United States: New Law Implements SNF Cost Based Medi-Cal System, And Assesses Quality Assurance Fees

On September 29, 2004, Governor Schwarzenegger signed into law Assembly Bill 1629 ("AB 1629"), which adds to and amends provisions of the Health and Safety and the Welfare and Institutions Codes relating to reimbursement for skilled nursing facilities ("SNFs"). These provisions replace the current per diem flat reimbursement rate with a cost based system and institute a quality assessment fee.

Under the current payment methodology, many SNFs suffer losses treating Medi-Cal patients because the reimbursement for services often does not equal the actual costs of providing care. The new laws replace this system with a facility specific cost based reimbursement system that will compensate SNFs on the basis of the amount of care they actually provide.

The new system, which the Department of Health ("Department") is "expeditiously" required to develop, must reflect labor, indirect care, administrative, capital costs, and the direct pass through of proportional Medi-Cal costs for property taxes, facility license fees, new state and federal mandates, caregiver costs, and liability insurance. The Department has relatively broad discretion in establishing the system based on these factors. However, regardless of how the Department structures the new payment system, the new rates can not be less than the Medi-Cal rates that would have been available for each SNF under the current methodology.

Another major feature of AB 1629 is the imposition of a quality assurance fee for each SNF. This fee will generate funds to support quality improvement efforts in SNFs, and, according to current estimates, will increase funding by as much as $900 million for the Medi-Cal program, including Federal matching funds.

The fee will be uniformly assessed per resident day, based on the aggregate net revenue of SNFs subject to the fee, which must be paid on a monthly basis. In addition, each SNF must file quarterly, and annual, reports with the Department showing the facility .s total resident days and the payments made.

An important component of the AB 1629 is the care assessment requirement. The legislation requires providers to include in a resident's care assessment the projected length of stay and the discharge potential. In addition, the assessment must indicate whether: (1) the resident has expressed a preference to return to the community; (2) the resident has social support that may help to facilitate and sustain the resident in the community; and, if applicable, (3) the care needed to assist the resident in achieving a return to the community. The assessment and plan of treatment must be accomplished by an interdisciplinary team composed of the resident's attending physician, a registered professional nurse responsible for the resident, other staff in disciplines as determined by the resident's needs and, where applicable, the resident's representative. In addition to performing this care assessment on admission, the SNF must evaluate the resident's discharge potential at least quarterly or on a significant change in the resident's medical condition.

By January 2007, the Department must provide a report to the Legislature on the level of compliance with the minimum staffing requirements; the change in staffing levels and staffing retention rates; the number of SNFs with findings of immediate jeopardy of substandard quality of care, or actual harm; the number of SNFs that received state citations; the number and class of citations issued during 2004; and the average wage and benefits for employees prior to the implementation of the legislation. Not later than January 1, 2008, the Department must report on the extent to which residents who expressed a preference to return to the community were able to do so.

The new cost based system is subject to federal approval and the availability of federal funds. Moreover, the system is operative only as long as the SNF quality assurance fee continues to be approved by CMS.

The law is not applicable to SNFs operated by a public entity, including the state, are part of a continuing care retirement community, or are a distinct part of hospitals.

The law also contains a sunset provision that provides that the quality assurance fee will not be assessed or collected after July 1, 2008, unless another statute extending the date is enacted. Similarly, the rate system becomes inoperative on July 31, 2008 unless a later enacted statute extends the period.

If a SNF fails to pay all or part of the assessment within 60 days of the due date, the Department can deduct the unpaid assessment, plus interest, from any Medi-Cal payment due the facility. If the quality assurance fee still remains unpaid after the deduction(s), the Department may assess a penalty equal to 50% percent of the unpaid fee, and may delay license renewal until all amounts due have been paid.

Although AB 1629 appears to be a boon to SNFs because of the anticipated additional income to be received from Medi-Cal for Medi-Cal patients, some patient advocates argue that the new law will create higher costs for private pay patients because SNFs will simply pass on to them the costs of the quality assessment. In addition, because the Legislature has not seen fit to develop specific penalties for noncompliance with the assessment requirements, some patient advocates argue that the new law does not do enough to ensure the provision of quality care.

The new payment system may also raise some issues for SNFs. In setting the new rates, the Department is required to take into account capital costs based on a fair rental value system ("FRVS"). The legislation specifies how the FRVS should be calculated, but does not provide SNFs with an appeal mechanism to contest the calculation of the FRVS.

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