SECTIONS 14126-14126.035 - California Statutes

WELFARE AND INSTITUTIONS CODE

SECTION 14126-14126.035

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.

14126.022. (a) (1) By August 1, 2011, the department shall develop
the Skilled Nursing Facility Quality and Accountability Supplemental
Payment System, subject to approval by the federal Centers for
Medicare and Medicaid Services, and the availability of federal,
state, or other funds.
(2) The system shall be utilized to provide supplemental payments
to skilled nursing facilities that improve the quality and
accountability of care rendered to residents in skilled nursing
facilities, as defined in subdivision (c) of Section 1250 of the
Health and Safety Code, and to penalize those facilities that do not
meet measurable standards.
(3) The system shall be phased in, beginning with the 2010-11 rate
year.
(4) The department may utilize the system to do all of the
following:
(A) Assess overall facility quality of care and quality of care
improvement, and assign quality and accountability payments to
skilled nursing facilities pursuant to performance measures described
in subdivision (i).
(B) Assign quality and accountability payments or penalties
relating to quality of care, or direct care staffing levels, wages,
and benefits, or both.
(C) Limit the reimbursement of legal fees incurred by skilled
nursing facilities engaged in the defense of governmental legal
actions filed against the facilities.
(D) Publish each facility's quality assessment and quality and
accountability payments in a manner and form determined by the
director, or his or her designee.
(b) (1) There is hereby created in the State Treasury, the Skilled
Nursing Facility Quality and Accountability Special Fund. The fund
shall contain moneys deposited pursuant to subdivisions (g) and (j)
to (l), inclusive. Notwithstanding Section 16305.7 of the Government
Code, the fund shall contain all interest and dividends earned on
moneys in the fund.
(2) Notwithstanding Section 13340 of the Government Code, the fund
shall be continuously appropriated without regard to fiscal year to
the department for making quality and accountability payments, in
accordance with subdivision (m), to facilities that meet or exceed
predefined measures as established by this section.
(3) Upon appropriation by the Legislature, moneys in the fund may
also be used for any of the following purposes:
(A) To cover the administrative costs incurred by the State
Department of Public Health for positions and contract funding
required to implement this section.
(B) To cover the administrative costs incurred by the State
Department of Health Care Services for positions and contract funding
required to implement this section.
(C) To provide funding assistance for the Long-Term Care Ombudsman
for program activities pursuant to Chapter 11 (commencing with
Section 9700) of Division 8.5.
(c) No appropriation associated with this bill is intended to
implement the provisions of Section 1276.65 of the Health and Safety
Code.
(d) (1) There is hereby appropriated for the 2010-11 fiscal year,
one million nine hundred thousand dollars ($1,900,000) from the
Skilled Nursing Facility Quality and Accountability Special Fund to
the California Department of Aging for the Long-Term Care Ombudsman
program activities pursuant to Chapter 11 (commencing with Section
9700) of Division 8.5. It is the intent of the Legislature for the
one million nine hundred thousand dollars ($1,900,000) from the fund
to be in addition to the four million one hundred sixty-eight
thousand dollars ($4,168,000) proposed in the Governor's May Revision
for the 2010-11 Budget. It is further the intent of the Legislature
to increase this level of appropriation in subsequent years to
provide support sufficient to carry out the mandates and activities
pursuant to Chapter 11 (commencing with Section 9700) of Division
8.5.
(2) The department, in partnership with the California Department
of Aging, shall seek approval from the federal Centers for Medicare
and Medicaid Services to obtain federal Medicaid reimbursement for
activities conducted by the Long-Term Care Ombudsman program. The
department shall report to the fiscal committees of the Legislature
during budget hearings on progress being made and any unresolved
issues during the 2011-12 budget deliberations.
(e) There is hereby created in the Special Deposit Fund
established pursuant to Section 16370 of the Government Code, the
Skilled Nursing Facility Minimum Staffing Penalty Account. The
account shall contain all moneys deposited pursuant to subdivision
(f).
(f) (1) Beginning with the 2010-11 fiscal year, the State
Department of Public Health shall use the direct care staffing level
data it collects to determine whether a skilled nursing facility has
met the nursing hours per patient per day requirements pursuant to
Section 1276.5 of the Health and Safety Code.
(2) (A) Beginning with the 2010-11 fiscal year, the State
Department of Public Health shall assess a skilled nursing facility,
licensed pursuant to subdivision (c) of Section 1250 of the Health
and Safety Code, an administrative penalty if the State Department of
Public Health determines that the skilled nursing facility fails to
meet the nursing hours per patient per day requirements pursuant to
Section 1276.5 of the Health and Safety Code as follows:
(i) Fifteen thousand dollars ($15,000) if the facility fails to
meet the requirements for 5 percent or more of the audited days up to
49 percent.
(ii) Thirty thousand dollars ($30,000) if the facility fails to
meet the requirements for over 49 percent or more of the audited
days.
(B) (i) If the skilled nursing facility does not dispute the
determination or assessment, the penalties shall be paid in full by
the licensee to the State Department of Public Health within 30 days
of the facility's receipt of the notice of penalty and deposited into
the Skilled Nursing Facility Minimum Staffing Penalty Account.
(ii) The State Department of Public Health may, upon written
notification to the licensee, request that the department offset any
moneys owed to the licensee by the Medi-Cal program or any other
payment program administered by the department to recoup the penalty
provided for in this section.
(C) (i) If a facility disputes the determination or assessment
made pursuant to this paragraph, the facility shall, within 15 days
of the facility's receipt of the determination and assessment,
simultaneously submit a request for appeal to both the department and
the State Department of Public Health. The request shall include a
detailed statement describing the reason for appeal and include all
supporting documents the facility will present at the hearing.
(ii) Within 10 days of the State Department of Public Health's
receipt of the facility's request for appeal, the State Department of
Public Health shall submit, to both the facility and the department,
all supporting documents that will be presented at the hearing.
(D) The department shall hear a timely appeal and issue a decision
as follows:
(i) The hearing shall commence within 60 days from the date of
receipt by the department of the facility's timely request for
appeal.
(ii) The department shall issue a decision within 120 days from
the date of receipt by the department of the facility's timely
request for appeal.
(iii) The decision of the department's hearing officer, when
issued, shall be the final decision of the State Department of Public
Health.
(E) The appeals process set forth in this paragraph shall be
exempt from Chapter 4.5 (commencing with Section 11400) and Chapter 5
(commencing with Section 11500), of Part 1 of Division 3 of Title 2
of the Government Code. The provisions of Section 100171 and 131071
of the Health and Safety Code shall not apply to appeals under this
paragraph.
(F) If a hearing decision issued pursuant to subparagraph (D) is
in favor of the State Department of Public Health, the skilled
nursing facility shall pay the penalties to the State Department of
Public Health within 30 days of the facility's receipt of the
decision. The penalties collected shall be deposited into the Skilled
Nursing Facility Minimum Staffing Penalty Account.
(G) The assessment of a penalty under this subdivision does not
supplant the State Department of Public Health's investigation
process or issuance of deficiencies or citations under Chapter 2.4
(commencing with Section 1417) of Division 2 of the Health and Safety
Code.
(g) The State Department of Public Health shall transfer, on a
monthly basis, all penalty payments collected pursuant to subdivision
(f) into the Skilled Nursing Facility Quality and Accountability
Special Fund.
(h) Nothing in this section shall impact the effectiveness or
utilization of Section 1278.5 or 1432 of the Health and Safety Code
relating to whistleblower protections, or Section 1420 of the Health
and Safety Code relating to complaints.
(i) (1) Beginning in the 2010-11 fiscal year, the department, in
consultation with representatives from the long-term care industry,
organized labor, and consumers, shall establish and publish quality
and accountability measures, benchmarks, and data submission
deadlines by November 30, 2010.
(2) The methodology developed pursuant to this section shall
include, but not be limited to, the following requirements and
performance measures:
(A) Beginning in the 2011-12 rate year:
(i) Immunization rates.
(ii) Facility acquired pressure ulcer incidence.
(iii) The use of physical restraints.
(iv) Compliance with the nursing hours per patient per day
requirements pursuant to Section 1276.5 of the Health and Safety
Code.
(v) Resident and family satisfaction.
(vi) Direct care staff retention, if sufficient data is available.
(B) If this act is extended beyond the dates on which it becomes
inoperative and is repealed, in accordance with Section 14126.033,
the department, in consultation with representatives from the
long-term care industry, organized labor, and consumers, beginning in
the 2012-13 rate year, shall incorporate additional measures into
the system, including, but not limited to, quality and accountability
measures required by federal health care reform that are identified
by the federal Centers for Medicare and Medicaid Services.
(C) The department, in consultation with representatives from the
long-term care industry, organized labor, and consumers, may
incorporate additional performance measures, including, but not
limited to, the following:
(i) Compliance with state policy associated with the United States
Supreme Court decision in Olmstead v. L.C. ex rel. Zimring (1999)
527 U.S. 581.
(ii) Direct care staff retention, if not addressed in the 2011-12
rate year.
(iii) The use of chemical restraints.
(j) Beginning with the 2010-11 rate year, and pursuant to
subparagraph (B) of paragraph (5) of subdivision (a) of Section
14126.023, the department shall set aside savings achieved from
setting the professional liability insurance cost category, including
any insurance deductible costs paid by the facility, at the 75th
percentile. From this amount, the department shall transfer the
General Fund portion into the Skilled Nursing Facility Quality and
Accountability Special Fund. A skilled nursing facility shall provide
supplemental data on insurance deductible costs to facilitate this
adjustment, in the format and by the deadlines determined by the
department. If this data is not provided, a facility's insurance
deductible costs will remain in the administrative costs category.
(k) Beginning with the 2011-12 rate year, the department shall set
aside 1 percent of the weighted average Medi-Cal reimbursement rate,
from which the department shall transfer the General Fund portion
into the Skilled Nursing Facility Quality and Accountability Special
Fund.
(l) If this act is extended beyond the dates on which it becomes
inoperative and is repealed, in accordance with Section 14126.033,
beginning with the 2012-13 rate year, in addition to the amount set
aside pursuant to subdivision (k), if there is a rate increase in the
weighted average Medi-Cal reimbursement rate, the department shall
set aside at least one-third of the weighted average Medi-Cal
reimbursement rate increase, up to a maximum of 1 percent, from which
the department shall transfer the General Fund portion of this
amount into the Skilled Nursing Facility Quality and Accountability
Special Fund.
(m) (1) Beginning with the 2011-12 rate year, the department shall
pay a supplemental payment, by April 30, 2012, to skilled nursing
facilities based on all of the criteria in subdivision (i), as
published by the department, and according to performance measure
benchmarks determined by the department in consultation with
stakeholders.
(2) Skilled nursing facilities that do not submit required
performance data by the department's specified data submission
deadlines pursuant to subdivision (i) shall not be eligible to
receive supplemental payments.
(3) Notwithstanding paragraph (1), if a facility appeals the
performance measure of compliance with the nursing hours per patient
per day requirements, pursuant to Section 1276.5 of the Health and
Safety Code, to the State Department of Public Health, and it is
unresolved by the department's published due date, the department
shall not use that performance measure when determining the facility'
s supplemental payment.
(4) Notwithstanding paragraph (1), if the department is unable to
pay the supplemental payments by April 30, 2012, then on May 1, 2012,
the department shall use the funds available in the Skilled Nursing
Facility Quality and Accountability Special Fund as a result of
savings identified in subdivisions (k) and (l), less the
administrative costs required to implement subparagraphs (A) and (B)
of paragraph (3) of subdivision (b), in addition to any Medicaid
funds that are available as of December 31, 2011, to increase
provider rates retroactively to August 1, 2011.
(n) The department shall seek necessary approvals from the federal
Centers for Medicare and Medicaid Services to implement this
section. The department shall implement this section only in a manner
that is consistent with federal Medicaid law and regulations, and
only to the extent that approval is obtained from the federal Centers
for Medicare and Medicaid Services and federal financial
participation is available.
(o) In implementing this section, the department and the State
Department of Public Health may contract as necessary, with
California's Medicare Quality Improvement Organization, or other
entities deemed qualified by the department or the State Department
of Public Health, not associated with a skilled nursing facility, to
assist with development, collection, analysis, and reporting of the
performance data pursuant to subdivision (i), and with demonstrated
expertise in long-term care quality, data collection or analysis, and
accountability performance measurement models pursuant to
subdivision (i). This subdivision establishes an accelerated process
for issuing any contract pursuant to this section. Any contract
entered into pursuant to this subdivision shall be exempt from the
requirements of the Public Contract Code, through December 31, 2012.
(p) Notwithstanding Chapter 3.5 (commencing with Section 11340) of
Part 1 of Division 3 of Title 2 of the Government Code, the
following shall apply:
(1) The director shall implement this section, in whole or in
part, by means of provider bulletins, or other similar instructions
without taking regulatory action.
(2) The State Public Health Officer may implement this section by
means of all facility letters, or other similar instructions without
taking regulatory action.
(q) Notwithstanding paragraph (1) of subdivision (m), if a final
judicial determination is made by any state or federal court that is
not appealed, in any action by any party, or a final determination by
the administrator of the federal Centers for Medicare and Medicaid
Services, that any payments pursuant to subdivisions (a) and (m), are
invalid, unlawful, or contrary to any provision of federal law or
regulations, or of state law, these subdivisions shall become
inoperative, and for the 2011-12 rate year, the rate increase
provided under subparagraph (A) of paragraph (4) of subdivision (a)
of Section 14126.033 shall be reduced by the amounts described in
subdivisions (j) and (k). For the 2012-13 rate year and for each
subsequent rate year, any rate increase shall be reduced by the
amounts described in subdivisions (j) and (l).

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 subdivisions (d) and (e).
(2) Indirect care nonlabor costs limited to the 75th percentile.
(3) (A) Administrative costs limited to the 50th percentile.
(B) Notwithstanding subparagraph (A), beginning with the 2010-11
rate year and in each subsequent rate year, the administrative cost
category shall not include any legal and consultant fees in
connection with a fair hearing or other litigation against or
involving any governmental agency or department until all issues
related to the fair hearing or litigation issues are ultimately
decided or resolved.
(C) Notwithstanding subparagraph (A), beginning with the 2010-11
rate year and in each subsequent rate year, the department shall not
allow any cost associated with legal or consultant fees in connection
with a fair hearing or other litigation against any governmental
agency or department where any of the following apply:
(i) A decision has been rendered in favor of the governmental
agency or department.
(ii) The determination of the governmental agency or department
otherwise stands.
(iii) A settlement or similar resolution has been reached
regarding any citation issued under subdivision (c), (d), or (e) of
Section 1424 of the Health and Safety Code or regarding any remedy
imposed under Subpart F of Part 489 of Title 42 of the Code of
Federal Regulations.
(iv) A settlement or similar resolution has been reached under the
provisions of Section 14123 or 14171.
(D) Facilities shall report supplemental data required to disallow
costs described in subparagraph (C) in a format and by the deadline
determined by the department.
(4) Capital costs based on a fair rental value system (FRVS)
limited as specified in subdivision (f).
(5) (A) 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) (i) Notwithstanding subparagraph (A), for the 2010-11 rate
year and each rate year thereafter, professional liability insurance
costs, including any insurance deductible costs paid by the facility,
shall be limited to the 75th percentile computed on a specific
geographic peer group basis.
(ii) Facilities shall report supplemental data described in this
subparagraph in a format and by the deadline determined by the
department, or the insurance deductible costs shall continue to be
reimbursed in the administrative cost category.
(b) (1) 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.
(2) Notwithstanding paragraph (1), for the 2010-11 and 2011-12
rate years, the percentiles in paragraphs (1) to (5), inclusive, of
subdivision (a) shall be based on annualized audited costs divided by
total resident days and computed on a specific geographic peer group
basis. Costs within a specific category shall not be shifted to any
other cost category.
(c) (1) Facilities newly certified to participate in the Medi-Cal
program shall receive a reimbursement rate based on the peer group
weighted average Medi-Cal reimbursement rate. Facilities shall
continue to receive the peer group weighted average Medi-Cal
reimbursement rate until either of the following conditions is met:
(A) The department shall calculate the Freestanding Skilled
Nursing Facility-B facility specific rate when a minimum of six
months of Medi-Cal cost data has been audited. The facility specific
rate shall be calculated prospectively and shall be effective on
August 1 of each rate year, pursuant to Section 14126.021.
(B) The department shall calculate the Freestanding Subacute
Skilled Nursing Facility-B facility specific rate when a cost report
with a minimum of 12 months of Medi-Cal cost data has been audited.
The facility specific rate shall be calculated prospectively and
shall be effective on August 1 of each rate year, pursuant to Section
14126.021.
(2) Facilities that have been decertified for less than six months
and upon recertification shall continue to receive the facility per
diem reimbursement rate in effect prior to decertification.
Facilities shall continue to receive the facility per diem
reimbursement rate until either of the following conditions is met:
(A) The department shall calculate the Freestanding Skilled
Nursing Facility-B facility specific rate when a minimum of six
months of Medi-Cal cost data has been audited. The facility specific
rate based on the audited six months of Medi-Cal cost data shall be
calculated prospectively and shall be effective on August 1 of each
rate year, pursuant to Section 14126.021.
(B) The department shall calculate the Freestanding Subacute
Skilled Nursing Facility-B facility specific rate when a cost report
with a minimum of 12 months of Medi-Cal cost data has been audited.
The facility-specific rate shall be calculated prospectively and
shall be effective on August 1 of each rate year, pursuant to Section
14126.021.
(3) Facilities that have been decertified for six months or longer
and upon recertification shall receive a reimbursement rate based on
the peer group weighted average Medi-Cal reimbursement rate.
Facilities shall continue to receive the peer group weighted average
Medi-Cal reimbursement rate until either of the following conditions
is met:
(A) The department shall calculate the Freestanding Skilled
Nursing Facility-B facility specific rate when a minimum of six
months of Medi-Cal cost data has been audited. The facility-specific
rate shall be calculated prospectively and shall be effective on
August 1 of each rate year, pursuant to Section 14126.021.
(B) The department shall calculate the Freestanding Subacute
Skilled Nursing Facility-B facility specific rate when a cost report
with a minimum of 12 months of Medi-Cal cost data has been audited.
The facility-specific rate shall be calculated prospectively and
shall be effective on August 1 of each rate year, pursuant to Section
14126.021.
(4) Facilities that have a change of ownership or change of the
licensed operator shall continue to receive the facility per diem
reimbursement rate in effect with the previous owner. Facilities
shall continue to receive the facility per diem reimbursement rate
until either of the following conditions is met:
(A) The department shall calculate the Freestanding Skilled
Nursing Facility-B facility specific rate when a minimum of six
months of Medi-Cal cost data has been audited. The facility-specific
rate shall be calculated prospectively and shall be effective on
August 1 of each rate year, pursuant to Section 14126.021.
(B) The department shall calculate the Freestanding Subacute
Skilled Nursing Facility B facility-specific rate when a cost report
with a minimum of 12 months of Medi-Cal cost data has been audited.
The facility-specific rate shall be calculated prospectively and
shall be effective on August 1 of each rate year, pursuant to Section
14126.021.
(5) This subdivision represents codification of existing rules
promulgated by the department under the authority of Section
14126.027.
(d) 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.
(e) Notwithstanding subdivision (d), beginning with the 2010-11
rate year and each rate year thereafter, the labor cost category
shall not include the labor-driven operating allocation and shall be
comprised only of a direct resident care labor cost category and an
indirect care labor cost category.
(f) 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).
(g) 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.
(h) 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 (i), (j), and (k).
(i) (1) 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.
(2) Notwithstanding paragraph (1), or any other provision of law,
beginning with the 2010-11 and 2011-12 rate years, the department
shall establish rates pursuant to this article on the basis of
facility audited cost data reported in the integrated long-term care
disclosure and Medi-Cal cost report described in Section 128730 of
the Health and Safety Code and audited cost data reported in other
facility financial disclosure reports or audited supplemental
information required by the department in order to implement this
article.
(3) Notwithstanding paragraph (1), or any other provision of law,
beginning with the 2010-11 rate year and each rate year thereafter,
the department may determine a facility ineligible to receive
supplemental payments pursuant to Section 14126.022 if a facility
fails to provide supplemental data as requested by the department.
(4) This subdivision represents codification of existing rules
promulgated by the department under the authority of Section
14126.027.
(j) 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.
(k) (1) On an annual basis, the department shall use the results
of audits performed pursuant to subdivisions (i) and (j), 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.
(l) 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.
(m) Except as provided in Section 14126.022, 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,
2012. It is the intent that regulations adopted pursuant to
subdivision (b) shall be in place on or before July 31, 2012.

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 rate year, 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.
(3) (A) For the 2010-11 rate year, if the increase in the federal
medical assistance percentage (FMAP) pursuant to the federal American
Recovery and Reinvestment Act of 2009 (ARRA) (Public Law 111-5) is
extended for the entire 2010-11 rate year, the maximum annual
increase in the weighted average Medi-Cal reimbursement rate for the
purposes of this article shall not exceed 3.93 percent, or 3.14
percent, if the increase in the FMAP pursuant to ARRA is not extended
for that period of time, plus the projected cost of complying with
new state or federal mandates. If the increase in the FMAP pursuant
to ARRA is extended at a different rate, or for a different time
period, the rate adjustment for facilities shall be adjusted
accordingly.
(B) The weighted average Medi-Cal reimbursement rate increase
specified in subparagraph (A) shall be adjusted by the department for
the following reasons:
(i) If the federal Centers for Medicare and Medicaid Services does
not approve exemption changes to the facilities subject to the
quality assurance fee.
(ii) If the federal Centers for Medicare and Medicaid Services
does not approve any proposed modification to the methodology for
calculation of the quality assurance fee.
(iii) To ensure that the state does not incur any additional
General Fund expenses to pay for the 2010-11 weighted average
Medi-Cal reimbursement rate increase.
(C) If the maximum annual increase in the weighted average
Medi-Cal rate is reduced pursuant to subparagraph (B), the department
shall recalculate and publish the final maximum annual increase in
the weighted average Medi-Cal reimbursement rate.
(4) (A) Subject to the following provisions, for the 2011-12 rate
year, the maximum annual increase in the weighted average Medi-Cal
reimbursement rate for the purpose of this article shall not exceed
2.4 percent, plus the projected cost of complying with new state or
federal mandate.
(B) The weighted average Medi-Cal reimbursement rate increase
specified in subparagraph (A) shall be adjusted by the department for
the following reasons:
(i) For the 2011-12 rate year, the department shall set aside 1
percent of the weighted average Medi-Cal reimbursement rate, from
which the department shall transfer the General Fund portion into the
Skilled Nursing Facility Quality and Accountability Special Fund, to
be used for the supplemental rate pool.
(ii) If the federal Centers for Medicare and Medicaid Services
does not approve exemption changes to the facilities subject to the
quality assurance fee.
(iii) If the federal Centers for Medicare and Medicaid Services
does not approve any proposed modification to the methodology for
calculation of the quality assurance fee.
(iv) To ensure that the state does not incur any additional
General Fund expenses to pay for the 2011-12 weighted average
Medi-Cal reimbursement rate increase.
(C) The department may recalculate and publish the weighted
average Medi-Cal reimbursement rate increase for the 2011-12 rate
year if the difference in the projected quality assurance fee
collections from the 2011-12 rate year, compared to the projected
quality assurance fee collections for the 2010-11 rate year, would
result in any additional General Fund expense to pay for the 2011-12
rate year weighted average reimbursement rate increase.
(5) To the extent that rates are projected to exceed the adjusted
limits calculated pursuant to subparagraphs (A) to (D), inclusive, of
paragraph (2) and, as applicable, paragraphs (3) and (4), 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 after July
31, 2012.
(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 article shall become inoperative after July 31, 2012, and
as of January 1, 2013, is repealed, unless a later enacted statute,
that is enacted before January 1, 2013, 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.