Agency Utilization: LPN hours
Review of the March invoices indicated 52 shifts of agency LPNs were utilized, for an
average of $380.47 per shift. This is $245.67 over the cost of facility staff.
Recruitment of facility LPNs would have resulted in a savings of approximately
$12,775 for the month. Thirty-nine shifts were utilized on the 3-11 shift and 13 on the
11-7 shift. Eighteen shifts were on Saturday/Sunday, 11 shifts on Friday, and 23
shifts Monday-Thursday. No shifts were required for the dayshift. The 3-11 shifts
appear to be the most difficult area to cover and staff. Possibly evaluating the current
shift differential and potentially increasing the LPN differential by $0.50 to $1.35 per
hour may aid in recruitment. This would add an additional $2,800 to the annual
salary; however, in this instance it would have resulted in a savings of $9,170
compared to what was paid to the agencies for just the 39 evening shifts.
To obtain overtime hours, currently the staff calls the Nursing Supervisor to request
approval. The Nursing Supervisor will authorize or deny the overtime. Before payroll
is finalized, the Nursing Supervisor reviews the payroll hours and gives final approval.
The staffing sheets display “ES”, indicating “extra-shift”, but per facility administrative
staff, this may indicate either overtime at 1½ times hourly rate or an extra shift that
part-time staff is picking up. However, not all “ES” hours are paid at overtime rates.
Either will add to costs, but the extra shift for a part-time staff member is at the base
rate and more cost effective. We recommend that Gracedale review the current
control systems in place to monitor and track overtime to sure the systems are
effective and allow for adequate management of these costs.
Overtime Utilization
A review of the overtime request log for the period of April 4-16, 2010 was completed.
Approximately 2.5 to 2.75 hours of overtime per day is utilized for such tasks as
completion of charting, rounding with physicians, admission documentation, etc.
Currently, there are 99.625 nurses scheduled daily, this overtime utilization does not
appear to be mismanaged or utilized at this time.
The overtime log indicates that in the 13-day review, extra shifts required to provide a
full schedule totaled 179.75 shifts or 1438 hours. Of these hours, 893 hours were
needed to cover the day shift, 367 hours to cover the evening shift and 178 hours to
cover the night shift. The day shift hours included 217 LPN hours, at time and a half,
equating to $5, 485 in overtime expense; 536 hours of NA, at time and a half,
equates to $9,560 in overtime (average wage of $11.89); and the RN hours of 140, at
time and a half, equates to $3,322 in overtime wages (average wage of $23.73 per
hour). The total overtime cost of $18,366 was scheduled overtime on the day shift
only, $7,098 on evenings and $3,175 (based on aide wages) on the night shift, for a
grand total of $28,639 in scheduled overtime expenses. The schedules are currently
completed by the RN supervisors for each shift. Per the ADONs primarily every shift
has specific relief staff to the shift and the unit; however, it does not appear that there
is a strong number of staff that are in the float pool between shifts.
Page 52 of 116
Recommendations
Centralizing the schedule to a designated scheduler (or two) would enable the
scheduler to develop a more consistent schedule and decrease the need for
scheduled overtime. Additionally, the schedule should be re-evaluated for the
necessary positions so that recruitment can be geared to these vacancies.
Table 4.1
Position
DON
ADON
Nursing Secretary
Nursing
Schedulers
Infection Control
Nursing and Administrative Staffing Analysis
Gracedale Nursing Home Staffing
Current
Recommended
1 RN FTE
1 FTE
2 RN FTE
2 FTE
The ADONs currently are conducting and maintaining the
criminal backgrounds for all the facility staff. Recommend
allocating these tasks to Human Resources, freeing up
valuable RN time for oversight of nursing functions. This
would allow for the elimination of the day shift RN
Supervisors Monday through Friday.
1 FTE
1 FTE
0 FTE
2 FTE
Currently the RN Supervisors are completing the master
schedules, as well as the day-to-day schedule needs. There
are 8 supervisors per day, all of which have responsibilities to
the schedule. As noted above, we recommend eliminating
the two day shift supervisors and replace with two clerical
scheduling clerks. The current supervisor clerk would be
reassigned to this position, thereby requiring only one
additional staff member. At $14.00 for additional FTE, cost
would be ($44,262). See the projected RN Supervisor
savings below
1 RN FTE
1 RN FTE
1 LPN .375
Currently the LPN hours are non-budgeted in this category at
a hourly cost of $16.85 (starting wage) equating to $13,143
annually. We do not recommend any changes in this
structure.
Quality Assurance
2.0 RN FTE
Staff Development
3.0 RN FTE
2 0.5 PT
1 RN FTE
1.0 RN FTE is responsible for the management and oversight
of the Restorative Program, as well the oversight of the
Tuition Reimbursement Program.
1.0 RN FTE is responsible for investigating incidents and
accidents, reports to the Department of Health and the abuse
investigation. With a re-allocation of the new employee duties
from this department, and the ADON’s to the HR Department,
the two RNs would be able to focus all of their time on Quality
Assurance, Nursing Compliance and Enhancement of the
Restorative Program.
No recommended changes in this department.
Clinic
Currently the clinic is managed by a RN. A variety of services
Coordinator/Wound
are provided at the clinic. The coordinator is responsible for
Care
4.625 LPN FTE the appointments that are completed at the clinic and
conducts a wound clinic as well. Per the interview, much of
Treatment Team
1 FTE
this time is directly in the clinic and not on the nursing units
unless consulted. The treatment team consists of LPNs who
complete the treatments on the units. The .625 hours are in
Clinic Clerk
conjunction with the .375 hours that are utilized in Infection
Control.
Page 53 of 116
Position
RN House
Supervisors
Day
Evening
Night
Restorative
Nursing
Coordinator
NURSING DIRECT CARE and Administrative Staffing
Current
Recommended
2 RN
Recommend eliminating dayshift RN Supervisors on weekdays.
2 FTE
Add 0.4 FTE on weekend for additional cost of ($40,873).
Reduction of 2 RN @ average wage of $32.32 results in annual
savings of $204,366 including fringes
3 FTE
3 FTE
3 FTE
3 FTE
-
Restorative Aides
8 FTE
Unit Clerk
Coordinator
Unit Clerks
15 FTE
The restorative program is currently being monitored by the QA
nurse. Recommend adding 1 LPN FTE to be the Restorative
Nurse. This would contribute to your daily numbers and allow for
more oversight and effective implementation of restorative
programs. These programs provide additional services that can
improve resident abilities and can be captured on the MDS
improving the facility CMI. At $19.18, total cost is ($60,639) with
fringes
9 FTE
Addition of one FTE at an average wage of $12.19 for a total of
$25,355.20 annually, or approximately ($38,540) with fringe
benefits
12 FTE
There is a unit clerk for every unit. Several of the units have only
40 residents. In addition, there is a RN and 2 LPNs for each of
these units. Would suggest reevaluating the effectiveness of
these positions. Perhaps sharing of the north and south units
would be appropriate. This would be a reduction of 3 FTE’s. At
average rate of $13.21, this would result in annual savings of
approximately $125,294 with fringe benefits
Resident Transport
During the period of 4/4-16/2010, there were approximately 37 hours of overtime
utilized for resident transport and appointments. Per the ADONs, the Restorative
Aides and Nurse Aides are utilized to cover these appointments, which results in
overtime. This results in $660 in overtime (based on $11.63 per hour NA rate). A
part-time, 20-hours/week Transport Nurse Aide would cost $465, for a savings of
$195 in hourly rate alone per week, or approximately $10,000 annually.
The invoices for resident transport for January 2010 and December 2009 were
reviewed. There were 198 transports in January and 196 in December, for an
average of $65 per transport. There was an average of 197 transports for the two
months, 69 trips for dialysis and 28 due to hospital discharge. This results in an
average of 100 coach trips to outside appointments, etc. Perhaps developing an inhouse transport system may reduce the excess costs to the ambulance companies
for transport and should be further explored. The non-billable ambulance transports
totaled $7,338, for two months, and may be related to the medically necessary forms
not being completed correctly, thus creating a charge to the facility. The total yearly
Page 54 of 116
expense, based on an average of $3,669 per month, would be $44,025. facility paid
ambulance transport fees.
Direct Care Clinical Staffing
Although State Regulations require a minimum of 2.7 hours of direct care staffing per
resident daily, these regulations have not been updated since 1999. Due to the
acuity of the residents admitted to nursing care facilities, which has dramatically
increased since 1999, 2.7 hours per patient day are no longer viewed by the
Department of Health as adequate direct care staffing levels, but only as a state
regulatory minimum.
Considering that both State and Federal Regulations require a facility be staffed to
"meet the needs of its residents", these regulations leave surveyors broad latitude in
determining compliance with what is adequate in order to meet the needs of the
resident population in a skilled nursing facility. The proposed schedule will provide
for 3.40 ppd. This is comparable to other facilities and still provides for quality
resident care.
The proposed changes provide for a reallocation of staff. The total number of Nurse
Aide staff on day shift would be reduced, and a portion of those hours re-allocated to
the restorative program and evening/night shifts. The overall staffing reorganization
plan reduces the total Hours Per Patient Day (“HPPD”) from 3.78 recently (and
average of 3.683 in 2009 when including agency to 3.398 for in-house census of 655
(excluding impact of MA bedhold census) as noted in Table 4.2 or 3.35 including MA
bedhold days. This reduction can be partially accommodated through a reduction in
overtime and significant reduction of agency staff. This staffing reduction should
result in an estimated total annual savings of approximately $1,837,043 as illustrated
in Table 4.2. Gracedale management has indicated some of this staff reduction has
been implemented as of the date of this report.
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Direct Care Staffing Grid
Staff Development (Orientation Program / Ongoing In-services) System Review
•
1 Director of Staff Development
•
2 FT Registered Nurses
•
3 PT Registered Nurses who work 2-3 days per week
•
Department conducts a Nurse Aide Training Program in-house monthly with
approximately 6-10 students in each class.
•
Provides annual in-servicing and ongoing staff education.
There is the potential to outsource this department or form a partnership with a
neighboring facility to share services. Due to the large number of staff, the frequent
turnover for new employees and the Federal and State Mandated annual in-service
requirements, we do not feel it would be financially advantageous to outsource or
combine the in-service/education functions of staff development. The nurse aide
training program may be shared with a local facility, but we strongly believe in the
benefits of staff training within the facility they will be working. This not only allows
for a better education of facility practices and general layout, but also allows staff to
become part of the facility family getting to know co-workers and supervisors.
No recommendations at this time.
Page 56 of 116
Social Services System Review
•
•
•
•
Director of Social Service: 1 FTE
Secretary: 1 FTE
Social Service Coordinators: 7 FTE, each responsible for 3 nursing units.
One position currently open and one position for completion of Admission
paperwork.
Case Workers: 2 FT from Behavioral Health Group; not employed by the
facility to provide SS services to identified residents
Behavioral referrals are generated from the units to SS Coordinators to caseworkers
from Behavioral Health.
Recommend reclassification of current social worker completing admission
paperwork to proposed newly formed Admission Department and filling vacant
position to assist with new social service requirements related to the MDS 3.0. See
Section 5, Marketing Assessment, for further explanation of the proposed changes in
the admissions and business development process.
Incident / Accident System Review
Event Reporting and Abuse Investigation System Review
The facility has 2 full-time Quality Assurance Registered Nurses. One is responsible
for investigating incidents and accidents, conducting abuse investigations,
completing PB22s, and sending Electronic Event Reports to the Department of
Health. The other RN is responsible for the Restorative Nursing Program, Care
Plans, Quality Assessment and Assurance Program, oversees the tuition
reimbursement program and oversees the Restraint reduction program.
Recommendations
Recommend reassignment of employee background checks and tuition
reimbursement program to Human Resources, thereby freeing up valuable RN time
to provide true Quality Assurance and Clinical oversight.
Restorative Nursing Program
Staffing
1 Registered Nurse supervises the Restorative Nursing program and assigns duties.
12 FT Restorative Nurse Aide positions since 2003.
Programming
2 Restorative aides are assigned to 3 nursing units. 450 residents receive
Restorative Nursing services with a focus on providing services during daylight shift,
seven days a week 8:30 am to 4:30 pm. Most are receiving at least two programs,
which add to reimbursement. Over half of the residents on caseload are receiving
Page 57 of 116
more than two programs. Review of the MDS however, does not show that two
programs are being consistently captured, which results in lower CMI.
Responsibilities
Duties on the daylight shift include provision of restorative nursing services and
assistance to residents with feeding during lunch and dinner. Breakfast assistance is
provided by the direct care staff. Restorative services include Ambulation, Transfer,
ROM (Active, Active Assist and Passive) and Splint Assistance. Per facility staff,
they have feeding programs and are trying to get a Restorative Dining Program
underway.
Several restorative Nurse Aides are assigned to work a staggered 7am to 3 pm shift.
In these cases, they provide restorative nursing services and when needed, go out
with residents during transport to physician offices. The actual cost to the facility for
using restorative staff members in this fashion is two-fold. Overtime hours are
incurred and staff is pulled away from providing essential nursing services that would
have contributed to reimbursement. A potential cost may be through a citation by the
Department of Health for a decline in resident function that may have been minimized
through restorative services. Restorative services will become increasingly important
for reimbursement with the start of the MDS 3.0.
Documentation
Unit Nurse Aides provide scheduled toileting programs, but documentation is
captured by Restorative via the Caretracker system. Please have staff members
providing the actual service, provide the documentation. A four-day Bladder Diary is
kept to aid in assessment. Unit Charge Nurses provide a quarterly evaluative note.
To date the UMR/DOH has accepted the care plan quarterly note as sufficient for this
service.
Training
Restorative Aides are trained in Restorative Care and receive a refresher in-service
once yearly. Direct Care Nurse Aides are trained by Staff Development; however,
the training is not as intensive as that provided to the Restorative aides.
Group Exercise
Restorative Aides and Therapeutic Recreation conduct a restorative Exercise
Program two times per month. A 4:1 ratio is maintained and per staff, half of the
building is involved. Note that depending on the length of the program, restorative
participation can be doubled by capturing 4 residents the first 15 minutes and 4
residents during the second 15 minutes for each nurse aide involved in the activity.
Recommendations
• Expand restorative focus to all shifts utilizing current Nurse Aides thereby
maximizing services to the residents. Addition of one additional Restorative
Aide to ensure that all restorative functions are completed and captured for
each resident.
•
Train direct care nurse aides to document Restorative toileting in Care Tracker
(the person providing the service should be the one documenting).
Page 58 of 116
•
Expand Exercise Programming to weekly, at least; capture first 15 minutes
and last 15 minutes of a 30-minute program.
•
Designate transport aides who are responsible for accompanying residents to
outside appointments. This maintains stable staffing on the units and does not
take away from the restorative program that provides necessary services to
prevent functional decline. Re-assign current Nurse Aides to be classified as
full-time transport aides, eliminating need to pull Restorative Aides from
resident care.
Supply Budget and Utilization for Clinical Operations
Three bids are required for purchase of items. Bids are usually obtained from:
• McKesson
• Medline
• Manheim Medical
• Gulf South
Medical Equipment and Supply Review
Overall, the facility is very cost conscious related to equipment and frequently
evaluates the usage and appropriateness of higher cost items. The primary focus of
this review was the higher dollar and utilization items. PAR levels for supplies have
been established and are posted on each nursing unit. Central delivers supplies and
replenishes up to the PAR level.
Incontinent Briefs
The facility utilizes incontinent briefs purchased through McKesson. Per RN, briefs
are not routinely used during the 11-7 shift except for designated residents.
Suppliers have different costs depending on the sizing of the briefs.
Recommendations
To ensure best cost control, conduct measurements of each resident to assure they
receive the correct size of brief. Many suppliers have a field representative who will
assist the facility with this. Once sized, par levels for each unit / each shift should be
established. Staff should be trained on how to apply the brief properly and to use the
appropriate size for the resident.
Assess all residents for possible toileting programs to increase functional elimination,
increase dignity, capture on the MDS as well as decrease cost of incontinent briefs.
Enteral Feedings and Supplies: Two suppliers: Ross and Nestle
The number of tube-fed residents will fluctuate based on the characteristics of the
resident population. PEN billing is contracted through W.L. Schneider.
Intravenous Medication Utilization and Supplies
Page 59 of 116
Recommendation:
At the current time, facility staff is being trained in IV management. Recommend
facility implement service as soon as possible once all pertinent staff ise trained.
Furthermore, the facility should educate physicians and referral sources that the
service is now available.
Oxygen Use
The facility owns 55 oxygen concentrators. When in use, all are kept humidified with
pre-filled water and the tubing is changed weekly unless soiled. The facility owns all
nebulizers in use. CPAPs and Bi-PAPs are rented, as are CPM machines.
There is piped-in oxygen in 14 rooms on each floor of the Towers. Per interview, the
facility eliminated H-oxygen tanks last year. Mobile residents who require oxygen
utilize small green cylinders that the facility calls Oxytotes.
Bulk liquid oxygen is supplied by Airgas East. 16 invoices from 2/17/2010 to
4/28/2010 indicate a cost of $10, 441.64. The facility does not have provision for
staff filling small portable liquid oxygen reservoirs from a larger reservoir.
Oxygen conservers are devices that are attached to portable oxygen tanks, such as
E-tanks, that regulate the delivery of oxygen at just the right time during inspiration
and do not permit escape of oxygen during exhalation (which is twice as long as
inspiration). Also called “pulse dose”, the oxygen conservers can be pricey, starting
at $198 to purchase, although facilities that have a purchasing history with vendors
are able to get the conservers for approximately $100. They extend the useful life of
a tank of oxygen at 2 L/min from 5.7 hours to 17.2 hours and are especially useful for
residents requiring higher flow rates such as 6 L/min. A continuous flow on an Etank would last approximate 1.9 hours. On a pulse-dose conserver, the oxygen
would last 5.8 hours, enabling the resident to go out of the facility, decreasing staff
time retrieving tanks, time spent changing tanks, storing bottles, decreasing delivery
charges. At 4L/min., a continuous flow E tank lasts 2.8 hours. With the conserver
pulse dose, the tank lasts 8.6 hours.
41 GTS Welco invoices for E-tanks from 1/27/2010 to 5/05/2010 totaled $15,795.58.
The invoices do not include any details regarding flow rates; however, at an average
of 4 L/min, the oxygen conservers increase the hourly use by a multiplier of 3.07.
Therefore, if the average flow rate was 4 L/min, using conservers, the calculated
savings on these invoices would be as follows:
8.6 divided by 2,8 = 3.07 as the multiplier.
$15,795.58 divided by 3.07 = $5145.14 (what the oxygen would have cost
using conservers)
$5,145.14 X 2 = $10, 290.28 in savings for this period of time, or
approximately $40,000 per year, given consistent usage comparable to the
sample period.
Although there would be an initial capital outlay for the conservers, the savings would
be ongoing for future years.
Page 60 of 116
Recommendations
Assure that filters for oxygen concentrators are clean. This may entail maintaining a
duplicate set. Nebulizers have a plug-type filter in them – assure this is clean and
changed when soiled per manufacturer’s instructions. Investigate cost savings for
Liquid oxygen totes.
Consider oxygen conserver for designated residents who are mobile, starting with
those who have high flow rates.
Glucometers
The facility uses the Roche Advantage Blood Glucose Monitoring system. All lancets
and needles are retractable, thus preventing inadvertent needle-sticks to staff which
lead to testing and potential Blood Borne infection.
Recommendations
Due to the large number of diabetic residents who require blood glucose testing from
one to four times daily, the expenses can add up considerably. Recommend cost
comparison with other blood glucose monitoring systems such as the AHT Easy Max
which requires no coding.
The Accu-Chek Advantage Blood Glucose Meters, which are made by Roche
Diagnostics, are no longer being manufactured. The Accu-Chek Advantage Glucose
Meters and Strips have been upgraded by Roche to the Accu-Chek Aviva Blood
Glucose Meters and strips. Cost savings are evident on the strips and control
solutions in the chart below:
Product Name
EasyMax Blood Glucose Meter
Roche Advantage
EasyMax Test Strips 50 ct (Auto Code)
Roche Advantage Test Strips 50 ct (Auto
Code)
Box Qty.
Box Price
Month
Year
1 Meter
1 Meter
$0.00
$0.00
$0.00
50 Test Strips
$9.95
$52.54
$630.43
50 Test Strips
Roche Advantage Test Strips 50 ct
50 Test Strips, 1 Code
Chip
EasyMax 2 Level Control Solution
Roche Advantage Ctrl Solution Hi/Lo
1 Low Vial, 1 High Vial
1 Low Vial, 1 High Vial
$6.00
$36.00
$432.00
100
$8.00
$21.12
$253.44
100
$8.00
$21.12
$253.44
EasyMax Safety Lancets Pressure Activated
26 Gauge
EasyMax Safety Lancets Pressure Activated
28 Gauge
Roche Advantage Lancets
150
Wound Care Supplies
Page 61 of 116
A Wound Clinic is situated off-site in Union Station. However, every other week,
surgeons from Easton Hospital and St. Luke’s Hospital visit the facility clinics to
follow-up on their patient’s needs.
Interview with the Licensed Practical Wound Care Nurse indicated that barrier
creams and wound supplies are purchased through Medline and Manheim Medical.
Observation of dressing supplies indicates they are consistent with up-to-date
standards, and facility practice includes dressing changes every second to third day
or more. Sterile supplies are used as much as possible with clean technique. Skin
prep is used on heels prophylactically. Wound vacs are used on designated
residents. Wound vac dressings are changed three times a week on two schedules:
M-W-F or T-TH-Sat. The facility currently has 32 active wounds.
Billing
Wound care supplies are currently billed through W.L. Schneider, as are ostomy and
urologic. Recommend consideration of MC billing through a firm such as Advanced
Tissue who packages wound care supplies needed for the specific MC resident and
sends them to the facility for the individual’s use. An example of savings on wound
care supplies using top-of-the-line products is as follows: 3 CHR facilities over 3
months (March – May 2010) with a total of approximately 420 beds had a savings of
$11,709.30 in wound care supply costs.
A clinical RN oversees the wound care team. There are 3 LPNs on the treatment
team on days and 1 LPN on evening shifts and they are included as part of daily
staffing. The treatment team treats Stages 3 and 4 and residents who have multiple
wounds. Residents go to the on-site surgical clinic for debridement of wounds if
needed. The LPN treatment team conducts wound rounds weekly.
Recommendations
Pursue Wound Care certification for at least one of your RN Staff to assure a
knowledge base as wounds become more complicated. It is recommended that the
facility research an alternative provider to determine the potential for cost savings
while maintaining quality service. A recent comparative analysis between KCI and
Joerns Negative Wound Pressure Therapy (NWPT) in CHR buildings demonstrated a
cost benefit from using the Joerns equipment and supplies over KCI as indicated
below. The facility business office provided the price of $109.71 for a KCI Wound
Vac rental.
Page 62 of 116
CHR Pricing
KCI Freedom
Wound VAC
Joerns Invia
Liberty Pump
Unit of
Measure
Daily
Rental
Rate
Average
Dressing Kit
Cost
Dressing Kit
Changes Per
Week
1 Pump
$60.15
$41.36
2.3
1 Pump
$38.00
$24.00
2.3
KCI and Joerns Pump
Rental Analysis
Daily
Rental
Rate
KCI Freedom
Wound VAC
Joerns Invia
Liberty Pump
Average
Length
of
Therapy
Days
Average Rental
Cost Per Use
without
Dressings
Dressing
Kit Cost
Per
Average
Use
Total Cost Per
Pump Use
$60.15
x
30
$1,804.50
$337.53
$2,142.03
$38.00
x
30
$1,140.00
$313.04
$1,453.04
The cost savings with use of each Joerns Invia Liberty Pump for 30 days with 2.3
dressings changes/week as opposed to using KCI products would be $2,142.03 $1453.04 = $688.99 for each resident utilizing the wound vac. At two residents a
month, over 12 months, the annual savings would be approximately $16,500.
Autoclaving On-Site
Central Supply employs 3 FTE and several PT staff members to autoclave the nondisposable, reusable equipment that is used in the facility.
Recommend cost comparison of autoclave upkeep, personnel and utilities versus
purchasing of disposable supplies.
Specialty Beds and Mattresses
Gracedale owns most of their equipment, opting to forego the continual cost of
renting, which is generally more costly in the long run than purchasing equipment,
particularly if there is a constant demand for the equipment. The facility owns a few
bariatric beds and is currently renting a few Hi-low beds due to the number of
residents with need for the beds that exceed the owned supply. March and April
2010 saw 5 rentals for 104 days at $9.00/day= $936.00. CHRE recommends that
Gracedale consider adding a few additional electric low beds to the capital
expenditure budget. Mattress overlays and specialty mattresses that are owned by
the facility include the Huntleigh DFS III with heel guard. CHRE also recommends
that Gracedale continues its practice of evaluating rental for versus purchase,
particularly where there is a consistent demand, to keep ongoing operational
expenses from renting equipment to a minimum.
Lifting Practices
The facility utilizes total mechanical lifts, sit-to-stand lifts and gait belts. Per nurse
interview, there are few lifting-related injuries which would result in lost time and other
costs. Mobility status is ordered by the physician, care planned and included on
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orange-colored Nurse Aide Care Cards which provide the essentials elements of
caregiving.
Infection Control and Employee Health
1 RN is responsible for the Infection Control and Employee Health Program in the
facility and 1 LPN who works on the Treatment Team assists. Hep B series,
Seasonal Influenza, H1N1, and TB skin testing are provided to the employees and
when appropriate, to the residents. The facility received free testing kits for Influenza
vaccine this season and free syringes and N1N1 vaccine from the local health
department.
Residents and staff receive one-step TB testing yearly after the initial two step
process. The Quantam gold blood test is expensive at $95.00 but will reveal if the
person has been exposed to TB or has TB antibodies in the bloodstream. The
Infection Control Nurse indicated that she selectively uses this test for residents who
are poor historians. If an employee’s exposure is questionable, he/she is referred to
the local health department or their own physician for further testing.
Hep B immunization series is expensive; however, the Infection Control Nurse related
that because the school district mandates that students receive the series, only
approximately 6 series are given by the facility each year.
Precautions and Personal Protective Equipment (PPE)
The Nurse indicated that the facility has had only one C-Diff infection on and off for
about one year, averaging one per month. Smart San hand sanitizer sprays are
mounted in common areas. The facility uses approximately 3000 boxes of gloves per
month. All syringes and lancets have retractable needles.
Disinfectants
The facility switched to Butchers ® Carpe Diem for regular cleaning of all rooms.
This product is a one-step cleaner disinfectant formulated with hydrogen peroxide
technology. It is a ready to use general virucide, bactericide, tuberculocide,
fungicide, and sanitizer. The facility does not use a different product for rooms in
which residents with C-diff reside. However, the Department of Health requires that a
bleach-based product be used to sanitize and disinfect surfaces exposed to C-diff
which form spores and is very resistant to chemicals. Please consider a change for
these rooms. Alcohol swabs are being used to clean blood glucose meters. PDI
Super Sani wipes which is a Quaternary/55% Alcohol formulation is another option.
Page 64 of 116
Section 5
MARKETING OPERATIONAL ASSESSMENT
Gracedale Nursing Home
A baseline operational assessment of the Census Development related aspects of
Gracedale Nursing home was conducted in May 2010 and included information
gathered from direct on-site investigation, employee interviews, electronic data and
county provided reports. The goal of this assessment is to identify areas of
opportunity to increase revenue and decrease operating expense. Current skilled
nursing facility industry standard operating practices and procedures are used as a
guideline to determine cost saving procedures that include reorganization of staff and
processes.
Current Product Description
Gracedale is one of 11 Skilled Nursing Homes in a 10 mile radius, its primary target
market for residents. There are 1,989 certified beds within those 11 homes and
Gracedale represents 36% of the beds in the market. Within Northampton County,
Gracedale is one of 14 skilled nursing facilities, representing 32.3% of the total 2,243
skilled nursing beds located in Northampton County. See Table 5.1 below for a
listing and comparison of these facilities.
Page 65 of 116
Gracedale Nursing Home is a 725-bed nursing home that is situated on 365 acres in
Upper Nazareth Township, Northampton County, Pennsylvania. This facility has
been operating as a nursing home since the 1960s. The home is owned and
operated by the county and consists of a main tower with ten floors, a North West
Wing, North East Wing, South East Wing and South West Wing. The tower contains
eight floors with resident rooms with 50 beds per floor for a total of 400 beds. The
Northwest Wing has two floors of resident rooms and has a total of 86 beds. The
North East wing also has two floors and has 81 beds. The South East Wing has 40
beds on the first floor and the second floor contains 38 beds which are currently off
line. The South West Wing has 81 beds on two floors.
The facility is Medicare and Medicaid certified, provides Physical, Occupational and
Speech therapies and has two secured floors, with a total of 100 beds dedicated to
Alzheimer’s and Dementia care. The Centers for Medicare and Medicaid Services
(CMS) developed the Five-Star Quality Rating system to help consumers compare
nursing homes when attempting to make decisions about care. Gracedale’s current
Five-Star Rating is 2 out of a possible 5, with the lowest score in the health
inspections section. The overall Five-Star rating for Gracedale is less than the
average of 3 for the other thirteen facilities located in Northampton County; however,
there is more contention within the nursing home industry on the validity of the rating,
and how individual facility fair in the ratings. It is important that Gracedale remain
prepared to answer consumers’ questions if it is raised.
Room Breakdown by Type
A breakdown of the number of rooms by unit and by type, and the associated bed
count by type is noted in Table 5.2 below.
Page 66 of 116
Page 67 of 116
ASSESSMENT DETAILS
Physical Plant
Findings:
The physical plant limits revenue potential based upon:
•
•
•
•
•
•
•
Off-line beds reduce occupancy potential by 38 beds
Lack of primary amenities (phone and TV) in 50% of the building
No in-room bathrooms in main building (representing 45% of the 725
licensed beds)
three and four beds per room (lack of privacy)
Institutional appearance
Limited bariatric capability
Remote, undesirable location for Therapy services
Ramifications:
•
•
•
•
•
•
Loss of revenue potential represented by 38 off-line beds
Consumers consider the availability of phone and TV when selecting
facilities and determining level of satisfaction with stay
Bathroom availability affects decisions and level of satisfaction with stay
The majority of competitors’ rooms are made up of semi-private and private
rooms which are the most desired room type
Most competitors have moved to a more home-like environment to
embrace the culture change recommendation most requested by
consumers
Bariatric capabilities increase occupancy opportunities and meet the needs
of the referral sources
Occupancy
Information related to inquiries, admissions, staffing and processes was provided to
us by the Director of Social Services, Rita Steller, both in written reports and verbal
communication.
The staff and administration do not currently operate on an occupancy and payor mix
budget by month or year. Administration has set a goal of achieving in excess of
90% occupancy, which allows the facility to take advantage of additional
reimbursement under the Disproportionate Share program for Medicaid, but this is
not broken down by pay source type, nor is it calculated or reviewed daily to monitor
goals compared to actual numbers. The facility has experienced decreasing
occupancy each year. Occupancy trends from 2007 to current show a steady decline
that will continue if changes in operation are not made.
Table 5.3 Average Daily Occupancy Trends
Page 68 of 116
Year Total
2007 709
2008 672
2009 648
2010 638
MC
32
34
50
49
HMO Ins
0.02 0.58
0.4 0.1
2
0.61
3
2
MA
614
578
546
525
PP
62
60
49
60
Census projections, based on recommended strategies and removal of barriers in
this report, will yield the desired outcome to increase occupancy to 90% with a quality
skilled mix of 13% within a year as follows;
1. 90% occupancy or an average daily occupancy of 655 of 725 beds (excluding
MA Hospital bed hold days)
2. 10% Medicare or an average daily Medicare of 66
3. 3% HMO and Insurance or an average daily HMO and Insurance mix of 20
4. 78% Medicaid or an average daily Medicaid of 509
Current occupancy and payor mix vs. projected based on recommendations:
Table 5.4 Current Census vs. Target
Total
2010 638
2011 655
Change
15
MC HMO
49
3
66
14
Ins
2
6
MA
525
513
PP
60
56
10
4
-12
-4
16
* above excludes MA Hospital Bedhold days of 9.5)
Based upon the proposed payor mix above, the projected Room and Board revenue
for 2011 is estimated to be approximately $3,794,000 higher than 2009 revenue.
While some of this increase is due to inflationary increases in the rates, the
substantial portion of the increase is due to projected higher overall census days and
the improved quality mix in Medicare, which is reimbursed at a substantially higher
amount than Medicaid.
The ability to achieve these proposed census levels for Gracedale is supported by
examples of census levels CHRE has achieved in three former county-operated
homes that transitioned to CHRE operated facilities in similar markets with all
recommended practices in place:
CHR 2010 year to date average daily occupancy and payor mix data:
Facility #1
Occupancy 98%, Quality payor mix 9%
Facility #2
Occupancy 97%, Quality payor mix 15%
Page 69 of 116
Facility #3
Occupancy *88%, Quality payor mix 17%
*Facility #3’s occupancy is based on a progressive fill budget that will
increase to 97% by end of third quarter 2010.
Gracedale’s 2010 year to date average daily occupancy and payor mix data:
Occupancy 88%, Quality payor mix 8%
As noted in Table 5.3, the census days at Gracedale has steadily declined over the
past three years. This is in direct contradiction to the increase in the targeted senior
population in Northampton County in recent years and a trend that is expected to
continue in the future. As noted in the Nielsen Senior Life Report in Exhibit 5.1, the
senior population age 80+ within 10 miles of Gracedale has increased from 12,334 to
15,127 from 2000 to 2009, a 23 % increase during this time period; it is expected to
increase another 1,203 to 16,330 by 2014, an 8% increase. The over 65 population,
which includes the key targeted senior requiring rehabilitation stays due to hip and
knee replacements among other services, is expected to increase to 50,805, a 27 %
increase from the 2000 population. This increased population among seniors should
increase the demand for skilled nursing beds, at a time when Department of Health/
Department of Public Welfare policies do not provide a mechanism to add new beds.
Average Length of Stay (ALOS)
Based on historical data, the ALOS per resident has declined year over year,
trending in line with the occupancy decline.
Table 5.5 ALOS
2007
1,222.08 days
2008
1,109.63 days per resident
468.99 per admission
2009
1,028.82 days per resident
433.54 days per admission
3.35 years
3.04 years
1.28 years per admission
2.82 years
1.19 years per admission
Table 5.6 Average Resident Age Trend (as of 3/4/10)
Resident Age
Age 100 and ≥
Ages 90 to 100
Ages 80 to 90
Ages 70 to 80
Ages 60 to 70
Ages 50 to 60
Ages 40 to 50
Ages 30 to 40
Ages 30 and Below
# Residents In-House Per Age Bracket
8
180
278
106
50
20
5
1
0
Table 5.7 Yearly and Year to Date Inquiry/Admission/Discharge Trends
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Year
Inquiries
Admits Conversion Discharge Turnover
2008
828
195
23%
583
298%
2009
660
311
47%
781
251%
2010
288
132
45%
57
43%
*Inquiry tracking did not occur prior to 2008 as reported by Rita Stellar
Factors Affecting Occupancy/Lost Revenue
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Staffing Structure
Antiquated Admissions/Inquiry Management Procedures
Lack of Inquiry Management Software
No Direct Admit Capability
No Denial by Exception Process
Hours of Operation for Tours and Admissions
Limited Clinical Capabilities
Admission Criteria / Former Residency Restrictions
Lack of Insurance Contracts
Lack of Service Lines (apart from memory impaired units)
Physical Plant Limitations
Off-Line Beds
Lack of Amenities
Lack of Marketing/Business Development
Length of Stay
Competitors
ALFs providing Level 11 Services
Position in the Market (reputation); negative press
Inquiry Management
Gracedale’s Process Findings:
Inquiries come to the facility via fax and are presented the following day at the
Admissions Committee meeting. The Admissions Committee includes Therapy,
Social Services Director, RNAC, Case Manager, Finance Officer and two Admissions
Application Officers. If all parties agree to take the resident, a nurse may be sent to
the referral and an application appointment is made with the Social Services
Department. Once the application appointment is complete, the resident may then
be admitted. The average waiting time varies but is documented to be 5-8 days for
the overall average during the documented period. The Director of Social Services,
Rita Stellar, who is responsible for admissions, reported that the admissions approval
and acceptance process is lengthy due to the Admissions Committee requirement.
She reports that prior to the implementation of this committee, the facility was able to
approve and accept new residents more quickly. Gracedale’s management believes
they have a better assessment of needs.
If a referral is received via walk-in by a family member, the customer is required to
make an application appointment and will be instructed to return to the facility at the
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time of the scheduled appointment. Generally an appointment is required for tours,
application processing and pre-admission counseling, but exceptions are made to
accommodate the consumer. We recommend that Gracedale continues to be flexible
in meeting with prospective residents or family members to be responsive to the
consumer’s needs.
Administration reported the adoption of a quick admit procedure implemented
approximately one year ago to result in less than one hour referral/admission
decisions. When speaking with an employee from Social Services who assists with
the admissions work at times, he stated that they do have a program that is used on
occasion that is intended to cut down approval time. He stated that the hospital or
potential resident can either fill out an admissions application online or at the hospital
and then fax it to the Social Services Department for a quick approval. He reported
that in these instances, the person could come to the facility for admission once the
fax is received, but the hospitals usually know that 24 hours’ notice is preferred.
Implementing protocols to assure the Gracedale quick admit procedure is executed
consistently is recommended for immediate and long term occupancy development
as competitors such as HCR-ManorCare are responding to referrals in less than 30
minutes at the facility level while their hospital liaisons may fast track referrals
(authorized on-site decision making capabilities).
Restriction
It has been the practice of Gracedale to not take any resident from outside the county
or that exceeds the minimum county income and asset requirements. They have
shown some recent flexibility with this, secondary to ongoing census concerns. The
facility accepts admissions seven days per week only if the approval and application
process has been completed during regular weekday business hours. Admissions
are not permitted after 7pm.
Direct Admit Capabilities
The facility does not have the ability to accept a direct admission from the Emergency
Room, Physician Office or home. Direct Admit Programs increase provider value to
the referral source by offering solutions to their placement needs.
Clinical Capabilities:
The facility has limited clinical capabilities that directly impact occupancy. Gracedale
had only recently enacted an IntraVenous Therapy program. The previous inability to
administer Intravenous Therapy (with the exception of IV ATBs) and medically
complex care was a primary barrier to occupancy development and stabilization. The
inability to accept residents who require IV Therapy and advanced care not only
accounts for lost business, but prevents business from being referred to the facility.
This also impacts the ability to maintain residents at the facility when they need IV
Therapy or any type of increased acuity. Long-term care residents are sent out to
acute care and then to a competitor for skilled care covered under Medicare and
Insurance, then return to Gracedale under Medical Assistance. Residents must be
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sent out for care that should be provided within the facility. Lack of standard clinical
capabilities affects revenue, length of stay, ability to capture business and ability to
attract business. Clinical capability growth via planned licensed clinical staff
education is expected through ongoing Intravenous therapy education, as revealed
during a conversation with Rita Stellar, Director of Social Services. This initiative,
once complete and referrals sources are educated, should have some positive
impact on occupancy and quality payor mix.
Industry Standards / Recommendations
The industry standard for Inquiry Management is a proactive approach to achieve the
goal of capturing and converting the maximum amount of business to assist the
facility in meeting and exceeding the budgeted financial goals on a daily basis.
Admissions decisions are made immediately upon receipt and are based on clinical
capabilities and ability to identify and confirm a payment source. These decisions are
usually made within 30 minutes unless there is a complex medical need that requires
an on- site evaluation by a nurse, though this too, can be expedited by the addition of
a Nurse Liaison in the field. This method allows a trained and dedicated team to
maintain focus on conversion of all inquiries and minimize loss due to competition.
Programs directed at maximum occupancy and payor mix levels include the
following:
•
•
•
•
•
•
•
•
Budgeted occupancy and payor mix goals reviewed daily
External market activity to drive business to the building
Dedicated staff to facilitate 24/7 admissions
Insurance/HMO contracting and maintenance
Clinical Medically Complex Capabilities
Direct Admit program
Customer focused sales structure
Inquiry and Sales Management software package
Financial Impact:
Skilled nursing placement decisions are need driven and are generated from sources
that include Acute Care Providers, Home Care Providers, Family Caregivers,
Physician Offices, Acute Rehabilitation Centers and LTACs. These customers
require immediate solutions to their needs and will make placement decisions based
on ease of placement process, time and customer satisfaction. Market area
competitors operate within the industry-standard practices, and therefore, capture the
largest percentage of business available in the market share. Gracedale has
demonstrated average inquiry to admission conversion losses of 66% since 2008.
Findings - Limited Contracted Insurance Providers:
•
•
•
Active provider contracts per discussion with Rita Stellar, Director of Social
Services:
Humana Gold Choice, Gateway Medicare Assured, Secure Horizons, Unison
Advantage, Sterling Options 1, Cigna Healthcare, Today’s Options
Applications for provider contracts are in progress for the following as
disclosed by Rita Stellar, Director of Social Services:
Page 73 of 116
•
Keystone Blue, AmeriHealth Mercy
Ramifications
Insurance and HMO providers represent 10+% of business in Pennsylvania’s skilled
nursing homes. The facility has the opportunity to generate revenue through
additional primary and secondary market provider contracts.
Recommendations
To maximize the ability to attract and capture this source of revenue, it is imperative
to maintain contracts with all area providers. Other providers for consideration
include the VA, PA Medicaid Managed Care contracts with Aetna Better Health and
UPMC for You. Investigate HealthChoices (specific to behavioral health).
Opportunity for business development exists by continuing to expansion admissions
outside Northampton County.
Potential Economic Impact
Increase occupancy and subsequently generate revenue to remain viable in the
market share. Opportunity for payor mix growth through sales staffing and sales
/marketing recommendations by obtaining more Gateway and Unison customers, as
evidenced below by year-over-year enrollment growth in primary and secondary
markets. Opportunity for additional revenue generation through impending
AmeriHealth contract as evidenced by total enrollment and year over year enrollment
growth.
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Sales and Inquiry Management Software
Findings
The facility currently has no inquiry management or sales tracking system to
accurately assess business. The Director of Social Services, Rita Stellar, and the
Fiscal Administrator, Dave Pinter, noted the facility is in the contract finalization
process to become a subscriber with external vendor - Allscripts (an online Referral
Management network previously known as ECIN). Allscripts requires an up front
activation fee and monthly subscription fee. The potential for census growth with
subscription to the Referral Management network exists if properly utilized. The
objective to achieve census growth with this referral network will occur if the CHR
recommended industry standard referral procedures are executed. Gracedale’s
primary competitors (four HCR ManorCare facilities, for example) have been
subscribers to this Referral Management network for years and execute the industrystandard referral procedures to capture business. Allscripts provides/offers:
•
Instant notification of incoming referrals (with participating acute care
providers)
•
2000 data point profile, making facilities more visible when hospitals are
searching for providers based on need
•
Online, legible referrals that eliminate mistakes from misread or illegible
information
•
Instant response directly back to the referral sender so that sender knows your
ability to place
•
Online marketing tools that allow facilities to post messages directly to the
desktop of every case manager / user of our system within 50 miles of their
facility
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•
Management reports that track referrals, allowing you to target your marketing
efforts for greater return on those dollars
Recommendations / Potential Impact:
Sales and Inquiry Management Software provides a strategic tool that helps users
and managers think and act in ways that result in increased census and revenue.
These programs are designed to provide a process that helps guide the user through
the lead generation and conversion process that more quickly helps find and turn
qualified inquiries into long and short term residents.
•
•
•
•
•
•
•
•
Inquiry and lead management (prioritized)
Customized dashboard with priority appointments
Follow-up pop up reminders
Referral source management
Room inventory with room history
Resident census and revenue analysis
Advanced advertising, email and mail merge features
Professional Resident Agreements
Ramifications:
Effective strategy is impossible to recommend, implement or monitor without realtime, clear and accurate data to analyze.
Industry Standards
Quality Data Analysis
It is imperative to know why the census is up or down and what should be done next
to fix or maintain it. Software systems provide the necessary information in report
formats that are useful, easy to read and easy to understand in order to make the
very best strategic decisions. A few examples of data:
•
•
•
•
•
•
Sales Cycle from inquiry to tour to move-in
Ads that generate qualified leads vs. non-qualified
Lost inquiries – why didn’t they come to you?
Decision factors – what is important to your inquiry?
Loyal referral sources – who is consistent/who is not? Revenues each
generates
Projected census – who is moving in/out?
Staffing Structure
Findings
The facility does not have a separate department dedicated to admissions and
marketing. The Social Services Department currently performs all tasks related to
admission and includes tours, application appointments and inquiry responses. The
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Social Services Department consists of 1 Director, 1 Secretary, 1 Chaplin and 7 FTE
Social Workers. Since our visit, two Social Workers have resigned and will not be
replaced due to a county-wide hiring freeze. One of these Social Workers was
assigned to admissions. The Director of Social Services is currently in charge of
admissions and is assisted by a secretary and two social service employees (one of
which has resigned) to complete all tasks related to the admissions process. The
facility-employed Chaplin reports to the Director of Social Services. The admissions
social worker distributes facility brochures in the market, spending four hours per
week with this initiative as well as visiting senior centers. Admissions tasks consume
four employees from the Social Services Department.
Ramifications
Continued loss of occupancy, subsequent revenue. Since January 2008, based on
information provided by the Director of Social Services / Admissions, Rita Stellar, the
facility appears to have only captured 34% of overall business which includes routine
inquiries received early in an inquiry process and actual referrals the facility received
compared to the industry- standard minimum of a 65% capture rate. The data
available does not allow us to quantify potential market share losses due to lack of an
external team capturing additional business. The addition of an external team directs
business to the facility and also has the ability to target specific payor types to meet
the financial needs of the building. The structure a facility uses to drive business to
the building and then to convert that business to admissions determines occupancy
and payor mix outcomes. The loss of 66% of documented business since January
2008 indicates that the building could have achieved 98% occupancy during this time
period.
Industry Standards / Recommendations
Skilled Nursing and Rehabilitation providers maintain a full-time, dedicated
Admissions and Marketing/Business Development Department that includes both an
internal and external component. The facility should have two full-time internal
admissions staff dedicated to inquiry management, tours and admissions. A full-time
external Clinical Liaison provides an off-site presence in the acute care referral
sources and acts as a resource to the discharge planners to facilitate placement and
provide immediate assessments to convert inquiries to admissions without delay.
The Liaison also provides education and support to patients and families to assist
them with the placement process. A full-time Marketer/Business Development
Specialist not only establishes a strong position in the market by establishing and
maintaining identity and top-of-mind awareness, the individual advocates expansion
of current business by advancing existing accounts and developing new accounts to
establish solid sources of business for the facility.
•
•
•
•
Inquiry and sales management software
Dedicated internal and external admissions and marketing staff
Increase inquiries by at least 10% via
o External sales and liaison model
o Increase Insurance contracts
o Increase clinical capabilities
Increase capture rate to 65%
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•
•
•
•
•
Decrease inquiry response time to 30 minutes or less
Increase hours of operation to accommodate 24/7 ability
Occupancy maintenance and discharge planning
Length of Stay management
Direct admit program
Although there would be an increased cost in wages associated with the addition of a
dedicated Admissions and Business Development Department, the increased
ongoing revenue would offset that cost over time. Realignment of Social Services
staffing, as well as other key departments as recommended throughout the entire
report would offset a portion of the costs to create a distinct Admissions and
Business Development Department.
These costs would also be offset by increasing daily census by three Medicaid
residents.
Suggested starting salary for recommended positions:
Admissions Coordinator
$16.50 per hour x 2 = $33.00
Business Development Specialist
$19.50 per hour
Clinical Liaison
$21.00 per hour
Total yearly salary
Fringe benefits @ 52%
Total Employee Costs
$152,880
79,498
$232,378
Business Development / Marketing (Sales) Aspects
Findings
1. The facility has no strategic marketing action plan for developing or growing
business (direct sales, internal sales, events and networking/outreach) in the
primary, secondary or tertiary markets.
2. The facility has no focused census recovery action plan related to current
immediate occupancy development needs.
3. The facility does not have clear identification of market share availability of
business, market share potential, barriers, exact suppliers and true
competitors (the Director of Social Services and Admissions noted 13 SNFs in
a 15-mile primary market radius). Rita additionally noted the following key
accounts as referral sources with specialty product lines as competitors to
Gracedale:
Page 78 of 116
Good Sheppard Hospital
Muhlenberg Hospital
St. Luke’s Hospital
Easton Hospital
LTAC
TCU and Hospice Unit
In-patient rehab and free standing
hospice facility
LTAC
As discussed with Rita Stellar, the reputation of Gracedale in the market has declined
due to the media attention/publicity targeting the future of the facility. The constant
media attention that Gracedale receives regarding the differing opinions of county
government officials on the future of Gracedale (discussions of operating losses,
potential sale or closure, etc.) plays a role in the minds of potential residents and
family members as they evaluate their options for nursing home care, and select a
facility. This negative publicity Gracedale endures about its future has had an
adverse impact on census development, and is one factor (of several noted in the
Marketing Assessment) that has contributed to its recent census dip. Hopefully, this
report will enable county officials to evaluate its various options and move forward
with a plan that is communicated to the community, eliminating the uncertainty
surrounding the future of Gracedale. This will allow Gracedale to focus on the
positive aspects of Gracedale’s operations in marketing itself to the community, and
rebuilding census.
Ramifications
Without an aggressive annual business development plan to execute direct sales
activity, community positioning, events and networking, the team and the facility have
no clear steps to develop census and quality payor mix. The facility will remain at a
disadvantage not only in the highly-competitive market, but most urgently, will
consistently lose revenue by not receiving their fair market share of business.
Revenue generation should not rely solely upon what the market provides to them
(Priority A and B Accounts) or after market business provided by primary competitors
(Priority B and C Accounts). Business received from primary competitors impacts the
potential earnings of the facility as skilled days / skilling factors have been utilized
prior to admission to Gracedale.
•
Lack of focused sales activity has created a disadvantage to the facility’s
positioning in the primary market share, secondary and tertiary markets.
•
Lack of outcomes based selling has mislabeled the facility in the professional
resource arena and provided the competitors with additional opportunity for
M2 growth.
•
Lack of following customers while hospitalized has resulted in lost return
business.
•
Negative publicity/customer perception may be indirectly affecting Gracedale’s
occupancy.
Recommendations
1. Immediate development of a Census Recovery Action Plan to avoid further
business/revenue loss. Development and execution of initiatives to generate
revenue through week over week occupancy and quality payor mix growth
Page 79 of 116
until stabilization achieved. Initiatives should include objectives to address
restoring the facility’s image due to negative publicity.
2. Upon stabilization, develop and implement a Strategic Marketing Action Plan
for the remainder of 2010. A strategic marketing action plan should be
developed annually and consist of goals that are specific, measurable,
achievable, revenue related and time bound. Success of such plans relies on
monthly review of the plan with results measured and re-adjusted as needed
to continue forward progress. Formation of a Business Development
Committee to develop and streamline revenue-generation tasks and
community positioning activities is recommended for viability.
3. Strategic sales is critical in developing and maintaining census and payor mix
and facility positioning in the community through education of facility services
and customer service initiatives. Product knowledge is crucial. Identify
primary, secondary and tertiary market potential. Complete analysis of market
/ business development and community positioning opportunities.
Development of an industry standard multi-tiered sales strategy consisting of:
a. sales calls with referral sources
b. internal/external events for professionals, the community at large
c. professional- and community-based networking and outreach
4. Execute ongoing primary market Competitive Analysis. Competitor products,
services and amenities, staffing and insurance provider contracts should be
monitored consistently.
5. Begin evidence-based (outcomes) data collection via therapy provider.
Outcomes-based data should be facilitated through functional outcome scores.
Execution of outcomes based marketing.
Potential Economic Impact on Item and Recommendations Noted Above:
With all barriers removed and recommended sales staffing model implemented:
1. Net 85% - 90% of admissions from primary market. Increase inquiry-toadmission conversion ratio by a goal of 20% to meet industry standard of 65%
capture rate monthly to generate additional revenue.
2. Occupancy growth by 2% month over month with potential occupancy
stabilization at 90% or more between months 6 and 12.
3. Quality payor mix (Medicare / Managed Care) growth by 2% month over
month with stabilization at 13% mix between months six and twelve.
4. Facility revenue generation growth by approximately $3.8 million.
Business Development / Daily Room Rates
Findings
Daily room rates are the same for private, semi and companion (quad) rooms. There
is no differential daily room rate for the memory impairment service line (secured
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units). The Fiscal Administrator and Administration reported a daily rate of $250 per
day. The bed hold rate is 1/3 of the daily room rate per the Fiscal Administrator. The
Medicaid rate was $207.70 for 2009, with an estimated increase to $211.81
commencing July 2010.
Ramifications
•
•
Loss of potential revenue due to no differential in cost of daily room rate for a
private room.
Loss of potential revenue related to no differential in service line daily room
rates (memory impairment units).
Physical plant limitations make capturing more private pay clients unlikely; however,
conversion of the current 38-bed closed unit to a 19-bed rehabilitation/sub-acute unit
with amenities could make higher private pay rates and capture of private pay clients
possible.
Recommendations
•
Consider increasing the daily room rate of private room by $15.00 per day for
a rate of $265.00 which is still comparably lower than the average competitor
rate with superior physical plants and amenities. Based upon projected
Private Pay census of 20,565, this would result in additional revenue of
$308,475 annually. A full competitive rate analysis of key competitors should
be performed before implementation.
•
Increase daily room rate of secured unit service line by $20 per day for a rate
of $270, again, a rate lower than average competitor rates. This rate would be
effective for the Private Pay residents but not any MA residents.
•
Increase private pay room hold rate to equal daily private pay room rate, equal
to competitor practices.
Potential Economic Impact
Additional revenue from customers requesting direct admission to a private room or
from customers requesting room changes for a private room as an amenity to their
stay.
Additional revenue could be gained by increasing the daily room rate of the memory
impairment units as the population increase for this service line has projected growth
in the future.
Business Development / Financial Aspects of Admissions Procedures
Findings
No front-end collections efforts are part of business practices prior to or at time of
admission in regard to new Medicaid Pending admissions. No pre-payment (one
month advance) is required for new Private Pay admissions. If a referral is Medicaid
Pending, option is not completed in acute care or the community, the process is
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completed after admission to the facility as noted during conversation with the
Director of Social Services, Rita Stellar.
Ramifications
1. Lost revenue.
2. Delay in facility revenue collection.
Recommendations:
Procedures to improve collections during an increasing Medicaid pending duration
trend are essential to the economic feasibility of the facility.
Procedures to improve collections of Private Pay admissions:
1. Payment is required prior to or at time of admission for services to be
rendered.
2. Resident / family must demonstrate willingness to pay.
3. Facility must verify ability to receive payment before the admission
agreement is signed and any services rendered.
4. Due to the high cost of skilled nursing services, the collections process
must be initiated prior to admission to mitigate losses.
5. Admission agreement is to be signed before or on the day of admission.
6. Pre-Admission approval by Business Office with payment verification.
7. Family to be notified of what is to be brought on day of admission to verify
payment.
Potential Economic Impact
•
Prevention of any potential financial loss prior to or at time of admission.
CHR-operated facilities with the standardized admission / financial process have
outcomes of Days Sales Outstanding (DSO) in the range of 30-40 days, and bad
debt expense/writeoffs of 0.50% to 0.75 % of revenues. Much of this is attributable to
the initial financial evaluation of a resident, proactive follow-up completing the
insurances (third-party or MA) paperwork, and collecting the first month’s personal
responsibility portion upon admission. See further commentary on Accounts
Receivable analysis, and impact of billing and collections policies in Section 6,
Business Office and County Services Assessment.
Business Development / Communications
Findings:
1.
2.
3.
4.
Color tri-fold brochure
Website
Lack of phone directory line listings and display ad
Lack of collateral specific to targeted audiences
Ramifications
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A lack of a coordinated communications campaign and marketing material to
maintain awareness of facility services in the market share will keep the facility at a
competitive disadvantage.
Recommendations
Line listing and display advertisement (comparable to one of the top three) in the
local phone directory, i.e., Super Pages.
The current marketing materials (tri-fold) comprised from CCAP funds (per the
Director of Social Services and Admissions) is adequate with relevant information;
however, the facility should invest in additional, streamlined selling material to
distinguish Gracedale in the market share. The marketing message needs to be
consistent throughout all of the venues. An annual marketing budget line should be
appropriately developed in conjunction with strategic marketing action plans to
ensure that the appropriate budget dollars are incorporated into the marketing and
sales planning process to meet the required occupancy goals.
Potential Economic Impact
Increased community positioning and awareness of facility services through a
consistent message.
Business Development / Budget Line
Findings
In 2009, Gracedale incurred advertising costs of $70,631.59 (G/L acct 62050 in
Administration Department), and $13,336.80 through April 2010.
Ramifications
Business development requires a multi-faceted, strategically-planned and executed
budget line to assure appropriate dollars are not only set aside for marketing and
subsequent business development, but utilized as such. The facility is currently at a
disadvantage in the marketing arena without the financial ability to execute industrystandard sales activity. Without an appropriate budget line, the facility will continue to
be hindered in meeting needed occupancy growth.
Recommendations
•
Full utilization and adequacy of the remaining allocated marketing budget line
following development of a strategic marketing action plan, in combination with
immediate development of a focused census recovery action, to achieve
occupancy growth.
•
Annually, CHRE-operated facilities successfully develop projected marketing
budget lines based on historical spending, occupancy and payor mix and
market needs – all budgets are developed to remain competitive in the market
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share. Market trends, economic trends and competitive trends play a
significant role in annual budget development.
•
Development of a strategically planned and projected marketing/promotional
line of $125,000 in 2011 to achieve re-branding needs with
marketing/business development materials (print as template, brochures,
pocket folders, service line information sheets, customer service packages,
marketing event tools, and industry standard logo, website and signage) to
convey a consistent and streamlined message. The increase to $125,000
represents an increase of approximately $54,000. A budget of $100,000 per
year thereafter would be recommended.
Customer Service
Findings
The evaluation of customer satisfaction programming related to business
development was reviewed with, Rita Stellar. The facility does not have customer
service programming for new admissions (Welcoming Committee / First
Impressions). The facility does not conduct annual resident / family satisfaction
surveys to benchmark facility services and amenities / evaluate opportunity for
growth. The Admission Coordinators do facilitate new admission surveys every other
month. Customer satisfaction is not evaluated upon discharge from Gracedale.
Hospitalized customers visits are conducted but not consistently.
Ramifications
Needs-based customers and decision makers ultimately have a choice of where they
would prefer to be admitted or place a loved one for quality, post-acute care services
or long-term care. Lack of customer service programming components and a lack of
multi-tiered evaluation of satisfaction can disposition the facility in the market share
and impact census, as reflected by the following data from the 2008 Study on
Consumer Choice by My InnerView:
Page 84 of 116
Recommendations
1.
2.
3.
4.
5.
6.
Consistent hospitalized customer visits
Welcoming Committee / First Impressions Program for new admissions
Development of facility Specific Quality Customer Service Program
Increase frequency of new admission satisfaction evaluations
Execute annual resident and family satisfaction surveys
Execute discharged customer satisfaction surveys
Summary
As noted above, we have identified many areas where, if the recommendations and
action plans suggested are implemented, will have notable improvement in both the
census and revenues. These areas include:
•
Addition of personnel directly involved in the census development process,
resulting greater presence in the community
•
Improvement in the admissions process, increasing responsiveness to the
referral sources
•
Development of comprehensive marketing plan and budget that will increase
community awareness of Gracedale
We believe that with the implementation of these suggestions, Gracedale should be
able to obtain and sustain an average in-house occupancy of 655 (90% occupancy),
while significantly improving the overall quality mix. This should result in an increase
in room and board revenues of approximately $3.8 million, with offsetting costs of
only $286,378, representing primarily additional staffing responsible for census
development ($233k) and for a proposed increase in the advertising and marketing
budget ($54k). The increase in the Business Development personnel may be offset
in part by transfer of existing staff in Social Services due to a reassignment of duties.
Page 85 of 116
SECTION 6
BUSINESS OFFICE ASSESSMENT
The Business Office is the heartbeat of the Nursing Home operations for cash
collections, updated and correct Room and Board charges and the protection and
safeguard of the residents’ funds. The review of the Business Office was conducted
to assess the opportunity for improved revenue generation, an increase in cash flow
and improving operational efficiencies that may lead to cost reductions.
The following areas of the Business Office were included in the review and analysis,
with much emphasis placed on the Business Office staff, structure and leadership:
•
•
•
•
•
•
•
•
•
Organizational Structure and Staff Interviews.
Monthly Room & Board Revenue Billing Cycles.
Cash Collections and Aged Accounts Receivable Analysis.
Medicare Bad Debt Review.
Patient Day Classification Analysis.
Medicaid Pending List Review.
Review of the Financial UMR dated 05/03/2010.
Resident Fund Surety Bond data.
Internal Cash Handling Procedures – Review Document
Business Office Organizational Structure
The Business Office structure is comprised of six separate areas of operations, as
follows:
•
•
•
•
•
•
Financial (CFO, Accountant II and Accountant I) (3),
Billing (5),
Payroll (4),
Receptionist (Switchboard Operators) (1FT and 4PT),
Resident Trust Funds (2) and
Accounts Payable (2).
For the purposes of this report to compare Business Office duties and full-time
equivalents (FTEs), we did not include the Switchboard and Payroll sections, which
could be a function of Human Resources and Nursing in most nursing homes. Of the
four staff members in the Payroll section, two are assigned to the Nursing evaluating
and editing non-productive paid time and the other two are assigned to the other nonNursing Cost Centers for the same purpose.
The main staffing core of the Business Office currently is comprised of 12 FTEs,
which does not include the payroll and switchboard sections. The Billing Department
of the Business Office currently has five staff members for the actual monthly billing
for Medicaid, Medicare Part A/B, Private Pay, Other Insurances and private pay
collections that has a direct relationship with the County’s attorney that determines
whether an aged private account should be tracked for collections or deemed noncollectible and written off as a bad debt.
Page 86 of 116
In addition, one member of the Billing team has the responsibility for initialing the
Medicaid application process. She meets with the residents’ families for financial
information and tracks the application process with the County Assistance Office.
According to the Billing team leader, she does not supervise the other members of
the Billing team, which is supervised by the Accountant II and the CFO. She also
stated that the Billing team is currently in the process of cross-training billing duties
so that each Billing team member can become proficient in the billing process for
Medicaid and Medicare Part A and Part B. This is a noble task and can lead to a
more efficient billing and collection process in the long term. However, in the interim,
it might become frustrating and will take a strong lead role from the CFO.
Interviews included the CFO, Accountant II (Business Office Manager), Accountant I
(resident funds manager), Billing leader and the Private Pay collections staff member.
All interviews were held in a private, relaxed atmosphere. There was some
complaining and frustrations about the support from the current financial software –
Answers on Demand (AOD). Most concerns were in the resident funds section
where the software crashed recently, and all the entries were manually kept for over
eight days. It appears that Gracedale and County IT have been able to identify and
resolve the issue that caused the system crash. The CFO was very supportive
during the process (answering questions quickly) and demonstrated his knowledge of
the current accounting system. The Billing staff leader seemed unsure of her
supervisory role of the billing staff and her inter-office relationship with the
Accountant II (Business Office Manager) for guidance and leadership. The
Accountant I (cash control and resident funds) is very knowledgeable of her day-today operations and highly respects the management of the Resident Fund Accounts.
The Private Pay staff member responsible for collections was very excited and eager
about her recent direct communications with the County attorney assigned to the
Nursing Home for the collection of past due accounts. This procedure should greatly
enhance Gracedale‘s ability to collect past due Private Pay accounts and/or establish
a sound system to recommend a Bad Debt write-off.
The Business Office staff has one employee responsible for private pay collections,
which includes the MA Private portion and all Private Pay residents. In addition, it is
her responsibility to send collection letters and contact the County Attorney assigned
to Gracedale for the families who are not responding to the letters. The involvement
from the County Attorney is relatively new, beginning the second half on 2009. The
Business Office staff member (collections) suggests that the County Attorney is
taking the lead role in the collection process for the older aged private accounts and
they are seeing results.
Follow-up to Medicare and Medicaid billing for rejected claims is completed by the
staff member responsible for that specific area. Additionally, the CFO meets monthly
with the staff and separately with the Administrator to review the aged Accounts
Receivable report and progress being made on collections.
Page 87 of 116
Monthly Room & Board Revenue Billing Cycle
To maximize cash flow, the acceptable benchmark for the timeliness of the monthend Room & Board billing should be as follows:
•
private pay should be pre-billed for the next monthly activity,
•
Medicaid (PA) should be billed no later than three business days after monthend, and
•
Medicare Part A and (private insurances) should be billed no later than ten
business days after month-end.
Currently, the Business Office is billing all payor types the third week after monthend. The computer system is not set up to pre-bill private pay at month-end for the
next monthly private activity. The computer software (AOD) has the capacity to prebill private pay monthly invoices; however, it is the philosophy of Gracedale not to
pre-bill.
Recommendation
Gracedale should implement the pre-billing of Private Pay residents. Speeding up
the monthly billing cycle will greatly enhance Gracedale’s cash flow. In addition, as
noted in Section 5, Marketing Assessment, Gracedale should bill and collect the
patient’s responsibility portion of the first month’s charges upon admission, including
an estimated amount for Medicaid pending residents. This will reduce exposure for
bad debt charge-offs.
Aged Account Receivable Review
We reviewed the Aged Accounts Receivable dated December 31, 2009 and April 30,
2010. The A/R dated 4/30/2010 is carrying approximately $6,977,881 in outstanding
accounts receivable past 30 days. A benchmark to measure the success of
collections is to calculate the number of days outstanding as defined by the current
revenue earned in one day (“DSO”). We are projecting the average revenue days
outstanding in accounts receivable to be approximately 51 based upon 2009
revenues, excluding certain revenues not included in Accounts Receivable
(Disproportionate Share, IGT/Bed Tax revenue, etc). The standard for the Nursing
Home industry is between 30 and 50 AR days outstanding.
In Table 6.1 below, we have compared Gracedale to four CHRE-owned affiliates,
which have and average DSO of 37.37. If the DSO for Gracedale was at a
comparable level, then Gracedale’s receivable would be approximately $5,140,000,
or $1,838,000. We are concerned that $2,199,497 (31%) of the A/R outstanding is
over 120 days, and $1,974,409 (90%) is for Private Pay collections. While much of
this balance is mostly uncollectible accounts built up over a period of years and not
written off when deemed uncollectible, some of it is likely collectible, and would
improve the financial condition of Gracedale if collected.
Page 88 of 116
Page 89 of 116
The entire collections process should be evaluated, taking a more proactive
approach on collections to minimize the amounts of accounts that reach the 180+
day category. Actions steps and timelines for the collection process should be clearly
detailed in policy and procedure for the Billing Office. These action steps could be
outlined as follows:
1. Accountant II – call the responsible party 10 days after the payment is past
due.
2. A cordial reminder letter is sent 30 days after payment is past due.
3. A firm collection letter is sent 60 days after the payment is past due.
4. A second collection letter is sent 90 days after payment is past due – this time
discussing resident discharge for non-payment.
5. Use of small claims court.
6. Involve County Law Department for legal action, perhaps earlier in the
process.
7. Periodically review the AR Aging (Administrator and Business Office, and
County Solicitor) and write-off accounts deemed uncollectible. Approval of
review process should be documented. This should be completed initially for
the existing Accounts Receivable.
At this point, all past due accounts should continue with the involvement of the
County Law Department.
The implementation of sound collection policies, combined with a more proactive
collection process, should result in reducing the DSO to more comparable levels,
improving the cash flow of Gracedale.
Patient Day Classification and Medicaid Pending List Review
During the review of the Nursing Home census mix and the 24-hour census
calculation, it was noted that newly-admitted residents with a pending Medical
Assistance application are classified as Private Pay in the census module of the
Financial software. Based on our conversation with the staff, the system will adjust
the census correctly when the application is approved, properly reducing the private
census and increasing the MA census retro-actively. However, since most MA
applications are approved from the original eligibility date of the application and the
resident is in a MA classification from day one, we recommend that a MA pending
classification be established in the census payor mix. This will allow the accounting
system to properly reflect the correct Room and Board Charge for the MA pending
resident. In addition, the current MA pending list was reviewed, which had a total of
48 residents. At the current daily census of 648, 48 are approximately 7.4% of the
total. Based on our experience, this is in the normal range.
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Medicare Bad Debt Claims Review
The current Medicare Bad Debt Policy and Procedure was reviewed, along with the
2009 Medicare Cost Report to review the Bad Debts claimed on the Medicare Cost
Report. We noted $762,992 Medicare Bad Debts were claimed on the Cost Report.
The Medicare Bad Debt claims are supported by proper Bad Debts logs, which
appear to have the correct Medicare requirements for payment of the claims. Each
claim has the corresponding MA recipient number, date of service and the RA
amount and date. The 2009 Bad Debts include activity from 2009 and 2008 (Oct,
Nov and Dec). This is consistent with a large county nursing home that has a high
number of residents without the proper supplemental co-insurance to bill the
insurance carrier.
Financial UMR and Surety Bond Review
Annually, the Utilization Management Resource (UMR) team, which is a division of
DOH, will visit each nursing home to complete a review for most of the MA resident
accounts. Normally, it is a very thorough review that includes updated MA
application information, MA census billing data review, MA aged (credit) accounts
receivable information, and other medical expenses (OME) charges against the
resident patient pay for documentation and support. We reviewed the latest Financial
UMR for the Nursing Home dated 05/03/2010 and found that only one response was
required. That response was properly corrected within the target date of 05/24/2010.
The current DOH regulations require that all nursing homes have in place a Surety
Bond to protect that Resident Trust Fund. It was noted that Gracedale has a current
Surety Bond with Travelers Insurance Company that is greater than the Resident
Fund balance.
County Services
Northampton County provides certain services to Gracedale through County
Administration Offices. Costs incurred by the central county governmental
departments are allocated to Gracedale and other governmental agencies. Table 6.2
below summarizes the allocated costs to Gracedale in 2009 for the county indirect
charges. Table 6.3 converts and allocates the county-based employees that provide
services to Gracedale or other agencies to a full-time equivalent basis based on the
wages charged to Gracedale on an FTE basis. Based on this, the following
Business Office FTEs are allocated to Gracedale:
Human Resources 4.37
Procurement
0.66
Payroll
1.08
Disbursement
0.20
Page 91 of 116
Based on comparable facilities, allocated FTE for the Human Resource/ Payroll
processing of approximately 5.5 FTEs appears reasonable.
See Section 7, Environmental Services, on commentary of the Maintenance
Department allocation.
Page 92 of 116
SECTION 7
ENVIRONMENTAL SERVICES ASSESSMENT
Interior Conditions
The facility is very well maintained; the current staffing levels of the Housekeeping
Departments allows them the ability to provide an extremely well-maintained facility,
even the current empty unit is in move-in condition.
Primary energy source:
Oil-fired steam boilers provide heat and domestic hot water to the facility. This
expense can fluctuate greatly with the oil market; however, any conversion would be
extremely expensive. If natural gas could be made available to the facility, it could be
an alternative fuel source worth researching.
HVAC equipment:
The facility is now served by a newly-installed chiller plant that costs approximately
$1,440,000 incurred from 2008 to 2010. This new system should provide more
efficient cooling in the coming years than the old cooling tower system.
Resident Rooms
Review of housekeeping routines:
Based on information contained in the 2009 budget information provided to us, the
average hourly rate was $11.92. The 2010 projected average hourly rate is $12.95
an hour.
The information provided on the facility's current staffing model shows 51
housekeeping shifts working Monday through Friday and 12 shifts working on
Saturdays and Sundays. This requires a total of 56 full-time employees to cover the
2232 hours or 279 shifts per week. The schedule reflects 45 HA1 and HA 2 full-time
employees, along with 3 supervisors, 2 watchmen, 1 driver, 1 painter and 1
storeroom position, for a total of 53 full-time employees, along with 22 HA1 and HA2
and 2 watchmen totaling 24 part-time employees.
Current staffing for the kitchen cleaning includes 2 full-time and 2 part-time positions,
which would appear to be an excessive number of hours for cleaning. If these tasks
were re-assigned to the Dietary Department, it could provide a potential cost saving,
although we understand that these hours were increased in the past due to
cleanliness issues.
The current housekeeping scheduling practices still include two positions for the
empty unit: those housekeepers are then used for other projects or to fill in for
calloffs. There are also 6 floats scheduled a day: while those positions are intended
for projects as well, they are often required to replace calloffs or open slots during the
day.
Page 93 of 116
The facility currently uses one auto scrubber for floor care in limited areas of the
facility. Additional use of an auto scrubber with the possible addition of another unit
could help reduce the workload on the housekeeper responsible for mopping on the
units, allowing for different scheduling practices to reduce staff.
The watchman position is responsible for trash and linen collection on the second
and third shifts and assists with delivering the food carts to the tower floors during the
evening meal.
Assessment of Staffing Levels - Housekeeping
Using the 2009 Hours and Earnings report for Housekeeping, we determined that the
actual productive hours paid (earnings codes 1, 3 and 16) was 117,411 hours, or
56.44 productive full-time equivalent (FTEs) employees. When factoring in paid-time
off (Vacation, Sick, Personal, Holiday and FMLA hours paid), the total paid hours was
approximately 139,700 hours in 2009 or 67.16 FTEs. This is consistent with the FTE
count of 68 noted on the schedule of FTEs used as support for the 2009 cost report,
which was provided to us by Dave Pinter, Fiscal Administrator. Based upon 2009
average census of 648 (excluding hospital bedhold days), this averages out to one
full-time housekeeping employee for every 9.65 residents. Please note that the paid
time off is approximately 16% of the total paid hours of 139,700 , which is high
compared to industry norms of 8% to 12%.
Complete Healthcare Resources uses several staffing models to budget
housekeeping services in facilities.
Complete Healthcare Resources considers square footage when staffing
housekeeping departments. We typically staff one housekeeper for every 7500 ft. of
floor space in a facility. Using this model, the facility staff would be 46 full-time
equivalents. The facility should also consider consolidating its residents to reduce its
complement of housekeepers.
The second model would be one full-time equivalent housekeeper for every 16–20
residents. Using this model would reduce your current complement of staffing level
to a range of 33 to 41 full-time equivalent employees for resident rooms, based on an
in-house census of 655 proposed in the proforma model (see Section 2). This
represents a complement of general housekeepers and managers to provide
oversight. Allowing for an 8.1 FTE add-on for paid time off coverage (replacing
100% of vacation time, 60% of holiday time and 50% for sick/personal time off, as not
all housekeeping staff are replaced in all circumstances when they are off in most
CHRE managed facilities), the total FTE count would be in the range of 44 to 53
FTEs, including and additional three supervisors and FTEs for performance of tasks
typically completed by Maintenance noted below. This would translate to a reduction
in staffing of 15 to 24 FTEs
Assuming the reductions in FTEs are all in the lower paying HA I category with an
average cost of approximately $18.88 per hour (including fringe benefits at 52%), the
projected annual savings from the FTE reductions would be $589,000 to $942,000.
These savings could be higher if some of the staff reductions come from the highPage 94 of 116
paying HA II categories. Reduction in the proposed staffing could be done over time
through attrition, although Housekeeping generally has lower-than-normal turnover
ratios, so it could take considerable time to achieve the targeted staffing levels
through normal attrition. In addition, due to seniority rules in the collective bargaining
agreement, the lower-paying, less-senior staff members are first to be laid off; and as
a result, the average wage rate for the remaining staff will actually increase.
As part of our assessment of the Environmental Services area, we investigated the
potential savings that Gracedale could generate from the outsourcing housekeeping
and laundry services. With the permission of Northampton County officials, we
entered into a Confidentiality Agreement with Healthcare Services Group, Inc.
(“HSG”), an industry leader in the outsourcing of housekeeping and laundry services.
Representatives of HSG toured the Gracedale facility with CHR’s Environmental
Services consultant and reviewed staffing and wage information. Table 7.1 below
illustrates the proposed staffing by position and day for housekeeping. When adding
an adjustment of 8.1 FTEs for paid time off, the proposed total FTEs for
Housekeeping is 56, or approximately a reduction of 12 total FTEs based on 68 FTEs
in 2009. Again, assuming the reductions in FTE are all in the lower paying HA I
category with an average cost of approximately $18.88 per hour (including fringe
benefits at 52%), the projected annual savings from the FTE reductions would be
$471,000.
For purposes of the proforma analysis in Section 2 of this report, we will use
$500,000 as the annual savings in Housekeeping.
Table 7.1
Gracedale
Proposed Housekeeping
Staffing
# of FTE By Position/Day
Housekeeping Manager
Housekeeping Supervisor
Housekeeping Attendant II
Housekeeping Attendant I
Watch Person
Painter
Storekeeper
Maintenance related function
HSK HRS
SUN
0.00
0.00
13.50
10.00
2.00
0.00
0.00
2.00
27.50
MON
2.00
1.00
13.50
14.50
2.00
1.00
1.00
3.00
38.00
TUE
2.00
1.00
13.50
14.50
2.00
1.00
1.00
2.00
37.00
WED
2.00
1.00
13.50
14.50
2.00
1.00
1.00
2.00
37.00
THUR
2.00
1.00
13.50
14.50
2.00
1.00
1.00
2.00
37.00
FRI
2.00
1.00
13.50
14.50
2.00
1.00
1.00
2.00
37.00
SAT
0.00
0.00
13.50
10.00
2.00
0.00
0.00
2.00
27.50
Vac
(100%)
Hol
(60%)
Sick/P
(50%)
Total
FTE
Total
Weekly
FTE
2.00
1.00
18.90
18.50
2.80
1.00
1.00
2.60
47.80
5.07
1.39
1.64
55.90
Page 95 of 116
PPD
0.0174
0.0087
0.1649
0.1614
0.0244
0.0087
0.0087
0.0227
0.4170
Housekeeping Supervisors should also consider the practice of eliminating overtime
use to further reduce the budget. Overtime is currently used to fill open
housekeeping slots on the weekend and cover any watchman slots that can not be
filled by the part-time watchpersons. The use of full-time employees working extra
shifts to cover open slots may indicate the need to revise the number of full-time
versus part-time positions. Converting just two positions could provide greater
flexibility in scheduling, as well as cost savings within the department.
Review of Housekeeping Duties:
Based upon discussions with department supervisory staff and observations during
our visit, the Housekeeping Department generally performs functions typically
performed by the Maintenance Department in most other facilities.
Examples of Housekeeping Department non-routine tasks which would need to be
completed by other staff if the Housekeeping Department size is reduced based on
industry staffing numbers include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Replacing burned-out light bulbs and lamps throughout the facility.
Opening clogged toilets.
Setting up all meeting, in-service and special events.
Replacing storeroom employees who are using benefit time.
Driving residents to hospital and doctor appointments.
Refueling company vehicles.
Delivering materials to recycling plant.
Washing company vehicles.
Picking up staff during weather events.
Boxing, transporting and storing resident files.
Retrieving resident files.
Transporting new linen stock to attic storage.
Delivery, setup, and breakdown of all facility Christmas trees and
decorations.
Construction of the pavilion canopies in spring and tear down in fall.
Setting up family picnics and directing visitor traffic.
Cleaning all facility sprinkler heads.
Relocating resident beds.
Snow removal.
Facility security, i.e., the watch person.
Replacing absent laundry staff.
Storing, stocking, and installing fall mats and resident mattresses.
Hanging window draperies and cubicle curtains.
Cleaning HVAC louvers.
Moving resident furniture from room to room.
Cleaning ceiling light fixtures.
Repairing window blinds.
Supplement Store Room staff during peak delivery time
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We estimate that the above functions would require up to 3 FTEs to perform these
tasks, which may impact on the total recommended FTEs for the Housekeeping
Department noted above. We recommend that Gracedale conduct a time study to
determine the amount of time devoted to these tasks. We also recommend that
Gracedale evaluate whether the completion of these tasks are best suited to be
performed by Housekeeping staff or in-house Maintenance staff, taking into account
any wage differentials.
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Review of Housekeeping Equipment:
The housekeeping equipment currently being used is in good condition. The facility
is currently only using one auto scrubber for the facility, the use of additional units
and frequency of use could potentially reduce current staffing levels need for
mopping common areas. We recommend adding autoscrubber cleaning to the
Tower unit, which is currently done by hand mopping. Making this change could
result in the reduction of staff by one FTE, although there would be an approximate
capital outlay of $6,000 for the equipment needed.
Supply Expenditures:
The facility currently puts individual chemicals out to bid to achieve the lowest
possible pricing through the competitive bidding process. Each item bid has an
individual specification sheet that the vendors are required to meet. At this time, I
see no reason to change this process. We also reviewed stocking practices and
found that supplies are kept at a minimum due to a lack of storage space.
Laundrv and Linen
Review of laundry procedures:
Based on information contained in the 2009 budget information provided, the laundry
labor cost averaged $13.37 per hour, not including fringe benefits. Projected 2010
labor costs increased to $14.10 per hour (based on the $703,000 2010 budget).
Overall linen cost per pound, projected from the 2010 fiscal budget of $1,269,132
(having removed the disposables supply cost) would be at $0.66 - $0.67 per pound.
The Laundry Department has reduced its staffing through attrition this year. The
director plans to reduce as many as two more staff members before the end of this
fiscal year. Part of the Laundry Department service is the delivery of linens to the
units.
As part of our assessment of the Environmental Services area, we investigated the
potential savings that Gracedale could generate by outsourcing housekeeping and
laundry services. With the permission of Northampton County officials, we entered
into a Confidentiality Agreement with Healthcare Services Group, Inc. (“HSG”), an
industry leader in the outsourcing of housekeeping and laundry services.
Representatives of HSG toured the Gracedale facility with CHRE’s Environmental
Services consultant and reviewed staffing and wage information. Based upon their
review, they estimated a total of 13.8 FTEs are required to provide the laundry
services based upon 552 hours per week (a decrease from 712 hours currently), with
annual savings of approximately $ 176,000.
Laundry supervisors should consider the practice of eliminating overtime to further
reduce departmental costs, resulting in savings of approximately $10,000 per year.
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The recent laundry chemical provider change is expected to save the facility
approximately $7,000 to $8,000 a year, depending on census and volume of linen
processed. The greater the usage, the greater the savings.
Review of Laundry Department Equipment:
The facility currently utilizes a Milnor tunnel washer that is capable of washing 90
pounds of soiled linen every five minutes. This piece of equipment has the potential
to generate revenue if the facility could acquire a service agreement from local
customers. A conservative estimation of the capacity of the machine is 5,670,000
pounds, based upon laundry service operations 350 days a year, operating 15 hours
per day. In 2009, the Laundry Department serviced approximately 1,907,000
pounds, or only 34% of the capacity of the equipment, given the proposed hours.
The annual revenue generated by a third-party linen service provider from a 180-bed
nursing facility that currently purchases institutional linen services from a vendor
exceeded $240,000 in 2009.
Gracedale should undertake an evaluation of providing this service to outside parties
for their institutional linen, including neighboring county facilities, such as
Cedarbrook, as well as other local nursing home facilities. To ensure a successful
venture, the evaluation should take into consideration:
•
Determine the market rate on a per-pound or per-piece basis to ensure
Gracedale is competitive
•
Determine additional costs on per-unit basis (additional wages and benefits;
workers compensation and liability insurance; utility, water and sewer costs;
transportation costs; marketing costs, etc)
•
Back-up service provider if Gracedale’s one piece of equipment went down,
and impact of being a competitor to current back up provider (Hospital Central
Services)
•
Willingness of Cedarbrook or other facilities to contract with Gracedale
•
Willingness of Northampton County to operate in competition with other local
providers, such as Hospital Central Services
We also reviewed stocking practices and found that supplies are kept at a minimum
due to a lack of storage space.
Review of Linen Purchasing Practices and Laundry Par Levels:
The facility currently puts individual items of linen out to bid to achieve the lowest
possible pricing through the competitive bidding process. Each item bid has an
individual specification sheet that the vendors are required to meet. At this time, I
see no reason to change this process.
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Laundry Recommendation:
Based on these observations we recommend:
1. Based on the workload at current census levels, the upcoming employee
retirements should not be filled. Two potential retirements are reported that
could result in potential savings of $68,495 in salaries and $37,800 in fringe
benefits, for a total savings of $106,295. Based on the review performed by
HSG, the recommended annual savings of $176,000, will be used for
purposes of the Proforma in Section 2.
2. Consider outsourcing of Laundry services, as well as housekeeping services,
to a firm such as HSG. There should be formal RFP process to obtain bids
from multiple parties. Discussions with the union may be required and are
recommended prior to this to determine if the objectives of the County and
Gracedale (reduction of expense) can be achieved prior to outsourcing.
3. Evaluate the potential outsourcing of the linen services based on the extreme
labor costs. At this time, we did not have current time studies to compare
pricing from our other facilities that have contracted institutional linen services.
Gracedale should convert the 1,907,000 pounds of linen reported washed
from the facility washing machine data to a cost per piece that is typically
provided from institutional linen vendors. We recommend that Gracedale’s
management contact Hospital Central Services and Parris Linen for
competitive pricing and compare to the in-house cost for the most costeffective option.
4. Eliminate the use of overtime shifts. Do not replace part-time employee
calloffs with full-time employees paid overtime.
Building Maintenance
Based on information contained in the 2009 budget provided, the average
Maintenance staffing salary was $11.03. The 2010 budget information projects the
hourly average rate at $11.85.
The following is a listing of Maintenance staff FTEs provided during a site visit:
Supervisor
Asst Supervisor
HVAC Techs
Carpenter/Mason
Maintenance Mechanics
Total Staff
1 FTE
1 FTE
3 FTE
1 FTE
7 FTE
15 FTE
According to the schedule of FTEs prepared for the 2009 Cost Report provided by
Dave Pinter, Fiscal Administrator, the total Plant Maintenance staff was listed at 5.4
FTEs. These 5.4 FTEs consist of the Boiler Operator Supervisor and 4.4 FTE for
Boiler Operators.
Page 100 of 116
Most of the personnel that perform maintenance services at Gracedale are not
directly employed by Gracedale, but work for the Northampton County Maintenance
Department. This represents the 15 FTEs noted above. The only in-house
Maintenance staff at Gracedale are the 5.4 FTEs in the Boiler House staff. The cost
of the County’s Maintenance Department is allocated to Gracedale through the
County Indirect Service allocation. Upon the review of the supporting allocation,
there are a total of 22 FTEs in the Public Works Operations and Maintenance division
and 38 FTEs in the Public Works Parks division (grounds keeping crew). Based on
the percentage of total wages of these two county departments to Gracedale, the fulltime equivalent of staff is as follows:
FTEs
P/W O+M
P/W Parks
Total
Gracedale staff
Total
12.21
2.97
15.18
5.40
20.58
Based on current census and the completion of the housekeeping non-routine tasks
which would traditionally be considered maintenance tasks, we believe the
complement of Maintenance personnel to be adequate, and we recommend no
changes at this time.
Maintenance Supervisors should also consider the practice of eliminating overtime
use to further reduce the budget. Do not replace part-time employee calloffs with fulltime employees paid overtime. This could result in a savings of up to $15,000, based
on 2009 overtime usage.
In reviewing the cost of the fire alarm testing agreement, some potential savings
could be realized by having the system tested by another vendor and only relying on
the current vendor for programming and repairs.
Numerous capital projects/repairs at the facility have been extremely costly, including
•
•
•
•
•
•
•
•
•
•
•
•
The tower window replacement project
The new chiller plant
Smoke damper installation
Ductwork cleaning
Wireless Network
Facility renovations
Laptops
Chimney demolition
Ductwork
New freezer installation
Ice machines
Resident lifts
As a result of these capital improvement projects and capital expenditures,
Gracedale has incurred, approximately $4,227,000 and $4,228,000 in 2008 and
Page 101 of 116
2009, respectively. These capital improvements were a major component for the
need of county contributions for the operation of Gracedale. Given the age of the
Gracedale facility and past levels of capital improvements, it is important for
Northampton County to have a full understanding of the intermediate and long-term
capital needs of Gracedale before making a decision on the future of Gracedale.
Maintenance Recommendation:
1. Eliminate the use of overtime shifts. Do not replace part-time employee
calloffs with full-time employees paid overtime.
2. Careful review of vendor agreements.
3. Engage a professional services firm with experience in property management
to evaluate the existing facility for a short-term and long-term capital
improvement plan with associated costs to take into consideration when
evaluating the continued ownership of Gracedale.
Budget Items
Review Environmental Services Department staffing and purchasing budgets:
The facility environmental services directors currently do not use spend-down sheets.
Although the information is available when requested from the CFO, the day-to-day
expenditures are not tracked by individual department directors as items are
purchased. PPD budgets could be formulated for directors to have a more exact
control of their operations budgets.
Based on the capital expenditure information we received, upcoming capital budgets
amount to about $1,000 per bed per year. That amount is almost double what
Complete Healthcare Resources facilities normally budget for routine capital
expenditures. However, that amount is approximately 10% of what Gracedale had
been spending on capitals for the previous two or three years.
After reviewing storage and stock room procedures we concluded that items are not
overstocked due to a lack of storage space. We did not note outdated items and saw
no reason to increase purchasing frequencies to reduce stock on hand.
After reviewing the facility use of rental equipment, we found that only 5 to 7 beds are
on hand at any one time. This does not seem like an extreme use of rental
equipment.
The facility currently rents six large storage trailers for overflow items, at a monthly
expense per trailer is $75. We recommend consolidating storage and disposing of
anything not essential to operations.
Review Existing Maintenance Agreements:
Based on the maintenance agreements that we reviewed for the facility and
compared to maintenance agreements of facilities of similar size, we believe current
maintenance agreement costs are reasonable.
Page 102 of 116
Utility costs:
Based on observations during our visit, the facility is currently in the ninth year of a
10-year performance contracting agreement. In light of the fact that the contract is
expiring in the near future and the state is now in the de-regulation phase of rates,
there is a concern that there could be a significant increase in utility costs in future
years. We recommend Gracedale investigate what the current market costs are for
their provider and plan for cost reductions to offset an expected increase in utility
costs. There are many resources available through the County Commissioners
Association to assist counties in this evaluation.
Page 103 of 116
SECTION 8
NUTRITIONAL/DIETARY ASSESSMENT
An operational and clinical dietary assessment was completed at Gracedale on May 12
and May 13, 2010. Interviews and discussions were held with key members of the
Dietary Department. The labor, food, supplement and supply costs were reviewed, and
the operations of the Dietary Department were observed. Medical records were reviewed
with the Clinical Nutrition Manager. Interviews were conducted with administrative staff.
We obtained most of our information from the Dietary General Manager, Chief Financial
Officer, and Clinical Nutrition Manager who were very helpful and hospitable to our
requests.
OPERATIONS
The Nutrition Services Department at Gracedale is managed by Sodexo Senior Services.
The management team is comprised of Sodexo employees, including the following
positions:
•
•
•
•
•
•
•
•
•
General Manager (1 FTE)
Clinical Nutrition Manager (1 FTE)
Registered Clinical Dietitian (2 FTEs)
Assistant Manager (3 FTEs)
Executive Chef (1 FTE)
Driver (1 Full-time; 2 Part-time)
Administrative Assistant (1 FTE)
Chef Manager – Cafeteria (1 FTE)
Hourly Cafeteria Staff (4 Part-time/ 13 hours per day)
The line staff (cooks, cooks helpers, dietary aides, and utility workers) are employees of
Northampton County.
The 2010 Sodexo contract will cost the County $919,709 or $76,642 per month. See
Exhibit 8.1 for a summary of the costs. This contract includes the professional
management salaries and the van lease, repairs, and insurance. Food, supplies (office
and dietary), are billed to the County on a monthly basis, above and beyond this contract
price by Sodexo. Food costs have increased 34% from January to March of this year.
See table below:
Page 104 of 116
Dietary Table 8.1
Food
Equipment
Supplies
Sub Total
Sodexo Contract Fee
(labor and van)
Total Sodexo Cost to
Gracedale
Gracedale Labor
Total Dietary Costs
Patient Days
Cost Per Patient Day
JAN
$86,686
4,743
108
91,537
76,642
FEB
$95,720
5,710
101
101,531
76,642
MAR
$115,818
6,043
75
121,936
76,642
$168,179
$178,173
$198,578
118,320
$286,499
19,814
$14.46
106,870
$285,043
17,904
$15.92
118,320
$316,898
19,759
$16.04
On average, comparable overall dietary costs for other skilled nursing facilities range from
$16.00 - $19.00 per patient day. Based on this analysis, Gracedale is in the lower end of
this range. However, there has been an increase in food costs per month in the first
quarter despite census remaining consistent at an average of 628. At the time of our
visit, the General Manager was unable to provide explanations or could not determine
what caused the increase in dietary food costs over this time period. As Northampton
County (and therefore Gracedale) typically prepares interim financial statements on “cash
basis”, there can be significant fluctuations in dietary food costs, depending on the
number of weekly deliveries that were paid in a given month, as well as the number of
special events or guest meals served. We recommend that Sodexo provide Gracedale
with a detailed report, outlining why there has been an increase in food expenditures
without an associated increase in census. This may be able to assist with monitoring
future spending and trends.
Complete Healthcare Resources – Eastern, Inc., utilizes electronic spend-down sheets
that provide a detailed report of expenses for food, supplies, chemicals and meal counts.
The Director of Dining Services completes them daily by entering costs into the Excel
spreadsheet and monitors them throughout the month to see how they are operating
according to their budget. There is a narrative area to detail why expenses are over
budget. Special functions are also monitored to determine how to formulate future
budgets for special functions. Spend-downs are sent to the Senior Consultant Dietitian,
Administrator and CFO monthly, who then review expenses to determine future
forecasting and also how to work with each facility to keep expenses within budget.
Food Costs
The department is responsible for providing food service to all residents on a daily basis
and 13 Senior Centers (average of 450 meals per day). The department also provides
two meals and a continental breakfast to employees where participation is minimal.
Sodexo employees run the employee cafeteria, continental breakfast and the Senior
Center meal program; therefore, there is no use of county labor for these programs. We
observed the employee cafeteria and interviewed the General Manager, who verified that
participation includes employees and visitors.
Page 105 of 116
The average number of daily meals served from the department is approximately 2,300
per day. (Source: 2009 Gracedale Meal Statistics Report). This does not include employee
meals. The food budget encompasses all food for meals served to residents, senior
centers and employees.
Congregate Meals (Source :Dietary 0910.123 6/17/2010)
•
Costs for Congregate Meal for 2009 (Food, Labor, Packaging, Transportation,
Overhead, Management Fee) = $4.84
•
Charges for Congregate Meal – $5.00
•
Approximate Number of Meals 2009- 120,000 X $5.00/meal = $600, 00.00
Revenue
•
Total Dietary Costs 2009=120,000 X $4.85/meal = $582,000.00
•
Profit from Congregate Meals= $18,000
We recommend that Gracedale increase the per meal charge by $1.00, to a total of
$6.00. While this additional fee would be borne primarily by other county agencies, and
thus no overall economic impact to Northampton County as a whole, it is appropriate for
Gracedale to charge a fair market value for its services. The evaluation of the operational
and financial performance of Gracedale should be based upon obtaining fair value for its
services, regardless of its customers. An increase in the meal fee by $1.00 would result
in additional revenue of $120,000 per year based on current volume, increasing the net
profit to $138,000 for this meal program.
Resident Meals
The PPD Food Budget is $5.60. Based on the above figures and the current Budget-toActual by Division with Encumbrances; the department is running at $5.28 per patient
day. In comparison with CHRE facilities, the food budget is at an average standard.
Dietary Table 8.2
Food Budget
$421,271
As of May 7, 2010
Actual
$405,964
Encumbrance
$15,306
% of Budget
23%
Source: Budget to Actual by Division with Encumbrances-(5/7/10)
Currently, there is an agreement between the county and Sodexo to use Sodexo’s
primary vendor - Sysco Central PA, with an allowable use of bidding for food items with
other vendors to get the best price. Bidding is done weekly (Dry Groceries compare 2
bids weekly; Meat - 5 bids weekly; and Produce 2 bids weekly). Based on the figures in
Table 8.1, there has been no containment or consistency of food costs consistent with
census during these past three months. One of Sodexo’s managers spends four hours
per week manually securing bids.
Page 106 of 116
We completed a review of Sysco Central PA invoices to a comparable CHR facility with a
GPO, as Sysco is also the primary vendor for many of Complete Healthcare Resources
managed facilities. We also performed a comparison of the most commonly invoiced
items to determine what it would cost if only one vendor were used and if Gracedale
participated in a Group Purchasing Program (GPO) without the added labor costs of
securing bids. We completed this assessment to determine if it would be more cost
effective (less labor) to rely on the vendor and GPO for best pricing rather than utilize one
FTE to consistently compare pricing for 3-4 vendors 16 hours per week. The Gracedale
vendors used for price comparisons for Dry Grocery, Meat and Produce were:
•
•
•
•
•
•
•
•
Sysco
Bernard Food Industries
Feesers
Heartland Food Products
J. Ambrogi Food Distribution Inc.
Lorenzo and Sons
Pocono Produce
R and R Provisions
Dietary Table 8.3
Table of GPO Comparison
Gracedale
GPO
GPO
GPO
Food Item
Price
Price
Savings/invoice Savings/week
Shasta Soda
12.95/cs
11.95/cs $61.90/invoice
$123.80/wk
Ice Cream
21.20
19.50
Bacon-15#
39.71
42.80
Cocoa Mix
36.73
24.76
Low Fat
13.65
7.48
Yogurt
Fruit Cocktail
37.00
28.28
Diced Beets
22.13
21.34
Saltine
13.66
8.34
Crackers
Mayonnaise
27.44
20.75
Meatballs26.81
26.15
s
10#
Beef-Patty
58.01
48.29
20#
Green Beans
27.44
18.04
Sliced
Carrots
Total
11.79
8.94
348.52
286.62
Gracedale receives approximately two deliveries of food per week. Based on
discussions with Sodexo staff, approximately four hours per week are spent securing the
bids for food product. As a result, the weekly costs for the Assistant Manager to secure
these bids based upon time spent is $117.00 or approximately $6,000 annually.
Page 107 of 116
•
Weekly Food Cost without GPO to secure all bids $123.80 Annually - $6,438
•
Total Annual Cost to facility to manually secure food bids without a GPO or
primary vendor is $12,000.00
Source: Sodexo manager salary (including benefits and Sysco Invoices compared to CHR GPO Sysco
Invoices.
Recommendations
If a primary vendor were used with an electronic invoicing system, there would be a
savings: labor hours used to place one primary food order would be reduced 50% or
approximately $3,000 per year. Realization of these cost savings may require a renegotiation of the existing contract with Sodexo to reduce the allocated hours and fees
associated with the positions ordering the food.
Sysco provides online food ordering through their ESYSCO system that can be easily set
up. If a GPO were used, electronic invoicing could be achieved through DSSI, which
would mean additional savings without paper invoices. There would also be additional
rebates from Sysco, which at the current time averages approximately $40,000 per year,
which are reflected in the Refunds revenue category in the income statement.
Purchasing more Sysco brand products than using various vendors through a laborintensive bid process could increase revenue by another $10,000 per year.
The potential for overall food savings in Food Dollars saved is $15,000 annually.
Note: Effective use and distribution of labor will be the primary factor on overall dietary
savings as noted in the following section.
STAFFING
The Sodexo employees consist of:
• 1 General Manager
• 1 Clinical Nutrition Manager (RD)
• 2 Registered Dietitians,
• 3 Assistant Managers
• 1 Executive Chef,
• 1 Administrative Assistant
• 1 Chef Manger for Employee Cafeteria,
• 4 part-time cafeteria staff.
On a monthly basis, the cost associated with the above staffing equates to $64,610.
The labor/line staff on the payroll of Gracedale is comprised of approximately 54.5 FTE.
The 2010 Dietary Salary Budget is $1,393,121 with Fringe/Benefits at an additional
$886,177/year. (Fringe Benefits are 52%)
(Source: 2010 Salary Budget Report Org. 63700 GD Dietary)
Page 108 of 116
In addition, the Gracedale Dietary employees receive the following:
•
$.85 differential after 3:00pm
•
$1.00 extra on weekends
•
$.50 - $.60 per hour additional when working out of class.
Based on an average census of 628 per day (using April 2010 figures), dietary labor will
average 0.694 Hours Per Patient Day (HPPD) or approximately 54.5 FTEs per day.
There are productive Sodexo staff who work in the kitchen (does not include General
Manager, Clinical Staff and Administrative Assistant). This adds an additional 9 FTEs,
which increases the total dietary FTE to 63.5 or 0.808 HPPD.
The scheduled staffing and actual hours worked, based on our review, exceed the
higher end of industry standards of 0.73 - 0.77 HPPD. Industry standards for FTEs
are based on 10 FTEs per 100 residents.
Based on the analysis above, the department is approximately 0.046 over industry
standards per patient day. If the census averages 628 annually, this would result in
over 10,544 hours above industry standard or an equivalent of 5 FTEs. A reduction
of even 5 FTE’\s (3 Gracedale and 2 Sodexo) would result in an approximate savings
of $120,000, based on average wage rate of $12.28/hr (Gracedale). Any proposed
reduction in Sodexo staff would require a review of the contract terms to determine if
the facility is allowed to implement the change prior to expiration of the existing
contract. Earlier implementation may require interim negotiations between Gracedale
and Sodexo.
Recommendations
Cooks and Cooks Helpers
Labor staff is comprised of 8 FTE positions in this area. Given an average Census of
628, a reduction of two Cooks Helper would not compromise meal service since there
is a working Executive Chef from Sodexo.
Recommend not to fill vacancy and reduce cooking staff by 1.
Dietary Aides
Labor staff comprised of 18 FTE positions. Note that there are currently 3 open FTEs
for Dietary Aides.
We recommend that Gracedale consider not filling the one vacant Aide slot and
eliminate one Dietary Aide position.
2009 Revenue versus Expenditures of Employee Cafeteria
Revenue
Expenditures
$145,350
141,757
Page 109 of 116
Profit
$ 3,593
(Source: Email from General Manager on 6/11/10)
Note that the cafeteria is operated at essentially a break-even point. If the labor
savings and added marketing efforts were made to increase participation, additional
revenue could be realized. There are also two vending areas and one gift shop in
the facility. Downsizing to one area would generate more revenue for the facility
because a profit center can be centralized without existing competition.
Gracedale should evaluate the fees charged for each meal to ensure the cafeteria
earns a reasonable profit on meals served, taking into consideration all operating
costs (Sodexho contracted fees allocated to the cafeteria, Gracedale line staff wages
and benefits; food and supplies expense; equipment costs and utility and other prorated facility costs).
Dietitians
The clinical staff consists of three RDs. They are kept very busy in their clinical role;
however, they also have been doing numerous quality assurance audits related to
meal service. (Test trays, cart monitoring, timeliness of meals, etc.). They have a
caseload of 250 residents each and each RD completes 9 test trays per week,
determines meal percentage on the menus so the nursing staff can easily calculate
meal percentages into Care Tracker and complete congregate meal extension
sheets. They have a very loaded daily schedule. Typically, it is safe to assume that
Long Term Care Facility Clinical RD standards are 1 RD per 100 residents. In order
not to compromise the clinical nutritional care of the residents, CHRE recommends
hiring 1.5 FTE of Dietetic Technician to handle Congregate meal extensions,
auditing, and clerical work that the Dietitians have to do on a daily basis. The
average salary for a Dietetic Technician is approximately $18.00/hour or $56,160 per
year for 1.5 FTEs. With employee benefits at 52% of wages, the total cost would be
approximately $85,000.
Staffing Summary and Recommendations (Elimination of 5 FTE)
Eliminate 2 Full-time Cooks Helpers
$76,131 with fringes
Eliminate 1 Full-time Dietary Aide
Do not replace current Dietary Aide vacancy
Eliminate 4 FTE, Total savings =
Add Dietetic Technician, (1.5 FTE)
Net Staffing Dollars Saved per year
Dietary Table 8.4
Position
General Manger
RD
DTR
Chef
Asst Manager
$21,425 with fringes
$21,425 with fringes
$118,981
(85,363)
$33,618
Proposed Schedule: Sodexo Staffing-Hours per day
Sun Mon Tues Wed Thurs Fri Sat
8
8
8
8
8
8
24
24
24
24
24
8
8
16
16
16
8
8
8
8
16
16
16
8
8
16
16
24
24
16
16 16
Page 110 of 116
Adm Asst
8
8
Drivers
15
15
Note Deletion of 4 part time cafeteria aides
8
15
8
15
Proposed Schedule: Gracedale Staffing-Hours per day
Position
Sun Mon Tues Wed Thurs
Cooks
40
40
40
40
40
Cooks Helpers
32
32
40
40
40
Dietary Aides
168 168
168 168
168
Utility
24
24
32
32
32
Cafeteria Aide
16
16
16
16
16
Note: Deletion of 2 cooks helpers, 2Dietary Aides
8
15
Fri Sat
40 40
32 32
168 168
24 24
16 16
MENUS
Typically, most nursing facilities utilize a non-selective menu; however, if there is an
increased resident demand for different items, a selective menu is offered in which
residents choose meals 24 hours in advance. Gracedale uses a selective menu for
many of their residents and through analysis; this is why food costs remain within or
under budget. We want to note, however, that when using selective menus for
residents, it is best to ensure nutritional adequacy since selections that are made by
residents may not be done according to a standardized menu plan. Complete
Healthcare Resources recommends using the facility dietitians to review selective
menu plans with these residents to ensure they receive optimal nutrition..
It was observed and noted that there is a high use of supplements and extra food
products on trays through resident choice or nutritional evaluation. In our discussion
with the Clinical Nutrition Manager, she provided us with the following data:
•
•
250 residents are of high nutritional risk (40% of facility)
Out of the 250 residents, 50% have potential for dehydration.
The cost of supplements is not broken out separately in the income statement from
other food cost, nor does it appear to be tracked. This prevents Gracedale from
having an understanding of the true costs of supplements use and therefore, a
means to control costs if supplements use becomes excessive, given the needs of
the residents. Additional extra items (which are not noted on the resident choice
menu and are faxed down to Dietary) require added labor and work for the dietary
office. The department does not use a computerized system for tray cards; therefore,
all resident tray tickets, production records, snacks, and food preferences are done
manually by management and clinical staff. This may be an unproductive use of
time.
Non-pharmaceutical supplement costs (ice cream, shakes, added fortifications) on a
monthly basis run on average approximately $1,175 based on our review of selected
invoices.
Page 111 of 116
Pharmaceutical supplements such as Ensure Plus, High Protein Juices, Nepro,
Prosource and Argiment are broken down in the following example:
•
•
•
•
Ensure Plus - $9,362.00/month
Sysco High Pro Juice Drink $2,034.22/month
Prosource Protein Powder- $930.00/month
Frosty Thick $2,980.00.month
The approximate monthly supplement cost is $16,000, or $0.85 per patient day.
Comparable CHRE facilities experience an average supplement cost of $0.45 per
patient day. A $ 0.40 per patient day reduction in supplement costs would result in
an annualized savings of approximately $105,000.
Note: Estimates based on volumes provided by dietary manager and dietitians. Cost
is based on CHRE facility pricing under DSSI and GPO since we were unable to
secure Gracedale pricing.
Ways to reduce supplement costs:
1. Enhance current fortified food program by adding nutrients to items that are
currently on the menus. (i.e. adding non fat dry milk to puddings, adding extra
margarine on trays, using whole milk instead of low fat, and/or adding more
gravies and sauces.
2. Hydration carts provided as an activity ( i.e., Happy Hour beverages,
popsicles, frozen drinks, etc.)
3. Medication pass using the Ensure Plus or High Protein juice only.
4. The addition of a clinical staff member (Dietetic Technician) as mentioned
above to allow re-assessment of current supplement usage and review of
nutritional-at-risk nutrition interventions and additional resident interviews to
determine resident choice or resident specific meal enhancements.
Supplies
Supply costs appear to be at 23% of budget for the year, which is within parameters.
Paper use may be higher at the current time due to the dishwasher. (See below)
Equipment
Dietary equipment maintenance and replacement are the responsibility of Gracedale
under the contract terms with Sodexo. Sodexo supplies the transport vans under the
contract.
The main dishwasher is planned to be replaced at a cost of approximately $185,000.
This is a significant capital replacement since the current dishwasher is costing the
facility a lot of money in repairs, paper supplies, added labor to wash dishes by hand
when the dishwasher is down. Added issues relate to poor customer service due to
meal deliveries on disposable products, and current State and Federal Guidelines do
not recommend the use of disposable products for meal service in long term care.
Page 112 of 116
Food transport carts are very old and appear to be in poor shape. There is only one
main dining area for residents, and there is minimal participation. Food Carts are a
necessity to transport food to resident areas since there are no dining areas on the
unit. There are 15 food carts, and the cost to replace these carts is estimated to be
$45,000.
Total projected equipment replacement to dietary - $230,000
ENHANCED DINING
There is one main dining area and little or no space on the 15 units for residents to
dine together. The main dining area has minimal participation, most likely due to its
distance from the resident units. A consideration of smaller dining units on each unit
could be a possibility if the facility downsized from the current 725 beds. If two to four
adjoining rooms were transitioned into dining areas, residents could enjoy leaving
their rooms and walking a short distance to a community dining area where they
could receive their meals and beverages in an enhanced setting and a social
environment. This concept is highly advocated by the Department of Health and
Centers for Medicare and Medicaid Services, whereby the culture change
movements (person centered care, individualized treatment plans, and resident
choice) have become the standard by which quality care is measured.
A thorough evaluation should be undertaken by Gracedale to consider reducing the
licensed bed count and take unoccupied rooms off line and convert them in dining
rooms. This evaluation would need to consider the following components:
•
Optimal number of beds taken off-line
•
Distribution of rooms by unit, taking into consideration optimal staff patterns
for direct care nursing as to not create inefficiencies in the nursing staffing
patterns
•
Allocation and staffing assignments for distribution of food to the
centralized location
•
Estimated construction and equipment costs
•
Impact on Disproportionate Share revenues due to reduced licensed beds
(see Reimbursement section for discussion on Disproportionate Share
revenue
Additional Observations
Menu System
The department uses pre-printed, non-disposable menu tickets: there is no
computerized menu or tray ticket system. During our observation and interview with
the Dining Services Manger; every meal, these tickets are manually sorted by
Nursing (from their respective units) and sent back to Dietary. While management
Page 113 of 116
has assigned the review duties to Dietary Aides, the Administrative Assistant was
observed reviewing these tickets again to add menu choices, changes, and room
assignments if necessary. This is a very labor-intensive, tedious process. Nurse
Aide time to sort through tickets averages approximately ½ hour per unit. Once in
Dietary, an additional hour of time is spent with reorganization. Following is a
summary of the costs associated with the current process:
Average salary of Nurse Aide: $11.00/hr.
15 Units to sort tray tickets at 3 meals per day.
Cost from nursing $247.50/day
Salary of Dietary Administrative Assistant $20.96 3 meals per day
$62.90
$310.40 daily X 365 days per year = $113, 296.
This use of time takes away from nursing care and dietary administrative
responsibilities. CHRE recommends that Gracedale consider using a computerized
menu system, such as Geri Menu, a system used successfully by most of CHREmanaged facilities.
Below are the estimated costs associated with the purchase and ongoing use of the
Geri Menu system. The pricings noted below are based on the cost to comparable
CHRE facilities, purchased through its GPO:
Initial Cost
Module 3.0
Data Entry to start
Menu Input
Training
Computers/Printers
Total
Annual Maintenance
Annual Fee
Paper used
Print Cartridges
Dietary Staff Time
(FT Diet Clerk at $12
plus benefits)
Total
Total
$7,000
$6,000
$9,500
$2,000
$4,000
$28,500
$1,200
$10,500
$4,000
$24,960
$13,000
$37,960
$ 66,460
First year costs $94,960
Savings of $18,336
Second year costs $66,460 Savings of $46,836
Page 114 of 116
By year three, the cost would benefit the facility by using less labor and more
streamlined efforts spent administratively to enter menu and resident data.
Computerized tray tickets are an enhancement to customer service and marketing
efforts. They present a clean, professional addition to the meal and clearly state
what is being served. The current plastic tray cards need to be cleaned and sanitized
and have a very unappealing look, especially for residents who have had a lot of
historical food changes. Items are erased, the plastic peels off after numerous
cleanings, and they can be easily lost.
If the facility does not feel the cost justifies the change to a computerized tray ticket
system, it may be worthwhile making the change for dining enhancement and a
simply elegant appearance that the current customer is looking for.
CLINICAL AREAS
The dietitians also do a lot of hands-on work, manually completing weight records,
snack labels, etc. Care Tracker is not used for resident weight entry. The use of
Care Tracker would be a valuable, time-saving and accurate tool to monitor weight
changes and retrieve real time data which would allow for more effective use of time
by the clinical staff.
We recommend using Care Tracker for weight tracking. Geri Menu can automatically
compute snack and supplement labels and menu information for each resident
without a lot of manual labor used. Complete Healthcare Resources- Eastern uses
Care Tracker to monitor residents’ weights, food and fluid intake. The Dietitians
retrieve this information daily and obtain real time data in order to implement
nutritional interventions. With this data, especially food and fluid, the RDs can
immediately intervene if intake falls below 25% or fluid intake falls below 100 cc per
day which prevents significant weight changes and improve overall nutritional care of
the residents.
FOOD SERVICE
One full-time housekeeper is dedicated to the Dietary Department from the
housekeeping staff.
Central supply is responsible for receiving and storing all food and dietary-related
deliveries and supplies. Invoices are forwarded to the General Manger for review.
In review of this, Dietary does not have to staff approximately 4 FTEs for these tasks.
This is not a common practice based on review of related CHRE facilities; however, it
is a facility practice that appears to work well in this environment, and we do not feel
that a change in this area would be a significant cost savings
One item that Gracedale should consider, given that all dietary food and supplies are
located on the ground floor, is the addition of surveillance cameras to monitor the
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food storage for potential pilferage. Understanding that these areas are currently
secured and routinely monitored, there is a potential for loss of stock based on the
fact that there are numerous refrigerators, freezers and dry storage rooms located in
the basement. Even though the refrigerators and freezers are locked, the addition of
surveillance camera will provide another layer of security.
Approximate annual savings with proposed dietary recommendations:
Food Costs
Increase Congregate Meal Fee by $1.00
Labor
Supplements
Geri Menu
Total Dietary Savings
$ 15,000
$120,000
$ 33,617
$ 105,000
$ 46,836 (second year)
$320,453
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