2009 California Welfare and Institutions Code - Section 14126-14126.035 :: Article 3.8. Medi-cal Long-term Care Reimbursement Act

14126.  This article shall be known as the Medi-Cal Long-Term Care
Reimbursement Act.

14126.02.  (a) It is the intent of the Legislature to devise a
Medi-Cal long-term care reimbursement methodology that more
effectively ensures individual access to appropriate long-term care
services, promotes quality resident care, advances decent wages and
benefits for nursing home workers, supports provider compliance with
all applicable state and federal requirements, and encourages
administrative efficiency.
   (b) The department shall implement a facility-specific ratesetting
system, subject to federal approval and the availability of federal
funds, that reflects the costs and staffing levels associated with
quality of care for residents in nursing facilities, as defined in
subdivision (c) of Section 1250 of the Health and Safety Code, except
that the ratesetting system shall not apply to a unit that provides
pediatric subacute services in a skilled nursing facility, or to a
skilled nursing facility that is designated as an institution for
mental diseases, as defined in Section 1396d(i) of Title 42 of the
United States Code. The facility-specific ratesetting system shall be
effective commencing on August 1, 2005, and shall be implemented
commencing on the first day of the month following federal approval.
The department may retroactively increase and make payment of rates
to facilities.
   (c) In implementing this section, the department may contract as
necessary, on a bid or nonbid basis, for professional consulting
services from nationally recognized higher education and research
institutions, or other qualified individuals and entities not
associated with a skilled nursing facility, with demonstrated
expertise in long-term care reimbursement systems. The ratesetting
system specified in subdivision (b) shall be developed with all
possible expedience. This subdivision establishes an accelerated
process for issuing contracts pursuant to this section and contracts
entered into pursuant to this subdivision shall be exempt from the
requirements of Chapter 1 (commencing with Section 10100) and Chapter
2 (commencing with Section 10290) of Part 2 of Division 2 of the
Public Contract Code.
   (d) The department shall implement a facility-specific ratesetting
system by August 1, 2004, subject to federal approval and
availability of federal or other funds, that reflects the costs and
staffing levels associated with quality of care for residents in
hospital-based nursing facilities.

14126.021.  The department shall develop and implement a cost-based
reimbursement rate methodology using the cost categories as described
in Section 14126.023, for freestanding nursing facilities pursuant
to this article, excluding nursing facilities that are a distinct
part of a facility that is licensed as a general acute care hospital
as identified pursuant to subdivision (d) of Section 14126.02. The
cost-based reimbursement rate methodology shall be effective on
August 1, 2005, and shall be implemented on the first day of the
month following federal approval.

14126.023.  (a) The methodology developed pursuant to this article
shall be facility specific and reflect the sum of the projected cost
of each cost category and passthrough costs, as follows:
   (1) Labor costs limited as specified in subdivision (c).
   (2) Indirect care nonlabor costs limited to the 75th percentile.
   (3) Administrative costs limited to the 50th percentile.
   (4) Capital costs based on a fair rental value system (FRVS)
limited as specified in subdivision (d).
   (5) Direct passthrough of proportional Medi-Cal costs for property
taxes, facility license fees, new state and federal mandates,
caregiver training costs, and liability insurance projected on the
prior year's costs.
   (b) The percentiles in paragraphs (1) through (3) of subdivision
(a) shall be based on annualized costs divided by total resident days
and computed on a specific geographic peer group basis. Costs within
a specific cost category shall not be shifted to any other cost
category.
   (c) The labor costs category shall be comprised of a direct
resident care labor cost category, an indirect care labor cost
category, and a labor-driven operating allocation cost category, as
follows:
   (1) Direct resident care labor cost category which shall include
all labor costs related to routine nursing services including all
nursing, social services, activities, and other direct care
personnel. These costs shall be limited to the 90th percentile.
   (2) Indirect care labor cost category which shall include all
labor costs related to staff supporting the delivery of patient care
including, but not limited to, housekeeping, laundry and linen,
dietary, medical records, inservice education, and plant operations
and maintenance. These costs shall be limited to the 90th percentile.
   (3) Labor-driven operating allocation shall include an amount
equal to 8 percent of labor costs, minus expenditures for temporary
staffing, which may be used to cover allowable Medi-Cal expenditures.
In no instance shall the operating allocation exceed 5 percent of
the facility's total Medi-Cal reimbursement rate.
   (d) The capital cost category shall be based on a FRVS that
recognizes the value of the capital related assets necessary to care
for Medi-Cal residents. The capital cost category includes mortgage
principal and interest, leases, leasehold improvements, depreciation
of real property, equipment, and other capital related expenses. The
FRVS methodology shall be based on the formula developed by the
department that assesses facility value based on age and condition
and uses a recognized market interest factor. Capital investment and
improvement expenditures included in the FRVS formula shall be
documented in cost reports or supplemental reports required by the
department. The capital costs based on FRVS shall be limited as
follows:
   (1) For the 2005-06 rate year, the capital cost category for all
facilities in the aggregate shall not exceed the department's
estimated value for this cost category for the 2004-05 rate year.
   (2) For the 2006-07 rate year and subsequent rate years, the
maximum annual increase for the capital cost category for all
facilities in the aggregate shall not exceed 8 percent of the prior
rate year's FRVS cost component.
   (3) If the total capital costs for all facilities in the aggregate
for the 2005-06 rate year exceeds the value of the capital costs for
all facilities in the aggregate for the 2004-05 rate year, or if
that capital cost category for all facilities in the aggregate for
the 2006-07 rate year or any rate year thereafter exceeds 8 percent
of the prior rate year's value, the department shall reduce the
capital cost category for all facilities in equal proportion in order
to comply with paragraphs (1) and (2).
   (e) For the 2005-06 and 2006-07 rate years, the facility specific
Medi-Cal reimbursement rate calculated under this article shall not
be less than the Medi-Cal rate that the specific facility would have
received under the rate methodology in effect as of July 31, 2005,
plus Medi-Cal's projected proportional costs for new state or federal
mandates for rate years 2005-06 and 2006-07, respectively.
   (f) The department shall update each facility specific rate
calculated under this methodology annually. The update process shall
be prescribed in the Medicaid state plan, regulations, and the
provider bulletins or similar instructions described in Section
14126.027, and shall be adjusted in accordance with the results of
facility specific audit and review findings in accordance with
subdivisions (h) and (i).
   (g) The department shall establish rates pursuant to this article
on the basis of facility cost data reported in the integrated
long-term care disclosure and Medi-Cal cost report required by
Section 128730 of the Health and Safety Code for the most recent
reporting period available, and cost data reported in other facility
financial disclosure reports or supplemental information required by
the department in order to implement this article.
   (h) The department shall conduct financial audits of facility and
home office cost data as follows:
   (1) The department shall audit facilities a minimum of once every
three years to ensure accuracy of reported costs.
   (2) It is the intent of the Legislature that the department
develop and implement limited scope audits of key cost centers or
categories to assure that the rate paid in the years between each
full scope audit required in paragraph (1) accurately reflects actual
costs.
   (3) For purposes of updating facility specific rates, the
department shall adjust or reclassify costs reported consistent with
applicable requirements of the Medicaid state plan as required by
Part 413 (commencing with Section 413.1) of Title 42 of the Code of
Federal Regulations.
   (4) Overpayments to any facility shall be recovered in a manner
consistent with applicable recovery procedures and requirements of
state and federal laws and regulations.
   (i) (1) On an annual basis, the department shall use the results
of audits performed pursuant to subdivision (h), the results of any
federal audits, and facility cost reports, including supplemental
reports of actual costs incurred in specific cost centers or
categories as required by the department, to determine any difference
between reported costs used to calculate a facility's rate and
audited facility expenditures in the rate year.
   (2) If the department determines that there is a difference
between reported costs and audited facility expenditures pursuant to
paragraph (1), the department shall adjust a facility's reimbursement
prospectively over the intervening years between audits by an amount
that reflects the difference, consistent with the methodology
specified in this article.
   (j) For nursing facilities that obtain an audit appeal decision
that results in revision of the facility's allowable costs, the
facility shall be entitled to seek a retroactive adjustment in its
facility specific reimbursement rate.
   (k) Compliance by each facility with state laws and regulations
regarding staffing levels shall be documented annually either through
facility cost reports, including supplemental reports, or through
the annual licensing inspection process specified in Section 1422 of
the Health and Safety Code.

14126.025.  (a) The department shall seek approval of an amendment
to the Medicaid state plan specifically outlining the reimbursement
methodology developed pursuant to this article not later than
February 1, 2005.
   (b) The amendment to the Medicaid state plan pursuant to
subdivision (a), and any regulations, provider bulletins, or other
similar instructions, shall be prepared in consultation with
representatives of the long-term care industry, organized labor,
seniors, and consumers.

14126.027.  (a) (1) The Director of Health Care Services, or his or
her designee, shall administer this article.
   (2) The regulations and other similar instructions adopted
pursuant to this article shall be developed in consultation with
representatives of the long-term care industry, organized labor,
seniors, and consumers.
   (b) (1) The director may adopt regulations as are necessary to
implement this article. The adoption, amendment, repeal, or
readoption of a regulation authorized by this section is deemed to be
necessary for the immediate preservation of the public peace, health
and safety, or general welfare, for purposes of Sections 11346.1 and
11349.6 of the Government Code, and the department is hereby
exempted from the requirement that it describe specific facts showing
the need for immediate action.
   (2) The regulations adopted pursuant to this section may include,
but need not be limited to, any regulations necessary for any of the
following purposes:
   (A) The administration of this article, including the specific
analytical process for the proper determination of long-term care
rates.
   (B) The development of any forms necessary to obtain required cost
data and other information from facilities subject to the
ratesetting methodology.
   (C) To provide details, definitions, formulas, and other
requirements.
   (c) As an alternative to the adoption of regulations pursuant to
subdivision (b), and notwithstanding Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code, the director may implement this article, in whole or in part,
by means of a provider bulletin or other similar instructions,
without taking regulatory action, provided that no such bulletin or
other similar instructions shall remain in effect after July 31,
2010. It is the intent that regulations adopted pursuant to
subdivision (b) shall be in place on or before July 31, 2010.

14126.031.  (a) In implementing this article, the department may use
the process outlined in subdivision (c) of Section 14126.02 to
obtain professional consulting services for the purpose of finalizing
design of the system, procurement of required technical hardware and
software, establishing operational parameters, implementation, and
transitional management pending assumption of operational management
by state staff.
   (b) The ratesetting system described in subdivision (b) of Section
14126.02 shall be developed expeditiously in order to meet the
implementation date required under Section 14126.02.
   (c) To ensure compliance with the timeframes set forth in this
article, it is the intent of the Legislature that the department be
authorized to hire up to three full-time equivalents to support
implementation and continuous operation of the system.

14126.033.  (a) This article, including Section 14126.031, shall be
funded as follows:
   (1) General Fund moneys appropriated for purposes of this article
pursuant to Section 6 of the act adding this section shall be used
for increasing rates, except as provided in Section 14126.031, for
freestanding skilled nursing facilities, and shall be consistent with
the approved methodology required to be submitted to the federal
Centers for Medicare and Medicaid Services pursuant to Article 7.6
(commencing with Section 1324.20) of Chapter 2 of Division 2 of the
Health and Safety Code.
   (2) (A) Notwithstanding Section 14126.023, for the 2005-06 rate
year, the maximum annual increase in the weighted average Medi-Cal
rate required for purposes of this article shall not exceed 8 percent
of the weighted average Medi-Cal reimbursement rate for the 2004-05
rate year as adjusted for the change in the cost to the facility to
comply with the nursing facility quality assurance fee for the
2005-06 rate year, as required under subdivision (b) of Section
1324.21 of the Health and Safety Code, plus the total projected
Medi-Cal cost to the facility of complying with new state or federal
mandates.
   (B) Beginning with the 2006-07 rate year, the maximum annual
increase in the weighted average Medi-Cal reimbursement rate required
for purposes of this article shall not exceed 5 percent of the
weighted average Medi-Cal reimbursement rate for the prior fiscal
year, as adjusted for the projected cost of complying with new state
or federal mandates.
   (C) Beginning with the 2007-08 rate year and continuing through
the 2008-09 rate year, the maximum annual increase in the weighted
average Medi-Cal reimbursement rate required for purposes of this
article shall not exceed 5.5 percent of the weighted average Medi-Cal
reimbursement rate for the prior fiscal year, as adjusted for the
projected cost of complying with new state or federal mandates.
   (D) For the 2009-10 and 2010-11 rate years, the weighted average
Medi-Cal reimbursement rate required for purposes of this article
shall not be increased with respect to the weighted average Medi-Cal
reimbursement rate for the 2008-09 rate year, as adjusted for the
projected cost of complying with new state or federal mandates.
   (E) To the extent that new rates are projected to exceed the
adjusted limits calculated pursuant to subparagraphs (A) to (D),
inclusive, as applicable, the department shall adjust each skilled
nursing facility's projected rate for the applicable rate year by an
equal percentage.
   (b) The rate methodology shall cease to be implemented on and
after July 31, 2011.
   (c) (1) It is the intent of the Legislature that the
implementation of this article result in individual access to
appropriate long-term care services, quality resident care, decent
wages and benefits for nursing home workers, a stable workforce,
provider compliance with all applicable state and federal
requirements, and administrative efficiency.
   (2) Not later than December 1, 2006, the Bureau of State Audits
shall conduct an accountability evaluation of the department's
progress toward implementing a facility-specific reimbursement
system, including a review of data to ensure that the new system is
appropriately reimbursing facilities within specified cost categories
and a review of the fiscal impact of the new system on the General
Fund.
   (3) Not later than January 1, 2007, to the extent information is
available for the three years immediately preceding the
implementation of this article, the department shall provide baseline
information in a report to the Legislature on all of the following:
   (A) The number and percent of freestanding skilled nursing
facilities that complied with minimum staffing requirements.
   (B) The staffing levels prior to the implementation of this
article.
   (C) The staffing retention rates prior to the implementation of
this article.
   (D) The numbers and percentage of freestanding skilled nursing
facilities with findings of immediate jeopardy, substandard quality
of care, or actual harm, as determined by the certification survey of
each freestanding skilled nursing facility conducted prior to the
implementation of this article.
   (E) The number of freestanding skilled nursing facilities that
received state citations and the number and class of citations issued
during calendar year 2004.
   (F) The average wage and benefits for employees prior to the
implementation of this article.
   (4) Not later than January 1, 2009, the department shall provide a
report to the Legislature that does both of the following:
   (A) Compares the information required in paragraph (2) to that
same information two years after the implementation of this article.
   (B) Reports on the extent to which residents who had expressed a
preference to return to the community, as provided in Section 1418.81
of the Health and Safety Code, were able to return to the community.
   (5) The department may contract for the reports required under
this subdivision.
   (d) This section shall become inoperative on July 31, 2011, and as
of January 1, 2012, is repealed, unless a later enacted statute,
that is enacted before January 1, 2012, deletes or extends the dates
on which it becomes inoperative and is repealed.

14126.034.  (a) (1) The department shall convene a workgroup of
interested stakeholders to make recommendations to the department to
ensure compliance with the intent of this article, as provided in
subdivision (a) of Section 14126.02.
   (2) (A) Interested stakeholders shall include consumers or their
representatives, or both, including current or former skilled nursing
facility residents, and family members of current or former skilled
nursing facility residents, or both, seniors or their
representatives, or both, skilled nursing facility representatives,
labor representatives, and people with disabilities and disability
rights advocates.
   (B) A stakeholder workgroup of 18 members shall be convened
representing interested stakeholders from the groups listed in
subparagraph (A), with six members selected from each of the
following areas of interest:
   (i) Consumers.
   (ii) Skilled nursing facility labor.
   (iii) Skilled nursing facilities.
   (C) Interested stakeholders within each of the areas of interest
in subparagraph (B) shall nominate and select six members within
their area of interest to serve on the stakeholder workgroup to
represent their interests.
   (D) The stakeholder workgroup shall also include representatives
from the department, the Office of the State Long-Term Care
Ombudsman, the State Department of Public Health, the Office of
Statewide Health Planning and Development, with members appointed by
their respective directors, or their designee, and may also include
legislative staff, academics, and other state department
representatives, including, but not limited to, representatives from
the California Department of Aging and the State Department of
Developmental Services.
   (b) (1) Each stakeholder workgroup meeting shall be chaired by a
facilitator from an organization independent of the department and
any of the stakeholder groups, to the extent that foundation funding
is made available for this purpose. If no funds are made available
for this purpose, the department shall facilitate the stakeholder
workgroup meetings.
   (2) The consumers, skilled nursing facility labor, and skilled
nursing facility stakeholder workgroup members shall each select one
representative who will meet with the department and the facilitator
to develop meeting agendas after having solicited input from each
representative's respective stakeholder group.
   (3) To the extent that foundation funding is made available,
stakeholder workgroup members shall receive reimbursement for any
actual, necessary, and reasonable expenses incurred in connection
with their duties as members of the workgroup.
   (c) The department shall assign staff as needed to assist the
stakeholder workgroup in carrying out its responsibilities.
   (d) In developing recommendations, the stakeholder workgroup shall
consider the structure of, and potential changes to, the
facility-specific ratesetting system, developed pursuant to Section
14126.023, that may improve the quality of resident care. The
stakeholder workgroup members may take into consideration the
following factors, or any other factors deemed relevant to ensure the
quality of resident care:
   (1) Skilled nursing facility staffing levels, including, but not
limited to, compliance with existing staffing requirements.
   (2) Skilled nursing facility staff wages and benefits, including,
but not limited to, geographic disparities in wages and benefits.
   (3) Skilled nursing facility staff turnover and retention.
   (4) Deficiency reports issued as a result of both surveys and
complaint investigations, to the extent that they may be disclosed as
public records, and the enforcement actions taken under federal
certification and state licensing laws and regulations.
   (5) Skilled nursing facility compliance with assessments required
to ascertain residents' preference for, and ability to return to, the
community as required by Section 1418.81 of the Health and Safety
Code, including necessary followthrough to assure care necessary for
a resident to transition out of skilled nursing facility care and
into the community.
   (6) The extent to which this article encourages compliance with
the United States Supreme Court decision in Olmstead v. L.C. ex rel.
Zimring (1999) 527 U.S. 581, including using the ratesetting system
to increase Olmstead compliance.
   (7) Health care efficiency.
   (8) Health care safety.
   (9) The extent to which a pay-for-performance program may
contribute to improving the quality of resident care and appropriate
performance measures for a pay-for-performance program.
   (10) Preventable emergency room visits and rehospitalizations.
   (11) Resident and family satisfaction with care and resident's
quality of life, including improvements on ways to measure
satisfaction.
   (12) Recommendations for methods to evaluate the effectiveness of
the facility-specific ratesetting system, defined in Section
14126.023, in meeting the intent of this article, pursuant to Section
14126.02.
   (13) Additional quality measures, including, but not limited to,
adequate nutrition and ready availability of durable medical
equipment.
   (e) The department shall convene the stakeholder workgroup no
later than one month following the effective date of this section.
The stakeholder workgroup shall meet a minimum of six times through
December 31, 2008. Subcommittees may be convened and meet as
necessary.
   (f) In addition to recommendations provided during stakeholder
workgroup meetings, individual members of the stakeholder workgroup
and any other interested stakeholders may provide to the department
any additional written recommendations on the items considered in the
stakeholder workgroup meetings.
   (g) The department shall provide technical assistance to the
stakeholder workgroup to evaluate the feasibility of its
recommendations so that the stakeholder workgroup will have the
benefit of the department's analysis when discussing and reviewing
proposed recommendations.
   (h) The department shall review and analyze all recommendations
from the stakeholder workgroup, individual workgroup members, and any
other interested stakeholders, and, no later than March 1, 2009, the
department shall deliver to the Legislature, both of the following:
   (1) The complete recommendations of the stakeholder workgroup,
individual workgroup members, and any other interested stakeholders.
   (2) The department's analysis of the feasibility to implement the
proposed recommendations.
   (i) (1) The stakeholder workgroup may continue to meet to carry
out its responsibilities pursuant to subdivision (d) for an extension
period of up to one year. During this extension period, the
stakeholder workgroup shall meet at least quarterly as agreed by the
department and those members selected pursuant to paragraph (2) of
subdivision (a).
   (2) During the extension period the stakeholder workgroup's
activities may include assisting the department or Legislature, or
both, to enact improvements to the ratesetting system.
   (j) The department shall seek partnership with one or more
independent, nonprofit groups or foundations, academic institutions,
or governmental entities providing grants for health-related
activities, to support stakeholder workgroup efforts.
   (k) The department shall seek necessary legislative changes to
implement the stakeholder workgroup's recommendations that the
department determines are feasible to implement as part of the
reauthorization of this section.
   (l) The department may meet the intent of this article, as stated
in subdivision (a) of Section 14126.02, by using the stakeholder
workgroup's recommendations in order to design an evaluation of the
effectiveness of the facility-specific ratesetting system established
pursuant to Section 14126.023.
   (m) Implementation and administration of this section is not
dependent on the availability of foundation funding.

14126.035.  (a) This article shall remain operative only as long as
Article 7.6 (commencing with Section 1324.20) of Chapter 2 of
Division 2 of the Health and Safety Code, which imposes a skilled
nursing facility quality assurance fee continues as approved by the
federal Centers for Medicare and Medicaid Services pursuant to
Section 1324.27 of the Health and Safety Code.
   (b) In the event of a final judicial determination made by any
state or federal court that is not appealed, or by a court of
appellate jurisdiction that is not further appealed, in any action by
any party or a final determination by the administrator of the
Centers for Medicare and Medicaid Services, that federal financial
participation is not available with respect to any payment made under
the methodology implemented pursuant to this article because the
methodology is invalid, unlawful, or is contrary to any provision of
federal law or regulations, or of state law, this section shall
become inoperative.