Department of Health and Human Services

Office of Inspector General -- AUDIT

"Adequacy of Washington State's Medicaid Payments to Newport Community Hospital, Long-Term-Care Unit," (A-10-04-00001)

March 8, 2005

Complete Text of Report is available in PDF format (592 kb). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


The objectives of this review were to ascertain whether (1) Medicaid payments to Newport were adequate to cover its operating costs and (2) a link could be drawn between the quality of care that Newport provided to its residents and the amount of Medicaid funding received.  Total Medicaid payments initially made to the nursing home were adequate to cover its operating costs. During the 3 years ended December 31,2002, Newport's Medicaid operating costs were about $6.42 million. During the same period, total Medicaid payments totaled $46.39 million-$5.16 million in per diem payments and $41.23 million in enhanced payments available under the upper-payment-limit regulations. However, the State established per diem rates that were significantly lower than actual costs and required Newport to return about 94 percent of its upper-payment-limit funding. In addition, the State directed Newport to pay about 3 percent of its upper-payment-limit funding to other health organizations. Accordingly, the Medicaid funding that the State allowed Newport to retain was $290,000 less than its total Medicaid operating costs.

 As designed, the State’s upper-payment-limit funding approach using intergovernmental transfers benefited the State and other health organizations more than the nursing home. In effect, the Federal Government provided almost all of the nursing home’s Medicaid funding, contrary to the principle that Medicaid is a shared responsibility of the Federal and State Governments. Another result was that the nursing home was understaffed, which may have affected the quality of care provided to its residents. Newport officials believed that they could improve quality of care if they had more funds to hire additional staff, provide more training, improve the facility, and purchase safety equipment. We recommended that the State (1) consider revising Newport’s per diem rate to more closely reflect operating costs, and (2) allow Newport to retain sufficient funding to cover the costs of providing an adequate level of care to its residents.  The State did not concur with our conclusions and recommendations.