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Medi-Cal Updates and Rate Adjustment Discussion

AB 1629 Medi-Cal Rates, State of California Increased Cuts, and Axiom’s discussion and Accounting advice.

2011-12 AB 1629 Medi-Cal Rates Posted

The Department of Health Care Services on Dec. 15 posted the final 2011-12 Medi-Cal skilled-nursing reimbursement rates. To link to the new rates, Click HERE.

The 2011-12 rates include an increase of 0.4262 percent (4/10 of 1%) which is applied equally to all providers. In addition, amounts have been included for 2 add-ons for new mandates: $1.24 for MDS 3.0 and $0.86 for aerosol-transmitted disease vaccines and training. Finally, the rates are adjusted for facility-specific amounts for the increased license fees (average of 22 cents) and $1.25 for an increase in the quality-assurance fees for facilities under 100,000 patient days and $1.50 for facilities over 100,000 patient days.

Payments to AB 1629 providers will be temporarily reduced by 10 percent, effective June 1, 2011, though July 31, 2012. See our discussion on this topic below

You should start billing at new rates now. At this time, DHCS does not know the date that ACS, the Medi-Cal fiscal intermediary, will begin paying the final rates and the 10-percent reduction. Thanks to CAHF for the specific rate information.

State of California $1 Billion Increased Cuts Triggered

State revenue came in at lower than anticipated levels last week, which triggered the $1 Billion in midyear spending cuts. Medi-Cal Skilled Nursing was spared, but developmental services, along with education, public safety and social services will have further rate cuts to contend with. More widespread cuts are expected as California faces another projected deficit next year.

Axiom's Discussion and Accounting Advice for the 10% Medi-Cal Payment Adjustment

As you know, Medi-Cal payments will be adjusted for a fourteen (14) month period beginning June 1st, 2011 and ending July 31st, 2012. Payments will be (reduced) by 10% for that entire fourteen month period. The reduction has not yet been implemented, but it is in current law and it is included in the State Plan Amendment (SPA) that has been approved by CMS.

It is expected that the state will implement the payment reductions early next year. Since you have been getting the "full payment" from June 1st, 2011 through now, this means that the state will take away, retroactively to June 1st, 2011, 10% of your payments. For any remaining months through July 31st, 2012, the state will lower your payments as well.

You need to be prepared for the cash take backs and payment reductions. The state will withhold the cash from your Medi-Cal remittance, probably over a number of weeks. The exact length of time over which the cash will be withheld has not been published yet.

Providers have been asking a lot of questions about this process and we have listed the most frequently asked questions and answers based on our current understanding of the situation.

Is This A Reduction In Payments Only, Or Is This A Reduction In The Amount We Are Earning?

This is a reduction in payments, not a reduction in the amount providers are earning. In other words, the state will return the amounts withheld / retracted from providers before the end of 2012.

Will We Really Get The Money Back?

We want to be clear about what the law says and tell providers that we believe skilled nursing facilities are in the strongest possible position they can be as it relates to getting this money re-paid.

The law says that the money will be paid back before December of 2012. The State Plan Amendment (SPA) reflects the law and says providers will be re-paid before December of 2012. The law tells us we will be paid back.

Further, the current law would penalize the state if they failed to pay the money back. Specifically, the state would lose the Quality Assurance Fee (the bed tax) revenue if they failed to pay SNFs back. If this were to occur, the state's lost revenue would be in the hundreds of millions of dollars. This is in law and in the SPA and there certainly appears to be high motivation for the state to pay SNF back.

OK, Come On Now, Will We REALLY Get The Money Back????

If one wants to be extremely conservative and talk about the worst case scenario, we would propose the following items be considered:

  • The Economy - If the state and federal economies deteriorate and state and federal revenue continues to fall; additional budget cuts will be implemented. There is certainly no guarantee that the state or federal economy will recover sufficiently to avoid additional cuts. That said, the state would need to change the current law in order to avoid paying the money back. That would not be an easy thing for the state to do.
  • Can The State Change The Law? - It is possible. However, it would be a difficult process and the state would likely lose money in the process (e.g., the current provision eliminating the QA fee revenue for the state could remain in place).
  • Are There Any Guarantees Regarding What Is Going To Happen? - No, there are not. As discussed above, the current law says SNFs are to be paid back, the state would incur significant loss of revenue if they failed to pay SNFs back and it would require a change in the law to avoid the payback. But, there are no absolutes or guarantees.

How Do We Account For The Payments We Get And The Amounts Retracted Or Withheld?

All providers need to discuss this issue with their tax advisor and their long term care accountants and advisors to make sure unique circumstances are considered. Based on the current law and the discussion above, SNFs are earning the full AB-1629 rate and the amount to be retracted and/or withheld from future payments is essentially a "loan to the state". Please note, the remittance advices you will receive are expected to show the full AB-1629 Medi-Cal rate as the amount you are earning.

Therefore the following accounting procedures would be logical:

Assumptions (Round Numbers Used For Simplicity)

Full AB-1629 Medi-Cal Rate =       $200 PPD            (100%)
Actual Payment Amount =          $180 PPD             (90%)
Amount Withheld =                  $20 PPD              (10%)

  • The SNF would book $200 PPD in revenue, 100% of the AB-1629 Medi-Cal rate
  • The SNF would receive only $180 PPD from the state so a $20 PPD gap would be created
  • The $20 PPD would be accounted for as a receivable on the SNF's books.

Later when the state pays the SNF back the SNF would record the cash and reduce the receivable that has been created. For Tax purposes the tax impact would depend on whether the tax return is based on the cash basis or the accrual basis of accounting. Check with your tax advisor.

What About Setting Up A "Reserve", Just In Case We Don't Get Paid Back?

Again, we need to refer you to the entire discussion above. If one wants to be very conservative one could establish a reserve against the receivable that would be created by the accounting process described earlier. In this case a "reserve" is an accounting entry that indicates you do not expect to collect money that you have booked as a receivable.

If you take the position that the state will not pay you back (at all) you would book a reserve in the full amount of the receivable that has been created (the 10% amount). You could also reserve a different amount. Whether or not you create a reserve and the amount you reserve depends on your tolerance for risk, your belief about what the state will do, and perhaps most importantly, who will be looking at your financial statement and what they will be used for.

For example, if your financial statements are to be used by a banking institution and may impact your ability to borrow money or covenants in a current bank loan, you may need to take a different approach, one approved by your bank. Conversely if your financial statements are used for internal purposes only, the approach may be less critical.


We certainly understand and share the concern over the upcoming retraction of Medi-Cal payments and hope this article helps you understand the situation better. We will be happy to answer additional questions or expand on the discussion above. We invite you to call us if you have more questions about this topic or any topic relating to the Long-Term Care Profession.