Trends in Long-Term Care - U.S. Senate Special Committee on Aging

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The HE-2 is a form which is certified by a CPA, and it is verified
by the operators as be<strong>in</strong>g true and accurate, and a false statement on
these applications would be the same th<strong>in</strong>g as perjury under oath.
The various costs here are limited accord<strong>in</strong>g to certa<strong>in</strong> formulas.
That will be better, if we put it on an easel.
The first cost that we have to consider, are the adm<strong>in</strong>istration costs.
Here, <strong>in</strong> what I term as the adm<strong>in</strong>istration costs box, we are really
talk<strong>in</strong>g about salaries, the operator's <strong>in</strong>come, what the nurs<strong>in</strong>g home
operator-the owner-gets as his salary.
This is someth<strong>in</strong>g that is, he says he is pay<strong>in</strong>g to himself.
Now, these are subject to dollar maximums, the dollar maximums
are calculated by the State department of health, and they vary
accord<strong>in</strong>g to the size of the nurs<strong>in</strong>g home.
For <strong>in</strong>stance, a 100-bed nurs<strong>in</strong>g home will have a maximum salary
of $25,000, and a 250-bed nurs<strong>in</strong>g home will have a maximum salary
of $45,000, so that this is a dollar maximum, and it limits the actual
dollar amounts that can be charged by the adm<strong>in</strong>istrator and pay to
himself, and will be reimbursed for.
The next category is salaries. Now, <strong>in</strong> here, are adm<strong>in</strong>istrative costs
other than the adm<strong>in</strong>istrator's salary, are salaries to all personnel,
with the exception of the nurses, and all other people that would work
with the nurs<strong>in</strong>g home <strong>in</strong> an advisory capacity, for example, lawyers,
and so on, would be <strong>in</strong>cluded <strong>in</strong> this category.
Dietary and food, this <strong>in</strong>cludes the food that is purchased, any outside
consultants that are on that, that have been brought <strong>in</strong>to health,
dietitians would be here, all food suppliers of any sort are <strong>in</strong> here.
Laundry, l<strong>in</strong>en, and housekeep<strong>in</strong>g costs, the same th<strong>in</strong>g.
It <strong>in</strong>cludes purchas<strong>in</strong>g of the soap, buy<strong>in</strong>g of the l<strong>in</strong>ens, clean<strong>in</strong>g
of the l<strong>in</strong>ens, if they were cleaned, buy<strong>in</strong>g of the hospital clothes
smocks, and everyth<strong>in</strong>g for the patients, and there is usually <strong>in</strong>cluded
<strong>in</strong> here also a cloth<strong>in</strong>g allowance for the employees of the nurs<strong>in</strong>g
home.
Down here is real property costs. Now, real property costs were
based upon one of two th<strong>in</strong>gs, if it is a rent situation, it is based
upon a rent.
If it is an ownership situation, where the owner of the nurs<strong>in</strong>g
home actually owns the build<strong>in</strong>g that he is occupy<strong>in</strong>g as a bus<strong>in</strong>ess,
then this will be <strong>in</strong>cluded as a depreciation cost, and the last category
is an equity category; that is, how much equity is left <strong>in</strong> the bus<strong>in</strong>ess
at the end of the year.
Now, this is a very unusual portion of the New York State cost
reimbursement formula. It is a cost-plus system.
Most of the cost-plus systems that the Federal Government uses
are cost-plus systems where if the cost <strong>in</strong>creases, then the profit
<strong>in</strong>creases.
Here the profit is only based upon the amount of the equity <strong>in</strong> the
bus<strong>in</strong>ess, so that <strong>in</strong> the event you double your costs <strong>in</strong> any year, you
would not necessarily double your profit, unless you would <strong>in</strong>crease
your equity.
If your equity is zero, as it is <strong>in</strong> most nurs<strong>in</strong>g homes, then this component
would be totally out, and you would have no profit built <strong>in</strong>,
regardless of how much your costs are.