1.1    .................... moves to amend H. F. No. 1395, the first engrossment, as follows:
1.2Page 2, delete section 2 and insert:

1.3    "Sec. 2. Minnesota Statutes 2006, section 256B.441, subdivision 1, is amended to read:
1.4    Subdivision 1. Rate determination Rebasing of nursing facility operating cost
1.5payment rates. (a) The commissioner shall establish a value-based nursing facility
1.6reimbursement system which will provide facility-specific, prospective rates for nursing
1.7facilities participating in the medical assistance program. The rates shall be determined
1.8using an annual statistical and cost report filed by each nursing facility. The total payment
1.9rate shall be composed of four rate components: direct care services, support services,
1.10external fixed, and property-related rate components. The payment rate shall be derived
1.11from statistical measures of actual costs incurred in facility operation of nursing facilities.
1.12From this cost basis, the components of the total payment rate shall be adjusted for quality
1.13of services provided, recognition of staffing levels, geographic variation in labor costs, and
1.14resident acuity. The commissioner shall rebase nursing facility operating cost payment
1.15rates to align payments to facilities with the cost of providing care. The rebased operating
1.16cost payment rates shall be calculated using the statistical and cost report filed by each
1.17nursing facility for the report period ending one year prior to the rate year.
1.18    (b) Rates shall be rebased annually. The new operating cost payment rates based on
1.19this section shall take effect beginning with the rate year beginning October 1, 2008, and
1.20shall be phased-in over three rate years through October 1, 2010.
1.21    (c) Operating cost payment rates shall be rebased on October 1, 2011, and every
1.22two years after that date.
1.23    (d) Operating cost payment rates for rate years in which rebasing does not occur
1.24shall be increased by the Global Insight SNF Market Basket inflation factor from the
1.25midpoint of the previous rate year to the midpoint of the next rate year.
1.26    (e) Each cost reporting year shall begin on October 1 and end on the following
1.27September 30. Beginning in 2006, a statistical and cost report shall be filed by each
2.1nursing facility by January 15. Notice of rates shall be distributed by August 15 and the
2.2rates shall go into effect on October 1 for one year.
2.3    (c) The commissioner shall begin to phase in the new reimbursement system
2.4beginning October 1, 2007. Full phase-in shall be completed by October 1, 2011.

2.5    Sec. 3. Minnesota Statutes 2006, section 256B.441, subdivision 2, is amended to read:
2.6    Subd. 2. Definitions. For purposes of this section, the terms in subdivisions 3 to
2.742 42a have the meanings given unless otherwise provided for in this section.

2.8    Sec. 4. Minnesota Statutes 2006, section 256B.441, subdivision 5, is amended to read:
2.9    Subd. 5. Administrative costs. "Administrative costs" means the direct costs for
2.10administering the overall activities of the nursing home. These costs include salaries and
2.11wages of the administrator, assistant administrator, business office employees, security
2.12guards, and associated fringe benefits and payroll taxes, fees, contracts, or purchases
2.13related to business office functions, licenses, and permits except as provided in the
2.14external fixed costs category, employee recognition, travel including meals and lodging,
2.15training, voice and data communication or transmission, office supplies, liability insurance
2.16and other forms of insurance not designated to other areas, personnel recruitment, legal
2.17services, accounting services, management or business consultants, data processing,
2.18information technology, Web site, central or home office costs, business meetings and
2.19seminars, postage, fees for professional organizations, subscriptions, security services,
2.20advertising, board of director's fees, working capital interest expense, and bad debts and
2.21bad debt collection fees.

2.22    Sec. 5. Minnesota Statutes 2006, section 256B.441, subdivision 6, is amended to read:
2.23    Subd. 6. Allowed costs. "Allowed costs" means the amounts reported by the facility
2.24which are necessary for the operation of the facility and the care of residents and which
2.25are reviewed by the department for accuracy, reasonableness, and compliance with this
2.26section and generally accepted accounting principles. All references to costs in this section
2.27shall be assumed to refer to allowed costs.

2.28    Sec. 6. Minnesota Statutes 2006, section 256B.441, subdivision 10, is amended to read:
2.29    Subd. 10. Dietary costs. "Dietary costs" means the costs for the salaries and wages
2.30of the dietary supervisor, dietitians, chefs, cooks, dishwashers, and other employees
2.31assigned to the kitchen and dining room, and associated fringe benefits and payroll
2.32taxes. Dietary costs also includes the salaries or fees of dietary consultants, direct costs
2.33of raw food (both normal and special diet food), dietary supplies, and food preparation
2.34and serving. Also included are special dietary supplements used for tube feeding or oral
3.1feeding, such as elemental high nitrogen diet, even if written as a prescription item by a
3.2physician.

3.3    Sec. 7. Minnesota Statutes 2006, section 256B.441, subdivision 11, is amended to read:
3.4    Subd. 11. Direct care costs category. "Direct care costs category" "Direct care
3.5costs" means costs for nursing services, activities, and social services the wages of nursing
3.6administration, staff education, direct care registered nurses, licensed practical nurses,
3.7certified nursing assistants, trained medication aides, and associated fringe benefits and
3.8payroll taxes; services from a supplemental nursing services agency; supplies that are
3.9stocked at nursing stations or on the floor and distributed or used individually, including,
3.10but not limited to: alcohol, applicators, cotton balls, incontinence pads, disposable ice
3.11bags, dressings, bandages, water pitchers, tongue depressors, disposable gloves, enemas,
3.12enema equipment, soap, medication cups, diapers, plastic waste bags, sanitary products,
3.13thermometers, hypodermic needles and syringes, clinical reagents or similar diagnostic
3.14agents, drugs that are not paid on a separate fee schedule by the medical assistance
3.15program or any other payer, and technology related to the provision of nursing care to
3.16residents, such as electronic charting systems.

3.17    Sec. 8. Minnesota Statutes 2006, section 256B.441, subdivision 13, is amended to read:
3.18    Subd. 13. External fixed costs category. "External fixed costs category" "External
3.19fixed costs" means costs related to the nursing home surcharge under section 256.9657,
3.20subdivision 1 ; licensure fees under section 144.122; long-term care consultation fees
3.21under section 256B.0911, subdivision 6; family advisory council fee under section
3.22 144A.33 ; scholarships under section 256B.431, subdivision 36; planned closure rate
3.23adjustments under section 256B.436 or 256B.437; or single bed room incentives under
3.24section 256B.431, subdivision 42; property taxes and property insurance; and PERA.

3.25    Sec. 9. Minnesota Statutes 2006, section 256B.441, subdivision 14, is amended to read:
3.26    Subd. 14. Facility average case mix index. "Facility average case mix index" or
3.27"CMI" means a numerical value score that describes the relative resource use for all
3.28residents within the groups under the resource utilization group (RUG-III) classification
3.29system prescribed by the commissioner based on an assessment of each resident. The
3.30facility average CMI shall be computed as the standardized days divided by total days
3.31for all residents in the facility. The RUGs weights used in this section shall be as follows
3.32for each RUGs class: SE3 1.605; SE2 1.247; SE1 1.081; RAD 1.509; RAC 1.259; RAB
3.331.109; RAA 0.957; SSC 1.453; SSB 1.254; SSA 1.047; CC2 1.292; CC1 1.200; CB2
3.341.086; CB1 1.017; CA2 0.908; CA1 0.834; IB2 0.877; IB1 0.817; IA2 0.720; IA1 0.676;
3.35BB2 0.956; BB1 0.885; BA2 0.716; BA1 0.673; PE2 1.199; PE1 1.104; PD2 1.023;
4.1PD1 0.948; PC2 0.926; PC1 0.860; PB2 0.786; PB1 0.734; PA2 0.691; PA1 0.651; BC1
4.20.651; and DDF 1.000

4.3    Sec. 10. Minnesota Statutes 2006, section 256B.441, is amended by adding a
4.4subdivision to read:
4.5    Subd. 14a. Facility type groups. Facilities shall be classified into two groups,
4.6called "facility type groups," which shall consist of:
4.7    (1) C&NC/R80: facilities that are hospital-attached, or are licensed under Minnesota
4.8Rules, parts 9570.2000 to 9570.3600; and
4.9    (2) freestanding: all other facilities.

4.10    Sec. 11. Minnesota Statutes 2006, section 256B.441, subdivision 17, is amended to
4.11read:
4.12    Subd. 17. Fringe benefit costs. "Fringe benefit costs" means the costs for group
4.13life, health, dental, workers' compensation, and other employee insurances and pension,
4.14profit-sharing, and retirement plans for which the employer pays all or a portion of the
4.15costs and that are available to at least all employees who work at least 20 hours per week.

4.16    Sec. 12. Minnesota Statutes 2006, section 256B.441, subdivision 20, is amended to
4.17read:
4.18    Subd. 20. Housekeeping costs. "Housekeeping costs" means the costs for the
4.19salaries and wages of the housekeeping supervisor, housekeepers, and other cleaning
4.20employees and associated fringe benefits and payroll taxes. It also includes the cost of
4.21housekeeping supplies, including, but not limited to, cleaning and lavatory supplies and
4.22contract services.

4.23    Sec. 13. Minnesota Statutes 2006, section 256B.441, subdivision 24, is amended to
4.24read:
4.25    Subd. 24. Maintenance and plant operations costs. "Maintenance and plant
4.26operations costs" means the costs for the salaries and wages of the maintenance supervisor,
4.27engineers, heating-plant employees, and other maintenance employees and associated
4.28fringe benefits and payroll taxes. It also includes direct costs for maintenance and
4.29operation of the building and grounds, including, but not limited to, fuel, electricity,
4.30medical waste and garbage removal, water, sewer, supplies, tools, and repairs.

4.31    Sec. 14. Minnesota Statutes 2006, section 256B.441, is amended by adding a
4.32subdivision to read:
4.33    Subd. 28a. Other direct care costs. "Other direct care costs" means the costs
4.34for the salaries and wages and associated fringe benefits and payroll taxes of mental
5.1health workers, religious personnel, and other direct care employees not specified in
5.2the definition of direct care costs.

5.3    Sec. 15. Minnesota Statutes 2006, section 256B.441, subdivision 30, is amended to
5.4read:
5.5    Subd. 30. Peer groups. Facilities shall be classified into three groups, called "peer
5.6groups," which by county. The groups shall consist of:
5.7    (1) C&NC/Short Stay/R80 - facilities that have three or more admissions per bed
5.8per year, are hospital-attached, or are licensed under Minnesota Rules, parts 9570.2000
5.9to 9570.3600 group one: facilities in Anoka, Benton, Carlton, Carver, Chisago, Dakota,
5.10Dodge, Goodhue, Hennepin, Isanti, Mille Lacs, Morrison, Olmsted, Ramsey, Rice, Scott,
5.11Sherburne, St. Louis, Stearns, Steele, Wabasha, Washington, Winona, or Wright Counties;
5.12    (2) boarding care homes - facilities that have more than 50 percent of their beds
5.13licensed as boarding care homes group two: facilities in Aitkin, Beltrami, Blue Earth,
5.14Brown, Cass, Clay, Cook, Crow Wing, Faribault, Fillmore, Freeborn, Houston, Hubbard,
5.15Itasca, Kanabec, Koochiching, Lake, Lake of the Woods, Le Sueur, Martin, McLeod,
5.16Meeker, Mower, Nicollet, Norman, Pine, Roseau, Sibley, Todd, Wadena, Waseca,
5.17Watonwan, or Wilkin Counties; and
5.18    (3) standard - all other facilities group three: facilities in all other counties.

5.19    Sec. 16. Minnesota Statutes 2006, section 256B.441, subdivision 31, is amended to
5.20read:
5.21    Subd. 31. Prior rate-setting method system operating cost payment rate. "Prior
5.22rate-setting method" "Prior system operating cost payment rate" means the operating cost
5.23payment rate determination process in effect prior to October 1, 2006 on September 30,
5.242008, under Minnesota Rules and Minnesota Statutes, not including planned closure rate
5.25adjustments under section 256B.436 or 256B.437, or single bed room incentives under
5.26section 256B.431, subdivision 42.

5.27    Sec. 17. Minnesota Statutes 2006, section 256B.441, is amended by adding a
5.28subdivision to read:
5.29    Subd. 33a. Raw food costs. "Raw food costs" means the cost of food provided to
5.30nursing facility residents. Also included are special dietary supplements used for tube
5.31feeding or oral feeding, such as elemental high nitrogen diet.

5.32    Sec. 18. Minnesota Statutes 2006, section 256B.441, subdivision 34, is amended to
5.33read:
5.34    Subd. 34. Related organization. "Related organization" means a person that
5.35furnishes goods or services to a nursing facility and that is a close relative of a nursing
6.1facility, an affiliate of a nursing facility, a close relative of an affiliate of a nursing facility,
6.2or an affiliate of a close relative of an affiliate of a nursing facility. As used in this
6.3subdivision, paragraphs (a) to (d) apply:
6.4    (a) "Affiliate" means a person that directly, or indirectly through one or more
6.5intermediaries, controls or is controlled by, or is under common control with another
6.6person.
6.7    (b) "Person" means an individual, a corporation, a partnership, an association, a
6.8trust, an unincorporated organization, or a government or political subdivision.
6.9    (c) "Close relative of an affiliate of a nursing facility" means an individual whose
6.10relationship by blood, marriage, or adoption to an individual who is an affiliate of a
6.11nursing facility is no more remote than first cousin.
6.12    (d) "Control" including the terms "controlling," "controlled by," and "under common
6.13control with" means the possession, direct or indirect, of the power to direct or cause the
6.14direction of the management, operations, or policies of a person, whether through the
6.15ownership of voting securities, by contract, or otherwise, or to influence in any manner
6.16other than through an arms length, legal transaction.

6.17    Sec. 19. Minnesota Statutes 2006, section 256B.441, subdivision 38, is amended to
6.18read:
6.19    Subd. 38. Social services costs. "Social services costs" means the costs for the
6.20salaries and wages of the supervisor and other social work employees, associated fringe
6.21benefits and payroll taxes, supplies, services, and consultants. This category includes the
6.22cost of those employees who manage and process admission to the nursing facility.

6.23    Sec. 20. Minnesota Statutes 2006, section 256B.441, is amended by adding a
6.24subdivision to read:
6.25    Subd. 42a. Therapy costs. "Therapy costs" means any costs related to medical
6.26assistance therapy services provided to residents that are not billed separately from the
6.27daily operating rate.

6.28    Sec. 21. Minnesota Statutes 2006, section 256B.441, is amended by adding a
6.29subdivision to read:
6.30    Subd. 48. Calculation of operating per diems. The direct care per diem for
6.31each facility shall be the facility's direct care costs divided by its standardized days.
6.32The other care-related per diem shall be the sum of the facility's activities costs, other
6.33direct care costs, raw food costs, therapy costs, and social services costs, divided by the
6.34facility's resident days. The other operating per diem shall be the sum of the facility's
7.1administrative costs, dietary costs, housekeeping costs, laundry costs, and maintenance
7.2and plant operations costs divided by the facility's resident days.

7.3    Sec. 22. Minnesota Statutes 2006, section 256B.441, is amended by adding a
7.4subdivision to read:
7.5    Subd. 49. Determination of total care-related per diem. The total care-related
7.6per diem for each facility shall be the sum of the direct care per diem and the other
7.7care-related per diem.

7.8    Sec. 23. Minnesota Statutes 2006, section 256B.441, is amended by adding a
7.9subdivision to read:
7.10    Subd. 50. Determination of total care-related limit. The limit on the total
7.11care-related per diem shall be determined for each peer group and facility type group
7.12combination. A facility's total care-related per diems shall be limited to 120 percent of the
7.13median for the facility's peer and facility type group. The facility-specific direct care costs
7.14used in making this comparison and in the calculation of the median shall be based on a
7.15RUG's weight of 1.00. A facility that is above that limit shall have its total care-related per
7.16diem reduced to the limit. If a reduction of the total care-related per diem is necessary
7.17because of this limit, the reduction shall be made proportionally to both the direct care per
7.18diem and the other care-related per diem.

7.19    Sec. 24. Minnesota Statutes 2006, section 256B.441, is amended by adding a
7.20subdivision to read:
7.21    Subd. 51. Determination of other operating limit. The limit on the other operating
7.22per diem shall be determined for each peer group. A facility's other operating per diem
7.23shall be limited to 105 percent of the median for its peer group. A facility that is above
7.24that limit shall have its other operating per diem reduced to the limit.

7.25    Sec. 25. Minnesota Statutes 2006, section 256B.441, is amended by adding a
7.26subdivision to read:
7.27    Subd. 52. Determination of efficiency incentive. Each facility shall be eligible
7.28for an efficiency incentive based on its other operating per diem. A facility with an other
7.29operating per diem that exceeds the limit in subdivision 51 shall receive no efficiency
7.30incentive. All other facilities shall receive an incentive calculated as 50 percent times the
7.31difference between the facility's other operating per diem and its other operating per diem
7.32limit, up to a maximum incentive of $3.

7.33    Sec. 26. Minnesota Statutes 2006, section 256B.441, is amended by adding a
7.34subdivision to read:
8.1    Subd. 53. Calculation of payment rate for external fixed costs. The commissioner
8.2shall calculate a payment rate for external fixed costs.
8.3    (a) For a facility licensed as a nursing home, the portion related to section 256.9657
8.4shall be equal to $8.86. For a facility licensed as both a nursing home and a boarding care
8.5home, the portion related to section 256.9657 shall be equal to $8.86 multiplied by the
8.6result of its number of nursing home beds divided by its total number of licensed beds.
8.7    (b) The portion related to the licensure fee under section 144.122, paragraph (d),
8.8shall be the amount of the fee divided by actual resident days.
8.9    (c) The portion related to scholarships shall be determined under section 256B.431,
8.10subdivision 36.
8.11    (d) The portion related to long-term care consultation shall be determined according
8.12to section 256B.0911, subdivision 6.
8.13    (e) The portion related to development and education of resident and family advisory
8.14councils under section 144A.33 shall be $5 divided by 365.
8.15    (f) The portion related to planned closure rate adjustments shall be as determined
8.16under sections 256B.436 and 256B.437, subdivision 6.
8.17    (g) The portions related to property insurance, real estate taxes, special assessments,
8.18and payments made in lieu of real estate taxes directly identified or allocated to the nursing
8.19facility shall be the actual amounts divided by actual resident days.
8.20    (h) The portion related to the Public Employees Retirement Association shall be
8.21actual costs divided by resident days.
8.22    (i) The single bed room incentives shall be as determined under section 256B.431,
8.23subdivision 42.
8.24    (j) The payment rate for external fixed costs shall be the sum of the amounts in
8.25paragraphs (a) to (i).

8.26    Sec. 27. Minnesota Statutes 2006, section 256B.441, is amended by adding a
8.27subdivision to read:
8.28    Subd. 54. Adjustment of per diem for inflation. The total care-related per diem
8.29and other operating per diem calculated under this section shall be adjusted for inflation to
8.30adjust for the delay between the reporting year and the rate year. The total care-related
8.31payment rate and other operating payment rate shall be calculated as the per diem
8.32increased by the Global Insight Consumer Price Index urban inflation factor for the period
8.33from the midpoint of the reporting year to the midpoint of the rate year.

8.34    Sec. 28. Minnesota Statutes 2006, section 256B.441, is amended by adding a
8.35subdivision to read:
9.1    Subd. 55. Determination of total payment rates. In rate years when rates are
9.2rebased, the total payment rate for a RUG's weight of 1.00 shall be the sum of the total
9.3care-related payment rate, other operating payment rate, efficiency incentive, external
9.4fixed cost rate, and the property rate determined under section 256B.434. To determine
9.5a total payment rate for each RUG's level, the total care-related payment rate shall be
9.6divided into the direct care payment rate and the other care-related payment rate, and the
9.7direct care payment rate multiplied by the RUG's weight for each RUG's level using the
9.8weights in subdivision 14.

9.9    Sec. 29. Minnesota Statutes 2006, section 256B.441, is amended by adding a
9.10subdivision to read:
9.11    Subd. 56. Phase-in of rebased operating cost payment rates. For the rate years
9.12beginning October 1, 2008, October 1, 2009, and October 1, 2010, the operating cost
9.13payment rate calculated under this section shall be phased-in by blending it with the
9.14operating cost payment rate determined under section 256B.434. For the rate year
9.15beginning October 1, 2008, the operating cost payment rate for each facility shall be
9.16one-third of the operating cost payment rate from this section, and two-thirds of the
9.17operating cost payment rate from section 256B.434. For the rate year beginning October
9.181, 2009, the operating cost payment rate for each facility shall be two-thirds of the
9.19operating cost payment rate from this section, and one-third of the operating cost payment
9.20rate from section 256B.434. For the rate year beginning October 1, 2010, the operating
9.21cost payment rate for each facility shall be the operating cost payment rate determined
9.22under this section. The blending of operating cost payment rates under this section shall
9.23be performed separately for each RUG's class.

9.24    Sec. 30. Minnesota Statutes 2006, section 256B.441, is amended by adding a
9.25subdivision to read:
9.26    Subd. 57. Adjustment for inflation during phase-in of rebased operating cost
9.27payment rates. During the phase-in of operating cost payment rates under subdivision
9.2856, both the operating costs per diem under this section and the operating cost payment
9.29rate under section 256B.434 shall be adjusted for inflation. The adjustment for each year
9.30for the operating cost per diems shall be the Global Insight Consumer Price Index urban
9.31inflation factor from the midpoint of the reporting year to the midpoint of the current rate
9.32year. The adjustment for each year for the operating cost payment rate under section
9.33256B.434 shall be the Global Insight Consumer Price Index urban inflation factor from the
9.34midpoint of the October 1, 2007, rate year to the midpoint of the current rate year.

10.1    Sec. 31. Minnesota Statutes 2006, section 256B.441, is amended by adding a
10.2subdivision to read:
10.3    Subd. 58. Hold harmless. For the rate years beginning October 1, 2008, October 1,
10.42009, and October 1, 2010, no nursing facility shall receive an operating cost payment
10.5rate less than its operating cost payment rate under section 256B.434. The comparison
10.6of operating cost payment rates under this section shall be made for each of the RUG's
10.7classes separately, and the operating cost payment rates under section 256B.434 used
10.8under this section shall not include the inflation increases described in subdivision 57.

10.9    Sec. 32. Minnesota Statutes 2006, section 256B.441, is amended by adding a
10.10subdivision to read:
10.11    Subd. 59. Appeals. Nursing facilities may appeal, as defined under section 256B.50,
10.12the determination of a payment rate established under this chapter."
10.13Page 9, after line 4, insert:

10.14    "Sec. 39. REPEALER.
10.15Minnesota Statutes 2006, section 256B.441, subdivisions 12, 16, 21, 26, 28, 42,
10.16and 45, are repealed."
10.17Renumber the sections in sequence and correct the internal references
10.18Amend the title accordingly