Interim Report - ICFs/DD Downsizing Work Group (April, 2009)

Introduction

This Interim Report presents the findings to date of the Intermediate Care Facilities for individuals with a Developmental Disability (ICFs/DD) Downsizing Work Group of the Statewide Advisory Council Rate Committee. The Work Group has conducted a review of issues regarding current and proposed rate methodologies and practices supporting the reduction in the number of ICFs/DD beds in Illinois.

The issue in downsizing an ICFs/DD facility is that, regardless of its size, a downsizing does not happen overnight nor without a great deal of planning. Certainly this is more the case with a larger facility than a smaller one, but for any sized facility downsizing is a complex and lengthy process. A myriad of activities occur throughout a downsizing. Time and a great deal of effort are required to prepare and assist individuals and families in locating and choosing new residences or considering other service choices and these activities involve Group-Admission and Screening (PAS) Agencies, Independent Service and Support Advocacy (ISSA) agents, current and prospective providers, and the Division of Developmental Disabilities staff. Time and effort are required to develop and ready new residences. During a downsizing of any duration whatsoever, the facility must remain a stable and viable provider able to meet its commitments to individuals and continue to provide services, maintain service quality, and comply with licensing and certification requirements.

The downsizing rate methodology was originally developed to provide the financial support to maintain viability of a downsizing facility and to provide an incentive for facilities to reduce or eliminate their beds. The Work Group has concluded that the downsizing rate methodology has met with some success, but that changes would improve the process.

To date, since 1998 when the downsizing methodology was formally adopted, 25 facilities have entered into downsizing agreements. Of these, there have been 15 facilities that have closed 777 licensed beds, 7 facilities that have reduced 168 licensed beds, and there are currently three facilities with a downsizing agreement in progress. Two of these plan closures of 190 beds and one plans a downsizing to reduce by 24 licensed beds.

Work Group Goals

1. Identify and recommend changes in the methodology that could have a short-term and immediate effect of enhancing services and supports in the community services system in ways that advance the adequacy, quality, and quantity of this part of the system to the forefront.
2. Identify additional areas of potential changes in the reimbursement methods that could be considered for the longer-term.

The reader is referred to the Statewide Advisory Council (SAC) Rate Committee Interim Report Overview of Rate Committee for a discussion regarding the overall framework of the following principle charges:

1. Develop rate proposals that are adequate, fair and equitable.
2. Create statistical models for each rate component or sub-component by identifying the data elements and processes.
3. Break proposals into part that can be independently implemented.
4. Develop rate proposals that are "shelf ready" to implement as opportunities to do so are presented.

This paper reflects an Overall Recommendation followed by two major sections of findings and recommendations from the Work Group:

1. Recommendations - Section 1 includes items the Work Group has reviewed
2. Additional Review and Research Recommendations - Section 2 reflects items the Work Group has identified but additional work is recommended.

Background

The ICFs/DD Downsizing Work Group has reviewed the rate methodology described in 89 Ill. Admin. Code 140.560 f). This rule addresses the circumstances under which the Director of the Division of Developmental Disabilities (DDD) may enter into a formal Downsizing Agreement, or contract, with an ICFs/DD provider to reduce the number of licensed beds by a minimum of at least 20% and up to and including the complete closure of the facility. The rule and the rate methodology provide for agreement on the total number of beds to be reduced and for setting of benchmarks, or increments, along the way toward the ending number of beds and for the period of time over which the targeted number of beds is to be reached.

There is a formal contractual Downsizing Agreement between the Division and the provider to downsize or downsize to close a facility. Historically, downsizing has given individuals residing in ICFs/DD alternative community living choices and it has given ICFs/DD providers financial assistance in support of their operational costs during the reduction in the number of licensed beds in a facility. Typically individuals will choose CILA residential supports and day program services when leaving a downsizing facility. Often, individuals will choose to receive these CILA and day services from the same provider currently providing their services. This is not a requirement on the individual in any way and there are specific contractual requirements on the provider regarding the choice process and opportunities for individuals and their guardian and family.

As a facility downsizes, the rate methodology adjusts the rates in ways that seek to maintain the status quo in operating costs, such as rent, and in the direct services staffing ratios that correspond to the needs of the individual being served. How this process works and the specifics of the rate adjustments are central topics of this paper.

As a facility downsizes, the rate methodology adjusts the capital, support, and program direct services components of the rate. The capital component rate addresses the fixed costs associated with a building mortgage or lease and similar types of things such as building improvements, major fixed equipment items and vehicles used for program services. The support component of the rate addresses the costs of food, dietary, laundry, housekeeping, maintenance and administration. The program component funds the direct care staff, specialized care staff for persons requiring medical (nursing staff) or behavioral services, QMRP, and various therapists and consultants.

Facility rate adjustments are made during the downsizing period in order to continue to fund the operating costs of the facility and to assure continued services to the individuals that remain in the facility during the downsizing and afterward in the case of a partial downsizing that does not close the facility.

Findings

With the national and state trends for individuals to choose smaller community residential settings or home-based services, there is growing interest in ways to facilitate ICFs/DD to eliminate or reduce their licensed beds. The Work Group has examined the ICFs/DD downsizing rate methodology and member's experiences in using it themselves or in applying it to assist and encourage ICFs/DD facilities to voluntarily reduce their licensed beds.

Under the current rule, the ICFs/DD downsizing rate methodology is only available to large (more than 16 bed settings).

As a facility downsizes, certain costs covered by the rate are considered fixed costs, such as a mortgage or rent. These costs continue unchanged, they are fixed, even though there are fewer people and reduced revenues to pay them. A rate adjustment is needed to produce the same amount of revenue to enable the provider to maintain the facility's mortgage obligation during the downsizing and to continue to provide the residents with living quarters.

Some support costs may be reduced in direct proportion to the number of persons leaving the facility, e.g., food or laundry costs might go down marginally. But other support costs such as administrative costs for office and management staff, or housekeeping costs or utilities would remain unchanged. As with the capital rate, an adjustment is needed to produce the same amount of revenue to enable the provider to maintain the facility's services.

Other operating costs, such as direct care staff costs, may be reduced over time but not necessarily directly in relation to the number of individuals leaving the facility at a point in time. For example, assume a provider has a staffing ratio of 1:5 with 50 individuals and 10 staff and the target is to close the facility. Early in the downsizing 8 individuals may leave the facility leaving 42 persons still in the facility. It is difficult to maintain the staffing ratio of 1:5 because the remaining individuals would require 8.4 staff (42/5). The provider is unlikely to be able to reduce the staff to a part-time status and to eliminate 2 staff would result in a greater staffing ratio of 42 persons with only 8 staff, a ratio of 1:5.25 individuals that would spread fewer staff over a larger number of people. The provider can reduce staff and pay the remaining staff overtime to work additional hours but at an increased cost not necessarily commensurate with the wage used in the rate.

The current downsizing rate methodology uses the benchmarks to determine the rate adjustments that are necessary to maintain services during the downsizing. The benchmark is the number of persons remaining at a point in time. In a simplified example, a 50-bed facility has had 8 individuals move to a community setting. A rate adjustment multiplier (or factor) is determined as 50/42, which yields a value of 1.19. If the capital rate was $10 per person, for 50 individuals the revenue would be $10 x 50 = $500. But if only 42 persons remain, the income to pay for the mortgage is only $10 x 42 or $420. However, if the multiplier is applied to the $10 rate, the rate becomes $11.90. The revenue for 42 persons at $11.90 is $500, rounded.

In practice, the rate adjustments in the current downsizing methodology as specified in rule are only applied to the capital rate as in the above discussion, and to only one-half of the support rate. The support rate adjustment assumes that one-half of the support operational costs are unchanged but that the other one-half of the costs are variable and go down in proportion to the number of people leaving. The methodology assumes that one-half of the support rate is adequate but there is no data to determine that the portion of the rate that is fixed or variable is precisely one-half. The current downsizing rate methodology prohibits the support rate from increasing beyond the current support ceiling that is part of the normal rate method for ICFs/DD settings. So even with the rate adjustment, the revenue that can be generated to maintain services can fall short over the course of a downsizing.

In the normal, non-downsizing ICFs/DD rate methodology, the program (i.e., direct service) rate component is based on the case mix of the individuals residing in the facility. The level of function of each of the individuals and their medical or behavioral support needs are entered into formulas that calculated the number of direct care staff, QMRPs, and nursing staff. Under the current downsizing rate methodology, the program rate component is recalculated at each benchmark, i.e., after an agreed number of persons have moved but while individuals still remain in the facility. The program rate is redetermined by the case mix of the individuals remaining. Their respective levels of function and their additional staffing needs, if any, associated with medical or behavioral care are used to determine the amount of staff hours that will be funded. As discussed earlier in the above example, it is possible to calculate 8.4 staff equivalent hours but another matter for the provider to actually achieve it.

The current rate methodology was implemented at a time when the ICFs/DD "rate freeze" had only been in effect for a very few years and rates had only been increased by a Cost of Living Allowance (COLA) on one occasion. The methodology did not anticipate the duration of time the rate freeze would continue. The initial downsizing rate methodology only applied the rate adjustment multiplier described above to the base portion of the rate, i.e., the most recent rate without any COLAs. In most cases, the base capital, support, and program components rates were those calculated for FY94. In some instances, the rate freeze has permitted a case-mix program rate recalculation when there has been a 25% or greater turnover of the individuals residing in the facility. In the downsizing methodology, these FY94 base capital and support rates are increased by the multiplier without the COLA then the sum of the COLA incremental and unadjusted amounts are added to the adjusted portion of the rate. Consequently, the downsizing rate methodology has not fully adjusted rates and has not been, perhaps, as useful in encouraging facilities to downsize as it perhaps could have been.

As mentioned earlier, often individuals would choose their current provider that provides both ICFs/DD and CILA services as their provider after a downsizing and relocation. However, until recently there had been a moratorium on new CILA provider development that had prevented some ICFs/DD providers who were not already licensed for CILA from considering downsizing because there was no business alternative for them but to remain an ICFs/DD provider. Now that the moratorium has been lifted, this provides the opportunity, if not the incentive, for ICFs/DD providers to want to downsize and to have the opportunity to continue to provide services to individuals with a developmental disability. Indeed, because of the individuals' and their families' familiarity with their current provider and the staff, individuals may have desired continuing with their same provider and staff who are qualified to work in CILAs in making their choice of where to live and may have not been as interested in changing providers. This could have served as some deterrent to ICFs/DD only providers from pursing downsizing.

Very recently a pending settlement resolution of the Ligas v Maram et al lawsuit has provided further incentives for ICFs/DD facilities to downsize. Although the full ramifications of the pending settlement are not known as of this writing, it does seem evident that changing their services from ICFs/DD is a good business decision for providers, if the financial safety net that downsizing provides is available and adequate.

OVERALL RECOMMENDATION

The ICFs/DD Work Group supports the use of a downsizing rate methodology to encourage and facilitate the shift away from large institutional residential settings and services toward smaller community-based residential settings and other community based services. The Work Group recommends that rule changes, downsizing rate methodology changes, and downsizing agreement changes be made to implement the detailed recommendations that follow.

RECOMMENDATIONS

This Section 1 provides the Work Group's Recommendations on items the Work Group has reviewed over the course of the past several months.

1. The ICFs/DD Downsizing Work Group should participate in the Ligas implementation planning processes of the Division of Developmental Disabilities. As a part of this, the Division should request of DHFS any and all Downsizing and Bed Buy Back resource and reference materials related to Money Follows the Person Initiatives or otherwise.
   1. Each of the three primary components (capital; programming; support services) of the ICFs/DD rate should be enhanced in the downsizing rate methodology (i.e., to use current rates including awarded COLAs rather than just the base portion of the rate).
   2. Do not apply support caps (apply the multiplier to 100% of the support rate rather than 50/50) and lift the support ceiling.
   3. Determine a staffing factor for the program rate to compensate for less than 1 FTE reductions to maintain staffing ratios.

      Discussion of points 1. a - c

      Applying the multiplier to 100% of the current rate would provide a consistent level of funding throughout a downsizing at the same level as prior to the downsizing. One benefit of this is that it will provide adequate funds to pay the provider tax (see #5 below) since the revenue that is the both the basis for the tax and the funds to pay the tax would be unchanged by the downsizing. Upon closure, the tax and the payments would both end at the same time.

      Also, the additional support funds resulting from not applying the ceiling cap could serve as a substitute for the (bed buy-back) incentive to downsize (see #4 below).

      One problem with this enhanced rate adjust methodology is in the event a facility does not close. Funding that continues well after the downsizing objective is reached is not warranted as variable costs should and likely would have reached stasis. As with the current downsizing process, it is proposed that effective with the non-closure benchmark, the program rate be immediately recalculated based on the normal case-mix methodology. Further, the facility should provide a cost report not later than the end of the 7th full month following the conclusion of the non-closure downsizing and the support rate should be calculated using applicable ceilings and the customary support calculation methodology.

      This would require the provider tax payments to continue based on the original beds and not on the new capacity size. The provider tax requirements should be amended to allow a one-time tax basis adjustment to be pro-rated by the proportion of the reduction in capacity effective with the date of the conclusion of the downsizing (statutory, rule, state-plan amendment needed).

      Another problem with this is that the provider has no incentive to progress along benchmarks or to achieve the ending objective benchmark in a timely manner, as long as enhanced payments continue. An incentive is needed. One suggestion is that benchmarks should have firm dates fixed. In the event a provider does not achieve each stated benchmark dates, the rate would immediately revert to the pre-downsizing rate (with a recalculation of any applicable COLA) and the use of the downsizing multiplier would not resume (pick up where it left off) until the next benchmark is reached.

      All benchmark dates would be redetermined, if necessary. Benchmarks could be set as follows: The first benchmark should not be later than 180 days following the signing of the Downsizing Agreement. Subsequent benchmarks may be set at intervals not to exceed 120 days. In the event a benchmark is met earlier, all subsequent benchmarks would not be revised except by mutual agreement of the provider and the Department. In no cases should a Downsizing Agreement extend beyond 1 year for a DD 16 facility, beyond 2 years for a facility of 17 - 60 licensed beds, beyond 3 years for a facility of 61 - 99 licensed beds or greater, and beyond 4 years for a facility of 100 beds or greater

2. The downsizing methodology (enhanced as above) should be applicable to the ICFs/DD/16 settings if all beds are removed from the ICFs/DD/16 inventory, or time-limited so the rate does not remain enhanced for an indefinite time (amounting to little more than a means for an artificial rate increase). Instead, at the end of a specified time, the rate for the remaining ICFs/DD portion of the unclosed facility would be recalculated by a return to the original, non-downsizing rate methodology.
3. Base CILA start-up funding should be applicable to all individuals departing ICFs/DD services and new CILA start-up funding consistent with the current Waiver should be available to ICFs/DD providers closing/converting ICFs/DD buildings or developing CILAs.
4. A "bed buy-back" approach has been considered but the Workgroup could only learn of limited experience and application of the buy back practice in other states. North Dakota discontinued its program several years ago and was unable to qualify for FFP while the program was operating. It is the conclusion of the Workgroup that the additional support funds resulting from not applying the ceiling cap could serve as a substitute for the (bed buy-back) incentive to downsize.
5. The HFS Provider Tax fund should be waived for any ICFs/DD provider agreeing to terminate all beds at the point the downsizing to close reaches 25% or more reduction in licensed beds (not persons). There would not be any prorating of the taxes due for the period prior to the point the downsizing reaches the 25% target. This would require a DHFS rule change and may also require statutory changes.
6. There should be an incentive to develop CILA because there may not be a CILA for a person to go to even though the money would follow the person. Capital funding is needed but the Workgroup has recognized that the Division has not funded CILA construction or purchase in the past and the Workgroup recommends the Division's support for the Illinois Housing Development Authority (IHDA) involvement in financing CILA development loans as a possible source for homes for individuals.

Additional Review and Research Recommendations

In addition to developing estimates for what a typical downsizing would cost for both larger ICFs/DD and ICFs/DD/16 settings, the following areas have been identified for additional review or research.

1. Exploration of a reasonable method to determine a staffing factor for the program rate component to compensate for less than 1 FTE reduction during a downsizing that is part of Recommendation #1 above.
2. Exploration of the changes to the HFS Provider Tax laws and rules that would be necessary to implement Recommendation # 6 above.