U.S., State End Nursing Home Care Dispute : Health: Reforms in controversial measure are being implemented, federal officials say. Administrative hearing to cite California for failure to meet standards has been canceled.

A bitter months-long dispute between California and U.S. officials over a controversial federal nursing home law was settled Tuesday, with the head of the U.S. Health Care Financing Administration attributing earlier bad feeling to “misunderstanding.”

The settlement headed off a scheduled administrative hearing in San Francisco, called by the health care administration to formally cite California for failure to implement the nursing home reforms.

“As far as we can tell, California is implementing the proposed regulations in an appropriate way,” eliminating the need for punitive action by the agency, said administrator Gail R. Wilensky, who canceled the hearing.

All states but California implemented the reform law Oct. 1, and many have reported improvements in nursing home conditions. The law requires more nurses, reduction in the use of restraints and drugs to tranquilize patients and more participation by residents in decisions about their care.

The agency also accepted California’s plan to increase payments to nursing homes through the Medi-Cal insurance program so the homes can afford to implement the reforms. State officials estimated the reforms would cost $25 million more, and the health care agency found that sum to be reasonable compensation for California’s 1,150 nursing homes.

Wilensky was more conciliatory Tuesday than at the height of the dispute, when Gov. Pete Wilson decried as “illegal” the agency’s insistence that the state follow certain guidelines in implementing the reforms. Wilensky responded by dispatching federal inspectors to California to enforce the new standards.

“I think there was some misunderstanding, miscommunication and overreaction and all the things that happen when we sit on one coast and a state is on another--misunderstandings arise that would not occur if we were neighbors,” Wilensky said in a telephone interview.

The chief negotiator for the California Department of Health Services, Elisabeth Brandt, said the conflict was resolved because the U.S. agency reacted favorably to proposed changes in the guidelines that the state had suggested.

The proposed changes would give state inspectors greater latitude in enforcing sections of the law that govern, among other things, a nursing home’s use of drugs and physical restraints, and residents’ control over their care. One guideline, for example, says residents have the right to “select and approve” their plan of care, according to Brandt, which California officials contend goes beyond the law’s intent. The revised language would give residents “the right to participate in decisions about care,” Brandt said.

Now, following California’s lead, other states have proposed guideline changes. Wilensky said those will also be circulated nationally--probably this summer--to give every state a chance to comment on the proposals. Only after that round will the agency determine the form of the final guidelines.

In the interim, according to Wilensky, California has agreed to use the original guidelines in implementing the reforms, and federal officials accompanying state nursing home inspectors since March 25 have certified that California is doing so.

California officials maintained that they favored the reforms, but believed that the U.S. agency overstepped its authority in issuing guidelines more stringent than the reform law passed by Congress in 1987.

Nursing homes in California, meanwhile, asserted that they require $440 million more from Medi-Cal to meet the new standards, an estimate Wilensky said yesterday was “simply untrue.”

Officials of the California Assn. of Health Facilities, an industry group representing most of the state’s nursing homes, could not be reached for comment Tuesday.