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

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Senator Mloss. Now, equity, is that the total bus<strong>in</strong>ess, or just the
real property?
Mr. MOAN. It is-that equity is for the bus<strong>in</strong>ess of runn<strong>in</strong>g the
nurs<strong>in</strong>g home itself.
If it is owner occupied, this would be-the equity of the build<strong>in</strong>g
would be <strong>in</strong>cluded <strong>in</strong> that portion of the formula. However, most that
you would be talk<strong>in</strong>g about are not owner occupied, they are rented,
and, therefore, the equity is merely the capital that rema<strong>in</strong>s <strong>in</strong> the
bus<strong>in</strong>ess.
There are limitations. These are all <strong>in</strong>cluded <strong>in</strong> the HE-2. Once
it goes to Albany, we start work<strong>in</strong>g with the HE-12's, which is a
derivative, calculation basis that the State uses.
The HE-12 is where the maximum costs are set out, and this is
where disallowances beg<strong>in</strong>, and the adm<strong>in</strong>istration costs, as I expla<strong>in</strong>ed
earlier, there is an actual dollar amount set on the adm<strong>in</strong>istrator's
salary.
For these other three components-salaries, dietary, and l<strong>in</strong>en and
housekeep<strong>in</strong>g costs-there is no dollar amount. There is merely a
category average, plus 15 percent.
Now, that would say, if you have a per group of nurs<strong>in</strong>g homes, if,
for example, nurs<strong>in</strong>g homes <strong>in</strong> New York City are the slze of 50 to
150 beds, are one category, then your average salaries would be compared
to all of the other per group nurs<strong>in</strong>g home salaries, so that if
you were pay<strong>in</strong>g your employees $100,000, and the average of the
category was $100,000, it would be totally allowed, and that would be
reimbursed.
If your food was runn<strong>in</strong>g $100,000, and the average for the system
was $100,000, that would be reimbursed.
The same th<strong>in</strong>g for l<strong>in</strong>en and laundry. Where the limitation comes
<strong>in</strong>to play, is if the average for the category is $100,000, you say that
you spent $150,000, then they will allow only up to the ceil<strong>in</strong>g, which
would be $115,000, so they would disallow the $35,000, and the extra
salaries paid out.
The same th<strong>in</strong>g <strong>in</strong> dietary, the same th<strong>in</strong>g <strong>in</strong> l<strong>in</strong>en and laundry.
These all come <strong>in</strong>to the cost of the operation, all of these costs are
then added up, and are divided by the number of patient days, and
you come out with your average cost of operat<strong>in</strong>g the facility.
That is then multiplied by an <strong>in</strong>flation factor. The problem here is
that all of these costs were certified to <strong>in</strong> 1 year. These costs, for example,
now are be<strong>in</strong>g submitted for 1973.
Clearly, <strong>in</strong>flation has affected those costs, fuel has gone up, food
has gone up, all of the other costs of runn<strong>in</strong>g the <strong>in</strong>stitution has gone
lip, so, therefore, you have to <strong>in</strong>flate all of those costs, that they have
certified to by some factors <strong>in</strong> order to update them to 1975 figures,
so this year, the <strong>in</strong>flation factor is runn<strong>in</strong>g at 23 percent for nurs<strong>in</strong>g
homes <strong>in</strong> New York.
The ones I have looked at have all had that percentage <strong>in</strong>crease, so
that whatever costs you have here, subject to these limitations, are
<strong>in</strong>creased by 23 percent.
Those two costs are then added up, and they are added up to the real
property, and the return on equity will give you your f<strong>in</strong>al rate.
The real property costs are a complicated part of the formula. They
are complicated for the simple reason that they are illogical, and be-