BILL ANALYSIS SENATE HEALTH COMMITTEE ANALYSIS Senator Elaine K. Alquist, Chair BILL NO: AB 366 A AUTHOR: Ruskin B AMENDED: June 30, 2009 HEARING DATE: July 15, 2009 3 CONSULTANT: 6 Dunstan/cjt 6 SUBJECT Medi-Cal: inpatient hospital services contracts: orthopedic implantation SUMMARY This bill requires the California Medical Assistance Commission (CMAC) to consider, when negotiating contracts for inpatient care or developing specifications for competitive bidding, specialization in orthopedic implantation relating to cancers of the bone, in addition to the factors already required. CHANGES TO EXISTING LAW Existing law: Establishes the Medi-Cal program, administered by the Department of Health Care Services (DHCS), which provides comprehensive health care coverage for low-income individuals and their families; pregnant women; elderly, blind, or disabled persons; nursing home residents; and refugees who meet specified eligibility criteria. Requires the governor to designate a person in his or her office to act as a special negotiator to negotiate rates, terms, and conditions for contracts with hospitals for inpatient services to be rendered to Medi-Cal program Continued--- STAFF ANALYSIS OF ASSEMBLY BILL 366 (Ruskin) Page 2 beneficiaries. Permits the special negotiator to call for bids, in lieu of negotiations, and requires the special negotiator to consider, when contracting, the total funds appropriated for inpatient hospital services. Requires the negotiator to take into account specified factors in negotiating contracts or in drawing specifications for competitive bidding. Requires CMAC to assume the duties and powers of the special negotiator. This bill: Requires CMAC to consider, when negotiating contracts for inpatient care or developing specifications for competitive bidding, specialization in orthopedic implantation relating to cancers of the bone, in addition to the factors already required. FISCAL IMPACT This version of the bill has not been analyzed by a fiscal committee. BACKGROUND AND DISCUSSION According to the author, the bill was prompted by refusals by CMAC to negotiate higher rates or carve-outs for these implants, which can cost up to $30,000. The author argues that the cost of these implants, even when replacements are considered, are largely equivalent to the costs of external prostheses (which must be replaced much more often) over time. This bill is sponsored by the City of Hope, which states that, for contracting hospitals, Medi-Cal will reimburse facilities for certain specialized treatments and procedures at a separate negotiated price. The sponsor STAFF ANALYSIS OF ASSEMBLY BILL 366 (Ruskin) Page 3 argues these services are negotiated separately because of their high costs. Orthopedic implants, however, are not reimbursed separately, nor are the costs of these expensive implants being considered in the development of rates. City of Hope states that under-payment, or lack of payment, for procedures and treatments have resulted in limited treatment options for Medi-Cal recipients, and cites published medical journal literature on lack of timely access for children with Medi-Cal needing orthopedic care. City of Hope argues that existing state reimbursement policy fails to reflect medical advances that have succeeded in allowing patients with bone cancer to avoid amputation. The sponsor argues, decades ago amputation was the only option and Medi-Cal paid for prosthetic limbs which cost an average of $9,000 for above-the-knee pieces and had to be replaced every year in children up to age 15, but surgeons are now able to spare the limbs of approximately 90 percent of patients with malignant bone tumors. The sponsor states these advances save the state money in the long-run and improve the lives of Medi-Cal beneficiaries afflicted with this devastating disease. City of Hope also argues that, because Medi-Cal patients needing these procedures normally have no other treatment options, and because not reimbursing these charges at higher rates can prevent Medi-Cal from meeting federal requirements to enlist enough providers so that services to Medi-Cal recipients to the same extent as those services are available to the general population. City of Hope argues this bill is necessary if the state plans to enlist enough providers to meet that federal standard so that critical services to Medi-Cal recipients are available to the same extent as those available to the general population. Background Since 1983, through what is known as the Selective Provider Contracting Program (SPCP), CMAC has been the state agency responsible for negotiating contracts with hospitals on behalf of the state for inpatient services under the fee-for-service Medi-Cal Program. Through CMAC, the state selectively contracts on a competitive basis with hospitals for fee-for-service inpatient services provided to Medi-Cal beneficiaries. According to CMAC, the competitive contracting model has resulted in savings to the state STAFF ANALYSIS OF ASSEMBLY BILL 366 (Ruskin) Page 4 General Fund of over $600 million this fiscal year. CMAC has negotiated a rate on behalf of the state with 179 hospitals as of December 1, 2008. Existing law requires CMAC, in negotiating contracts or in drawing specifications for competitive bidding, to take into account an enumerated list of factors. This list includes beneficiary access, utilization controls, the ability to render quality services efficiently and economically and the capacity to provide a given tertiary service, such as specialized children's services, on a regional basis. Additionally, CMAC is required to give special consideration to the reimbursement issues faced by hospitals caring for Medi-Cal beneficiaries who are receiving treatment for acquired immunodeficiency syndrome (AIDS). CMAC indicates it has the statutory discretion and flexibility to address unique circumstances at contracted hospitals, whether through rate negotiations, supplemental funds, or in selected situations, through contract terms that can, for example, "carve out" certain high-cost inpatient items (such as implants, prostheses, or blood factor) to be paid separately from the per diem rate. Related bills AB 1462 (Feur) requires the California Medical Assistance Commission (CMAC) to include reimbursement for the costs of graduate medical education, in addition to the factors already required, when negotiating contracts for inpatient care or developing specifications for competitive bidding. This bill is in the Senate Appropriations Committee. Prior legislation AB 249 (Papan) of 1999 would have would have required CMAC to take into consideration medical education programs for physicians, nurses, or allied health professionals in negotiating Medi-Cal inpatient contracts with hospitals or in drawing specifications for competitive bidding. AB 249 was vetoed by Governor Davis. Arguments in support The California Children's Hospital Associations (CCHA) argues that Medi-Cal and the California Children's Services programs reimburse facilities for only certain specialized STAFF ANALYSIS OF ASSEMBLY BILL 366 (Ruskin) Page 5 treatments and procedures at a separate negotiated price. Orthopedic implants are not reimbursed separately or at the full cost. CCHA argues, as a result, children's hospitals absorb most of the cost associated with the implant, which on average cost $25,000 per implant. CCHA states its hospitals currently provides an orthopedic implant when medically necessary and/or if it is in the best interest of the child, regardless of reimbursement, and its member hospitals want to continue to do so, but it is important that the state's reimbursement system recognize and reward providers that do what is best for the patient. PRIOR ACTIONS Assembly Floor: 77-0 Assembly Appropriations:13-3 Assembly Health: 17-0 COMMENTS 1. CMAC has authority to consider orthopedic implantation under existing law. The law names certain factors that CMAC must consider, but states the list is not exhaustive. CMAC reports they have the authority already to consider other factors. However, in negotiations the supporting hospitals have not been successful in gaining increased reimbursement for this specialization. This bill can be seen as an effort to make CMAC pay more attention to this issue. POSITIONS Support: City of Hope (sponsor) American Cancer Society California Children's Hospital Association California Hospital Association Disability Rights California Oppose: None received STAFF ANALYSIS OF ASSEMBLY BILL 366 (Ruskin) Page 6 -- END --