A Key Problem in the Methodology Is the Use of Upper Payment Ceilings That Excessively Restrict Facility Direct Care Costs. Operating costs of nursing facilities are categorized into direct care and indirect care costs. It is the direct care costs that are more closely related to quality of care. However, in practice, DMAS staff have not recalculated these median costs over time, but rather have inflated old median values forward in each year since the system was implemented in 1990. On the other hand, DMAS also has not adjusted indirect operating ceilings to reflect median costs.
Most facilities are now below the median that is used for indirect operating costs.
Coincidentally, the lack of adjustment of the direct care and indirect care operating costs are approximately offsetting in value. However, facilities that have been relatively high in indirect operating costs have been able to obtain a relatively high level of reimbursement to meet these costs. At the same time, facilities, which have tried to increasingly focus their expenditures on the provision of direct care, cannot be adequately reimbursed for these expenditures. Other States Used for Comparison Purposes Allow for Payments Above the Median Cost for Direct Care. It should also be noted that even if DMAS updated the median peer group values that are used, the cost may still be overly restrictive.