AB 835 directs the Department of Health Care Services to set up a Workforce and Quality Incentive Program that lets skilled nursing facilities earn performance‑based directed payments from Medi‑Cal managed care plans for rating periods beginning 2023–2026. The statute sets an initial 2023 target amount ($280 million), a formula for annual increases, and authorizes retroactive payments to July 9, 2024, while requiring at least two workforce‑tied performance measures.
The bill matters for providers, plans, and state fiscal managers because it channels sizable, targeted funds through managed care arrangements rather than fee‑for‑service rates, requires actuarially sound capitation adjustments, and creates new data, contracting, and federal‑approval dependencies that will shape how Medi‑Cal long‑term care spending is allocated and overseen.
At a Glance
What It Does
Requires the state to implement a Workforce and Quality Incentive Program under which Medi‑Cal managed care plans pay performance‑based directed payments to network skilled nursing facilities, with an initial statewide target of $280 million for 2023 and a formula for subsequent increases. The department must set metrics (including at least two workforce measures), require plan and provider reporting, and ensure capitation rates reflect the payments.
Who It Affects
Medi‑Cal managed care plans, network skilled nursing facilities (excluding certain pediatric subacute and specified mental‑health programs), the Department of Health Care Services, contracted quality‑improvement organizations, and labor/worker groups involved in workforce metrics.
Why It Matters
The bill channels substantial supplemental funding through managed care directed‑payment authorities under 42 CFR 438.6, pivots payment policy toward workforce and quality benchmarks, and creates retroactive payment obligations and procurement flexibilities that will affect cash flow, compliance workloads, and how federal financial participation is claimed.
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What This Bill Actually Does
AB 835 requires the Department of Health Care Services, working with long‑term care industry representatives, labor, consumer advocates, and Medi‑Cal plans, to design and run a Workforce and Quality Incentive Program for skilled nursing facilities in Medi‑Cal managed care. The department must establish the eligibility rules, performance metrics, and payment methodologies that determine when a facility earns directed payments.
The law insists that at least two metrics be tied to workforce measures, signaling a policy focus on staffing and related workforce outcomes rather than only clinical quality markers.
Funding and targets are central to the statute. The bill sets a concrete statewide target of $280 million for calendar year 2023 and directs the department to apply a statutory formula to increase that target for 2024–2026.
It also authorizes a one‑time increase tied to a separate provision in the code; that bump is explicitly excluded from the baseline used for future annual growth calculations. Importantly, the bill conditions implementation on legislative appropriation and any required federal approvals and financial participation.On mechanics, the statute allows the department to implement directed payments using the federal models authorized in 42 CFR 438.6(c)(1)(i)–(iii), which are the established pathways for managed‑care directed payment arrangements.
The department may require plans and providers to submit data and may contract with California’s Medicare Quality Improvement Organization or other qualified entities to collect, analyze, and report performance data. To speed contracting, those contracts may be exempted from several state procurement codes and reviews.Two operational details affect cash flow and reconciliation: payments can be retroactively calculated and paid effective July 9, 2024, and the retro calculation is based on the total number of days a facility provided services to Medi‑Cal beneficiaries, regardless of whether it was a network provider at the time.
The bill also protects existing plan payments by prohibiting the directed payments from supplanting amounts that would otherwise be payable under other law, and it exempts freestanding pediatric subacute facilities and certain mental‑health special program services from the program.
The Five Things You Need to Know
The department must target $280 million in aggregate performance‑based directed payments for calendar year 2023 and use a statutory formula to increase the target for 2024–2026.
Directed payments may be paid retroactively to July 9, 2024, and retro calculations use the total days a facility served Medi‑Cal beneficiaries, irrespective of network status.
The department must include at least two workforce‑related milestones or metrics among the conditions a facility must meet to receive directed payments.
Freestanding pediatric subacute facilities and special program services for the mentally disordered (those receiving supplemental payments under Title 22, §51511.1) are exempt from the program.
The department may contract with California’s Medicare Quality Improvement Organization or other qualified entities (with procurement exemptions) to develop, collect, analyze, and report performance data, and capitation rates must be actuarially sound and account for the directed payments.
Section-by-Section Breakdown
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Establish Workforce and Quality Incentive Program; stakeholder consultation
This subsection directs the department to create a program that allows network skilled nursing facilities to earn performance‑based directed payments from Medi‑Cal managed care plans for rating periods beginning 2023–2026. It requires consultation with the long‑term care industry, labor, consumer advocates, and plans, embedding stakeholder input into program design and signaling that metrics and payment methodology must reflect multiple perspectives.
Funding targets, growth formula, and appropriation dependency
Sets a $280 million aggregate target for 2023 and ties 2024–2026 targets to a statutory growth formula referenced elsewhere in the code. Implementation is subject to appropriation in the annual Budget Act, meaning the department cannot obligate funds absent legislative allocation. The subsection also preserves a one‑time increase from a separate code provision but bars using that bump as a baseline for future increases.
Methodology, eligibility, and required workforce metrics
Compels the department to adopt the methodologies, parameters, and eligibility criteria for directed payments, including milestones and metrics facilities must meet. At least two of the required measures must be workforce related, which will drive the choice of indicators (for example, staffing levels, turnover, or training). The subsection authorizes use of one or more federal 42 CFR 438.6 directed‑payment models, but implementation must still respect subdivision (j)'s contracting and any federal conditions.
Targeted exemptions
Exempts freestanding pediatric subacute care facilities (as defined in state regs) and special program services for the mentally disordered that get a supplemental Title 22 payment. These carve‑outs narrow the program’s scope and avoid double‑counting or conflicting payment streams where other supplemental payments already exist.
Anti‑supplanting protection
States that directed payments are in addition to other plan payments and must not replace amounts a plan would otherwise owe under existing law, including specific Medi‑Cal payment provisions. Practically, this creates an enforcement obligation: the department and plans must ensure directed payments augment rather than displace baseline provider revenue.
Actuarial treatment, reporting, and federal compliance
Requires that capitation rates paid to plans be actuarially sound and account for the directed payments, pushes plans and providers to submit data the department requests, and mandates that payment arrangements meet federal directed‑payment requirements under 42 CFR 438.6 and related guidance. These clauses bind state payment design to federal rules and create data and actuarial compliance tasks for plans and the department.
Contracting authority, procurement exemptions, and retroactive calculation
Authorizes the department to contract with California’s Medicare Quality Improvement Organization or other qualified entities to support program analytics and reporting, and exempts those contracts from several state procurement laws and administrative reviews to expedite implementation. It also requires retroactive calculation and payment effective July 9, 2024, based on total facility days serving Medi‑Cal beneficiaries, which affects reconciliation and audit processes for both plans and providers.
Federal approval condition and definitions
Conditions implementation on obtaining any necessary federal approvals and availability of federal financial participation, and supplies statutory cross‑references for key terms (Medi‑Cal managed care plan, network provider, and skilled nursing facility). This frames the program as contingent on federal sign‑off and clarifies which facilities fall inside the statute.
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Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Medi‑Cal recipients in skilled nursing facilities — because the program targets workforce and quality metrics that, if properly designed and funded, can translate into better staffing and care processes at participating facilities.
- Skilled nursing facilities that meet the performance metrics — they gain access to directed payments that supplement revenue and can be used to shore up staffing, training, or quality investments.
- Frontline long‑term care workers (nurses, CNAs) — workforce‑tied metrics create a funding pathway that can support higher staffing levels, retention programs, or wage/benefit improvements tied to performance.
- Labor and producer stakeholders engaged in design — the required consultation and workforce focus give organized labor a formal pathway to influence metric design and use of funds.
Who Bears the Cost
- Medi‑Cal managed care plans — they must implement directed‑payment flows, collect and report data, reconcile retroactive payments, and absorb administrative and actuarial work to keep capitation sound.
- California Department of Health Care Services — the department inherits program design, oversight, contracting, and reporting responsibilities, and must manage federal approval risks and budgeting constraints.
- State budget and taxpayers — the program requires legislative appropriation and may change claims for federal financial participation, exposing the budget to new commitments and potential reconciliation costs.
- Skilled nursing facilities that fail to meet metrics — those providers will not receive directed payments and may face competitive or financial disadvantages compared with facilities that qualify.
Key Issues
The Core Tension
The bill forces a trade‑off between targeting additional dollars to improve workforce and quality through managed‑care directed payments and the administrative, actuarial, and federal‑compliance burdens that accompany such a targeted approach; money aimed at staffing gains can be swallowed by reconciliation, procurement shortcuts, or poorly designed metrics that fail to reach the facilities or workers most in need.
AB 835 binds a large targeted funding stream to performance metrics and federal directed‑payment authorities, but it leaves significant design choices to the department. That creates several implementation gaps: the statute does not define the workforce metrics (only that at least two are required), does not specify distribution rules across counties or facility sizes, and delegates procurement and analytic details to contracted entities.
Those delegations speed deployment but raise questions about transparency, how smaller or rural facilities will be treated, and whether metrics will account for case mix and baseline staffing differences.
Retroactive payments and the anti‑supplanting clause create reconciliation complexity. Plans will need to calculate retroactive obligations for all qualifying facility days since July 9, 2024, and reconcile those with existing payments while demonstrating that directed payments did not replace other required payments.
The procurement exemptions for contractors speed up contracting but reduce normal competitive and oversight safeguards, which could complicate later audits or produce uneven analytic quality. Finally, the program’s reliance on federal approvals means the design must conform to federal directed‑payment rules; if the Centers for Medicare & Medicaid Services applies strict conditions, the department may need to redesign elements or face a funding shortfall.
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