CAHF Position on Reauthorization of AB 1629

I. Major elements of the current Administration proposal (May 20 TBL):

• Extends AB 1629 sunset for 1 year (through June 2012) and phases in a number of
policy and structural changes over a 2 year period.
• Assesses the Quality Assurance Fee (QA Fee) on each nursing facility (including
multi-level facilities) and improves department ability to ensure collection of fees from
all providers.
• Provides a fee-supported, General Fund-neutral nursing facility rate increase of
3.93% in 2010/11 and 2.4% in 2011/2012.
• Establishes a special nursing facility “Quality and Accountability Fund” and funds it
with $ 90 million redirected from existing facility rates and another $96 million plus
diverted from the 2011/12 rate increase (virtually the entire increase).
• Intensifies oversight of facility compliance with 3.2 state staffing standard and
penalizes noncompliance by reducing facility reimbursement rate by an average of
$80,000/yr.
• Caps nursing facility recognition of facility liability insurance costs at the 75th
percentile.
• Disallows recognition of legal costs for any type of challenge to government
determinations not found in favor of the facility.

II. Reasons for opposing the current Administration proposal:

• Provides no predictability for future Medi-Cal nursing facility funding levels --

increases QA fees, but decreases facility rates in the 2011-12 rate year (as occured
in last 2 years).
• Destroys the critical link between actual facility spending and subsequent rates.
• Discourages facility investment in staffing, wages/benefits, and physical plant
improvements integral to quality care.
• Funds “quality improvement” incentives by reducing a facility’s existing base rate,
rather than providing from new money (as has been done in all other states).
• Places hundreds of millions in rate money at risk, without any specificity on how
providers would qualify for incremental quality improvement reimbursement.
• Creates many more losers in the system by removing exemptions for MLRCs,
reducing the labor driven operating allocation, redirecting 2011/12 rate increase,
restricting liability/legal cost recognition, etc.
• Asks providers to trust government (recent experience says otherwise: WARP,
AB 1731 Quality Awards, 2009-10 and 2010-11 rate commitments – all abandoned).
• Fails to differentiate between real staffing shortages and facilities that may have
an episodic compliance issue, but consistently staff at levels well beyond the
minimum.
• Complicates a rate methodology that the Department already has substantial
difficulty implementing (August 2009 rates still have not been finalized).

III. Suggested Alternative (amendments to the current Administration proposal):

1. Do not extend AB 1629 provisions beyond 2010-11 rate year until more detailed
work has been completed on several critical components of reauthorization.
 2. Adopt all other Administration proposed trailer bill language that has an effective
date in the budget year, with the following adjustments:

• Provide a 2.7% increase (instead of 3.9%) in the 2010-11 global spending

cap (do not eliminate MLRC exemption until considered in the context of
other changes related to reauthorization).
• Establish an immediate and absolute penalty amount of $10,000 per
facility for non-compliance with state staffing standards (instead of redirecting
50% of the LDOA).
• Facilitate the detailed design and development of the Quality and
Accountability program, but do not codify related indicators or structural
changes to the rate methodology until they have been appropriately defined
and analyzed by major stakeholder groups.

3. Delete/amend remaining Administration proposed trailer bill language that has an

effective date after the budget year (draft amendment language available).

4. Require DHCS to fully define the elements of AB 1629 reauthorization beyond

June 2011 (including the structure, funding and protocol for Quality and
Accountability program payments) and provide details and related TBL to the
legislative budget committees by not later than April 2011.

5. Use the $8 million generated from placing a cap on liability costs to fund budget
year quality efforts, including: a portion of the L&C staff required for facility staffing
compliance reviews; DHCS staff required for detailed design/planning of
reauthorization changes; consultant contracts for data/technical support; and, on-
going State Ombudsmen administrative expenses ($1.5 million).

IV. Concerns over specific elements of the Administration’s proposal:

One-Year Extension of AB 1629

• Extends a system that incorporates a number of major policy changes that
deserve much more thorough analysis.
• Provides too many complicated modifications without adequate modeling or any
empirical assessment of actual impact on patients, facilities, or employees.
• Fails to allow adequate time for stakeholder consideration and input to the
proposed system modifications.

Quality Assurance Fee Increase

• Provides a fee increase without a corresponding rate increase.
• Decreases rates in the 2011-12 rate year.
• Increases the number of “loser” facilities paying a QAF assessment with no
benefit.

Quality and Accountability Fund

• Diverts money currently available for reimbursement of labor costs (i.e., staffing,
wages, and benefits) into a special fund.
• Triggers a 2% rate reduction for all providers in extension year.
• Provides no detail on criteria for how a provider would qualify to recover the
portion of their rate that was diverted.
• Allocates an unreasonably short timeframe for development/implementation of
very complicated quality incentives (CMS blackout of QM data not considered).
 • Does not provide adequate notice regarding the types of quality
measures/benchmarks facilities will be expected to meet or create a base year to
measure providers against.
• Bottles up approximately $180 million in 2011-12 in a special fund to fund quality
payments -- makes any money in the special fund a huge target for future budget
cuts.
• Envisions a lump sum payment to providers at the end of the rate year, which is
inconsistent with cash-flow needs for ongoing facility operations.
• Immediately stocks the “pay for performance” special by taking money from
providers’ base rates, rather than gradually building the fund with new monies from
rate increases.

Penalties for Non-Compliance with Staffing Standards

• Redirects substantial funding currently available to reimburse prior facility
spending on labor costs into a “special fund.”
• Fails to differentiate between facilities with real staffing problems and those that
may have an episodic compliance issue, but consistently staff at levels well beyond
the minimum.
• Assesses severe penalties (average of $80,000 or 2 1/2 CNA staff positions) for
what may be minor non-compliance, without any finding of patient risk/harm.
• Penalizes a full year of the facility’s reimbursement, based on what may be a
single point of time staffing issue.
• Bases new L&C positions on creation of a separate labor-intensive auditing
system, instead of incorporating into existing Title 22 surveys .

Legal fees awarded only when a facility is “successful”

• Conflicts with longstanding federal law on Medicare/Medicaid cost
reporting/finding related to facility legal expenses.
• Does not define what constitutes facility success (elimination of the
citation/deficiency, reduction of fine, or ?).
• Does not ‘pay’ facility legal fees, but places these costs in the administrative cost
bucket which is capped at 50% (meaning that 50% of the facilities will never recover
their costs).
• Recognizes facility legal expenses only in the year during which their success
was determined (not for the prior years in which litigation expense was ongoing).

Liability Insurance Cap

• Sets an arbitrary cap on reimbursement for liability insurance costs at the 75th
percentile -- rolls reimbursement for this cost component of the rate back to 2004
levels.
• Violates a major component of the AB 1629 deal (current pass-through was
adopted as an alternative to direct liability reform legislation).
• Inappropriately excludes costs for civil cases.

May 23, 2010