Responses to the Audit
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- Department of Health Care Services
- California Department of Public Health
- Office of Statewide Health Planning and Development
Department of Health Care Services
Ms. Elaine M. Howle
California State Auditor
621 Capitol Mall, Suite 1200
Sacramento, CA 95814
The California Department of Health Care Services (DHCS) hereby provides response to the draft findings of the California State Auditor's (CSA) report entitled, Skilled Nursing Facilities: Absent Effective State Oversight, Substandard Quality of Care Has Continued. The CSA conducted this audit and issued one finding and one recommendation.
DHCS agrees with the finding and the recommendation and has prepared corrective action plans to implement them. DHCS also agrees that it should continue to work with the Office of Statewide Health Planning and Development and the Department of Public Health to identify ways to improve coordination and data sharing among the Departments in an effort to increase efficiencies and enhance data accuracy. DHCS appreciates the work performed by CSA and the opportunity to respond to the findings. If you have any questions, please contact Ms. Sarah Hollister, External Audit Manager, at (916) 650-0272.
Ms. Mari Cantwell
Ms. Erika Sperbeck
Ms. Lindy Harrington
Ms. Connie Florez
Ms. Sarah Hollister
Department of Health Care Services’ (DHCS) Response to the California State Audit report entitled:
Skilled Nursing Facilities: Absent Effective State Oversight, Substandard Quality of Care Has Continued
Audit Number 2017-109 (17-19)
|Finding #1:||The Department of Health Care Services (DHCS) uses peer groups, which were established over a decade ago using limited data, to cap certain Medi-Cal rates paid to nursing facilities. In reviewing these peer groups, the California State Auditor (CSA) observed that a large company with significant market share could affect Medi-Cal rates for multiple peer groups. However, other companies who do not have large market shares within their peer groups would not be paid for similar increases in their administrative costs because their costs would not influence the caps to the same degree.|
|Recommendation 1:||CSA recommends DHCS use current data to revise and update the peer groups it uses to set Medi-Cal rates. In doing so, it should take into consideration the consolidation of the nursing facility industry.|
DHCS agrees with the recommendation.
DHCS agrees with the recommendation regarding utilizing more current data to update and revise the outdated peer group designation. However, DHCS also acknowledges that other methods of revising the peer grouping methodology should be considered.
DHCS will explore alternate methods to revise and update the current peer group designation utilized for the Freestanding Nursing Facility Level-B and Freestanding Subacute Nursing Facility Level-B facility types. DHCS will comply with the stakeholder engagement requirement for consideration of any revisions to the peer group designations. DHCS will also determine which of the state authorities relevant to the rate setting methodologies for these facility types, such as the California State Plan, Welfare and Institutions Code, Health and Safety Code, and California Code of Regulations, may require an amendment if revision to the current peer group designation is the most appropriate action. DHCS estimates that a revision or an update to the peer group designation utilizing more current data can be included at the earliest in the rate setting process for the 2019-20 Rate Year beginning August 1, 2019.
California Department of Public Health
April 11, 2018
Ms. Elaine M. Howle
1621 Capitol Mall, Suite 1200
Sacramento, CA 95814
Dear Ms. Howle,
The California Department of Public Health (CDPH) has reviewed the California State Auditor’s draft report titled Skilled Nursing Facilities: “Absent Effective State Oversight, Substandard Quality of Care Has Continued.” CDPH appreciates the opportunity to respond to the report.
The report concludes that the increase in federal deficiencies CDPH cited in long-term care facilities from 2006-2015 suggests that the State’s oversight efforts to date have been ineffective. CDPH disagrees with this conclusion and does not believe that the audit report develops evidence to support this conclusion. In fact, CDPH believes that the increased number of federal deficiencies cited demonstrates that CDPH has increased its enforcement activities. Furthermore, the report concludes that CDPH’s licensing decisions appear inconsistent because of a weak review process. CDPH disagrees that our review process is weak and that our decisions are inconsistent. While we appreciate the many opportunities the auditor afforded us to discuss this issue, CDPH believes the auditor ultimately did not fully understand the statutory standard on which we rely when making licensing decisions, nor the fact that each licensing decision depends on the totality of factors CDPH considers in evaluating each individual application. However, we agree that we have not always adequately documented all of the factors we consider for each decision.
Below we address several report findings in more detail, followed by our response to the auditor’s specific recommendations.
Finding: The State Has Not Adequately Addressed Ongoing Deficiencies Related to the Quality of Care that Nursing Facilities Provide
As noted above, the report concludes that the increase in federal deficiencies CDPH cited in long-term care facilities from 2006-2015 suggests that the State’s oversight efforts to date have been ineffective.
CDPH disagrees with this conclusion and believes that the increased number of federal deficiencies cited demonstrates that CDPH has increased its enforcement activities.
Further, the report expresses concern that while the number of federal deficiencies CDPH has cited increased, the number of state citations CDPH has issued decreased. The report dismisses CDPH’s response that the burden of proof for issuing a state citation that is likely to be upheld in court is much higher than the threshold for issuing a federal deficiency. The report also discounts the number of state citations CDPH issued that were dismissed or withdrawn. Citation dismissal or withdrawal illustrates the higher burden of proof for a state citation, as the dismissals or withdrawals are usually a result of court challenges.
Further, the report notes that the number of federal deficiencies CDPH issues plays a role in 22 percent of California skilled nursing facilities receiving CMS quality-of-care ratings of one or two stars. The increase in federal deficiencies issued by CDPH reflects the quality of care in those facilities cited and is appropriately factored into a facility’s five-star rating, helping consumers to make informed choices. The report does not acknowledge that the facilities are responsible for the quality of care they provide. Table 3 compares deficiencies on a per bed basis for three skilled nursing home companies, including a comparison to all facilities in the industry. When CDPH reviews a licensing application, we assess the ability of each prospective licensee to comply with all statutory and regulatory requirements. Because we individually assess each facility’s ability to comply with all applicable statutes and regulations based on the totality of the facility’s circumstances, CDPH does not believe that comparisons to national or state average deficiencies per bed or a defined per-bed deficiency threshold is an appropriate metric for assessing a prospective licensee’s ability to comply.
The report states the CDPH has not clarified the factors it uses to determine a facility’s ability to comply with state and federal requirements. As demonstrated by Table 4, CDPH shared with the auditor many of the factors it uses, noting that it is critical that CDPH retain discretion to assess the totality of each prospective licensee’s circumstances. CDPH is developing regulations to clarify the change of ownership (CHOW) process that will specify the types of factors that CDPH considers. However, because CDPH reviews each CHOW based on its specific facts, the proposed regulations do not, and cannot, encompass all possible factors nor the weight of any factor.
Recommendations to Public Health
As the Legislature considers changes to state law, Public Health should take the steps necessary to ensure its oversight results in nursing facilities improving their quality of care by doing the following:
- Improve its application licensing reviews by developing a defined process that specifies how an analyst will determine whether an applicant has demonstrated its ability to comply with state and federal requirements. This process also needs to ensure that analysts conduct complete and standardized reviews of each nursing facility application within each class of facility. Specifically, these processes should clearly outline what factors analysts will consider when determining whether an application is in compliance, how analysts will weigh those factors for each class of facility, as well as objective thresholds for when analysts must elevate applications for review and approval by higher-level management. Additionally, Public Health should document the additional factors higher-level management will consider if applications are elevated for their review to ensure that it conducts standardized reviews of nursing facility applications of the same class. Finally, Public Health should develop processes that ensure it adequately documents its decisions.
Response: Partially Agree
CDPH agrees that it should ensure that analysts conduct complete and standardized reviews of each nursing facility application, implement objective thresholds for when analysts must elevate applications for review and approval by higher-level management, and ensure analysts adequately document reviews.
CDPH has drafted desk procedures for processing skilled nursing facility applications for licensure and/or certification. Further, CDPH has drafted desk procedures for preparing and reviewing a compliance history. CDPH anticipates finalizing both of these desk procedures by September 2018 and providing staff training on the procedures by October 2018. The final desk procedures will define how the analyst will conduct a complete and standardized review of each application, document when to alert a manager if the compliance history is questionable, and ensure that staff include all supporting documentation in the application file.
CDPH partially agrees that it should document the additional factors higher-level management may consider if applications are elevated for their review. Because upper management has a broad view of the industry and applicable laws, they are best positioned to identify transaction-specific issues that could pose compliance challenges.
CDPH is developing regulations to clarify the CHOW application review process and document some factors it will consider in our review. However, the regulations will not propose a definitive checklist nor eliminate CDPH’s discretion to consider all available information on a case-by-case basis.
Health and Safety Code section 1265, which outlines the process for CDPH approval of a CHOW application, establishes a forward-looking, predictive standard that requires CDPH to assess the ability of the applicant to comply with the Department’s rules and regulations. As such, it does not rely on any one factor (e.g., prior compliance history), but authorizes consideration of any factor that the Department may deem relevant to the licensee’s future compliance with relevant laws. Thus, CDPH has considered, among other things, compliance history of facilities owned/operated/managed by the applicant (both in-state and out- of-state), including the number and type of severity of deficiencies, and the temporal pattern and trending of such deficiencies; suspension orders; initiation and/or culmination of license revocation proceedings; terminations from Medi-Cal or Medicaid; noncompliance with rules and regulations of other regulators where there is a sufficient nexus to believe that such violations may reflect on the applicant’s ability to comply with our own authorities; the compliance history of the facility or facilities to be acquired; the number of facilities to be acquired in a period of transactions; evidence that the applicant is of reputable and responsible character; and any other facts that may bear on the applicant’s ability to comply with our authorities.
Thus, when assessing an applicant’s ability to comply, CDPH considers past data as one element to predict the future ability to comply with state laws and regulations. We are also concerned with trends that can show increased or decreased ability to comply. Because each assessment is individualized and facility-specific, it is not possible to place specific weights on the various factors that CDPH may identify and consider relevant in a particular assessment.
- Ensure that it issues citations timely especially for immediate jeopardy deficiencies.
CDPH agrees that we should issue citations timely and continues our efforts to ensure that we do so.
SB 75, Chapter 18, Statutes of 2015, requires CDPH to issue any citation resulting from a complaint investigation within 30 days of completion of the investigation, barring any documented extension needed to finalize the citation.
CDPH’s metrics for Quarter 1 of fiscal year (FY) 2017-18 show that for Quarter 4 of 2016-17, CDPH met the statutory requirement include in SB 75 for 83% of the citations issued. See https://www.cdph.ca.gov/Programs/CHCQ/LCP/Pages/FieldOperationsComplaints_ERIs.aspx, click on the “Statewide Metrics” tab, then “Disposition of Cases” tab.
To assist in issuing citations more timely, CDPH has begun training survey staff on writing complete, defensible citations. In addition, CDPH is developing a model template for citations. This template will improve the quality and defensibility of citations. CDPH anticipates completing the template September 30, 2018 and completing training of survey staff on using the template October 31, 2018.
CDPH is also revising its internal policy and procedure on citation development. We anticipate issuing the revised policy and procedure September 30, 2018.
- To improve the availability and transparency of information, Public Health should upload all inspection findings to Cal Health Find and complete its review of ownership data by May 2019.
Response: Partially Agree
CDPH will upload inspection findings for all skilled nursing facilities dating back to 2011 (in accordance with Affordable Care Act requirements) by December 31, 2018. This timeline accounts for the need to redact and manually upload each inspection report.
CDPH agrees it needs to complete its review of ownership data but does not anticipate completing this review until May 2020.
CDPH is revising its licensing renewal form to include an area for licensees to provide all current ownership information. CDPH will require licensees to complete this form when they pay their license renewal fees. CDPH will use the renewal form to update ownership information in our licensing database. CDPH anticipates implementing the renewal form by September 2018, for license renewals occurring in 2019. CDPH will upload ownership updates as we receive them. However, because facility license renewals occur all throughout the year, it will take until May 2020 to receive information from all facilities renewing in 2019 and process any changes prior to uploading to Cal Health Find.
Recommendations to the Legislature
CDPH offers comments on the following recommendations to the Legislature related to Public Health.
- Require Public Health by November 2018 to develop a proposal for legislative consideration that outlines the factors it will consider when approving or denying nursing facility applications of the same class based on an applicant’s ability to provide quality patient care.
As noted above, CDPH is developing regulations for the change of ownership review process.
- Require Public Health to conduct state and federal inspections concurrently by aligning federal and state timelines.
CDPH agrees that it would be helpful to align state relicensing and federal recertification survey timelines. However, even with aligned timelines, there will be situations in which it is not feasible to conduct the state and federal surveys concurrently.
- Require that Public Health increase citation penalty amounts annually by – at a minimum – the cost of inflation.
Citation penalty amounts are set in statute and CDPH does not have the authority to adjust statute.
CDPH offers a comment on the following recommendation to the Legislature related to Health Planning, Public Health, and Health Care Services.
- To improve coordination and efficiency among state agencies, the Legislature should require Health Planning, Public Health, and Health Care Services collaborate to assess the information that each collects from nursing facilities and develop a proposal by May 2019 for any legislative changes that would be necessary to increase the efficiency of their collection and use of the information.
CDPH agrees that improved collaboration among Health Planning, Public Health, and Health Care Services would increase the efficiency of our collection and use of the information.
We appreciate the opportunity to respond to the audit. If you have any questions, please contact Monica Vazquez, Chief, Office of Compliance at (916) 440-7387.
Karen L. Smith, MD, MPH
Director and State Public Health Officer
CALIFORNIA STATE AUDITOR’S COMMENTS ON THE RESPONSE FROM
THE CALIFORNIA DEPARTMENT OF PUBLIC HEALTH
To provide clarity and perspective, we are commenting on the response that Public Health provided to our audit. The numbers below correspond to the numbers we have placed in the margin of Public Health’s response.
We stand by our overall conclusion that absent effective state oversight, substandard quality of care has continued in nursing facilities. This conclusion is primarily based on our findings related to Public Health not performing all required inspections, reducing the number of citations it issues, and not issuing citations in a timely manner.
We acknowledge in the report Public Health’s perspective that quality‑of‑care trends may be attributable to Public Health increasing its enforcement; nonetheless, we believe the 31 percent increase of substandard quality of care deficiencies is cause for concern. Moreover, the decrease in the number of citations Public Health issued, as shown in Figure 6, is evidence that Public Health has not increased all of its enforcement activities.
We stand by our conclusion that Public Health’s licensing review process is weak and its decisions appear inconsistent as discussed in the report. This conclusion reflects Public Health’s poorly defined process for licensing nursing facilities and licensing decisions that, based on the documentation available in the file, appeared inconsistent because Public Health’s data indicated similar histories of regulatory compliance for nursing facilities that it approved and denied.
We fully understand the statutory standard to which Public Health refers. The applicable state law indicates that an applicant for a license must demonstrate, among other things, its ability to comply with Public Health’s rules and regulations. Since this law is vague, our expectation was that Public Health would have clarified it through regulations, policies, or procedures. However, this was not the case and, as we state in the report, Public Health’s review process for license applications remains poorly defined and lacks adequate documentation of the factors it says it considers in evaluating applications.
We acknowledge in the report Public Health’s perspective that the burden of proof for issuing a state citation is higher than the threshold for issuing a federal deficiency. Regardless, we are still concerned by the fact that Public Health only issued citations for 15 percent of the most severe deficiencies it identified. Moreover, we informed Public Health that we did not include the number of citations that were dismissed or withdrawn because excluding them did not affect our conclusions. Dismissed or withdrawn citations are less than 3 percent of the total citations.
As we state in the report, in 2007 the Legislature declared that California’s public policy is to ensure that nursing facilities provide the highest level of care possible. Moreover, as we also state, the mission of Public Health’s Center for Health Care Quality is to protect patient safety and ensure quality care for all patients in health facilities, including nursing facilities. Therefore, although facilities are responsible for the quality of care they provide, Public Health’s oversight is key to ensuring California patients receive quality care.
We disagree that Public Health’s reviews encompass the totality of the facility’s circumstances. As we discuss in Table 4, nine of the 10 compliance histories we reviewed were incomplete. Our recommendation does not indicate the specific threshold Public Health should use to elevate applications to higher‑level management for review because we believed this decision should be made by Public Health with input from its stakeholders, and codified by the Legislature. Moreover, we believe our approach of assessing quality of care indicators on a per bed basis is reasonable and appropriate because it allows for fair comparisons among large companies.
As we state in the report, it was difficult for us to determine the factors Public Health used to make its licensing decisions, in no small part because it has not defined or documented in policy, procedures, or regulations the additional factors its higher‑level management considers.
As we note in the report, we believe it is appropriate for Public Health’s higher‑level management to retain the discretion to apply their professional judgment when making licensing decisions within a well‑defined application review process. However, management would need to ensure the justification for their decisions is adequately documented, particularly the factors considered in making the decisions.
As we state in the report, we believe that Public Health, through collaboration with its stakeholders, is capable of developing a complete list of factors it should consider when reviewing applications. In the future, if Public Health determined it needed to consider additional factors, it could update the list.
Our recommendation directs Public Health to consider which factors it believes are most important when reviewing applications and to develop thresholds for when applications need to be reviewed by higher‑level management. We believe this will strengthen Public Health’s process and ability to justify its decisions.
Public Health asserts it does not anticipate completing its review of ownership data until May 2020. A May 2019 implementation date allows Public Health one year from the report’s release to implement this recommendation, which we believe is reasonable.
As we state in the report, we believe that Public Health should work with the Legislature to codify its licensing review process because legislative action will be the most efficient and effective way for Public Health and stakeholders to agree on how it should assess companies seeking to operate additional facilities in the future. In light of the fact that Public Health has failed to develop regulations for its licensing review process for over a decade, we are concerned about how long it might take Public Health to establish its licensing review process in law through the administrative rulemaking process instead of working with the Legislature to codify the process in statute.
April 10, 2018
Ms. Elaine M. Howle, CPA
California State Auditor
621 Capitol Mall, Suite 1200
Sacramento, CA 95814
Dear Ms. Howle:
The Office of Statewide Health Planning and Development (OSHPD) hereby responds to the draft findings of the California State Auditor's (CSA) report titled, Skilled Nursing Facilities: Absent Effective State Oversight, Substandard Quality of Care Has Continued. CSA conducted this audit and issued three recommendations for OSHPD.
OSHPD agrees with the recommendations and our comments are enclosed. OSHPD also agrees with the recommendation that improved coordination among OSHPD and the Departments of Health Care Services and Public Health would increase the collection and sharing of information from skilled nursing facilities.
OSHPD appreciates the work performed by CSA and the opportunity to respond to the findings. If you have any questions, please contact Lilia Young, Audit Coordinator, at 916-326-3291.
Very truly yours,
ROBERT P. DAVID
The Office of Statewide Health Planning and Development
|Recommendation 1:||Append additional schedules to the annual cost report to enable nursing facilities to fully disclose related-party transactions.|
OSHPD agrees with the recommendation.
While related-parties historically had only limited transactions with Skilled Nursing Facilities, the trend has been to provide services throughout the facility utilizing related-party vendors. The annual cost report can be amended to account for these additional transactions and provide more detail of related-party transactions with the facility. Since the cost report is incorporated by reference in regulation, any modification would require a regulatory process change.
|Recommendation 2:||Provide a single location in the annual cost report for nursing facilities to report related-party transaction amounts next to the amounts they are claiming for Medi-Cal reimbursement.|
OSHPD agrees with the recommendation.
Historically, the OSHPD Annual Financial Disclosure Report and the DHCS Medi-Cal Cost Report were separate reports. When they were combined, the related-party reporting of each report was kept separate. Combining them would provide clarity of the related-party transactions, as well as their impact on the Medi-Cal reimbursement of the facility. Modification of the report would require a regulatory process change.
|Recommendation 3:||Create an additional schedule on the cost report that depicts how a company is investing in quality-of-care improvements.|
OSHPD agrees with the recommendation.
To the extent there are any Medi-Cal reimbursement program changes, modification of the cost report would be needed and would require a regulatory process change.