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Reforms to Nursing Home Payment System Moving Forward


Schwarzenegger Administration officials are putting final touches on legislation to reauthorize and reform Medi-Cal’s payment system for nursing homes. The current system, which is set to expire next year, pays nursing homes in full, plus a bonus, no matter how poor their care.

The Administration began meeting with stakeholders to discuss reforms soon after California Watch published an investigative series in April 2010 concerning nursing home misuse of Medi-Cal funds. According to the report, hundreds of nursing homes cut staff, paid lower wages, or staffed below minimum standards despite receiving large Medi-Cal payment increases under a 2004 law, AB 1629, developed by the nursing home industry. Annual California Medi-Cal payments to nursing homes have increased by over $1 billion since 2004 and nursing home profits have skyrocketed.

The Legislature will be considering the reform plan as part of its overdue budget. CANHR expects the Administration to present the reforms to the Budget Conference Committee in the near future. To become law, the reforms require approval by the full Legislature and the Governor’s signature.

The pending reforms, while industry-friendly, are mostly a step in the right direction. Here are some of the key features:

Bonus Payments: Medi-Cal currently pays nursing homes eight percent on top of their labor costs as a bonus, costing Medi-Cal about $160 million per year. The reform plan would eliminate the bonus payments, however, the bonus money would remain in Medi-Cal’s nursing home budget and be used to pay other nursing home costs. CANHR has long sought elimination of the bonus payments, but recommended that the savings be redirected to help preserve home and community based services or, alternatively, to fund an increase in California’s minimum staffing requirements for nursing homes.

Staffing Enforcement: The plan would add auditors to evaluate nursing home compliance with minimum staffing standards and establish news fines for noncompliance. Fines would be $15,000 if a nursing home is noncompliant for 5 to 49 percent of audited days and $30,000 if a facility is noncompliant for 50 percent or more of audited days. CANHR has recommended stronger fines, a better system for determining compliance with staffing requirements, and increases to the minimum staffing requirements.

Legal Fees: Under the reform plan, Medi-Cal would stop paying nursing home legal fees used to fight government actions, such as citations and deficiencies, when a nursing home loses or settles an appeal. CANHR had called for a total ban on Medi-Cal payment of nursing home legal fees. Nursing homes have used the Medi-Cal payments for legal fees to undermine the nursing home inspection and enforcement systems.

Liability Insurance: The plan would cap Medi-Cal reimbursement of nursing home liability insurance costs at the 75th percentile. Currently there is no cap, allowing substandard nursing homes to purchase expensive liability insurance at taxpayer expense and to immunize their operators from the costs of abuse and neglect.

Ombudsman Funding: The reform plan includes $1.9 million for the long term care ombudsman program, replacing about half the funds the Governor cut two years ago. CANHR had sought full replacement of the $3.8 million the Governor cut in 2008.

Pay-for-Performance: The plan would establish a special fund to reward nursing homes that perform well. Most of the money would come from setting aside a portion of future rate increases granted by the Legislature. CANHR is concerned because the nursing home industry has had undue influence over the selection of performance measures and other aspects of the pay-for-performance proposal.

Quality Assurance Fee: The plan would reauthorize and extend a bed-tax – which Medi-Cal calls a quality assurance fee – that is paid by nursing home residents and Medi-Cal. The fee generates additional federal Medicaid funds for California. The current exemption for multi-level retirement communities would be deleted, subjecting private-pay residents in the skilled nursing sections of those facilities to the fee. Continuing Care Retirement Communities (CCRCs) would continue to be exempt from the quality assurance fee. CANHR has not taken a position on the expanded quality assurance fee.

Rate Increase: Medi-Cal would use the additional funds from the quality assurance fee to grant nursing homes a 3.93 rate increase in fiscal year 2010-11. CANHR is opposed to a rate increase because any new revenues should be used to help preserve the home and community-based services that are on the Governor’s chopping block.

Click here to read the July 14, 2010 version of the Administration’s proposal.