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Audit by TN Comptroller Against Health Services Management Group, LLC - Cleveland, Tennessee
Audit by TN Comptroller Against Health Services Management Group, LLC - Cleveland, Tennessee
Cleveland, Tennessee
Home Office Cost Reports
January 1, 2016, Through December 31, 2016
January 1, 2017, Through December 31, 2017
DEBORAH V. LOVELESS, CPA, CGFM, CGMA
Director
Greg Burr
Aaron Oakley
Katie Yarborough
Staff Auditors
Amy Brack
Editor
Amanda Adams
Assistant Editor
Mission Statement
The mission of the Comptroller’s Office is to
make government work better.
Comptroller Website
comptroller.tn.gov
March 24, 2020
Pursuant to Section 71-5-130, Tennessee Code Annotated, and a cooperative agreement between
the Comptroller of the Treasury and the Department of Finance and Administration, the Division
of State Audit performs examinations of nursing facilities and agencies providing home- and
community-based waiver services participating in the Tennessee Medical Assistance Program
under Title XIX of the Social Security Act (Medicaid).
Submitted herewith is the report of the examination of the home office operations of Health
Services Management Group, LLC, in Cleveland, Tennessee, for the period January 1, 2016,
through December 31, 2017.
Sincerely,
DVL/pn
19/027
State of Tennessee
Audit Highlights
Comptroller of the Treasury Division of State Audit
TennCare Report
Health Services Management Group, LLC
Cleveland, Tennessee
Home Office Cost Reports for the Periods
January 1, 2016, Through December 31, 2016, and
January 1, 2017, Through December 31, 2017
TABLE OF CONTENTS
Page
INTRODUCTION 1
Background 1
INTRODUCTION
The terms of contract between the Tennessee Department of Finance and Administration
and the Tennessee Comptroller’s Office authorize the Comptroller of the Treasury to perform
examinations of nursing facilities that participate in the Tennessee Medicaid Nursing Facility
Program.
Under their agreements with the state and as stated on cost reports submitted to the state,
participating nursing facilities have asserted that they are in compliance with the applicable state
and federal regulations covering services provided to Medicaid-eligible recipients. The purpose
of our examination is to render an opinion on the nursing facilities’ assertions that they are in
compliance with such requirements.
BACKGROUND
To receive services under the Medicaid Nursing Facility Program, a recipient must meet
Medicaid eligibility requirements under one of the coverage groups included in the State Plan for
Medical Assistance. The need for nursing care is not in itself sufficient to establish eligibility.
Additionally, a physician must certify that recipients need nursing facility care before they can
be admitted to a facility. Once a recipient is admitted, a physician must certify periodically that
continued nursing care is required. The number of days of coverage available to recipients in a
nursing facility is not limited.
The Medicaid Nursing Facility Program provides for nursing services on two levels of
care. Level I Nursing Facility (NF-1) services are provided to recipients who do not require an
intensive degree of care. Level II Nursing Facility (NF-2) services, which must be under the
direct supervision of licensed nursing personnel and under the general direction of a physician,
represent a higher degree of care.
1
Thomas D. Johnson Revocable Trust U/A Dated October 11, 2011, owns 99.99% and
Judith L. Johnson Revocable Trust U/A Dated October 11, 2011, owns 00.01% of Health
Services Management Group, LLC.
During the examination period, the Health Services Management Group, LLC, reported
total operating expenses of $4,751,771, of which $3,870,834 was reported as Medicaid allowable
costs for the fiscal year ended December 31, 2016. For the fiscal year ended December 31,
2017, it reported operating expenses of $5,402,454, of which $4,502,122 was reported as
Medicaid allowable costs.
The home office has not had an examination within the past five years.
2
Independent Accountant’s Report
December 6, 2018
Expenses reported on the home office cost report are reasonable, allowable, and in
accordance with state and federal rules, regulations, and reimbursement principles.
In our opinion, except for the instance of material noncompliance described above,
management’s assertions that Health Services Management Group, LLC, complied with the
aforementioned requirements for the periods January 1, 2016, through December 31, 2016; and
January 1, 2017, through December 31, 2017, are fairly stated in all material respects.
This report is intended solely for the information and use of the Tennessee General
Assembly and the Tennessee Department of Finance and Administration and is not intended to
be and should not be used by anyone other than these specified parties. However, this report is a
matter of public record, and its distribution is not limited.
Sincerely,
4
FINDING AND RECOMMENDATION
Finding
The home office improperly allocated $511,184.09 of home office expenses to its
subsidiary programs for the year ended December 31, 2016. The nonallowable amounts
consisted of $171,197.26 in unpaid expenses; $135,833.87 in unsupported expenses;
$107,704.00 in unsupported interest expense; $64,035.02 in expenses not incurred by Health
Services Management Group but paid on behalf of other companies; $10,381.15 in prior-year
expenses; $9,511.95 in marketing expenses; $3,423.95 in excess depreciation expense; $2,043.33
in expenses that should have been directly allocated to non-Tennessee nursing facilities;
$1,543.32 in duplicate expenses; $1,475.66 in unsupported travel; $1,442.98 in late fees; $872.03
for parties; $637.91 for flower purchases; $510.00 in penalties; $322.51 in alcohol; and $249.15
in employee personal expenses.
5
Such costs that are not allowable in computing reimbursable costs include, but are not
limited to,
fines, penalties, or interest paid on any tax payments or interest charges on overdue
payables;
advertising costs incurred;
travel expenses which are personal in nature, not proper or related to patient care; and
costs that are not necessary or related to patient care.
Home office costs or related organization costs that are not otherwise allowable costs
when incurred directly by the provider cannot be allowable costs when allocated to providers.
Costs not related to patient care are costs which are not appropriate or necessary
and proper in developing and maintaining the operation of patient care facilities
and activities. Costs which are not necessary include costs which usually are not
common or accepted occurrences in the field of the provider’s activity.
A. Procedure. – Starting with its total costs, including those costs paid on
behalf of providers (or other components in the chain), the home office must
delete all costs which are not allowable in accordance with program instructions.
The remaining costs (total allowable costs) will then be identified as capital-
related costs and noncapital-related costs and allocated as stated below to all the
components – both providers and nonproviders – in the chain which received
services from the home office.
Where the home office incurs costs for activities not related to patient care in the
chain’s participating providers, the allocation bases used must provide for the
appropriate allocation of costs such as rent, administrative salaries, organization
costs, and other general overhead costs which are attributable to nonpatient care
activities, as well as to patient care activities. All activities and functions in the
home office must bear their allocable share of home office overhead and general
administrative costs.
6
B. Costs Directly Allocable to Components. – The initial step in the
allocation process is the direct assignment of costs to the chain components.
Allowable costs incurred for the benefit of, or directly attributable to, a specific
provider or nonprovider activity must be allocated directly to the chain entity for
which they were incurred.
Allowable routine costs will be adjusted for these nonallowable expenses. The effect of
the adjustments to the specific rates of the 11 facilities will be determined at a near-term date,
retroactive to dates of service on and after July 1, 2017.
Recommendation
Health Services Management Group, LLC, should include only allowable expenses on
the home office cost report. All reported expenses should be adequately supported, related to
patient care, and in compliance with applicable rules and regulations.
Management’s Comment