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New plan would shake up nursing home funding

California Watch
By Christina Jewett
June 18, 2010

Since 2004, the state has refunded nursing homes some of the legal fees they've shelled out to fight regulatory penalties. That means that state pays for lawyers and inspectors to crack down on errant facilities, and also pays to help the facilities to fight back.

But now, California health officials want to end some of those legal payments, among other financial changes in store for nursing homes.

The state Department of Public Health said yesterday it will seek legislation to force nursing homes to pay fines into an escrow account as soon as they file an appeal. The pledge came in response to a Bureau of State Audits finding that suggests that nursing homes tend to appeal fines simply to put off paying, fully aware that the state can take years to deal with such claims. Making them pay up front, the logic goes, would make it less enticing for nursing homes to file appeals and perhaps encourage them to pay more promptly.

And another agency that oversees nursing homes, the Department of Health Care Services, announced a revised plan to only reimburse legal fees spent on winning battles to knock down citations.

Under a 2004 nursing home funding law, nursing homes have been allowed to bill their legal fees to the state as a cost of doing business. The new plan would only allow nursing homes to tap into taxpayer funds if they're successful in their appeal, essentially meaning they were justified for fighting.

That was just one bit of news that came out of a meeting among officials crafting a way to go forward with a nursing home funding law. That law governs how nearly $4 billion each year is spent on nursing home care for the state's neediest elderly and disabled patients.

I've been following proposed changes to the law closely since California Watch co-wrote a detailed article about how it brought a bonanza in profits but mixed results for patients.

Here are some more highlights of the new plan, as announced yesterday by Toby Douglas of the Department of Health Care Services and Kathleen Billingsley of Department of Public Health:

  • The state will no longer pay nursing homes an 8 percent bonus on top of their labor costs. Nursing home owners had characterized this as an incentive to hire more staff; critics called it a the only profit perk in the world of Medicaid.
  • The Department of Public Health will audit facility staffing to see if the minimum number of caregivers are working. If the facilities fall short on 5 percent of the days, they'll be fined $10,000; if they fall short on half of the days they'll be fined $20,000.
  • The state will cap fees for liability insurance and use the savings of about $8 million to fund the state elder care ombudsman program and other projects.
  • The state will skim 1 percent off of raises to nursing homes and re-distribute it based on homes ability to meet quality standards related to patient satisfaction, reduction of bed sores and others.

The Bureau of State Audits report that came out yesterday revealed the results of a probe into the Department of Public Health fund, which is comprised of fines against nursing homes accused of inadequate patient care.

California Watch wrote about lawmakers calling for this audit a few weeks ago, and since then auditors summarized their findings of seven years of department fines and collections. The audit found that nursing homes have appealed 1,400 citations during the period of the review, 1,000 of which are still pending.

A Department of Public Health legal official told auditors that nursing homes may be appealing fines to delay paying, recognizing that state understaffing creates significant backlogs for appeal hearings. The BSA suggested a way to address that, which the Department of Public Health embraced, pledging to seek legislation to make the change:

One potential way to deter facilities from needlessly appealing citations would be to require them to pay their monetary penalties at the time they contest their citations.

This possible change in requirements is particularly relevant to the delays in Public Health's collecting penalties from facilities with appealed citations; during the nearly seven-year period that we reviewed, just 6 percent of the resolved appeals were dismissed in favor of the facilities.

Because citations can remain in the appeals process for several years, the State loses potential revenue, and facilities cited for violations, which can include patient or resident deaths, essentially do not have to pay the respective monetary penalties for their violations until decisions are reached to uphold or modify the penalties.

Among the other audit findings:

  • Public Health's poor internal controls led to significant errors in the fund balance for the federal account-for at least five years, it or its predecessor overstated the fund balances that are included in the governor's budget.
  • The federal account's ending fund balance for fiscal year 2008-09 was overstated by $9.9 million.
  • With a projected fund balance of $345,000 by the end of this fiscal year, the federal account is nearly insolvent.

Auditors suggested that the department do a better job of balancing its books, and the department agreed.

Also this week, the Office of Statewide Health Planning and Development issued a research brief looking at funding to long-term care facilities, most of which are, again, nursing homes.

They looked at changes from 2003 to 2007 and found that care expenses rose nearly 7 percent each year. During that time, staffing rose nearly 2 percent and workers wages grew by 4.5 percent for nurses and 2.9 percent for nursing assistants.

Profits, though, took the largest leap. They grew five-fold, from about $70 million in 2003 to $448 million in 2007. OSHPD attributed those changes to the funding boosts under AB 1629, that 2004 funding law that's being overhauled.