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AB-1537 Skilled nursing facilities: direct care spending requirement.(2023-2024)

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Date Published: 02/17/2023 09:00 PM
AB1537:v99#DOCUMENT


CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Assembly Bill
No. 1537

Introduced by Assembly Member Wood

February 17, 2023

An act to add Section 1272.5 to the Health and Safety Code, relating to skilled nursing facilities.


LEGISLATIVE COUNSEL'S DIGEST


AB 1537, as introduced, Wood. Skilled nursing facilities: direct care spending requirement.
Existing law provides for the licensure and regulation of health facilities, including skilled nursing facilities, by the State Department of Public Health. A violation of those provisions is a crime. Existing law requires health facilities to submit specified financial reports to the Department of Health Care Access and Information. Existing law establishes the Medi-Cal program, which is administered by the State Department of Health Care Services and under which qualified low-income individuals receive health care services.
This bill would require, no later than July 1, 2024, the establishment of a direct patient-related services spending, reporting, and rebate requirement for skilled nursing facilities, with exceptions. Under the direct patient-related services spending requirement, the bill would require that a minimum of 85% of a facility’s total non-Medicare health revenues from all payer sources in each fiscal year be expended on residents’ direct patient-related services, as defined.
The bill would require a facility to report total revenues collected from all revenue sources, along with the portion of revenues that are expended on all direct patient-related services and nondirect patient-related services, to the State Department of Health Care Services by June 30 of each calendar year, with certification signed by a duly authorized official, as specified.
The bill would require the State Department of Health Care Services to conduct an audit of the financial information reported by the facilities, to ensure its accuracy and to identify and recover any payments that exceed the allowed limit, as specified. The bill would require the department to conduct the audit every 3 years, at the same time as the facility’s Medi-Cal audit.
If a skilled nursing facility fails to comply with the direct patient-related services spending requirement, the bill would require the facility to issue a pro rata dividend or credit to the state and to all individuals and entities making non-Medicare payments to the facility for resident services, as specified. The bill would require the State Department of Health Care Services to ensure that those payments are made and to impose sanctions, as specified. The bill would also authorize the department to withhold certain payments from a skilled nursing facility licensee for failure to fully disclose information, as specified.
Because a violation of these requirements would be a crime, the bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: YES  

The people of the State of California do enact as follows:


SECTION 1.

 Section 1272.5 is added to the Health and Safety Code, to read:

1272.5.
 (a) No later than July 1, 2024, a direct patient-related services spending, reporting, and rebate requirement shall be established pursuant to this section for skilled nursing facilities that are certified under the federal Centers for Medicare and Medicaid Services (CMS), except as described in paragraph (3) of subdivision (j).
(1) A skilled nursing facility shall report total revenues collected from all revenue sources, along with the portion of revenues that are expended on all direct patient-related services and nondirect patient-related services, to the department, in a form to be determined by the department, by June 30 of each calendar year. All information submitted pursuant to this section shall be accompanied by a report certification signed by a duly authorized official of the skilled nursing facility or of the skilled nursing facility’s home office that certifies that, to the best of the official’s knowledge and information, each statement and amount in the accompanying report is believed to be true and correct.
(2) Both the expenditures and revenues related to a facility’s state-mandated quality assurance fees and licensure fees shall not be included in their calculations for purposes of this section.
(3) The direct patient-related services spending requirement shall require a minimum of 85 percent of a facility’s total non-Medicare health revenues, including Medicare fee-for-service and Medicare Advantage, from all payer sources in each fiscal year to be expended on the direct patient-related services of residents.
(4) For purposes of this section, a continuing care retirement community, as defined in Section 1771, subject to this section shall report revenues to the department consistent with the revenues reported on its skilled nursing facility annual consolidated financial report pursuant to Section 128734.1, and shall not include revenue from continuing care entrance fees, monthly fees, or other charges incurred while the continuing care contractholder resides in a residential or assisted living unit.
(b) (1) “Direct patient-related services” shall include all of the following:
(A) Staffing services, including wages and benefits for nursing managers, nursing staff, and other personnel, who may include registered nurses, licensed practical nurses, certified nurse aides, noncertified or resident care aides, directors of nurses, in-house clerical staff regularly interacting with residents and caregivers, receptionists, evaluation nurses, minimum data set coordinators, and medical directors.
(B) Ancillary services, including, but not limited to, therapy services, supplies, pharmacy services, consultants, and laboratory services.
(C) Support services, including plant operations and maintenance, laundry and linen, housekeeping, resident activities, social services, services by a social service worker, services by a behavioral health consultant, dietary services, and in-service education.
(D) Rent, lease, or ownership costs that are not more than the facility’s fair rental value cost element as calculated by the department.
(E) Professional liability insurance costs that include the following:
(i) The full value of professional liability insurance costs, as long as the payment is not directed to a related party.
(ii) Professional liability insurance costs as adjusted by the department for profit elimination as part of the Medi-Cal auditing process if the payment is directed to a related party.
(2) Any administrative costs and profits paid to any management company or related party entities for staffing services, ancillary services, or support services shall be excluded from the definition of direct care.
(3) For purposes of calculating purchased and contracted services not covered by paragraph (2), the total number used shall be discounted at 85 percent of the contracted or purchased amount.
(c) (1) “Nondirect patient-related services” shall include all of the following:
(A) All administrative costs, including management and executive wages and benefits, all costs to management companies, administrative service companies, home office expenses for parent companies and holding companies, legal expenses, trade association fees and dues, insurance costs, licensing fees, and quality assurance fees. All administrative costs and profits paid to contractors or related party entities for staffing services, ancillary services, support services, or other services are considered nondirect patient-related services.
(B) Capital costs, including depreciation, interest rates, property taxes, corporate taxes, and property insurance, in excess of the facility’s fair rental value cost element as calculated by the department.
(C) Other expenses, including other interest rates and provision for bad debts.
(D) Profits, including net income and any profits paid to related parties on leases and property, and any profits paid to management companies.
(2) Excluded costs may be excluded from nondirect patient-related services and may include special high-cost equipment or improvements of the physical plant that directly benefit residents, such as establishing single rooms and private bathrooms, upon approval by the department.
(d) (1) The department shall conduct an audit, as described in Section 14170 of the Welfare and Institutions Code, of the financial information reported by skilled nursing facilities pursuant to this section, to ensure the accuracy of the information reported and compliance with the requirements of this section, and to identify and recover any payments that exceed the allowed direct care limit for administrative costs and profits. These audits may also include any audits of contractors or related party entities.
(2) In reviewing financial reports provided to the department for compliance with this section, the department shall consider the skilled nursing facility’s annual consolidated financial reports filed with the Department of Health Care Access and Information pursuant to Sections 128734.1, 128735, and 128740.
(3) The department shall conduct the audit of the financial information reported by skilled nursing facilities pursuant to this section every three years, at the same time as the facility’s Medi-Cal audit, as described in Section 14170 of the Welfare and Institutions Code.
(e) If a skilled nursing facility fails to comply with the direct care spending requirement established pursuant to this section, the facility shall issue a pro rata dividend or credit to the state and to all individuals and entities making non-Medicare payments to the skilled nursing facility for resident services, in an amount sufficient to ensure that the aggregate amount was paid for direct care as prescribed in this section.
(f) The department shall ensure that any pro rata dividend or credit shall be paid by the skilled nursing facility to the appropriate individuals and entities by September 30 of each calendar year.
(g) The department shall impose sanctions for the failure to comply with this section, in the form of an administrative fine set at double the percentage of the pro rata payments that the facility failed to distribute. Failure to comply with this section is also subject to any other applicable enforcement mechanisms described in this chapter.
(h) The department may withhold Medi-Cal payments from any skilled nursing facility licensee that fails to fully disclose accurate and complete information on the direct patient-related services and nondirect patient-related services costs under this section.
(i) A facility may appeal the department’s determinations pursuant to Article 5.3 (commencing with Section 14170) of Chapter 7 of Part 3 of Division 9 of the Welfare and Institutions Code.
(j) For purposes of this section, the following definitions apply:
(1) “Department” means the State Department of Health Care Services.
(2) “Related party” has the same meaning as set forth in Section 128734, and may include, but is not limited to, any of the following:
(A) Home offices.
(B) Management organizations.
(C) Owners of real estate.
(D) Entities that provide staffing, therapy, pharmaceutical, marketing, administrative management, consulting, or insurance services.
(E) Providers of supplies and equipment.
(F) Financial advisers or consultants.
(G) Banking or financial entities.
(H) Any parent companies, holding companies, or sister organizations.
(I) Any entity in which an immediate family member of an owner of those organizations has an ownership interest of 5 percent or more. For purposes of this subparagraph, “immediate family member” includes spouse, natural parent, child, sibling, adopted child, adoptive parent, stepparent, stepchild, stepsister, stepbrother, father-in-law, mother-in-law, sister-in-law, brother-in-law, son-in-law, daughter-in-law, grandparent, and grandchild.
(3) “Skilled nursing facility” has the same meaning as set forth in subdivision (c) of Section 1250, except that the term excludes skilled nursing facilities that are not certified to participate in the Medi-Cal program and are not subject to audit under Section 14170 of the Welfare and Institutions Code, government-owned or government-operated facilities, hospital-based distinct part facilities, as defined in Section 483.5 of Title 42 of the Code of Federal Regulations, and inpatient hospice programs.

SEC. 2.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.