1.1    .................... moves to amend H. F. No. 721, the first engrossment, as follows:
1.2Page 6, delete section 7
1.3Page 8, delete section 8 and insert:

1.4    "Sec. 7. Minnesota Statutes 2006, section 256B.441, subdivision 1, is amended to read:
1.5    Subdivision 1. Rate determination Rebasing of nursing facility operating cost
1.6payment rates. (a) The commissioner shall establish a value-based nursing facility
1.7reimbursement system which will provide facility-specific, prospective rates for nursing
1.8facilities participating in the medical assistance program. The rates shall be determined
1.9using an annual statistical and cost report filed by each nursing facility. The total payment
1.10rate shall be composed of four rate components: direct care services, support services,
1.11external fixed, and property-related rate components. The payment rate shall be derived
1.12from statistical measures of actual costs incurred in facility operation of nursing facilities.
1.13From this cost basis, the components of the total payment rate shall be adjusted for quality
1.14of services provided, recognition of staffing levels, geographic variation in labor costs, and
1.15resident acuity. The commissioner shall rebase nursing facility operating cost payment
1.16rates to align payments to facilities with the cost of providing care. The rebased operating
1.17cost payment rates shall be calculated using the statistical and cost report filed by each
1.18nursing facility for the report period ending one year prior to the rate year.
1.19    (b) Rates shall be rebased annually. The new operating cost payment rates based on
1.20this section shall take effect beginning with the rate year beginning October 1, 2008, and
1.21shall be phased-in over three rate years through October 1, 2010.
1.22    (c) Operating cost payment rates shall be rebased on October 1, 2011, and every
1.23two years after that date.
1.24    (d) Operating cost payment rates for rate years in which rebasing does not occur
1.25shall be increased by the Global Insight SNF Market Basket inflation factor from the
1.26midpoint of the previous rate year to the midpoint of the next rate year.
2.1    (e) Each cost reporting year shall begin on October 1 and end on the following
2.2September 30. Beginning in 2006, a statistical and cost report shall be filed by each
2.3nursing facility by January 15. Notice of rates shall be distributed by August 15 and the
2.4rates shall go into effect on October 1 for one year.
2.5    (c) The commissioner shall begin to phase in the new reimbursement system
2.6beginning October 1, 2007. Full phase-in shall be completed by October 1, 2011.

2.7    Sec. 8. Minnesota Statutes 2006, section 256B.441, subdivision 2, is amended to read:
2.8    Subd. 2. Definitions. For purposes of this section, the terms in subdivisions 3 to
2.942 42a have the meanings given unless otherwise provided for in this section.

2.10    Sec. 9. Minnesota Statutes 2006, section 256B.441, subdivision 5, is amended to read:
2.11    Subd. 5. Administrative costs. "Administrative costs" means the direct costs for
2.12administering the overall activities of the nursing home. These costs include salaries and
2.13wages of the administrator, assistant administrator, business office employees, security
2.14guards, and associated fringe benefits and payroll taxes, fees, contracts, or purchases
2.15related to business office functions, licenses, and permits except as provided in the
2.16external fixed costs category, employee recognition, travel including meals and lodging,
2.17training, voice and data communication or transmission, office supplies, liability insurance
2.18and other forms of insurance not designated to other areas, personnel recruitment, legal
2.19services, accounting services, management or business consultants, data processing,
2.20information technology, Web site, central or home office costs, business meetings and
2.21seminars, postage, fees for professional organizations, subscriptions, security services,
2.22advertising, board of director's fees, working capital interest expense, and bad debts and
2.23bad debt collection fees.

2.24    Sec. 10. Minnesota Statutes 2006, section 256B.441, subdivision 6, is amended to read:
2.25    Subd. 6. Allowed costs. "Allowed costs" means the amounts reported by the facility
2.26which are necessary for the operation of the facility and the care of residents and which
2.27are reviewed by the department for accuracy, reasonableness, and compliance with this
2.28section and generally accepted accounting principles. All references to costs in this section
2.29shall be assumed to refer to allowed costs.

2.30    Sec. 11. Minnesota Statutes 2006, section 256B.441, subdivision 10, is amended to
2.31read:
2.32    Subd. 10. Dietary costs. "Dietary costs" means the costs for the salaries and wages
2.33of the dietary supervisor, dietitians, chefs, cooks, dishwashers, and other employees
2.34assigned to the kitchen and dining room, and associated fringe benefits and payroll
2.35taxes. Dietary costs also includes the salaries or fees of dietary consultants, direct costs
3.1of raw food (both normal and special diet food), dietary supplies, and food preparation
3.2and serving. Also included are special dietary supplements used for tube feeding or oral
3.3feeding, such as elemental high nitrogen diet, even if written as a prescription item by a
3.4physician.

3.5    Sec. 12. Minnesota Statutes 2006, section 256B.441, subdivision 11, is amended to
3.6read:
3.7    Subd. 11. Direct care costs category. "Direct care costs category" "Direct care
3.8costs" means costs for nursing services, activities, and social services the wages of nursing
3.9administration, staff education, direct care registered nurses, licensed practical nurses,
3.10certified nursing assistants, trained medication aides, and associated fringe benefits and
3.11payroll taxes; services from a supplemental nursing services agency; supplies that are
3.12stocked at nursing stations or on the floor and distributed or used individually, including,
3.13but not limited to: alcohol, applicators, cotton balls, incontinence pads, disposable ice
3.14bags, dressings, bandages, water pitchers, tongue depressors, disposable gloves, enemas,
3.15enema equipment, soap, medication cups, diapers, plastic waste bags, sanitary products,
3.16thermometers, hypodermic needles and syringes, clinical reagents or similar diagnostic
3.17agents, drugs that are not paid on a separate fee schedule by the medical assistance
3.18program or any other payer, and technology related to the provision of nursing care to
3.19residents, such as electronic charting systems.

3.20    Sec. 13. Minnesota Statutes 2006, section 256B.441, subdivision 13, is amended to
3.21read:
3.22    Subd. 13. External fixed costs category. "External fixed costs category" "External
3.23fixed costs" means costs related to the nursing home surcharge under section 256.9657,
3.24subdivision 1 ; licensure fees under section 144.122; long-term care consultation fees
3.25under section 256B.0911, subdivision 6; family advisory council fee under section
3.26 144A.33 ; scholarships under section 256B.431, subdivision 36; planned closure rate
3.27adjustments under section 256B.436 or 256B.437; or single bed room incentives under
3.28section 256B.431, subdivision 42; property taxes and property insurance; and PERA.

3.29    Sec. 14. Minnesota Statutes 2006, section 256B.441, subdivision 14, is amended to
3.30read:
3.31    Subd. 14. Facility average case mix index. "Facility average case mix index" or
3.32"CMI" means a numerical value score that describes the relative resource use for all
3.33residents within the groups under the resource utilization group (RUG-III) classification
3.34system prescribed by the commissioner based on an assessment of each resident. The
3.35facility average CMI shall be computed as the standardized days divided by total days
4.1for all residents in the facility. The RUGs weights used in this section shall be as follows
4.2for each RUGs class: SE3 1.605; SE2 1.247; SE1 1.081; RAD 1.509; RAC 1.259; RAB
4.31.109; RAA 0.957; SSC 1.453; SSB 1.254; SSA 1.047; CC2 1.292; CC1 1.200; CB2
4.41.086; CB1 1.017; CA2 0.908; CA1 0.834; IB2 0.877; IB1 0.817; IA2 0.720; IA1 0.676;
4.5BB2 0.956; BB1 0.885; BA2 0.716; BA1 0.673; PE2 1.199; PE1 1.104; PD2 1.023;
4.6PD1 0.948; PC2 0.926; PC1 0.860; PB2 0.786; PB1 0.734; PA2 0.691; PA1 0.651; BC1
4.70.651; and DDF 1.000

4.8    Sec. 15. Minnesota Statutes 2006, section 256B.441, is amended by adding a
4.9subdivision to read:
4.10    Subd. 14a. Facility type groups. Facilities shall be classified into two groups,
4.11called "facility type groups," which shall consist of:
4.12    (1) C&NC/R80: facilities that are hospital-attached, or are licensed under Minnesota
4.13Rules, parts 9570.2000 to 9570.3600; and
4.14    (2) freestanding: all other facilities.

4.15    Sec. 16. Minnesota Statutes 2006, section 256B.441, subdivision 17, is amended to
4.16read:
4.17    Subd. 17. Fringe benefit costs. "Fringe benefit costs" means the costs for group
4.18life, health, dental, workers' compensation, and other employee insurances and pension,
4.19profit-sharing, and retirement plans for which the employer pays all or a portion of the
4.20costs and that are available to at least all employees who work at least 20 hours per week.

4.21    Sec. 17. Minnesota Statutes 2006, section 256B.441, subdivision 20, is amended to
4.22read:
4.23    Subd. 20. Housekeeping costs. "Housekeeping costs" means the costs for the
4.24salaries and wages of the housekeeping supervisor, housekeepers, and other cleaning
4.25employees and associated fringe benefits and payroll taxes. It also includes the cost of
4.26housekeeping supplies, including, but not limited to, cleaning and lavatory supplies and
4.27contract services.

4.28    Sec. 18. Minnesota Statutes 2006, section 256B.441, subdivision 24, is amended to
4.29read:
4.30    Subd. 24. Maintenance and plant operations costs. "Maintenance and plant
4.31operations costs" means the costs for the salaries and wages of the maintenance supervisor,
4.32engineers, heating-plant employees, and other maintenance employees and associated
4.33fringe benefits and payroll taxes. It also includes direct costs for maintenance and
4.34operation of the building and grounds, including, but not limited to, fuel, electricity,
4.35medical waste and garbage removal, water, sewer, supplies, tools, and repairs.

5.1    Sec. 19. Minnesota Statutes 2006, section 256B.441, is amended by adding a
5.2subdivision to read:
5.3    Subd. 28a. Other direct care costs. "Other direct care costs" means the costs
5.4for the salaries and wages and associated fringe benefits and payroll taxes of mental
5.5health workers, religious personnel, and other direct care employees not specified in
5.6the definition of direct care costs.

5.7    Sec. 20. Minnesota Statutes 2006, section 256B.441, subdivision 30, is amended to
5.8read:
5.9    Subd. 30. Peer groups. Facilities shall be classified into three groups, called "peer
5.10groups," which by county. The groups shall consist of:
5.11    (1) C&NC/Short Stay/R80 - facilities that have three or more admissions per bed
5.12per year, are hospital-attached, or are licensed under Minnesota Rules, parts 9570.2000
5.13to 9570.3600 group one: facilities in Anoka, Benton, Carlton, Carver, Chisago, Dakota,
5.14Dodge, Goodhue, Hennepin, Isanti, Mille Lacs, Morrison, Olmsted, Ramsey, Rice, Scott,
5.15Sherburne, St. Louis, Stearns, Steele, Wabasha, Washington, Winona, or Wright Counties;
5.16    (2) boarding care homes - facilities that have more than 50 percent of their beds
5.17licensed as boarding care homes group two: facilities in Aitkin, Beltrami, Blue Earth,
5.18Brown, Cass, Clay, Cook, Crow Wing, Faribault, Fillmore, Freeborn, Houston, Hubbard,
5.19Itasca, Kanabec, Koochiching, Lake, Lake of the Woods, Le Sueur, Martin, McLeod,
5.20Meeker, Mower, Nicollet, Norman, Pine, Roseau, Sibley, Todd, Wadena, Waseca,
5.21Watonwan, or Wilkin Counties; and
5.22    (3) standard - all other facilities group three: facilities in all other counties.

5.23    Sec. 21. Minnesota Statutes 2006, section 256B.441, subdivision 31, is amended to
5.24read:
5.25    Subd. 31. Prior rate-setting method system operating cost payment rate. "Prior
5.26rate-setting method" "Prior system operating cost payment rate" means the operating cost
5.27payment rate determination process in effect prior to October 1, 2006 on September 30,
5.282008, under Minnesota Rules and Minnesota Statutes, not including planned closure rate
5.29adjustments under section 256B.436 or 256B.437, or single bed room incentives under
5.30section 256B.431, subdivision 42.

5.31    Sec. 22. Minnesota Statutes 2006, section 256B.441, is amended by adding a
5.32subdivision to read:
5.33    Subd. 33a. Raw food costs. "Raw food costs" means the cost of food provided to
5.34nursing facility residents. Also included are special dietary supplements used for tube
5.35feeding or oral feeding, such as elemental high nitrogen diet.

6.1    Sec. 23. Minnesota Statutes 2006, section 256B.441, subdivision 34, is amended to
6.2read:
6.3    Subd. 34. Related organization. "Related organization" means a person that
6.4furnishes goods or services to a nursing facility and that is a close relative of a nursing
6.5facility, an affiliate of a nursing facility, a close relative of an affiliate of a nursing facility,
6.6or an affiliate of a close relative of an affiliate of a nursing facility. As used in this
6.7subdivision, paragraphs (a) to (d) apply:
6.8    (a) "Affiliate" means a person that directly, or indirectly through one or more
6.9intermediaries, controls or is controlled by, or is under common control with another
6.10person.
6.11    (b) "Person" means an individual, a corporation, a partnership, an association, a
6.12trust, an unincorporated organization, or a government or political subdivision.
6.13    (c) "Close relative of an affiliate of a nursing facility" means an individual whose
6.14relationship by blood, marriage, or adoption to an individual who is an affiliate of a
6.15nursing facility is no more remote than first cousin.
6.16    (d) "Control" including the terms "controlling," "controlled by," and "under common
6.17control with" means the possession, direct or indirect, of the power to direct or cause the
6.18direction of the management, operations, or policies of a person, whether through the
6.19ownership of voting securities, by contract, or otherwise, or to influence in any manner
6.20other than through an arms length, legal transaction.

6.21    Sec. 24. Minnesota Statutes 2006, section 256B.441, subdivision 38, is amended to
6.22read:
6.23    Subd. 38. Social services costs. "Social services costs" means the costs for the
6.24salaries and wages of the supervisor and other social work employees, associated fringe
6.25benefits and payroll taxes, supplies, services, and consultants. This category includes the
6.26cost of those employees who manage and process admission to the nursing facility.

6.27    Sec. 25. Minnesota Statutes 2006, section 256B.441, is amended by adding a
6.28subdivision to read:
6.29    Subd. 42a. Therapy costs. "Therapy costs" means any costs related to medical
6.30assistance therapy services provided to residents that are not billed separately from the
6.31daily operating rate."
6.32Page 10, after line 1, insert:

6.33    "Sec. 27. Minnesota Statutes 2006, section 256B.441, is amended by adding a
6.34subdivision to read:
7.1    Subd. 48. Calculation of operating per diems. The direct care per diem for
7.2each facility shall be the facility's direct care costs divided by its standardized days.
7.3The other care-related per diem shall be the sum of the facility's activities costs, other
7.4direct care costs, raw food costs, therapy costs, and social services costs, divided by the
7.5facility's resident days. The other operating per diem shall be the sum of the facility's
7.6administrative costs, dietary costs, housekeeping costs, laundry costs, and maintenance
7.7and plant operations costs divided by the facility's resident days.

7.8    Sec. 28. Minnesota Statutes 2006, section 256B.441, is amended by adding a
7.9subdivision to read:
7.10    Subd. 49. Determination of total care-related per diem. The total care-related
7.11per diem for each facility shall be the sum of the direct care per diem and the other
7.12care-related per diem.

7.13    Sec. 29. Minnesota Statutes 2006, section 256B.441, is amended by adding a
7.14subdivision to read:
7.15    Subd. 50. Determination of total care-related limit. The limit on the total
7.16care-related per diem shall be determined for each peer group and facility type group
7.17combination. A facility's total care-related per diems shall be limited to 120 percent of the
7.18median for the facility's peer and facility type group. The facility-specific direct care costs
7.19used in making this comparison and in the calculation of the median shall be based on a
7.20RUG's weight of 1.00. A facility that is above that limit shall have its total care-related per
7.21diem reduced to the limit. If a reduction of the total care-related per diem is necessary
7.22because of this limit, the reduction shall be made proportionally to both the direct care per
7.23diem and the other care-related per diem.

7.24    Sec. 30. Minnesota Statutes 2006, section 256B.441, is amended by adding a
7.25subdivision to read:
7.26    Subd. 51. Determination of other operating limit. The limit on the other operating
7.27per diem shall be determined for each peer group. A facility's other operating per diem
7.28shall be limited to 105 percent of the median for its peer group. A facility that is above
7.29that limit shall have its other operating per diem reduced to the limit.

7.30    Sec. 31. Minnesota Statutes 2006, section 256B.441, is amended by adding a
7.31subdivision to read:
7.32    Subd. 52. Determination of efficiency incentive. Each facility shall be eligible
7.33for an efficiency incentive based on its other operating per diem. A facility with an other
7.34operating per diem that exceeds the limit in subdivision 51 shall receive no efficiency
7.35incentive. All other facilities shall receive an incentive calculated as 50 percent times the
8.1difference between the facility's other operating per diem and its other operating per diem
8.2limit, up to a maximum incentive of $3.

8.3    Sec. 32. Minnesota Statutes 2006, section 256B.441, is amended by adding a
8.4subdivision to read:
8.5    Subd. 53. Calculation of payment rate for external fixed costs. The commissioner
8.6shall calculate a payment rate for external fixed costs.
8.7    (a) For a facility licensed as a nursing home, the portion related to section 256.9657
8.8shall be equal to $8.86. For a facility licensed as both a nursing home and a boarding care
8.9home, the portion related to section 256.9657 shall be equal to $8.86 multiplied by the
8.10result of its number of nursing home beds divided by its total number of licensed beds.
8.11    (b) The portion related to the licensure fee under section 144.122, paragraph (d),
8.12shall be the amount of the fee divided by actual resident days.
8.13    (c) The portion related to scholarships shall be determined under section 256B.431,
8.14subdivision 36.
8.15    (d) The portion related to long-term care consultation shall be determined according
8.16to section 256B.0911, subdivision 6.
8.17    (e) The portion related to development and education of resident and family advisory
8.18councils under section 144A.33 shall be $5 divided by 365.
8.19    (f) The portion related to planned closure rate adjustments shall be as determined
8.20under sections 256B.436 and 256B.437, subdivision 6.
8.21    (g) The portions related to property insurance, real estate taxes, special assessments,
8.22and payments made in lieu of real estate taxes directly identified or allocated to the nursing
8.23facility shall be the actual amounts divided by actual resident days.
8.24    (h) The portion related to the Public Employees Retirement Association shall be
8.25actual costs divided by resident days.
8.26    (i) The single bed room incentives shall be as determined under section 256B.431,
8.27subdivision 42.
8.28    (j) The payment rate for external fixed costs shall be the sum of the amounts in
8.29paragraphs (a) to (i).

8.30    Sec. 33. Minnesota Statutes 2006, section 256B.441, is amended by adding a
8.31subdivision to read:
8.32    Subd. 54. Adjustment of per diem for inflation. The total care-related per diem
8.33and other operating per diem calculated under this section shall be adjusted for inflation to
8.34adjust for the delay between the reporting year and the rate year. The total care-related
8.35payment rate and other operating payment rate shall be calculated as the per diem
9.1increased by the Global Insight Consumer Price Index urban inflation factor for the period
9.2from the midpoint of the reporting year to the midpoint of the rate year.

9.3    Sec. 34. Minnesota Statutes 2006, section 256B.441, is amended by adding a
9.4subdivision to read:
9.5    Subd. 55. Determination of total payment rates. In rate years when rates are
9.6rebased, the total payment rate for a RUG's weight of 1.00 shall be the sum of the total
9.7care-related payment rate, other operating payment rate, efficiency incentive, external
9.8fixed cost rate, and the property rate determined under section 256B.434. To determine
9.9a total payment rate for each RUG's level, the total care-related payment rate shall be
9.10divided into the direct care payment rate and the other care-related payment rate, and the
9.11direct care payment rate multiplied by the RUG's weight for each RUG's level using the
9.12weights in subdivision 14.

9.13    Sec. 35. Minnesota Statutes 2006, section 256B.441, is amended by adding a
9.14subdivision to read:
9.15    Subd. 56. Phase-in of rebased operating cost payment rates. For the rate years
9.16beginning October 1, 2008, October 1, 2009, and October 1, 2010, the operating cost
9.17payment rate calculated under this section shall be phased-in by blending it with the
9.18operating cost payment rate determined under section 256B.434. For the rate year
9.19beginning October 1, 2008, the operating cost payment rate for each facility shall be
9.20one-third of the operating cost payment rate from this section, and two-thirds of the
9.21operating cost payment rate from section 256B.434. For the rate year beginning October
9.221, 2009, the operating cost payment rate for each facility shall be two-thirds of the
9.23operating cost payment rate from this section, and one-third of the operating cost payment
9.24rate from section 256B.434. For the rate year beginning October 1, 2010, the operating
9.25cost payment rate for each facility shall be the operating cost payment rate determined
9.26under this section. The blending of operating cost payment rates under this section shall
9.27be performed separately for each RUG's class.

9.28    Sec. 36. Minnesota Statutes 2006, section 256B.441, is amended by adding a
9.29subdivision to read:
9.30    Subd. 57. Adjustment for inflation during phase-in of rebased operating cost
9.31payment rates. During the phase-in of operating cost payment rates under subdivision
9.3256, both the operating costs per diem under this section and the operating cost payment
9.33rate under section 256B.434 shall be adjusted for inflation. The adjustment for each year
9.34for the operating cost per diems shall be the Global Insight Consumer Price Index urban
9.35inflation factor from the midpoint of the reporting year to the midpoint of the current rate
10.1year. The adjustment for each year for the operating cost payment rate under section
10.2256B.434 shall be the Global Insight Consumer Price Index urban inflation factor from the
10.3midpoint of the October 1, 2007, rate year to the midpoint of the current rate year.

10.4    Sec. 37. Minnesota Statutes 2006, section 256B.441, is amended by adding a
10.5subdivision to read:
10.6    Subd. 58. Hold harmless. For the rate years beginning October 1, 2008, October 1,
10.72009, and October 1, 2010, no nursing facility shall receive an operating cost payment
10.8rate less than its operating cost payment rate under section 256B.434. The comparison
10.9of operating cost payment rates under this section shall be made for each of the RUG's
10.10classes separately, and the operating cost payment rates under section 256B.434 used
10.11under this section shall not include the inflation increases described in subdivision 57.

10.12    Sec. 38. Minnesota Statutes 2006, section 256B.441, is amended by adding a
10.13subdivision to read:
10.14    Subd. 59. Appeals. Nursing facilities may appeal, as defined under section 256B.50,
10.15the determination of a payment rate established under this chapter."
10.16Page 14, after line 21, insert:

10.17    "Sec. 42. REPEALER.
10.18Minnesota Statutes 2006, section 256B.441, subdivisions 12, 16, 21, 26, 28, 42,
10.19and 45, are repealed."
10.20Renumber the sections in sequence and correct the internal references
10.21Amend the title accordingly