(b) The following definitions shall apply for purposes of this section:

1. (1) “Daily core services” means the services described in Section 14550.5.

2. (2) “Separately billable services” means services designated by the department, after consultation with the California Association for Adult Day Services, and shall include, but not be limited to, the following:

   1. (A) Physical therapy services.
   2. (B) Occupational therapy services.
   3. (C) Speech and language pathology services.
   4. (D) Mental health services.
   5. (E) Registered dietician services.
   6. (F) Transportation services.

(c) The prospective reimbursement methodology for the daily core services provided by each adult day health care center shall be determined by the department based on the reasonable cost of providing all of the adult day health care services included within the core services and adjusted to the particular rate year. Services and costs included in the calculation of the daily core services rate shall include, but not be limited to, all of the following:

1. (1) Fixed or capital-related costs representing depreciation, leases and rentals, interest, leasehold improvements, and other amortization.
2. (2) Labor costs other than those for the separately billable services, including direct and indirect labor and contracted staff hours required by law or regulation.
3. (3) All other costs exclusive of fixed or capital-related costs, leases or rentals, interest, leasehold improvements, and other amortization.
4. (4) Add-ons, adjustments, and audit adjustments determined annually in the calculation of the core rate to allow for changes specified in subdivision (h), until those changes are reflected in the cost report.
5. (5) Cost components required to comply with licensing and certification laws and regulations.

(d)

1. (1) The daily reimbursement rates for the separately billable services shall be determined based upon the reasonable cost of providing each service, how each of the individual billable services is defined, and which professional is providing the service, subject to the scope of his or her license. These reimbursement rates shall not exceed the Medi-Cal rates for the same service on file at the time the service is rendered.
2. (2) In establishing the total reimbursement limit, direct patient care labor costs may be paid at a specified discrete percentile to ensure maintenance of quality of care.

(f) By July 1, 2010, the department shall develop, after consultation with the California Association for Adult Day Services, all of the following:

1. (1) An adult day health care center cost report meeting the requirements of subdivision (j) and a list of individual components to be included in the core rate calculation.
2. (2) The methodology and documentation necessary to establish the reimbursement rate for the separately billable services.
3. (3) The reimbursement rates for transportation services. Payments for transportation services shall be subject to the limit on the daily reimbursement and shall be reimbursed whether the center provides transportation directly, by use of contracted transportation, or both. The department shall review methodologies for payment for transportation services. The review of payment methodologies shall include a survey of other states’ adult day health care transportation systems, and transportation reports or expert consultation relevant to nonemergency medical transportation services in the community.

(g)

1. (1) By January 1, 2011, the department shall facilitate the training of providers in collaboration with the California Association for Adult Day Services. The adult day health care centers shall be trained in the all of the following elements:

   1. (A) The use of the modified cost report, supplemental reports, and the accounting and reporting manual.
   2. (B) Plan of care documentation required to support the separately billable rate components.
   3. (C) Medical necessity and eligibility requirements and documentation.
2. (2) By January 1, 2011, the department, after consultation with the California Association for Adult Day Services, shall establish facility peer groupings as specified in subdivision (m).

(i)

1. (1) By March 30, 2012, a preliminary estimate of the reimbursement limit, the reimbursement rate for individual adult health care services, and separately billable services shall be established and provided to the California Association for Adult Day Services and other interested stakeholders. The department shall allow an appropriate stakeholder comment period following this action.
2. (2) The information supplied to all interested stakeholders in paragraph (1) shall be compared to what would have been paid under the rate methodology in effect for the 2011–12 fiscal year.
3. (3) Based on the rate comparisons, a methodology to provide for a multiyear phase in of the new prospective payment may be implemented.
4. (4) At the time of implementation, no adult day health care center’s payment shall be decreased by more than 10 percent below the rate paid in the rate year immediately preceding the first year that the rate methodology prescribed in this section is implemented. In the second and third rate years, no adult day health care center reimbursement rate shall be decreased by more than 10 percent below the adult day health care center’s reimbursement rate on file at the time of the application of the next year’s reimbursement rate.

(j)

1. (1) The department, with input from the California Association for Adult Day Services and all interested stakeholders, shall develop the cost reporting form and determine the costs that are to be included and excluded from the annual cost reporting methodology.
2. (2) Cost reporting shall be consistent with Section 1861 of the federal Social Security Act (42 U.S.C. Sec. 1395x) and Part 413 of Title 42 of the Code of Federal Regulations.
3. (3) Cost reporting shall include itemization of the costs of all adult day health care services such that information necessary to determine costs associated with the core bundle of services and each of the separately billable services can be collected.
4. (4) The cost report or supplemental report to the cost report, as determined by the frequency the data will be required for calculation of the core rate, shall collect staffing level and salary data for all direct and indirect patient care staff, arranged through either employment or contract.
5. (5) All adult day health care centers participating in the Medi-Cal program shall maintain books and records according to generally accepted accounting principles and the uniform accounting systems adopted by the state, and shall submit annual cost reports directly to the department.

(k)

1. (1) The department may exclude any cost report or portion thereof that it deems to be inaccurate, incomplete, or unrepresentative, consistent with the policies established in paragraph (2) of subdivision (j). For facilities that fail to file cost reports with the department pursuant to this section, the department shall reimburse those facilities at 10 percent below the lowest reimbursement limit established in the facility’s peer group pursuant to subdivision (d).
2. (2) Cost report data shall be validated by using comparisons to salary surveys and health industry administrative data maintained by the Office of Statewide Health Planning and Development and other state agencies. If cost report data is not statistically valid for a given peer group, survey statistics shall be used as a proxy to substitute for the cost report data.
3. (3) Cost report data for any adult day health care center that has closed or is no longer a Medi-Cal participating facility shall be excluded from the rate calculation.
4. (4) The specific process for maintaining cost data and submitting cost reports shall be developed after consultation with the California Association for Adult Day Services.

(l) Field audits shall be performed by the department in accordance with all of the following laws and regulations:

1. (1) Section 1861 of the Social Security Act (42 U.S.C. Sec. 1395x) and Title XVIII of the Social Security Act (42 U.S.C. Sec. 1395 et seq.).
2. (2) Sections 413.9, 433.32, and 483.10 of, Part 413 of, Title 42 of the Code of Federal Regulations.
3. (3) Centers for Medicare and Medicaid Services Publication 15-1 (federal Department of Health and Human Services Manual).
4. (4) Chapter 5 (commencing with Section 54001) of Division 3 of, and Chapter 10 (commencing with Section 78001) of Division 5 of, Title 22 of the California Code of Regulations.
5. (5) Sections 14170 and 14171.
6. (6) Relevant portions of the California Medicaid State Plan.

(m)

1. (1) In accordance with field audit requirements, adult day health care centers shall be placed in a minimum of three designated peer groupings. Each adult day health care center in each of the designated peer groupings shall be audited on an annual basis.
2. (2) If for any reason a field audit was not performed, the average audit adjustment of the peer grouping shall be applied.
3. (3) The peer groupings shall include, at minimum, geographic differences and size of facility. The need for additional groupings shall be periodically reevaluated to ensure that the peer groupings remain relevant on a statewide basis.
4. (4) The department shall analyze and evaluate the data obtained through peer grouping analysis in order to determine if additional peer groupings or data elements are necessary for refinement of the peer groupings.
5. (5) After analyzing the data pursuant to paragraph (4), the department may increase the number of peer groupings or change the criteria to reflect pertinent factors affecting peer grouping costs.

(n)

1. (1) An audit adjustment or adjustments, either specific to an adult day health care center or by peer grouping, reflecting the difference between reported and audited costs and participant days for field audited centers, shall be applied to all adult day health care centers for purposes of establishing the core services reimbursement rate and the reimbursement limit for the following rate year. Audit adjustments shall include all of the following:

   1. (A) The results of settled appeals. The department shall consider only the findings of audit appeal reports that are issued more than 180 days prior to the beginning of the new rate year.
   2. (B) In the case of peer grouping audit adjustments, audited costs shall be modified by a factor reflecting share-of-cost overpayments and share-of-cost underpayments.
   3. (C) The results of federal audits, when reported to the state, shall be applied in determining audit adjustments.

   4. (D)

      1. (i) An adjustment or adjustments to reported costs of adult day health care centers shall be made to reflect changes in state or federal laws and regulations that would affect those costs, including increases in the minimum wage or increases in minimum staffing requirements.
      2. (ii) The costs described in clause (i) shall be reflected as an add-on to the new rate or rates.
      3. (iii) To the extent not prohibited by federal law or regulations, add-ons to the rate or rates shall continue until those costs are included in cost reports used to set the new rate or rates.

2. (2) Adjusted costs shall be divided into categories and treated as follows:

   1. (A) Fixed or capital-related costs shall include costs that represent depreciation, leases and rentals, interest, leasehold improvements, and other amortization. No update shall be applied.
   2. (B) Property taxes, where identified, shall be updated at a rate of 2 percent annually.
   3. (C) Labor costs, which shall be defined as a ratio of salary, wage, and benefits costs to the total costs of each adult day health care center, shall be updated based upon the labor study conducted by the department and using industry-specific wage data as reported by the adult day health care centers. The separately billable services shall be updated by applying the median market-based rate specific to the specialty service category.
   4. (D) All other costs shall include all other costs less fixed or capital-related costs, property taxes, and labor costs. This cost category shall be updated using the California Consumer Price Index.
3. (3) Prior to the implementation of this methodology, the department shall take measures to ensure appropriate training of state audit staff.

(q)

1. (1) Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the department shall implement this section by means of a provider bulletin or similar instruction without taking regulatory action. By August 1, 2015, the department shall adopt regulations in accordance with the requirements of Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
2. (2) The department shall notify and consult with interested stakeholders in implementing, interpreting, or making specific the provisions described in this section.