MINUTES

WISCONSIN BOARD OF VETERANS AFFAIRS

Special Meeting of September 21, 2010
Madison, Wisconsin

Board Members Present WDVA Present

Dan Naylor, Chair Donna Williams, Deputy Secretary
Marv Freedman José León, Executive Assistant
Rod Moen Jimmy Stewart, Chief Legal Counsel
Pete Moran (via teleconference) Colleen Holtan, Budget Office
Dave Boetcher Mike Diaz, Assistant Legal Counsel
Sara Stinski, Communications Director
Board Members Excused Brian Marshall, Division Administrator
None Jackie Moore, Acting Commandant, King
Mary Pavlick, King Veterans Home
Others Present Kathleen Scholl, Communications Specialist
Leo Endres, American Legion Pat Shaughnessy, Acting Commandant UG
Roger Fetterly, MOAA Julie Van Metre, Executive Staff Assistant
Joe Fontaine, LAB Deb Ripp, Office of Legal Counsel
Mike “Gunner” Furgal, VFW
Mike Gourlie, WACVO
Al Labelle, DAV Judge Advocate
Steve Lawrence, VFW Adjutant
Janice Mueller, LAB
Chuck Roloff, American Legion
Ashley Siefert, Sen. Sullivan’s Office
Karina Silver, State Budget Office
Kate Strom Hiorns, LAB
Paul Stuiber, LAB

1. Roll Call and Introductions

The meeting of the Board of Veterans Affairs was called to order at 1:00 p.m. The
Pledge of Allegiance was recited followed by a moment of silence. A quorum was
present. Chair Naylor thanked all the visitors in the audience, members of the veterans
organizations and staff members.

2. Certification of Notice of Meeting

It was certified that proper notification of the meeting occurred.

3. Briefing by the Legislative Audit Bureau, Board Discussion and Action on the Findings
and Recommendations Reported in LAB’s Letter Audit: Rate Setting at the Wisconsin
Veterans Homes – August 2010
Ms. Janice Mueller, State Auditor and Director of the non-partisan Legislative Audit
Bureau and Mr. Paul Stuiber, Deputy State Auditor, were introduced. Ms. Mueller
introduced two of her colleagues, Kate Strom-Hiorns, Supervisor for the project and Joe

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Fontaine who worked on the letter report. Ms. Mueller noted that rate setting was the
first phase of evaluations of Veterans Home operations.

The audit findings were summarized by Mr. Stuiber as follows:

In October 2009, the Joint Legislative Audit Committee approved a comprehensive

review of Wisconsin Veterans Homes based on a request from the Wisconsin Board of
Veterans Affairs, which voted unanimously to request the audit. Recently, significant
increases in the daily private pay charges for long term care at Union Grove have raised
concerns about the Department’s rate setting practices. Therefore, the LAB examined
rate setting as the first phase of a comprehensive evaluation of the Wisconsin Veterans
Homes. The letter report released last month examined the occupancy trends, revenues
and expenditures, trends in private pay rates and private pay rate calculation methods.
The Veterans Home at King currently provides multiple levels of nursing care in four
facilities, with a combined capacity of 721 beds. The Veterans Home at Union Grove
opened in 2001 as a residential living facility. It subsequently expanded to include
nursing care. Union Grove currently provides 123 beds in three assisted living facilities
and 120 nursing home beds which were added in phases from 2006 through 2008. Over
the past five and a half years the occupancy rate of King’s nursing facilities has declined
slightly, decreasing from 99.7% in June 2005 to 94.3% in December of 2009. The
occupancy rate of Union Grove’s nursing facility has generally increased over time,
growing from 60% in June 2007 to 96.7% in December 2009. In contrast, the occupancy
rate of Union Grove’s assisted living facilities increased from a low of 67.2% in June
2005 to a high of 88.5% in June 2008. In December 2009 the occupancy rate for assisted
living fell to 74%.

The Homes operations are funded primarily with five sources. State and federal
Medical Assistance payments, payments by residents at private pay rates, federal per diem
payments for all residents who are veterans but not for their spouses, federal Medicare
payments at Union Grove only, and federal funding for veterans with service-connected
disabilities receiving nursing care. Although nursing home care at both facilities is funded
primarily with Medical Assistance, approximately 10% of King residents and 25% of
Union Grove’s nursing home residents paid for care with their own funds in December
2009. Because neither Medical Assistance Medicare nor the federal service-connected
disability program funds assisted living care, 73 of the 91 residents in the assisted living
facilities at Union Grove, including all spouses, used their own funds to pay for most of
their cost of care in December 2009. Assisted living care for the other 18 residents was
either fully or partially funded by the state’s Aid to Indigent Veterans Program. That
program was established by the Board of Veterans Affairs in 2005 and is currently funded
with $198,000 in GPR and with additional program revenue each year.

The majority of expenditures for Veterans Homes are for the salaries and fringe
benefits of staff. In fiscal year 2008-09 these costs accounted for $65.7 million, or 73%
of total expenditures. Total expenditures increased from $54.6 million in fiscal year
2004-05 to $89.7 million in fiscal year 2008-09 and have exceeded revenues in four of the
past five fiscal years. The Homes have remained solvent largely because of $20.1 million
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received in fiscal year 2005-06 as a Medical Assistance reimbursement rate adjustment for
care provided at King for 2001-2005. Carryover funds from that one-time payment have
allowed DVA to fully fund the Home’s operations in subsequent years and to maintain a
$9.5 million account operating balance at the end of fiscal year 2008-09.

Private pay rates for both skilled nursing and assisted living care vary widely during
the period of review, primarily because of significant rate increases at Union Grove since
January 2008, particularly for the spouses of veterans. The 2009-10 rate increases for all
levels of care at Union Grove were significantly greater than earlier increases at either
Home. Rates for the majority of veterans in assisted living facilities at Union Grove who
received Level A care increased 59% since January 2008 or $15,400 annually. Rate
increases were even more significant for spouses in the Union Grove assisted living
facilities. They ranged from 74% to 285% or from $23,400 to $40,500 annually.
Nursing Home rates for veterans receiving skilled nursing care increased 46% or $29,500
annually at Union Grove and 18% or $11,300 at King.

Private pay rate setting at the Veterans Home is governed exclusively by

Administrative Rules promulgated by the Board of Veterans Affairs. These rules require
the Homes to calculate private-pay rates each January based upon the estimated cost of
care to be incurred during the following year, provide for rate changes each July to reflect
updated cost estimates, and specifies that charges shall be made for the actual care and
maintenance provided to a resident. During the period of review, private pay rates for
nursing care at King had been calculated based on the average cost per resident, which
staff estimated by dividing projected operating expenditures for the coming year by the
projected number of residents.

In contrast, since its opening in 2006, Union Grove’s nursing home rates have been
set using three different methods. Some DVA staff believe that Union Grove’s initial
approach to rate setting, which set rates to cover the difference between projected
expenditures and projected revenues, did not comply with Administrative Rules because
private-pay rates set according to that method did not ensure that residents were charged
for the actual cost of their care and maintenance. DVA staff who objected to Union
Grove’s initial approach believe the methodology adopted in March 2007, which bases
rates on average cost per resident and is also used at King, better complies with
Administrative Rules. However, until January 2009, the rates established using this
methodology reflected only King’s cost of care because rate setting staff did not believe
Union Grove’s own cost could be projected accurately at that time using historical data.
However, even when those data were available, DVA officials chose to avoid a rate spike
by continuing to set nursing rates at both Homes based on expenditure projections for
King alone. Since July 2009 Union Grove’s private pay rates for nursing care have been
set to fully recover the Homes projected expenditures but they have raised affordability
concerns for veterans and their advocates. Similarly, private pay rates for assisted living
care for veterans were calculated using a variety of methods during the period of review.
However, only the current rate setting method fully complies with the Administrative
Rule requirement that private-pay rates be calculated each January, based on the
estimated cost of care incurred by the Home during the fall of the year. Rates were often
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set in October rather than in January as required. In addition, to prevent rate spikes and
increase occupancy, assisted living rates for both veterans and spouses were not based on
the full cost of care. For example, spouses living with veterans paid lower rates than
those set for any other residents during most of the period under review. Internal DVA
analyses identified Union Grove’s practice of setting its rates below projected costs as an
ongoing cause of financial losses because private pay rates were not high enough to
recoup actual expenditures and the facilities were unable to achieve full occupancy. Rates
for both veterans and their spouses are generally consistent with projected expenditures
and took effect in January 2010.

Although DVA staff believe that both nursing home rates and assisted living rates are
now in compliance with a reasonable interpretation of Administrative Rules, concerns
remain. For example, existing rules have not been clearly or consistently understood.
Neither Statutes nor Administrative Rules require the Board of Veterans Affairs to
approve the rates set by DVA and it has not done so during the period under review.
Terms such as “estimated cost of care” have been interpreted in various ways by DVA
staff and by others and DVA has not established rules or policies to specify which
expenditures should be included in estimates of cost of care and to clarify how occupancy
should be projected for rate setting purposes. By establishing more specific rate setting
rules and policies, the Board could begin to resolve the disagreements over interpretation
of the current rule, clarify appropriate calculation procedures and support adequate
oversight of future rate setting decisions, which may help to avoid future rate increases as
substantial as the 2009 and 2010 increases experienced at Union Grove. The LAB
included recommendations in its report as well as a recommendation for the Board to
require DVA to report to the Joint Legislative Audit Committee by January 24, 2011 on
its progress to implement rate changes.

While King maintained surpluses each year throughout the review period, Union
Grove has had a deficit in each year. These deficits have ranged from $2.6 million in
fiscal year 2004-05 to $6.5 million in fiscal year 2006-07. DVA officials have addressed
Union Grove’s deficits by transferring a total of $21 million in surplus funds from King to
Union Grove. These transfers were possible largely because of the $20 million one-time
retroactive Medical Assistance payment King received in fiscal year 2005-06. Although
Union Grove’s deficits were partly caused by rates that had been set below projected
expenditures, it appears that rate increases alone will be insufficient to address solvency in
the short term and may in fact present additional challenges. As anticipated by DVA’s
own projections, some residents could not afford the increases. Between January and
June 2010 at least 12 residents left Union Grove assisted living facilities as a result of the
rate increases. Increased rates could also potentially discourage new residents from
applying to the Home.

At present, DVA plans to continue supporting Union Grove’s deficits through

continued transfer of funds from King’s $9.5 million operating balance. However, DVA
projects that King will begin to operate at a deficit in the current fiscal year. If deficits
and transfers continue at current levels, its account operating balance will be fully
depleted by fiscal year 2013-14. DVA is aware of its ongoing challenges and achieving
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solvency and has reported to the Board of Veterans Affairs since at least 2006 that it
intends to develop a comprehensive plan to guide long-term financial management of the
Homes. However, DVA has not yet completed such a plan and it will need to take more
immediate measures to attain solvency of Union Grove’s assisted living operations.

Finally, DVA’s plan to open a third Veterans Home in Chippewa Falls also warrants
close attention. Its current plans are to construct a 72-bed skilled nursing facility with
facility completion anticipated in November 2012. Federal grant funds have been set
aside to cover approximately $13.2 million of that facility’s estimated $20.4 million
construction costs, leaving $7.2 million to be funded by DVA or other state sources. The
LAB believes legislative oversight will help to ensure that DVA develops realistic, timely
and appropriate plans for achieving long-term financial solvency at all of its Veterans
Homes while continuing to ensure that the Homes effectively serve Wisconsin veterans.

Ms. Mueller thanked the Board for its attention and offered these concluding
remarks: It is now time to resolve the disagreements over the interpretation of the
current rule that has hampered and hindered rate setting ability in the past. That can be
done by establishing more specific rate setting calculations. In terms of the role of Board
members, LAB recommended Board oversight of future rate setting decisions. The
Board is not the agency manager, but some of the disputes might be diminished if the
Board were to formally review and approve all rate-setting proposals developed by
WDVA staff. The LAB auditors are sounding a cautionary note that realistic and timely
decisions are to be made by the Board and the Department because there are long-term
financial issues that threaten the financial stability and solvency of all of the Homes.
Finally, the LAB has recommended and encouraged the Board to report back to the Joint
Legislative Audit Committee with the progress made in facing these challenging issues.

Ms. Mueller closed by commenting on the ongoing audit. The LAB hopes to release
the larger audit by the end of the calendar year. They will be looking comprehensively at
staffing issues, procurement and the Aid to Indigent Veterans Program.

Rod Moen, Chair of the Long Term Care Committee, thanked the LAB for this first
report. He acknowledged the LAB recommendation for the Board to provide a report to
the Joint Legislative Audit Committee by January 24, 2011 on two points: progress on
implementing the Rule changes as well as giving an update on the financial solvency of
the Homes and plans for moving forward. Mr. Moen asked for an explanation of LAB’s
statement that opening a third Home “warrants close attention”. Ms. Mueller said this
speaks to the long-term financial solvency or stability of all of the Homes. Occupancy
rates at all the Homes are so important and they are down right now at Union Grove. It
will be incumbent upon the Board to ensure those proposed 72-beds are filled as soon as
possible. The existing surplus, which has been supporting all of the Homes is diminishing.
Mr. Moen made particular note of the fact occupancy is down on assisted living beds, not
on nursing home beds.

Dave Boetcher noted the LAB recommendation that the Board get involved in the
rate setting, that it creates a rule or formula or at least set up a policy for how rates
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should be set. He asked if the Board has the statutory authority to do that. Mr. Stuiber
answered the question by saying it is entirely the Board’s responsibility to promulgate
Administrative Rules, amend existing Administrative Rules to be more specific, and define
what costs should be included. It is the Department’s responsibility to implement the
rules promulgated by the Board. It is consistent with statutory requirements and intent.

Mr. Boetcher was curious about the one-Home concept. The Statutes say you must
recoup for the cost of care. But if the Board says that King and Union Grove are to run
as one Home and have one rate set, would that still meet the statutory requirement? Mr.
Stuiber said the Statutes are silent with respect to that, and again the original rule was
promulgated prior to the opening of Union Grove so it was not factored into the rule
when it was originally promulgated. By revisiting this, the Board now has the option of
determining whether or not one rate should be set for both the Homes or all three Homes.
Mr. Boetcher asked if there was any comparison made between what has been happening
in the private sector over the period of this review. Mr. Stuiber said they did not look at
changes in rates over that period but they did look at comparable rates for the Homes
and, in general, found WDVA assisted living rates somewhat higher than the private
sector and nursing home rates were generally comparable.

Mr. Freedman understood that the Board oversees the rate setting and formally
reviews all proposed rate changes, which is different than actually setting the rates.
Setting the rates is an operational function and the responsibility of the Department,
however, the Board has oversight which would include how those rates are set and rate
setting itself. Ms. Mueller clarified that the LAB sees this as a two-step process. It’s
important to resolve the disagreements which have brought us here today. The first step
in resolving those disagreements is to establish a more specific rate setting calculating
procedure; presumably that would be done in concert with the Department. But clearly,
the Board has the statutory authority under current Administrative Rules to be involved.
Once those difficult and challenging decisions are made and standardized for the future,
the LAB is recommending the Board would formally review and approve the rates
proposed by the Department every year.

MOTION #1: It was moved by Mr. Freedman and seconded by Mr. Moen that the
Board of Veterans Affairs directs the Department Secretary to prepare with the Office of
Legal Counsel for presentation to the Board by November 15, 2010 a proposed timeline
and process alternatives for reviewing, updating and modifying as appropriate VA
Chapter 6 of the Wisconsin Administrative Code, including but not limited to generally
integrating the recommendations of the Legislative Audit Bureau as set forth in its
September 2010 letter audit, Rate Setting at the Wisconsin Veterans Homes. The motion
carried unanimously on a roll call vote.

MOTION #2: It was moved by Mr. Freedman and seconded by Mr. Moran that the
Board of Veterans Affairs directs the Department Secretary to brief the Board at the
Board’s December 2010 meeting on the Department’s plan to achieve financial solvency
for the Wisconsin Veterans Homes. The motion carried on a roll call vote with one
abstention.
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 Chair Naylor wants to work collaboratively with anyone who wants to get these
issues resolved as quickly as possible, especially for the members, the future members,
and staff involved. That will be the Board’s focus until these issues are resolved. The
Board members thanked the Legislative Audit Bureau for its work in the past, present
and in the future. Ms. Mueller closed by saying audits can serve as catalysts for change
and she hopes that’s the case in this instance.

4. Public Comment
Chair Naylor noted that Secretary Black is traveling the state on behalf of veterans.
Pete Moran said he spent the morning in Superior with Secretary Black who arrived from
Chippewa Falls and Amery after having participated in listening sessions. Along with
Rep. Milroy, they toured the veterans’ clinic in Superior and met with Dr. Marcon and his
staff. Following that tour, they participated in a listening session at the Bong Heritage
Center. Secretary Black is traveling to Rice Lake for another veterans listening session
before returning to Madison.

6. Adjournment
MOTION #3: It was moved by Mr. Moran, seconded by Mr. Moen and carried on a
voice vote to adjourn the Board meeting, the time was 1:52 p.m.

Dan Naylor
Chair

Drafted 9/21/10