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Nursing Home Operators Hit Jackpot
with Taxpayers? Money!

While new casino deals were making the news, California nursing home operators hit the jackpot in Sacramento with the passage of AB 1629 (Frommer). If signed by the Governor, the multi-billion dollar Medi-Cal rate plan will make California the first state in the nation to guarantee nursing home profits. Unfortunately for California nursing home residents, the bill does nothing to improve care or staffing.

Despite its huge price tag and controversial features, AB 1629 was passed in near record time. As originally introduced in 2003, AB 1629 dealt with health planning, not nursing home funding. On August 16, 2004, with the legislative session winding down, the bill’s author, Assemblyman Frommer (D-LA), used a notorious maneuver known as "gut and amend" to erase its content and replace it with the nursing home rate plan. Less than two weeks later, without public scrutiny or careful review, the radical rate plan was rammed through the legislature along with many other last minute bills.

AB 1629 has three key features: a $213 million cost of living raise for this fiscal year; a bed tax to generate new federal Medicaid funds; and a new facility-specific reimbursement system for freestanding skilled nursing facilities. CANHR does not oppose the bed tax or a cost-of-living increase, but we strongly oppose the reimbursement plan as a virtual give-away to the nursing home industry, with no accountability and no provisions for better care for residents.

The bill’s worst feature is the unprecedented profit guarantee, which is named a "labor-driven operating allocation" to disguise its purpose. It pays skilled nursing facilities 8 percent of their labor costs to be taken as profit. No other Medi-Cal provider is guaranteed a profit. In fact, many other health providers have taken cuts or are facing future cuts due to the budget crisis.

AB 1629 also provides extraordinarily generous funding of nursing home capital costs, allowing total capital spending to grow by 8 percent each year starting in fiscal year 2006-07. Supporters claim money is badly needed to improve aging nursing homes throughout California. Although this is true, it is nursing home investors, not California taxpayers, who should pay for these improvements. As the bill stands, nursing home operators will be able to improve their properties at taxpayer expense and then reap windfall profits when facilities are sold.

Most importantly, the profit guarantee and capital spending allowance take away money that is desperately needed to improve care. AB 1629 contains no requirements to improve staffing or wages and requires California to increase Medi-Cal rates again if the federal or state government set any new nursing home requirements.

The exact costs of AB 1629 are unknown, but the bill will allow Medi-Cal rates for skilled nursing facilities to grow by about 25 percent over four years, costing hundreds of millions of dollars each year. Its purported funding source, the bed tax, will pay only a part of the cost and will be repealed in four years. No one knows where the money will come from to pay for or sustain these rate increases, because the legislature passed the bill without getting a fiscal analysis.

Essentially a blank check, the bill contains no meaningful accountability measures and no money to prop up California’s failing nursing home inspection and enforcement systems. It also lacks measures to detect or curtail fraudulent billing, a pervasive practice in the nursing home industry.

In a bold move, AB 1629 supporters attempted to strip current audit requirements from the law. Although weak audit requirements were put back in at the last minute, AB 1629 does not provide necessary funding to ensure that proper audits are completed on a timely basis.

CANHR, AARP and other advocacy groups fought without success to improve the bill by adding accountability measures and tying new funds to staffing and training improvements. Legislative insiders told CANHR that obvious problems with the bill were covered up because the bill was "greased" -- legislative slang for a bill that is popular because of the powerful special interests behind it.

The special interests behind AB 1629 are a potent alliance of industry and labor: the California Association of Health

Facilities (CAHF) – which represents for-profit nursing home operators – and the Service Employees International Union (SEIU). They are working together to change California’s nursing home landscape in ways that favor their interests at the expense of nursing home residents. The union agreed to lobby for the new rate plan and legislation that will strip elder abuse victims of their right to sue in exchange for unobstructed opportunities to organize and recruit nursing home workers throughout California.

At a time when DHS’s Licensing and Certification budget has been cut to the point that the consumer complaint system is dysfunctional and the enforcement system is incapable of protecting residents’ lives, much less their rights, California’s legislators acted irresponsibly in signing a blank check to the nursing home industry.

For more information, see articles by Matt Smith in the 6/30/2004 and 8/25/2004 issues of the SF Weekly, online at the SF Weekly website (