COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. No.:         2306-11

Bill No.:          Truly Agreed To and Finally Passed SS for SCS for HCS for HB’s 952 and 674

Subject:           Fire Protection; Health, Public; Nursing and Boarding Homes

Type:              Original

Date:               June 1, 2007

Bill Summary:            This proposal modifies the requirements for electrical systems, fire alarms, and sprinkler systems in long-term care facilities.

FISCAL SUMMARY

*Assume potential transfers in-appropriations, gifts, grants or bequests.

Numbers within parentheses: ( ) indicate costs or losses.

This fiscal note contains 11 pages.

☐ Estimated Total Net Effect on All funds expected to exceed $100,000 savings or (cost).

☒ Estimated Net Effect on General Revenue Fund expected to exceed $100,000 (cost).

                                                            FISCAL ANALYSIS

ASSUMPTION

Officials from the Office of the State Treasurer, Department of Insurance, Financial Institutions & Professional Registration, Office of the State Courts Administrator, Department of Highways and Transportation, Department of Corrections, Office of the Attorney General, Office of Administration, Department of Conservation, Office of State Public Defender, Office of Prosecution Services and the Missouri Health Facilities Review Committee each assume the proposal would have no fiscal impact on their respective agencies.

Officials from the Department of Public Safety (DPS) - Division of Fire Safety (DFS) state this legislation requires the DFS to oversee fire protection sprinkler systems, fire alarm systems and smoke sections in residential care facilities, assisted living facilities, intermediate care facilities, skilled nursing facilities. This legislation impacts approximately 1,200 existing facilities and would require an annual inspection by Division staff. These are facilities which are not currently under Division authority by any other inspection requirement.

Inspection of these types of fire protection sprinkler and alarm systems requires subject matter expertise. To conduct these inspections, an individual would need training specific to sprinkler and alarm systems, as well as training for reviewing plans for alarms and sprinkler systems in proposed new facilities.

Currently the Division's Inspection program has 11 field inspectors with two regional supervisors, who are also located in the field. Adding the necessary number of inspectors and including the additional technical nature that this legislation would mandate, would require more oversight than manageable by existing regional supervisors.

As the lead agency in Missouri for the fire service, the Division receives many requests for fire safety information and assistance, as well as technical questions from citizens, businesses, and other state agencies. Current inspection caseload requires daily interaction, guidance and direction to existing staff. The State Fire Marshal and Assistant State Fire Marshal make every effort to address inspection-related issues and concerns; however, due to their numerous other duties, adequate attention can not be given to this area. The Division has limited administrative oversight of this program within our headquarters, and is the only program within the Division that is not directly overseen by a Public Safety Manager. This is not an ideal situation, but one

created due to limited funding and increasing duties. Expanding the current program by an additional 1,200 inspections annually (see calculation below), simply cannot be managed

ASSUMPTION (continued)

effectively with current staffing, and well exceeds the span of control of current regional chief supervisors.

For this reason, the Division has included a request for a Public Safety Manager of Inspections in this fiscal note, along with two fire safety inspectors, and an office support assistant. Supporting expense and equipment funding is included in this fiscal note.

The bill also establishes the Electrician/Sprinkler System Installer Statewide Qualification Commission within the Division of Fire Safety. Commission members shall serve without compensation, but be reimbursed for actual and necessary expenses. It also requires all facilities licensed under chapter 198 to have detailed written plans and procedures to meet all potential emergencies and disasters.

Officials from the Department of Mental Health (DMH) states DMH has no facilities covered under Section 198, but there are many contracted private providers covered under Section 198. Based on information included in the Federal Register, Vol. 71, No. 208/Friday, October 27, 2006/Proposed Rules, the following is offered:

Renovation costs to install a fire sprinkler are two to three times higher than while the building is under construction. The cost of renovation is higher, because installation must be performed in a piece-meal fashion while the building is occupied.

The average cost per square foot for installation as part of the building's construction is $2.05, while the average cost of installation in an existing occupied building is $4.10 to $6.15 per square foot. An additional $1,000 is required annually to test and maintain the fire sprinkler system.

No. of Beds                $4.10/Square Foot                  $6.15/Square Foot

<50 beds                      $100,450                             $150,675

50-99 beds                   $151,700                             $227,550

100-199 beds               $305,450                             $458,175

When renovating existing construction built before the 1980's, additional costs may develop due to the required abatement of hazardous materials to complete the project.

This bill includes fire alarm systems and smoke partitions, which would have even a higher fiscal impact than just the installation of fire sprinkler systems.

The fiscal impact is $0 to greater than $100,000.

ASSUMPTION (continued)

Officials from the Department of Health and Senior Services (DHSS) based the plan review portion of the fiscal note on a eight year period (through 2015 - House Amendment No. 3 to House Amendment No. 1) which is allowed for facilities to achieve compliance with the sprinkler portion of the legislation. The fiscal note calculations were determined by taking the total hours needed to perform the work divided equally across eight years. Depending on how many facilities begin installation in each of the eight years, DHSS may need a higher FTE allotment in the first year versus the second and third year.

Plan Review:

Intermediate Care and Skilled Nursing Facilities (ICF/SNF) - There are 102 facilities that will require a plan review and an onsite inspection. DHSS estimates 5 hours per facility for plan review for a total of 510 hours. (102 facilities X 5 hrs.)

Residential Care and Assisted Living Facilities (RCF/ALF) - There are 572 facilities that will require a plan review and onsite inspection (372 with no sprinkler system and 200 needing upgrades to the existing sprinkler system). DHSS estimates 4 hours per facility for plan review for a total of 2,288 hours (572 facilities X 4 hrs.). In addition, 194 facilities will need to install and/or upgrade the fire alarm system. DHSS estimates 3 hours per facility for plan review for a total of 582 hours (194 facilities X 3 hrs.).

Plan review total hours over5 years: 3,380 hours (510 hrs. + 2,288 hrs. + 582 hrs.)

Plan review FTE per year: .325 (3,380 hrs./5 yrs./2,080 standard hrs. per yr.), rounded to .33 FTE.

Loan Program Administration:

Section 198.075 establishes a loan program to assist facilities with the cost of installing sprinkler systems. The legislation establishes the "Fire Safety Standards Loan Fund' which is to be funded by appropriations and any charges, gifts, grants and bequests from federal, private, or other sources made for the purpose of assisting facilities with implementing a sprinkler system. The Department has no experience with making business loans and is unsure how much, if any, funding would be available for loan. At present, the department cannot calculate the fiscal impact of administering such a program, but it is believed to be in excess of $100,000.

The legislation does not say that the cost to administer the loan program will be funded by the "Fire Safety Standards Loan Fund", therefore we are assuming these costs would be paid by the General Revenue Fund.

ASSUMPTION (continued)

Costs Related to the Electrician/Sprinkler System Installer Statewide Qualification Commission:

8 commission members X 7 meetings X $160 per member per meeting for expenses = $8,960.

The assumption used for determining the number of meetings is that a meeting would be held approximately every 6 weeks during the time period of September 2007 through June 2008 (43 weeks 6 weeks = 7.167 meetings). The $160 per member per meeting includes lodging, mileage, and meal expenses.

The Commission is terminated on July 1, 2008, therefore costs are included only for FY 2008.

The total fiscal impact of the legislation (plan review, loan program administration and commission costs) on the General Revenue Fund is considered to be unknown, greater than $100,000.

FIRE SAFETY STANDARDS LOAN FUND:

It is impossible to calculate impact on this fund, as there is no way to determine the amount of money that would be received by the fund, the number of loans applied for, amounts requested, etc.

In response to a previous version of this proposal, officials from the Department of Social Services - Division of Legal Services (DLS) assume the Department of Health and Senior Services (DHSS) is responsible for implementation of this proposal as the DHSS is responsible for licensing. DLS would be bound by their licensing decisions as to who can receive Medicaid payment. DLS does not believe that this proposal would affect the Department.

Officials from the Department of Social Services - Division of Medical Services (DMS) assume there will be no fiscal impact over the term of the fiscal note since there are no plans for a rebase during this time frame. In addition, existing facilities are not required to have a sprinkler system until December 31, 2012.

Long Range Implications: Of the facilities without a sprinkler system or an incomplete sprinkler system, some may experience an increase in their per diem but it would be limited to less than $.05 per day. The per diem will only be adjusted when a rebase is done. During a rebase, there are other changes that would affect the rate so the impact of the sprinkler system is difficult to distinguish. The fiscal impact is unknown but less than $50,000.

ASSUMPTION (continued)

There are 500 nursing facilities in the Medicaid program. Approximately 89% of the Medicaid certified facilities in Missouri have a complete sprinkler system. There are 11% that do not have any type of sprinkler system or the system is not complete, is out of date, etc. Of the 11%, 34 facilities do not have any type of sprinkler system.

The Medicaid reimbursement regulation for nursing facilities reimburses skilled nursing facilities for capital costs based on a fair rental value system (FRV) and is included in the capital component of the reimbursement rate. The reimbursement determines a fair value for a facility based on specific characteristics of a facility such as age of the facility or beds, number of beds, major improvements made after initial construction and bed additions. The addition of a sprinkler system would be considered a major improvement. Costs for major improvements are converted to what is called a bed equivalent in the FRV calculation. The 2005 bed equivalent cost is $43,107. This means an improvement must cost over $43,107 to add one bed to the FRV calculation. The other part of the equation is the age of a facility which has impact on the rate that computes in the FRV. The addition of bed equivalents at a later date may change the average

age of a facility. The average age of a facility needs to be lowered in order to increase the final per diem rate that is computed through the FRV.

A typical complete sprinkler system would costs $5.00 per square foot to install. For a typical facility with 300 square feet per bed, a 100 bed facility would have 30,000 square feet. The cost of a complete sprinkler system would be $150,000. This cost divided by the bed equivalency of $43,107 would result in 3 bed equivalents. In most cases, the addition of 3 beds would not change the average age of a facility or change the average age less than one year, which in turn does not produce a higher per diem rate.

Also, the capital rate would not be changed unless there is a rebasing of the Medicaid per diem rates. Currently there are no plans to do so.

Officials from the Office of the Secretary of State (SOS) state many bills considered by the General Assembly include provisions allowing or requiring agencies to submit rules and regulations to implement the act. The Secretary of State’s office is provided with core funding to handle a certain amount of normal activity resulting from each year’s legislative session. The fiscal impact for this fiscal note to Secretary of State’s office for Administrative Rules is less than $2,500. The Secretary of State’s office recognizes that this is a small amount and does not expect that additional funding would be required to meet these costs. However, we also recognize that many such bills may be passed by the General Assembly in a given year and that collectively the costs may be in excess of what our office can sustain with our core budget.

ASSUMPTION (continued)

Therefore, we reserve the right to request funding for the cost of supporting administrative rules requirements should the need arise based on a review of the finally approved bills signed by the governor.

Oversight assumes the SOS could absorb the costs of printing and distributing regulations related to this proposal. If multiple bills pass which require the printing and distribution of regulations at substantial costs, the SOS could request funding through the appropriation process. Any decisions to raise fees to defray costs would likely be made in subsequent fiscal years.

Officials from the Office of the Governor have not responded to Oversight’s request for fiscal information.

FISCAL IMPACT - Small Business

Private residential facilities licensed under Section 198 RSMo will be affected by the added cost to install and maintain electrical systems, fire alarms and sprinkler systems.

FISCAL DESCRIPTION

This legislation requires all long-term care facilities licensed by the Department of Health and Senior Services to install and maintain approved sprinkler systems in accordance with the National Fire Protection Association (NFPA) by August 28, 2007, and be equipped with a complete fire alarm system by August 28, 2010. In addition, all long-term care facilities licensed by the Department after August 28, 2007, must have electrical systems installed and maintained in accordance with NFPA 70, National Electric Code, by a qualified electrician. The Department may require employees and contract personnel of any long-term care facility to be awake, dressed, and prepared to assist residents in case of an emergency and the facility to have an emergency preparedness plan.

The Electrician/Sprinkler System Installer Statewide Qualification Commission, which expires July 1, 2008, is established to study and review the development of a statewide standard for persons practicing as electricians or persons installing and inspecting sprinkler systems. Members of the commission will include the directors of the Departments of Health and Senior Services, Economic Development, and Public Safety and persons appointed by the Governor including one individual who has been practicing as an electrician for the preceding five years, one individual who has been practicing as a sprinkler system installer or inspector for the preceding five years, a member of a local jurisdiction for electricians or sprinkler system installers, two representatives from the relevant skill trade organizations, and one public citizen.

The commission must submit a report to the Governor and General Assembly containing recommendations in support of or opposition to statewide standards by July 1, 2008.

This proposal requires the Department of Public Safety to establish rules requiring every residential care facility, assisted living facility, and skilled nursing facility to be protected by a fire protection sprinkler system. Each system must be designed, installed, tested, repaired, and maintained in accordance with fire protection industry standards.

The department may also establish rules that require state-owned and -occupied offices or facilities to be protected by a fire protection sprinkler system designed, installed, tested,

repaired, and maintained in accordance with fire protection industry standards.

This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space.

SOURCES OF INFORMATION

Office of Administration

Department of Mental Health

Department of Health and Senior Services

Department of Social Services

Department of Public Safety

Missouri Health Facilities Review Committee

Department of Highways and Transportation

Office of the Secretary of State

Office of the State Treasurer

Department of Insurance, Financial Institutions & Professional Registration

Office of the State Courts Administrator

Department of Corrections

Office of the Attorney General

Department of Conservation

Office of the State Public Defender

Office of Prosecution Services

Not Responding:

Office of the Governor

                                                                                                Mickey Wilson, CPA

                                                                                                Director

                                                                                                June 1, 2007