• Medi-Cal Wage Pass-Through Audits, Second Round SNF and ICF Providers May Need to Challenge Results of DHS WPT Audits That Do Not Allow Proper Credit For "Merit" Salary Increases
  • August 14, 2003
  • Law Firm: Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP - San Francisco Office
  • In the coming days, California skilled nursing and intermediate care providers (including hospital-based providers) will be notified of the results of the second round of Medi-Cal wage pass-through audits covering the period from August 1, 2000 through July 31, 2001. These audits, conducted by the California Department of Health Services ("DHS"), are designed to assure compliance with the provisions of AB-2877 (Welf. & Inst. Code ยง14110.6(f)), enacted as part of the State's 2000-2001 budget and pursuant to which all SNF and ICF providers received a Medi-Cal rate increase beginning August 2000 to be "passed through" to care givers and support staff.

    As was the case with the first round of wage pass-through audits conducted last year, some providers are being notified that DHS intends to disallow credit for those wage and salary increases that it determines are "market-related adjustments." As explained in this ALERT, the DHS rationale for these disallowances appears highly questionable and inconsistent with the letter and intent of the wage pass-through legislation. Accordingly, providers should take steps to assure that their institution's interests are protected by filing a timely notice of appeal within 60 days of receipt of any adverse notification from DHS. This is necessary to assure that each facility receives full credit for any wage and salary increases afforded to eligible staff during the applicable 12-month period ending July 31, 2001.

    Background. Previously, during the first round of wage pass-through audits conducted by the Department during 2001 under the provisions of AB-1107, many providers were surprised to learn that DHS had disallowed all or a portion of the salary and wage increases granted to eligible staff during the 12-month period ending July 31, 2000.

    In many cases, DHS determined that certain salary and wage increases were made for "market adjustment" purposes that would have been implemented regardless of receiving the wage pass-through Medi-Cal rate increase.

    In many instances providers were required to refund portions of the WPT monies plus a 10% penalty while awaiting the results of appeals filed with the Office of Administrative Hearings.

    Subsequently, after suffering some adverse appeal rulings, DHS reversed field and announced on January 24, 2002, that it had made a change in policy regarding the treatment of salary wage and benefit increases for audits under AB 1107. Under the new policy, DHS staff were directed to give full credit for all wage, salary and benefit increases so long as the increase was not promised to the employee or negotiated prior to August 1, 1999. The same January 24, 2002 announcement indicated that subsequent wage pass-through legislation would be implemented differently pursuant to its own implementing legislation (i.e., AB-2877).

    Second Round, Same Results. The second round of WPT audits of California long term care providers are being completed with results very similar to the first round. In many instances providers are receiving notification that wage and salary increases previously granted to eligible staff are being disallowed as "market related adjustments."

    DHS is affording providers the opportunity to refund the disallowed amount (plus a 10% penalty), or the option to provide eligible staff with a retroactive additional wage or salary adjustment as long as those wage increases also increase the employee's base salary rate and continue into the future.

    Providers should be aware of the alternative to exercise their right to challenge DHS wage pass-through findings by filing notice of appeal within 60 days of receipt of any adverse audit findings from the Department. Notwithstanding the differing authorizing legislation, DHS' decision to set aside legitimate wage and salary increases based on its "market adjustment" rationale is no more justified this year then it was last year. In both instances, DHS' policy is remarkably thin on both logic and legal footing.

    The wage pass-through legislation clearly directs DHS to credit wage and salary increases given to eligible staff during the applicable 12-month period unless they would have been paid in the absence of the WPT funds, such as wage increases previously negotiated as part of an approved collective bargaining agreement. It is legally irrelevant whether providers exercise their discretion to fine tune WPT salary adjustments through reference to market wage surveys or other industry benchmarks. Providers should be prepared to aggressively challenge attempts by DHS to disallow legitimate salary increases by being prepared to demonstrate that wage and salary adjustments awarded to SNF and ICF staff would not have been granted but for the receipt of the 2000-2001 WPT funds.