BILL NUMBER: AB 1653	CHAPTERED
	BILL TEXT

	CHAPTER  218
	FILED WITH SECRETARY OF STATE  SEPTEMBER 8, 2010
	APPROVED BY GOVERNOR  SEPTEMBER 8, 2010
	PASSED THE SENATE  AUGUST 27, 2010
	PASSED THE ASSEMBLY  AUGUST 30, 2010
	AMENDED IN SENATE  AUGUST 27, 2010
	AMENDED IN SENATE  AUGUST 20, 2010
	AMENDED IN SENATE  AUGUST 17, 2010
	AMENDED IN SENATE  AUGUST 2, 2010
	AMENDED IN SENATE  JULY 15, 2010

INTRODUCED BY   Assembly Member Jones
   (Principal coauthor: Senator Alquist)

                        JANUARY 14, 2010

   An act to amend Sections 14166.20, 14166.221, 14166.24, 14166.75,
14167.1, 14167.2, 14167.3, 14167.4, 14167.5, 14167.6, 14167.10,
14167.11, 14167.12, 14167.14, 14167.15, 14167.31, 14167.32, 14167.35,
and 14167.36 of, to add Sections 14158.1, 14167.18, 14167.352,
14167.353, 14167.354, and 14167.355 to, to repeal Article 5.21
(commencing with Section 14167.1) and Article 5.22 (commencing with
Section 14167.31) of Chapter 7 of Part 3 of Division 9 of, and to
repeal and add Section 14167.9 of, the Welfare and Institutions Code,
relating to Medi-Cal, making an appropriation therefor, and
declaring the urgency thereof, to take effect immediately.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1653, Jones. Medi-Cal: hospitals: managed health care plans:
mental health plans: quality assurance fee.
   Existing law establishes the Medi-Cal program, administered by the
State Department of Health Care Services, under which basic health
care services are provided to qualified low-income persons. The
Medi-Cal program is, in part, governed and funded by federal Medicaid
provisions.
   Existing law, subject to federal approval, requires the department
to make supplemental payments for certain services, as specified, to
private hospitals, nondesignated public hospitals, and designated
public hospitals, as defined, for subject federal fiscal years, as
defined. Existing law provides that these provisions shall remain in
effect only until January 1, 2013, and as of that date are repealed.
   This bill would make various changes to the formulas used to
determine the amount of supplemental payments made to private and
designated public hospitals. This bill would expand the definition of
a nondesignated public hospital.
   Existing law prescribes certain deadlines by which the
above-described supplemental payments are required to be made to
hospitals depending upon the federal fiscal year for which the
payment is to be made.
   This bill would require the department to make to hospitals the
supplemental payments for the 2008-09, 2009-10, and 2010-11 federal
fiscal years in 7 payments, as specified.
   Existing law requires the department to make enhanced payments to
managed health care plans, as defined, and requires the state to make
enhanced payments to mental health plans, as defined, for each
subject federal fiscal year, as specified. Existing law requires the
managed health care plans and mental health plans that received
enhanced payments to make supplemental payments to subject hospitals,
as defined, pursuant to specified formulas.
   This bill would, instead, refer to the payments made by the
department to the managed health care plans and mental health plans
as increased capitation payments and increased payments,
respectively, and would change the definition of a managed care plan.
The bill would require the department to determine the amount of
increased capitation payments for each Medi-Cal managed care plan and
to consider prescribed factors in making that determination. The
bill would prohibit the amount of increased capitation payments to
each Medi-Cal managed health care plan from exceeding an amount that
results in capitation payments that are certified by the state's
actuary as meeting federal requirements. The bill would require each
managed health care plan to expend 100% of any increased capitation
payments it receives from the department on hospital services.
   This bill would make various changes to the provisions relating to
the increased payments to mental health plans, including requiring
the department to take into consideration prescribed factors when
making these payments.
   Existing law, subject to federal approval, also imposes, as a
condition of participation in state-funded health insurance programs
other than the Medi-Cal program, a quality assurance fee, as
specified, on certain general acute care hospitals through and
including December 31, 2010. Existing law creates the Hospital
Quality Assurance Revenue Fund in the State Treasury and requires
that the money collected from the quality assurance fee be deposited
into the fund. Existing law provides that the moneys in the fund
shall, upon appropriation by the Legislature, be available only for
certain purposes, including providing the above-described
supplemental payments to hospitals and health care coverage for
children. Existing law provides that these provisions shall remain in
effect only until January 1, 2013, and as of that date are repealed.

   This bill would expand the definitions of a nondesignated public
hospital and private hospital, and modify the formulas used in
calculating the amount of the quality assurance fee imposed on
hospitals pursuant to the above-described provisions.
   The bill would provide that the quality assurance fee shall not be
imposed on a converted hospital, as defined, for a subject federal
fiscal year in which the hospital becomes a converted hospital or for
subsequent federal fiscal years.
   Prior to federal approval of implementation of the above-described
provisions, existing law requires each general acute care hospital
that is not an exempt facility to certify to the best of its
knowledge that the hospital is prepared to pay the aggregate quality
assurance fee, as defined.
   This bill would delete the above-described certification
requirement. The bill would require hospitals to pay the quality
assurance fee in 7 equal installments, as specified and subject to
federal approval of the above-described provisions.
   Existing law authorizes the department, as necessary to receive
federal approval for the implementation of the above-described
provisions, to increase or decrease certain amounts used to calculate
the quality assurance fee.
   This bill would delete the above-described authorization.
   This bill would provide that the department may impose and collect
the quality assurance fee and make the supplemental payments,
pursuant to the above-described provisions that require federal
approval, based upon receiving a letter from the federal Centers for
Medicare and Medicaid Services or the United States Department of
Health and Human Services that indicates likely federal approval, but
only if and to the extent that the letter is sufficient, as
specified. This bill would provide that if final federal approval is
denied, any fees collected shall be refunded and any payments made
shall be recouped, as prescribed.
   This bill would provide that if the above-described letter
indicating likely federal approval is not received on or before
December 1, 2010, then provisions relating to the quality assurance
fee and the supplemental payments shall become inoperative, and shall
be repealed on December 1, 2010.
   Existing law establishes the Medi-Cal Hospital/Uninsured Care
Demonstration Project Act, which revises hospital supplemental
payment methodologies under the Medi-Cal program in order to maximize
the use of federal funds consistent with federal Medicaid law and to
stabilize the distribution of funding for hospitals that provide
care to Medi-Cal beneficiaries and uninsured patients. This
demonstration project provides for funding, in supplementation of
Medi-Cal reimbursement, to various hospitals, including designated
public hospitals, nondesignated public hospitals, and private
hospitals, as defined, in accordance with certain provisions relating
to disproportionate share hospitals. Under existing law, the
department has the discretion to claim for any additional and all
demonstration project funding, including federal funds, as specified.

   This bill would, subject to certain conditions, provide that a
portion, equal to an amount determined in accordance with the
above-described Medi-Cal quality assurance fee provisions, of
additional federal funding claimed pursuant to the above-described
provisions shall be allocated to the designated public hospitals.
   This bill would declare that it is to take effect immediately as
an urgency statute.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 14158.1 is added to the Welfare and
Institutions Code, to read:
   14158.1.  Effective for expenditures incurred after enactment of
any new demonstration project under Article 5.4 (commencing with
Section 14180), any federal financial participation that is available
under the federal Medicaid Program, or any related waiver or
demonstration project, based on the certified public expenditures of
designated public hospitals, as defined in subdivision (d) of Section
14166.1, or the governmental entities with which they are
affiliated, shall be paid to designated public hospitals or the
governmental entities with which they are affiliated.
  SEC. 2.  Section 14166.20 of the Welfare and Institutions Code is
amended to read:
   14166.20.  (a) With respect to each project year, the total amount
of stabilization funding shall be the sum of the following:
   (1) (A) Federal Medicaid funds available in the Health Care
Support Fund, established pursuant to Section 14166.21, reduced by
the amount necessary to meet the baseline funding amount, or the
adjusted baseline funding amount, as appropriate, for project years
after the 2005-06 project year for each designated public hospital,
project year private DSH hospitals in the aggregate, and
nondesignated public hospitals in the aggregate as determined in
Sections 14166.5, 14166.13, and 14166.18, respectively, taking into
account all other payments to each hospital under this article. This
amount shall be not less than zero.
   (B) For purposes of subparagraph (A), federal Medicaid funds
available in the Health Care Support Fund shall not include health
care coverage initiative amounts identified under paragraph (2) of
subdivision (e) of Section 14166.9.
   (C) The federal financial participation amount arising from the
certified public expenditures that has been paid to designated public
hospitals, or the governmental entities with which they are
affiliated, pursuant to subdivision (g) of Section 14166.221, shall
be disregarded for purposes of this section.
   (2) The state general funds that were made available due to the
receipt of federal funding for previously state-funded programs
through the safety net care pool and any federal Medicaid hospital
reimbursements resulting from these expenditures, unless otherwise
recognized under paragraph (1), to the extent those funds are in
excess of the amount necessary to meet the baseline funding amount,
or the adjusted baseline funding amount, as appropriate, for project
years after the 2005-06 project year for each designated public
hospital, for project year private DSH hospitals in the aggregate,
and for nondesignated public hospitals in the aggregate, as
determined in Sections 14166.5, 14166.13, and 14166.18, respectively.

   (3) To the extent not included in paragraph (1) or (2), the amount
of the increase in state General Fund expenditures for Medi-Cal
inpatient hospital services for the project year for project year
private DSH hospitals and nondesignated public hospitals, including
amounts expended in accordance with paragraph (1) of subdivision (c)
of Section 14166.23, that exceeds the expenditure amount for the same
purpose and the same hospitals necessary to provide the aggregate
baseline funding amounts applicable to the project determined
pursuant to Sections 14166.13 and 14166.18, and any direct grants to
designated public hospitals for services under the demonstration
project.
   (4) To the extent not included in paragraph (2), federal Medicaid
funds received by the state as a result of the General Fund
expenditures described in paragraph (3).
   (5) The federal Medicaid funds received by the state as a result
of federal financial participation with respect to Medi-Cal payments
for inpatient hospital services made to project year private DSH
hospitals and to nondesignated public hospitals for services rendered
during the project year, the state share of which was derived from
intergovernmental transfers or certified public expenditures of any
public entity that does not own or operate a public hospital.
   (6) Federal safety net care pool funds claimed and received for
inpatient hospital services rendered under the health care coverage
initiative identified under paragraph (3) of subdivision (e) of
Section 14166.9.
   (b) With respect to the 2005-06, 2006-07, and subsequent project
years, the stabilization funding determined under subdivision (a)
shall be allocated as follows:
   (1) Eight million dollars ($8,000,000) shall be paid to San Mateo
Medical Center. All or a portion of this amount may be paid as
disproportionate share hospital payments in addition to the hospital'
s allocation that would otherwise be determined under Section
14166.6. The amount provided for in this paragraph shall be
disregarded in the application of the limitations described in
paragraph (3) of subdivision (a) of Section 14166.6, and in paragraph
(1) of subdivision (a) of Section 14166.7.
   (2) (A) Ninety-six million two hundred twenty-eight thousand
dollars ($96,228,000) shall be allocated to designated public
hospitals to be paid in accordance with Section 14166.75.
   (B) Forty-two million two hundred twenty-eight thousand dollars
($42,228,000) shall be allocated to private DSH hospitals to be paid
in accordance with Section 14166.14.
   (C) Five hundred forty-four thousand dollars ($544,000) shall be
allocated to nondesignated public hospitals to be paid in accordance
with Section 14166.17.
   (D) In the event that stabilization funding is less than one
hundred forty-seven million dollars ($147,000,000), the amounts
allocated to designated public hospitals, private DSH hospitals, and
nondesignated public hospitals under this paragraph shall be reduced
proportionately.
   (3) (A) An amount equal to the lesser of 10 percent of the total
amount determined under subdivision (a) or twenty-three million five
hundred thousand dollars ($23,500,000), but at least fifteen million
three hundred thousand dollars ($15,300,000), shall be made available
for additional payments to distressed hospitals that participate in
the selective provider contracting program under Article 2.6
(commencing with Section 14081), including designated public
hospitals, in amounts to be determined by the California Medical
Assistance Commission. The additional payments to designated public
hospitals shall be negotiated by the California Medical Assistance
Commission, but shall be paid by the department in the form of a
direct grant rather than as Medi-Cal payments.
   (B) Notwithstanding subparagraph (A) and solely for the 2006-07
fiscal year, if the amount that otherwise would be made available for
additional payments to distressed hospitals under subparagraph (A)
is equal to or greater than eighteen million three hundred thousand
dollars ($18,300,000), that amount shall be reduced by eighteen
million three hundred thousand dollars ($18,300,000) and the state's
obligation to make these payments shall be reduced by this amount. In
the event the amount that otherwise would be made available under
subparagraph (A) is less than eighteen million three hundred thousand
dollars ($18,300,000), but greater than or equal to the minimum
amount of fifteen million three hundred thousand dollars
($15,300,000), then the amount available under this paragraph shall
be zero and the state's obligation to make these payments shall be
zero.
   (C) Notwithstanding subparagraph (A) and solely for the 2008-09
and 2009-10 fiscal years, the amount to be made available shall be
reduced by fifteen million three hundred thousand dollars
($15,300,000) in each of the two years. The funds generated from this
reduction shall be retained in the General Fund.
   (4) An amount equal to 0.64 percent of the total amount determined
under subdivision (a), to nondesignated public hospitals to be paid
in accordance with Section 14166.19.
   (5) The amount remaining after subtracting the amount determined
in paragraphs (1) and (2), subparagraph (A) of paragraph (3), and
paragraph (4), without taking into account subparagraphs (B) and (C)
of paragraph (3), shall be allocated as follows:
   (A) Sixty percent to designated public hospitals to be paid in
accordance with Section 14166.75.
   (B) Forty percent to project year private DSH hospitals to be paid
in accordance with Section 14166.14.
   (c) By April 1 of the year following the project year for which
the payment is made, and after taking into account final amounts
otherwise paid or payable to hospitals under this article, the
director shall calculate in accordance with subdivision (a), allocate
in accordance with subdivision (b), and pay to hospitals in
accordance with Sections 14166.75, 14166.14, and 14166.19, as
applicable, the stabilization funding.
   (d) For purposes of determining amounts paid or payable to
hospitals under subdivision (c), the department shall apply the
following:
   (1) In determining amounts paid or payable to designated public
hospitals that are based on allowable costs incurred by the hospital,
or the governmental entity with which it is affiliated, the
following shall apply:
   (A) If the final payment amount is based on the hospital's
Medicare cost report, the department shall rely on the cost report
filed with the Medicare fiscal intermediary for the project year for
which the calculation is made, reduced by a percentage that
represents the average percentage change from total reported costs to
final costs for the three most recent cost reporting periods for
which final determinations have been made, taking into account all
administrative and judicial appeals. Protested amounts shall not be
considered in determining the average percentage change unless the
same or similar costs are included in the project year cost report.
   (B) If the final payment amount is based on costs not included in
subparagraph (A), the reported costs as of the date the determination
is made under subdivision (c), shall be reduced by 10 percent.
   (C) In addition to adjustments required in subparagraphs (A) and
(B), the department shall adjust amounts paid or payable to
designated public hospitals by any applicable deferrals or
disallowances identified by the federal Centers for Medicare and
Medicaid Services as of the date the determination is made under
subdivision (c) not otherwise reflected in subparagraphs (A) and (B).

   (2) Amounts paid or payable to project year private DSH hospitals
and nondesignated public hospitals shall be determined by the most
recently available Medi-Cal paid claims data increased by a
percentage to reflect an estimate of amounts remaining unpaid.
   (e) The department shall consult with hospital representatives
regarding the appropriate calculation of stabilization funding before
stabilization funds are paid to hospitals. The calculation may be
comprised of multiple steps involving interim computations and
assumptions as may be necessary to determine the total amount of
stabilization funding under subdivision (a) and the allocations under
subdivision (b). No later than 30 days after this consultation, the
department shall establish a final determination of stabilization
funding that shall not be modified for any reason other than
mathematical errors or mathematical omissions on the part of the
department.
   (f) The department shall distribute 75 percent of the estimated
stabilization funding on an interim basis throughout the project
year.
   (g) The allocation and payment of stabilization funding shall not
reduce the amount otherwise paid or payable to a hospital under this
article or any other provision of law, unless the reduction is
required by the demonstration project's Special Terms and Conditions
or by federal law.
   (h) It is the intent of the Legislature that the amendments made
to Sections 14166.12 and to this section by the act that added this
subdivision in the 2007-08 Regular Session shall not be construed to
amend or otherwise alter the ongoing structure of the department's
Medicaid Demonstration Project and Waiver approved by the federal
Centers for Medicare and Medicaid Services to begin on September 1,
2005.
  SEC. 3.  Section 14166.221 of the Welfare and Institutions Code is
amended to read:
   14166.221.  (a) It is the intent of the Legislature for the
department to maximize the receipt of federal funds for California's
Medi-Cal program, including this demonstration project, by
identifying state resources which will enable the state to obtain
additional federal reimbursement during this unprecedented fiscal
crisis. It is further the intent of the Legislature that any program
identified by the department for the purposes specified in this
section shall not be modified or altered in any manner unless
subsequent statutory authority is expressly provided by the
Legislature.
   (b) Notwithstanding Section 14166.22, in order to maximize federal
claiming under the demonstration project, the department shall have
broad discretion to claim federal reimbursement consistent with all
applicable federal claiming rules for the following expenditures in
an order of priority determined by the department:
   (1) Expenditures in programs funded in whole or in part by
realignment funds under Chapter 6 (commencing with Section 17600) of
Part 5, including, but not limited to, the County Medical Services
Program.
   (2) Expenditures in programs funded in whole or in part by the
County Mental Health Services Act.
   (3) Other public expenditures, to the extent the department
determines the expenditures to be appropriate for claiming under the
demonstration project.
   (4) Expenditures in any programs referenced in subdivision (a) of
Section 14166.22 or other state-only funded programs as the
department, in its discretion, determines should be used for the
purposes of this section. These programs may include programs
administered by other state agencies or departments.
   (c) The department shall have discretion to claim under this
section for any and all additional demonstration project funding made
available pursuant to any amendments to the demonstration project
made on or after October 1, 2008, or pursuant to any federal laws
that increase the amount of available funding, including, but not
limited to, the federal American Recovery and Reinvestment Act of
2009 (Public Law 111-5). This additional funding shall include
federal funds made available due to an increase in the federal
medical assistance percentage in addition to any other increase in
the amount of federal funding.
   (d) Any amounts received in the 2008-09, 2009-10, and 2010-11
fiscal years from the federal government pursuant to additional
demonstration project funding as specified in this section shall be
deposited in the Federal Trust Fund. Notwithstanding Section 28.00 of
the Budget Act of 2009, the Department of Finance may authorize
expenditure of these funds in a manner consistent with federal law
and that offsets General Fund expenditures otherwise authorized in
the Budget Act of 2009 for the Medi-Cal program, and as appropriated
in Item 4260-101-0001, or for the Health Care Support Fund. For any
adjustments made under the authority provided for by this section,
the Department of Finance shall provide notification in writing to
the Chairperson of the Joint Legislative Budget Committee not less
than 30 days prior to the effective date of the adjustment, or not
sooner than whatever lesser time the Chairperson of the Joint
Legislative Budget Committee, or his or her designee, may in each
instance determine. The notification to the chairperson of the joint
committee shall include, at a minimum, the amounts of the proposed
appropriation adjustments, a description of any assumptions used in
making the adjustments, the relevant federal authority, and any other
clarifying description as relevant.
   (e) If the federal Centers for Medicare and Medicaid Services or
any federal or state court issues a ruling that any or all federal
dollars obtained by claiming for expenditures from any particular
program referenced in subdivision (b) cannot be used to increase
state revenues, the department may discontinue use of those
expenditures for claiming under this section and substitute other
expenditures from other programs referenced in subdivision (b) at its
discretion.
   (f) Notwithstanding Chapter 3.5 (commencing with Section 11340) of
Part 1 of Division 3 of Title 2 of the Government Code, the
department may implement this section by means of a provider
bulletin, or other similar instruction, without taking regulatory
action. The department shall also provide notification to the Joint
Legislative Budget Committee within five working days if that action
is taken in order to inform the Legislature that the action is being
implemented.
   (g) (1) A portion of the additional federal funding described in
subdivision (c) shall be allocated to the designated public hospitals
and shall be identical in amount to the fee proceeds retained by the
state under Section 14167.5.
   (2) Funding under this subdivision shall be made available to the
designated public hospitals in increments that reflect the quarters
of the subject federal fiscal year for which payments are made to
private hospitals from the Hospital Quality Assurance Revenue Fund
established pursuant to Section 14167.35.
   (3) The department shall claim the federal funds made available to
the designated public hospitals under this subdivision upon receipt
of the necessary expenditure reports and certifications from the
designated public hospitals, or the governmental entities with which
they are affiliated, and distribute those funds pursuant to Section
14167.5 so that receipt of the federal funds by the designated public
hospitals is aligned with the payment schedule set forth in
subdivision (c) of Section 14167.9.
   (h) The department shall implement subdivision (g) of this section
and subdivision (e) of Section 14167.5 only if and to the extent
that all of the following are satisfied:
   (1) The state has determined, after consultation with the
designated public hospitals, that the designated public hospitals, or
the governmental entities with which they are affiliated, have
incurred sufficient expenditures during the 2009 and 2010 project
years, or that portion of the 2011 project year to the extent federal
funds are available under Section 15900 or under an extension of the
demonstration project, so that each designated public hospital
receives the total amount, taking into account grant funds under
Section 14167.5 and payments under this section, that it would have
received for each installment under subdivision (c) of Section
14167.9 had subdivision (e) of Section 14167.5 not been implemented.
   (2) The implementation of subdivision (g) of this section and
subdivision (e) of Section 14167.5 does not result in the receipt by
any designated public hospital, or the governmental entity with which
it is affiliated, of less than what would otherwise be paid to that
hospital or entity pursuant to Part 3.5 (commencing with Section
15900), the sections referred to in Section 14166.35, or Article 5.21
(commencing with Section 14167.1).
   (3) In determining the amount retained by the state under
subdivision (e) of Section 14167.5 and made available to the
designated public hospitals in subdivision (g), the department makes
adjustments to the reported expenditures for possible audit
disallowances, consistent with the type of adjustments applied in
prior project years to reduce the likelihood of a federal recoupment.

   (4) The department is satisfied that the expenditures claimed
under paragraph (3) of subdivision (g) represent valid expenditures
for the purposes of federal financial participation under the Special
Terms and Conditions for the demonstration project based on federal
law and guidance provided by the federal Centers for Medicare and
Medicaid Services.
   (5) Notwithstanding subdivision (b), the department has claimed
federal reimbursement for the state-only expenditures in the programs
referenced in subdivision (a) of Section 14166.22 and in the
programs authorized by paragraph (4) of subdivision (b) of Section
14166.221, to the maximum extent authorized under the Special Terms
and Conditions for the demonstration project.
   (6) Federal financial participation is available and
implementation of these provisions does not jeopardize the federal
financial participation for other programs.
  SEC. 4.  Section 14166.24 of the Welfare and Institutions Code is
amended to read:
   14166.24.  (a) Any determination of the amount due a designated
public hospital that is based in whole or in part on costs reported
to or audited by a Medicare fiscal intermediary shall not be deemed
final for purposes of this article unless the hospital has received a
final determination of Medicare payment for the cost reporting for
Medicare purposes. Designated public hospitals shall be entitled to
pursue all administrative and judicial review available under the
Medicare Program and any final determination shall be incorporated
into the department's final determination of payment due the hospital
under this article.
   (b) If as a result of an audit performed by the department or any
state or federal agency, the department determines that any hospital
participating in the demonstration project has been overpaid under
the demonstration project, the department shall recoup the
overpayment in accordance with Section 14172.5 or 14115.5. The
hospital may appeal the overpayment determinations and any related
audit determination in accordance with the appeal procedures set
forth in Sections 51016 to 51047, inclusive, of Title 22 of the
California Code of Regulations. The hospital may seek judicial review
of the final administrative decision as set forth in Section 14171.
   (c) The department shall promptly consult with the affected
governmental entity regarding a dispute between a designated public
hospital and the department regarding the validity of the hospital's
certified public expenditures. If the department determines that the
hospital's certification is valid, the department shall submit the
claim to obtain federal reimbursement for the certified expenditure
in question.
   (d) (1) Upon receipt of a notice of disallowance or deferral from
the federal government related to the certified public expenditures
or intergovernmental transfers of any governmental entity
participating in the demonstration project, the department shall
promptly notify the affected governmental entity. The governmental
entity that certified the public expenditure shall be the entity
responsible for the federal portion of that expenditure.
   (2) The department and the affected governmental entity shall
promptly consult regarding the proposed disallowance or deferral.
   (3) After consulting with the governmental entity, the department
shall determine whether the disallowance or response to a deferral
should be filed with the federal government. If the department
determines the appeal or response has merit, the department shall
timely appeal. If necessary, the department may request an extension
of the deadline to file an appeal or response to a deferral. The
affected governmental entity may provide the department with the
legal and factual basis for the appeal or response.
   (e) Notwithstanding any other provision of law, if the department
has exercised the authority set forth in subdivision (g) of Section
14166.221 and subdivision (e) of Section 14167.5, then all of the
following shall occur:
   (1) (A) The state shall be solely responsible for the repayment of
the federal portion of any federal disallowance associated with any
certified public expenditures for the 2009, 2010, and 2011 project
years, and paragraph (1) of subdivision (d) of Section 14166.24 shall
be disregarded, up to the total amount of the grant funds retained
by the state under subdivision (e) of Section 14167.5.
   (B) If the hospitals have additional certified public expenditures
for which federal funds have not been received but for which federal
funds could have been received under the demonstration project had
additional federal funds been available, including federal funds made
available under an extension of the demonstration project, the state
shall first be allowed to respond to a deferral or disallowance
based on the certified public expenditures of designated public
hospitals, or the governmental entities with which they are
affiliated, by substituting the additional certified public
expenditures for those deferred or disallowed.
   (2) The department shall not recoup any overpayment from a
designated public hospital, or a governmental entity with which it is
affiliated, with respect to payments under this article for the
2009, 2010, and 2011 project years, until the state has repaid all
federal funds due up to the amount of the grant funds retained by the
state under subdivision (e) of Section 14167.5.
  SEC. 5.  Section 14166.75 of the Welfare and Institutions Code is
amended to read:
   14166.75.  (a) For services provided during the 2005-06 and
2006-07 project years, the amount allocated to designated public
hospitals pursuant to subparagraph (A) of paragraph (2) and
subparagraph (A) of paragraph (5) of subdivision (b) of Section
14166.20 shall be allocated, in accordance with this section, among
the designated public hospitals. For services provided during the
2007-08, 2008-09, and 2009-10 project years, amounts allocated to
designated public hospitals as stabilization funding pursuant to any
provision of this article, unless otherwise specified, shall be
allocated among the designated public hospitals in accordance with
this section. All amounts allocated to designated public hospitals in
accordance with this section shall be paid as direct grants, which
shall not constitute Medi-Cal payments.
   (b) The baseline funding amount, as determined under Section
14166.5, for San Mateo Medical Center shall be increased by eight
million dollars ($8,000,000) for purposes of this section.
   (c) The following payments shall be made from the amount
identified in subdivision (a), in addition to any other payments due
to the University of California hospitals and health system and
County of Los Angeles hospitals under this section:
   (1) The lower of eleven million dollars ($11,000,000) or 3.67
percent of the amount identified in subdivision (a) to the University
of California hospitals and health system.
   (2) For each of the 2005-06 and 2006-07 project years, in the
event that the one hundred eighty million dollars ($180,000,000)
identified in paragraph 41 of the Special Terms and Conditions for
the demonstration project is available in the safety net care pool
for the project year, the lower of twenty-three million dollars
($23,000,                                           000) or 7.67
percent of the amount identified in subdivision (a) to the County of
Los Angeles, Department of Health Services, hospitals. If an amount
less than the one hundred eighty million dollars ($180,000,000) is
available during the project year, the amount determined under this
paragraph shall be reduced proportionately.
   (d) For the 2005-06 and 2006-07 project years, the amount
identified in subdivision (a), as reduced by the amounts identified
in subdivision (c), shall be distributed among the designated public
hospitals pursuant to this subdivision.
   (1) Designated public hospitals that are donor hospitals, and
their associated donated certified public expenditures, shall be
identified as follows:
   (A) An initial pro rata allocation of the amount subject to this
subdivision shall be made to each designated public hospital, based
upon the hospital's baseline funding amount determined pursuant to
Section 14166.5, and as further adjusted in subdivision (b). This
initial allocation shall be used for purposes of the calculations
under subparagraph (C) and paragraph (3).
   (B) The federal financial participation amount arising from the
certified public expenditures of each designated public hospital,
including the expenditures of the governmental entity, nonhospital
clinics, and other provider types with which it is affiliated, that
were claimed by the department from the federal disproportionate
share hospital allotment pursuant to subparagraphs (A) and (C) of
paragraph (2) of subdivision (a) of Section 14166.9, and from the
safety net care pool funds pursuant to paragraph (3) of subdivision
(a) of Section 14166.9, shall be determined.
   (C) The amount of federal financial participation received by each
designated public hospital, and by the governmental entity,
nonhospital clinics, and other provider types with which it is
affiliated, based on certified public expenditures from the federal
disproportionate share hospital allotment pursuant to paragraph (1)
of subdivision (b) of Section 14166.6, and from the safety net care
pool payments pursuant to subdivision (a) of Section 14166.7 shall be
identified. With respect to this identification, if a payment
adjustment for a hospital has been made pursuant to paragraph (2) of
subdivision (f) of Section 14166.6, or paragraph (2) of subdivision
(b) of Section 14166.7, the amount of federal financial participation
received by the hospital based on certified public expenditures
shall be determined as though no such payment adjustment had been
made. The resulting amount shall be increased by amounts distributed
to the hospital pursuant to subdivision (c) of this section,
paragraph (1) of subdivision (b) of Section 14166.20, and the initial
allocation determined for the hospitals in subparagraph (A).
   (D) If the amount in subparagraph (B) is greater than the amount
determined in subparagraph (C), the hospital is a donor hospital, and
the difference between the two amounts is deemed to be that donor
hospital's associated donated certified public expenditures amount.
   (2) Seventy percent of the total amount subject to this
subdivision shall be allocated pro rata among the designated public
hospitals based upon each hospital's baseline funding amount
determined pursuant to Section 14166.5, and as further adjusted in
subdivision (b).
   (3) The lesser of the remaining 30 percent of the total amount
subject to this subdivision or the total amounts of donated certified
public expenditures for all donor hospitals, shall be distributed
pro rata among the donor hospitals based upon the donated certified
public expenditures amount determined for each donor hospital. Any
amounts not distributed pursuant to this paragraph shall be
distributed in the same manner as set forth in paragraph (2).
   (e) For the 2007-08 and subsequent project years, the amount
identified in subdivision (a), as reduced by the amounts identified
in subdivision (c), shall be distributed among the designated public
hospitals pursuant to this subdivision.
   (1) Each designated public hospital that renders inpatient
hospital services under the health care coverage initiative program
authorized pursuant to Part 3.5 (commencing with Section 15900) shall
be allocated an amount equal to the amount of the federal safety net
pool funds claimed and received with respect to the services
rendered by the hospital, including services rendered to enrollees of
a managed care organization, to the extent the amount was included
in the determination of total stabilization funding for the project
year pursuant to Section 14166.20.
   (2) Each designated public hospital for which, during the project
year, the sum of the allowable costs incurred in rendering inpatient
hospital services to Medi-Cal beneficiaries and the allowable costs
incurred with respect to supplemental reimbursement for physician and
nonphysician practitioner services rendered to Medi-Cal hospital
inpatients, as specified in Section 14166.4, exceeds the allowable
costs incurred for those services rendered in the prior year, shall
be allocated an amount equal to 60 percent of the difference in the
allowable costs, multiplied by the applicable federal medical
assistance percentage. The allocations under this paragraph, however,
shall be reduced pro rata as necessary to ensure that the total of
those allocations does not exceed 80 percent of the amount subject to
this subdivision after the allocations in paragraph (1). For
purposes of this paragraph, the most recent cost data that are
available at the time of the department's determinations for the
project year pursuant to Section 14166.20 shall be used.
   (3) The remaining amount subject to this subdivision that is not
otherwise allocated pursuant to paragraphs (1) and (2) shall be
allocated as set forth below:
   (A) Designated public hospitals that are donor hospitals, and
their associated donated certified public expenditures, shall be
identified as follows:
   (i) An initial pro rata allocation of the amount subject to this
paragraph shall be made to each designated public hospital, based
upon the total allowable costs incurred by each hospital, or
governmental entity with which it is affiliated, in rendering
hospital services to the uninsured during the project year as
reported pursuant to Section 14166.8. This initial allocation shall
be used for purposes of the calculations under clause (iii) and
subparagraph (C).
   (ii) The federal financial participation amount arising from the
certified public expenditures of each designated public hospital,
including the expenditures of the governmental entity, nonhospital
clinics, and other provider types with which it is affiliated, that
were claimed by the department from the federal disproportionate
share hospital allotment pursuant to subparagraphs (A) and (C) of
paragraph (2) of subdivision (a) of Section 14166.9, and from the
safety net care pool funds pursuant to paragraph (3) of subdivision
(a) of Section 14166.9, shall be determined.
   (iii) The amount of federal financial participation received by
each designated public hospital, and by the governmental entity,
nonhospital clinics, and other provider types with which it is
affiliated, based on certified public expenditures from the federal
disproportionate share hospital allotment pursuant to paragraph (1)
of subdivision (b) of Section 14166.6, and from the safety net care
pool payments pursuant to subdivision (a) of Section 14166.7 shall be
identified. With respect to this identification, if a payment
adjustment for a hospital has been made pursuant to paragraph (2) of
subdivision (f) of Section 14166.6, or paragraph (2) of subdivision
(b) of Section 14166.7, the amount of federal financial participation
received by the hospital based on certified public expenditures
shall be determined as though no payment adjustment had been made.
The resulting amount shall be increased by amounts distributed to the
hospital pursuant to subdivision (c), paragraphs (1) and (2) of this
subdivision, paragraph (1) of subdivision (b) of Section 14166.20,
and the initial allocation determined for the hospitals in clause
(i).
   (iv) If the amount in clause (ii) is greater than the amount
determined in clause (iii), the hospital is a donor hospital, and the
difference between the two amounts is deemed to be that donor
hospital's associated donated certified public expenditures amount.
   (B) Fifty percent of the total amount subject to this paragraph
shall be allocated pro rata among the designated public hospitals in
the same manner described in clause (i) of subparagraph (A).
   (C) The lesser of the remaining 50 percent of the total amount
subject to this paragraph, the total amounts of donated certified
public expenditures for all donor hospitals or that amount that is 30
percent of the amount subject to this subdivision after the
allocations in paragraph (1), shall be distributed pro rata among the
donor hospitals based upon the donated certified public expenditures
amount determined for each donor hospital. Any amounts not
distributed pursuant to this subparagraph shall be distributed in the
same manner as set forth in subparagraph (B).
   (D) The federal financial participation amount arising from the
certified public expenditures that has been paid to designated public
hospitals, or the governmental entities with which they are
affiliated, pursuant to subdivision (g) of Section 14166.221 shall be
disregarded for purposes of this paragraph.
   (f) The department shall consult with designated public hospital
representatives regarding the appropriate distribution of
stabilization funding before stabilization funds are allocated and
paid to hospitals. No later than 30 days after this consultation, the
department shall issue a final allocation of stabilization funding
under this section that shall not be modified for any reason other
than mathematical errors or mathematical omissions on the part of the
department.
  SEC. 6.  Section 14167.1 of the Welfare and Institutions Code is
amended to read:
   14167.1.  For purposes of this article, the following definitions
shall apply:
   (a) "Acute psychiatric days" means the total number of Short-Doyle
administrative days, Short-Doyle acute care days, acute psychiatric
administrative days, and acute psychiatric acute days identified in
the Final Medi-Cal Utilization Statistics for the 2008-09 state
fiscal year as calculated by the department on September 15, 2008.
   (b) "Converted hospital" means a private hospital that becomes a
designated public hospital or a nondesignated public hospital after
the implementation date, a nondesignated public hospital that becomes
a private hospital or a designated public hospital after the
implementation date, or a designated public hospital that becomes a
private hospital or a nondesignated public hospital after the
implementation date.
   (c) "Current Section 1115 Waiver" means California's Medi-Cal
Hospital/Uninsured Care Section 1115 Waiver Demonstration in effect
on the effective date of the article.
   (d) "Designated public hospital" shall have the meaning given in
subdivision (d) of Section 14166.1 as that section may be amended
from time to time.
   (e) "General acute care days" means the total number of Medi-Cal
general acute care days paid by the department to a hospital in the
2008 calendar year, as reflected in the state paid claims files on
July 10, 2009.
   (f) "High acuity days" means Medi-Cal coronary care unit days,
pediatric intensive care unit days, intensive care unit days,
neonatal intensive care unit days, and burn unit days paid by the
department during the 2008 calendar year, as reflected in the state
paid claims files on July 10, 2009.
   (g) "Hospital inpatient services" means all services covered under
Medi-Cal and furnished by hospitals to patients who are admitted as
hospital inpatients and reimbursed on a fee-for-service basis by the
department directly or through its fiscal intermediary. Hospital
inpatient services include outpatient services furnished by a
hospital to a patient who is admitted to that hospital within 24
hours of the provision of the outpatient services that are related to
the condition for which the patient is admitted. Hospital inpatient
services do not include services for which a managed health care plan
is financially responsible.
   (h) "Hospital outpatient services" means all services covered
under Medi-Cal furnished by hospitals to patients who are registered
as hospital outpatients and reimbursed by the department on a
fee-for-service basis directly or through its fiscal intermediary.
Hospital outpatient services include physician services only where
the service is furnished to a hospital outpatient, the physician is
compensated by the hospital for the service, and the service is
billed to Medi-Cal by the hospital under a provider number assigned
to the hospital. Hospital outpatient services do not include services
for which a managed health care plan is financially responsible, or
services rendered by a hospital-based federally qualified health
center for which reimbursement is received pursuant to Section
14132.100.
   (i) (1) "Implementation date" means the latest effective date of
all federal approvals or waivers necessary for the implementation of
this article and Article 5.22 (commencing with Section 14167.31),
including, but not limited to, any approvals on amendments to
contracts between the department and managed health care plans or
mental health plans necessary for the implementation of this article.
The effective date of a federal approval or waiver shall be the
earlier of the stated effective date or the first day of the first
quarter to which the computation of the payments or fee under the
federal approval or waiver is applicable, which may be prior to the
date that the federal approval or waiver is granted or the applicable
contract is amended.
   (2) If federal approval is sought initially for only the 2008-09
federal fiscal year and separately secured for subsequent federal
fiscal years, the implementation date for the 2008-09 federal fiscal
year shall occur when all necessary federal approvals have been
secured for that federal fiscal year.
   (j) "Individual hospital acute psychiatric supplemental payment"
means the total amount of acute psychiatric hospital supplemental
payments to a subject hospital for a quarter for which the
supplemental payments are made. The "individual hospital acute
psychiatric supplemental payment" shall be calculated for subject
hospitals by multiplying the number of acute psychiatric days for the
individual hospital for which a mental health plan was financially
responsible by four hundred eighty-five dollars ($485) and dividing
the result by 4.
   (k) (1) "Managed health care plan" means a health care delivery
system that manages the provision of health care and receives prepaid
capitated payments from the state in return for providing services
to Medi-Cal beneficiaries.
   (2) (A) Managed health care plans include county organized health
systems and entities contracting with the department to provide
services pursuant to two-plan models and geographic managed care.
Entities providing these services contract with the department
pursuant to any of the following:
   (i) Article 2.7 (commencing with Section 14087.3).
   (ii) Article 2.8 (commencing with Section 14087.5).
   (iii) Article 2.81 (commencing with Section 14087.96).
   (iv) Article 2.91 (commencing with Section 14089).
   (B) Managed health care plans do not include any of the following:

   (i) Mental health plan contracting to provide mental health care
for Medi-Cal beneficiaries pursuant to Part 2.5 (commencing with
Section 5775) of Division 5.
   (ii) Health plan not covering inpatient services such as primary
case management plans operating pursuant to Section 14088.85.
   (iii) Long-Term Care Demonstration Projects for All-Inclusive Care
for the Elderly operating pursuant to Chapter 8.75 (commencing with
Section 14590).
   (l) "Medi-Cal managed care days" means the total number of general
acute care days, including well baby days, listed for the county
organized health system and prepaid health plans identified in the
Final Medi-Cal Utilization Statistics for the 2008-09 state fiscal
year, as calculated by the department on September 15, 2008, except
that the general acute care days, including well baby days, for the
Santa Barbara Health Care Initiative shall be derived from the Final
Medi-Cal Utilization Statistics for the 2007-08 state fiscal year.
   (m) "Medicaid inpatient utilization rate" means Medicaid inpatient
utilization rate as defined in Section 1396r-4 of Title 42 of the
United States Code and as set forth in the final disproportionate
share hospital eligibility list for the 2008-09 state fiscal year
released by the department on October 22, 2008.
   (n) "Mental health plan" means a mental health plan that contracts
with the State Department of Mental Health to furnish or arrange for
the provision of mental health services to Medi-Cal beneficiaries
pursuant to Part 2.5 (commencing with Section 5775) of Division 5.
   (o) "New hospital" means a hospital that was not in operation
under current or prior ownership as a private hospital, a
nondesignated public hospital, or a designated public hospital for
any portion of the 2008-09 state fiscal year.
   (p) "Nondesignated public hospital" means either of the following:

   (1) A public hospital that is licensed under subdivision (a) of
Section 1250 of the Health and Safety Code, is not designated as a
specialty hospital in the hospital's annual financial disclosure
report for the hospital's latest fiscal year ending in 2007, and
satisfies the definition in paragraph (25) of subdivision (a) of
Section 14105.98, excluding designated public hospitals.
   (2) A tax-exempt nonprofit hospital that is licensed under
subdivision (a) of Section 1250 of the Health and Safety Code, is not
designated as a specialty hospital in the hospital's annual
financial disclosure report for the hospital's latest fiscal year
ending in 2007, is operating a hospital owned by a local health care
district, and is affiliated with the health care district hospital
owner by means of the district's status as the nonprofit corporation'
s sole corporate member.
   (q) "Outpatient base amount" means the total amount of payments
for hospital outpatient services made to a hospital in the 2007
calendar year, as reflected in state paid claims files on January 26,
2008.
   (r) "Private hospital" means a hospital that meets all of the
following conditions:
   (1) Is licensed pursuant to subdivision (a) of Section 1250 of the
Health and Safety Code.
   (2) Is in the Charitable Research Hospital peer group, as set
forth in the 1991 Hospital Peer Grouping Report published by the
department, or is not designated as a specialty hospital in the
hospital's Office of Statewide Health Planning and Development Annual
Financial Disclosure Report for the hospital's latest fiscal year
ending in 2007.
   (3) Does not satisfy the Medicare criteria to be classified as a
long-term care hospital.
   (4) Is a nonpublic hospital, nonpublic converted hospital, or
converted hospital as those terms are defined in paragraphs (26) to
(28), inclusive, respectively, of subdivision (a) of Section
14105.98.
   (s) "Subject federal fiscal year" means a federal fiscal year that
ends after the implementation date and begins before December 31,
2010.
   (t) "Subject hospital" shall mean a hospital that meets all of the
following conditions:
   (1) Is licensed pursuant to subdivision (a) of Section 1250 of the
Health and Safety Code.
   (2) Is in the Charitable Research Hospital peer group, as set
forth in the 1991 Hospital Peer Grouping Report published by the
department, or is not designated as a specialty hospital in the
hospital's Office of Statewide Health Planning and Development Annual
Financial Disclosure Report for the hospital's latest fiscal year
ending in 2007.
   (3) Does not satisfy the Medicare criteria to be classified as a
long-term care hospital.
   (u) "Subject month" means a calendar month beginning on or after
the implementation date and ending before January 1, 2011.
   (v) "Upper payment limit" means a federal upper payment limit on
the amount of the Medicaid payment for which federal financial
participation is available for a class of service and a class of
health care providers, as specified in Part 447 of Title 42 of the
Code of Federal Regulations.
  SEC. 7.  Section 14167.2 of the Welfare and Institutions Code is
amended to read:
   14167.2.  (a) Private hospitals shall be paid supplemental amounts
for the provision of hospital outpatient services as set forth in
this section. The supplemental amounts shall be in addition to any
other amounts payable to hospitals with respect to those services and
shall not affect any other payments to hospitals.
   (b) Except as set forth in subdivisions (e) and (f), each private
hospital shall be paid an amount for each subject federal fiscal year
equal to a percentage of the hospital's outpatient base amount. The
percentage shall be the same for each hospital for a subject federal
fiscal year and shall result in payments to hospitals that equal the
applicable federal upper payment limit.
   (c) In the event federal financial participation for a subject
federal fiscal year is not available for all of the supplemental
amounts payable to private hospitals under subdivision (b) due to the
application of a federal upper limit or for any other reason, both
of the following shall apply:
   (1) The total amount payable to private hospitals under
subdivision (b) for the subject federal fiscal year shall be reduced
to the amount for which federal financial participation is available.

   (2) The amount payable under subdivision (b) to each private
hospital for the subject federal fiscal year shall be equal to the
amount computed under subdivision (b) multiplied by the ratio of the
total amount for which federal financial participation is available
to the total amount computed under subdivision (b).
   (d) The supplemental amounts set forth in this section are
inclusive of federal financial participation.
   (e) No payments shall be made under this section to a new
hospital.
   (f) No payments shall be made under this section to a converted
hospital for the subject federal fiscal year in which the hospital
becomes a converted hospital or for subsequent subject federal fiscal
years.
  SEC. 8.  Section 14167.3 of the Welfare and Institutions Code is
amended to read:
   14167.3.  (a) Private hospitals shall be paid supplemental amounts
for the provision of hospital inpatient services and subacute
services as set forth in this section. The supplemental amounts shall
be in addition to any other amounts payable to hospitals with
respect to those services and shall not affect any other payments to
hospitals.
   (b) Except as set forth in subdivisions (g) and (h), each private
hospital shall be paid the following amounts as applicable for the
provision of hospital inpatient services for each subject federal
fiscal year:
   (1) Six hundred forty dollars and forty-six cents ($640.46)
multiplied by the hospital's general acute care days.
   (2) Four hundred eighty-five dollars ($485) multiplied by the
hospital's acute psychiatric days that were paid directly by the
department and were not the financial responsibility of a mental
health plan.
   (3) One thousand three hundred fifty dollars ($1,350) multiplied
by the number of the hospital's high acuity days if the hospital's
Medicaid inpatient utilization rate is less than 41.1 percent and
greater than 5 percent and at least 5 percent of the hospital's
general acute care days are high acuity days. This amount shall be in
addition to the amounts specified in paragraphs (1) and (2).
   (4) One thousand three hundred fifty dollars ($1,350) multiplied
by the number of the hospital's high acuity days if the hospital
qualifies to receive the amount set forth in paragraph (3) and has
been designated as a Level I, Level II, Adult/Ped Level I, or
Adult/Ped Level II trauma center by the emergency medical services
authority established pursuant to Section 1797.1 of the Health and
Safety Code. This amount shall be in addition to the amounts
specified in paragraphs (1), (2), and (3).
   (c) A private hospital that provides Medi-Cal subacute services
during a subject federal fiscal year and has a Medicaid inpatient
utilization rate that is greater than 5.0 percent and less than 41.1
percent shall be paid for the provision of subacute services during
each subject federal fiscal year a supplemental amount equal to 40
percent of the Medi-Cal subacute payments made to the hospital during
the 2008 calendar year.
   (d) (1) In the event federal financial participation for a subject
federal fiscal year is not available for all of the supplemental
amounts payable to private hospitals under subdivision (b) due to the
application of a federal limit or for any other reason, both of the
following shall apply:
   (A) The total amount payable to private hospitals under
subdivision (b) for the subject federal fiscal year shall be reduced
to reflect the amount for which federal financial participation is
available.
   (B) The amount payable under subdivision (b) to each private
hospital for the subject federal fiscal year shall be equal to the
amount computed under subdivision (b) multiplied by the ratio of the
total amount for which federal financial participation is available
to the total amount computed under subdivision (b).
   (2) In the event federal financial participation for a subject
federal fiscal year is not available for all of the supplemental
amounts payable to private hospitals under subdivision (c) due to the
application of a federal upper limit or for any other reason, both
of the following shall apply:
   (A) The total amount payable to private hospitals under
subdivision (c) for the subject federal fiscal year shall be reduced
to reflect the amount for which federal financial participation is
available.
   (B) The amount payable under subdivision (c) to each private
hospital for the subject federal fiscal year shall be equal to the
amount computed under subdivision (c) multiplied by the ratio of the
total amount for which federal financial participation is available
to the total amount computed under subdivision (c).
   (e) In the event the amount otherwise payable to a hospital under
this section for a subject federal fiscal year exceeds the amount for
which federal financial participation is available for that
hospital, the amount due to the hospital for that federal fiscal year
shall be reduced to the amount for which federal financial
participation is available.
                                              (f) The amounts set
forth in this section are inclusive of federal financial
participation.
   (g) No payments shall be made under this section to a new
hospital.
   (h) No payments shall be made under this section to a converted
hospital for the subject federal fiscal year in which the hospital
becomes a converted hospital or for subsequent subject federal fiscal
years.
  SEC. 9.  Section 14167.4 of the Welfare and Institutions Code is
amended to read:
   14167.4.  (a) Nondesignated public hospitals shall be paid
supplemental amounts for the provision of hospital inpatient services
as set forth in this section. The supplemental amounts shall be in
addition to any other amounts payable to hospitals with respect to
those services and shall not affect any other payments to hospitals.
   (b) Except as set forth in subdivisions (f) and (g), each
nondesignated public hospital shall be paid the following amounts for
each subject federal fiscal year:
   (1) Two hundred eighteen dollars and eighty-two cents ($218.82)
multiplied by the hospital's general acute care days.
   (2) Four hundred eighty-five dollars ($485) multiplied by the
hospital's acute psychiatric days that were paid directly by the
department and were not the financial responsibility of a mental
health plan.
   (c) In the event federal financial participation for a subject
federal fiscal year is not available for all of the supplemental
amounts payable to nondesignated public hospitals under subdivision
(b) due to the application of a federal upper payment limit or for
any other reason, both of the following shall apply:
   (1) The total amount payable to nondesignated public hospitals
under subdivision (b) for the subject federal fiscal year shall be
reduced to the amount for which federal financial participation is
available.
   (2) The amount payable under subdivision (b) to each nondesignated
public hospital for the subject federal fiscal year shall be equal
to the amount computed under subdivision (b) multiplied by the ratio
of the total amount for which federal financial participation is
available to the total amount computed under subdivision (b).
   (d) In the event the amount otherwise payable to a hospital under
this section for a subject federal fiscal year exceeds the amount for
which federal financial participation is available for that
hospital, the amount due to the hospital for that federal fiscal year
shall be reduced to the amount for which federal financial
participation is available.
   (e) The amounts set forth in this section are inclusive of federal
financial participation.
   (f) No payments shall be made under this section to a new
hospital.
   (g) (1) No payments shall be made under this section to a
converted hospital for the subject federal fiscal year in which the
hospital becomes a converted hospital or for subsequent subject
federal fiscal years.
   (2) Notwithstanding paragraph (1), the director shall seek federal
approval to allow payments to be made under this section for the
period beginning July 1, 2010, and ending December 31, 2010, to a
converted hospital which is a hospital described in paragraph (2) of
subdivision (p) of Section 14167.1, and shall make payments under
this section consistent with any approvals, subject to all of the
following:
   (A) Federal approval shall be sought after all final federal
approvals necessary to implement this article and Article 5.22
(commencing with Section 14167.31) are received by the department.
   (B) The director shall have determined prior to seeking federal
approval that obtaining federal approval and implementing the
payments described in this paragraph will not jeopardize the
implementation of this article or Article 5.22 (commencing with
Section 14167.31), or delay any payments to hospitals and managed
health care plans under this article or Article 5.22 (commencing with
Section 14167.31), or the collection of the quality assurance fee
from hospitals under Article 5.22 (commencing with Section 14167.31),
beyond December 31, 2010.
   (C) The director shall withdraw any request for federal approval
made under this paragraph if, after submitting the request, the
director has determined that obtaining federal approval and
implementing the payments described in this paragraph will jeopardize
the implementation of this article or Article 5.22 (commencing with
Section 14167.31) or delay any payments to hospitals and managed
health care plans under this article or Article 5.22, (commencing
with Section 14167.31) or the collection of the quality assurance fee
from hospitals under Article 5.22, (commencing with Section
14167.31) beyond December 31, 2010.
  SEC. 10.  Section 14167.5 of the Welfare and Institutions Code is
amended to read:
   14167.5.  (a) Designated public hospitals shall be paid direct
grants in support of health care expenditures, which shall not
constitute Medi-Cal payments, and which shall be funded by the
quality assurance fee set forth in Article 5.22 (commencing with
Section 14167.31). The aggregate amount of the grants to designated
public hospitals for each subject federal fiscal year shall be two
hundred ninety-five million dollars ($295,000,000).
   (b) The director shall allocate the amount specified in
subdivision (a) among the designated public hospitals in accordance
with this subdivision. In determining the allocation, the director
shall rely on data from the Interim Hospital Payment Rate Workbooks.
For purposes of this section, "Interim Hospital Payment Rate Workbook"
means the Interim Hospital Payment Rate Workbook, developed by the
department and approved by the federal Centers for Medicare and
Medicaid Services for use in connection with the Medi-Cal
Hospital/Uninsured Care 1115 Waiver Demonstration, as submitted by
each designated public hospital, or the governmental entity with
which the hospital is affiliated, on or around June 2009 for the
period of July 1, 2007, to June 30, 2008, inclusive.
   (1) Each designated public hospital's share of 80 percent of the
amount specified in subdivision (a) shall be determined by applying a
fraction, the numerator of which is the certified public
expenditures reported by the designated public hospital as allowable
Medi-Cal inpatient expenditures on Schedule 2.1, Column 5, Step 5 of
the Interim Hospital Payment Rate Workbook, and the denominator of
which is the total amount of certified public expenditures reported
as allowable Medi-Cal inpatient expenditures by all designated public
hospitals on Schedule 2.1, Column 5, Step 5 of the Interim Hospital
Payment Rate Workbooks.
   (2) Each designated public hospital's share of 20 percent of the
amount described in subdivision (a) shall be determined by applying a
fraction, the numerator of which is the sum of the uninsured days of
inpatient hospital services reported by the designated public
hospital on Schedule 1, Column 5a, lines 25 through 33 of the Interim
Hospital Payment Rate Workbook, and the denominator of which is the
total uninsured days of inpatient hospital services reported by all
designated public hospitals on Schedule 1, Column 5a, lines 25
through 33 of the Interim Hospital Payment Rate Workbooks.
   (c) In the event federal financial participation for a subject
federal fiscal year is not available for all of the supplemental
amounts payable to private hospitals under Section 14167.3, due to
the limitations on supplemental payments based on a partial-year
federal upper payment limit, the amount payable to each designated
public hospital under subdivision (b) shall equal the designated
public hospital's allocated grant amount under subdivision (b)
multiplied by a fraction, the numerator of which is the total number
of months in the subject federal fiscal year for which federal
financial participation is available for supplemental payment amounts
to private hospitals up to the federal upper payment limit, and the
denominator of which is 12.
   (d) Designated public hospitals shall be paid supplemental
Medi-Cal amounts for acute inpatient psychiatric services that are
paid directly by the department and are not the financial
responsibility of a mental health plan, as set forth in this
subdivision. The supplemental amounts shall be in addition to any
other amounts payable to designated public hospitals, or a
governmental entity with which the hospital is affiliated, with
respect to those services and shall not affect any other payments to
hospitals or to any governmental entity with which the hospital is
affiliated.
   (1) Each designated public hospital shall be paid an amount for
each subject federal fiscal year equal to four hundred eighty-five
dollars ($485) multiplied by the hospital's acute psychiatric days
that were paid directly by the department and were not the financial
responsibility of a mental health plan, inclusive of federal
financial participation.
   (2) In the event federal financial participation for a subject
federal fiscal year is not available for all of the supplemental
amounts payable to designated public hospitals under paragraph (1)
due to the application of a federal upper payment limit or for any
other reason, both of the following shall apply:
   (A) The total amount payable to designated public hospitals under
paragraph (1) for the subject federal fiscal year shall be reduced to
the amount for which federal financial participation is available.
   (B) The amount payable under paragraph (1) to each designated
public hospital for the subject federal fiscal year shall be equal to
the amount computed under paragraph (1) multiplied by the ratio of
the total amount for which federal financial participation is
available to the total amount computed under paragraph (1).
   (3) In the event the amount otherwise payable to a designated
public hospital under this subdivision for a subject federal fiscal
year exceeds the amount for which federal financial participation is
available for that hospital, the amount due to the hospital for that
federal fiscal year shall be reduced to the amount for which federal
financial participation is available.
   (e) Notwithstanding subdivision (a) and subject to subdivisions
(g) and (h) of Section 14166.221, the state may retain for the state'
s use the funds described in subdivision (a) that would otherwise be
payable pursuant to subdivision (c) of Section 14167.9 in an
aggregate amount not to exceed four hundred twenty million dollars
($420,000,000) for the period in which this article and Article 5.22
(commencing with Section 14167.31) are in effect, provided that the
state allocates to the designated public hospitals an equal amount of
federal funds available under the Medi-Cal Hospital/Uninsured Care
Demonstration Project pursuant to subdivision (c) of Section
14166.221, and the state has determined, after consultation with the
designated public hospitals, that the designated public hospitals, or
the governmental entities with which they are affiliated, have
incurred sufficient expenditures so that the full amount allocated
can be received as federal matching funds. Federal funds allocated to
the designated public hospitals under this subdivision and claimed
under subdivision (g) of Section 14166.221 shall be distributed among
the designated public hospitals in accordance with subdivision (b).
  SEC. 11.  Section 14167.6 of the Welfare and Institutions Code is
amended to read:
   14167.6.  (a) The department shall increase capitation payments to
Medi-Cal managed health care plans for the subject federal fiscal
years as set forth in this section.
   (b) The increased capitation payments shall be made as part of the
monthly capitated payments made by the department to managed health
care plans.
   (c) The aggregate amount of increased capitation payments to all
Medi-Cal managed health care plans for a subject federal fiscal year
shall be seven hundred twenty-nine million eight hundred twenty-nine
thousand two hundred five dollars ($729,829,205) multiplied by the
percentage of the subject federal fiscal year for which federal
approval is obtained for this article and Article 5.22 (commencing
with Section 14167.31).
   (d) The department shall determine the amount of the increased
capitation payments for each managed health care plan. The department
shall consider the composition of Medi-Cal enrollees in the plan,
the anticipated utilization of hospital services by the plan's
Medi-Cal enrollees, and other factors that the department determines
are reasonable and appropriate to ensuring access to high-quality
hospital services by the plan's enrollees.
   (e) The amount of increased capitation payments to each Medi-Cal
managed care health plan shall not exceed an amount that results in
capitation payments that are certified by the state's actuary as
meeting federal requirements, taking into account the requirement
that all of the increased capitation payments under this section
shall be paid by the Medi-Cal managed health care plans to hospitals
for hospital services to Medi-Cal enrollees of the plan.
   (f) (1) The increased capitation payments to managed health care
plans under this section shall be made to support the availability of
hospital services and ensure access to hospital services for
Medi-Cal beneficiaries. The increased capitation payments to managed
health care plans shall commence no later than December 31, 2010, and
shall include, but not be limited to, the sum of the increased
payments for all prior months for which payments are due.
   (2) To secure the necessary funding for the payment or payments
made pursuant to paragraph (1), the department shall have discretion
to accumulate funds in the Hospital Quality Assurance Fee Fund for
the purpose of funding managed care capitation payments under this
article regardless of the date on which capitation payments are
scheduled to be paid in order to secure the necessary total funding
for managed care payments by December 1, 2010. To the extent
feasible, the funds shall be accumulated as follows, provided that
the department may adjust the following dates and amounts as
necessary to accumulate sufficient funding by December 1, 2010:
   (A) Thirty percent of total necessary funding shall be accumulated
from all quality assurance fees deposited to the fund in September
2010.
   (B) Thirty percent of total necessary funding shall be accumulated
from the first installment of quality assurance fees deposited in
the fund in October 2010.
   (C) Thirty percent of total necessary funding shall be accumulated
from the second installment of quality assurance fees received from
the hospitals in October 2010.
   (D) Ten percent of total funding necessary shall be retained from
the November 2010 quality assurance fees received from the hospitals.

   (g) Payments to managed health care plans that would be paid
consistent with actuarial certification and enrollment in the absence
of the payments made pursuant to this section shall not be reduced
as a consequence of payment under this section.
   (h) (1) Each managed health care plan shall expend 100 percent of
any increased capitation payments it receives under this section, on
hospital services.
   (2) The department may issue change orders to amend contracts with
managed health care plans as needed to adjust monthly capitation
payments in order to implement this section.
   (3) For entities contracting with the department pursuant to
Article 2.91 (commencing with Section 14089), any incremental
increase in capitation rates pursuant to this section shall not be
subject to negotiation and approval by the California Medical
Assistance Commission.
   (i) In the event federal financial participation is not available
for all of the increased capitation payments determined for a month
pursuant to this section for any reason, the increased capitation
payments mandated by this section for that month shall be reduced
proportionately to the amount for which federal financial
participation is available.
   (j) 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 policy letters or
similar instructions, without taking further regulatory action.
  SEC. 12.  Section 14167.9 of the Welfare and Institutions Code is
repealed.
  SEC. 13.  Section 14167.9 is added to the Welfare and Institutions
Code, to read:
   14167.9.  Subject to the limitations in Section 14167.14, the
following shall apply:
   (a) (1) The department shall make to hospitals the payments
described in Sections 14167.2, 14167.3, 14167.4, and subdivision (d)
of Section 14167.5 for the 2008-09, 2009-10, and 2010-11 federal
fiscal years in seven payments.
   (2) (A) The first payment shall be made on or before the later of
September 30, 2010, or the 30th day after the notice described in
Section 14167.32 is sent to each hospital.
   (B) The subsequent payments shall be made in six consecutive
semimonthly payments that shall be made on or before the later of
each of the 14th and 30th days of October, November, and December
2010, or the 30th day after the notice described in Section 14167.32
is sent to each hospital.
   (3) The amount of each payment made pursuant to this subdivision
shall be one-seventh of the amount of payments calculated for each
hospital under Sections 14167.2, 14167.3, 14167.4, and subdivision
(d) of Section 14167.5.
   (b) Notwithstanding subdivision (a), all amounts due to hospitals
under Sections 14167.2, 14167.3, 14167.4, and subdivision (d) of
Section 14167.5 that have not been paid to hospitals before December
30, 2010, pursuant to subdivision (a), shall be paid to hospitals no
later than December 30, 2010.
   (c) (1) The department shall make to hospitals the payments
described in subdivisions (a), (b), and (c) of Section 14167.5 in
seven payments.
   (2) (A) (i) The first six payments shall be made in consecutive
semimonthly payments that shall be made on or before the later of
each of the first and 15th days of October, November, and December
2010, or the 30th day after the notice described in Section 14167.32
is sent to each hospital.
   (ii) The amount of each of the first six payments shall be
one-seventh of the amount of payments calculated for each hospital
under subdivisions (a), (b), and (c) of Section 14167.5.
   (B) (i) The seventh payment shall be made on or before December
30, 2010.
   (ii) The amount of the seventh payment shall be the total amount
due to hospitals under subdivisions (a), (b), and (c) of Section
14167.5 minus the amounts previously paid to the hospitals under
subparagraph (A).
  SEC. 14.  Section 14167.10 of the Welfare and Institutions Code is
amended to read:
   14167.10.  (a) Each managed health care plan receiving increased
capitation payments under Section 14167.6 shall expend the capitation
rate increases in a manner consistent with actuarial certification,
enrollment, and utilization on hospital services. Each managed health
care plan shall expend increased capitation payments on hospital
services within 30 days of receiving the increased capitation
payments to the extent they are made for a subject month that is
prior to the date on which the payments are received by the managed
health care plan.
   (b) For each subject federal fiscal year, the sum of all
expenditures made by a managed health care plan for hospital services
pursuant to this section shall equal, or approximately equal, all
increased capitation payments received by the managed health care
plan, consistent with actuarial certification, enrollment, and
utilization, from the department pursuant to Section 14167.6.
   (c) Any delegation or attempted delegation by a managed health
care plan of its obligation to expend the capitation rate increases
under this section shall not relieve the plan from its obligation to
expend those capitation rate increases. Managed health care plans
shall submit the documentation the department may require to
demonstrate compliance with this subdivision. The documentation shall
demonstrate actual expenditure of the capitation rate increases for
hospital services, and not assignment to subcontractors of the
managed health care plan's obligation of the duty to expend the
capitation rate increases.
  SEC. 15.  Section 14167.11 of the Welfare and Institutions Code is
amended to read:
   14167.11.  (a) The department shall increase payments to mental
health plans for the subject federal fiscal years as set forth in
this section.
   (b) For each fiscal quarter that begins on or after the
implementation date, the state shall make increased payments to each
mental health plan. The department shall consider the composition of
Medi-Cal enrollees in the mental health plan, the anticipated
utilization of hospital services by the mental health plan's Medi-Cal
enrollees, and other factors that the department determines are
reasonable and appropriate to ensure access to high-quality hospital
services by the mental health plan's enrollees.
   (c) The state shall make increased payments to mental health plans
exclusively for the purpose of making payments to hospitals, in
order to support the availability of hospital mental health services
and ensure access for Medi-Cal beneficiaries to hospital mental
health services. The increased payments to mental health plans shall
be made as follows:
   (1) The increased payments shall commence on or before the later
of the last day of the second month of the quarter in which federal
approval is granted or the 45th day following the day on which
federal approval is granted. Subsequent increased payments shall be
made on the last day of the second month of each quarter. The last
increased payments made pursuant to this section shall be made during
November 2010.
   (2) The increased payments made for the first quarter for which
increased payments are made under this section shall include the sum
of increased payments for all prior quarters for which payments are
due under subdivision (b).
   (3) The increased payments made during November 2010 shall include
payments computed under subdivision (b) for all quarters in the
2010-11 federal fiscal year to the extent that federal financial
participation is available for the payments.
   (4) If all necessary federal approvals are not received on or
before September 1, 2010, the department shall make semimonthly
payments starting within one month of receipt of all necessary
federal approvals until December 31, 2010.
   (d) Each mental health plan shall expend, in the form of
additional payments to hospitals, the increased payments it receives
under this section, pursuant to Section 14167.12.
   (e) In the event federal financial participation for a subject
federal fiscal year is not available for all of the increased acute
psychiatric payments determined for a quarter pursuant to this
section for any reason, the increased payments mandated by this
section for that quarter shall be reduced proportionately to the
amount for which federal financial participation is available.
   (f) Payments to mental health plans that would be paid in the
absence of the payments made pursuant to this section shall not be
reduced as a consequence of the payments under this section.
   (g) Notwithstanding any other provision of this article or Article
5.22 (commencing with Section 14167.31), individual acute
psychiatric payments under this section and Section 14167.12 may be
made directly by the department to hospitals in accordance with
Section 14167.9 when federal law does not require that the payments
be transmitted to the hospitals via mental health plans.
   (h) The department may, as necessary, allocate money appropriated
to it from the Hospital Quality Assurance Revenue Fund to the State
Department of Mental Health for the purposes of making increased
payments to mental health plans pursuant to this article.
  SEC. 16.  Section 14167.12 of the Welfare and Institutions Code is
amended to read:
   14167.12.  (a) At the same time that the state makes an increased
payment to a mental health plan under Section 14167.11, the state
shall notify the mental health plan that the plan shall make payments
to each subject hospital located in each county in which the mental
health plan operates as a consequence of receiving the increased
payment.
   (b) The payments made to hospitals pursuant to this section shall
be in addition to any other amounts payable to hospitals by a mental
health plan or otherwise and shall not affect any other payments to
hospitals.
   (c) For each subject federal fiscal year, the sum of all payments
made by a mental health plan to subject hospitals pursuant to this
section shall equal all increased payments received by the mental
health plan from the state pursuant to Section 14167.11.
   (d) Mental health plans shall not take into account payments made
pursuant to this article in negotiating the amount of payments to
hospitals that are not made pursuant to this article.
   (e) A mental health plan is obligated to make payments under this
section only to the extent of the payments it receives under Section
14167.11. A mental health plan may retain any interest it earns on
funds it receives under Section 14167.11 prior to making payments of
the funds to hospitals under this section.
   (f) No payments shall be made under this section to a new
hospital.
   (g) In the event federal financial participation for a quarter is
not available for all of the increased mental health payments made
pursuant to Section 14167.11 for any reason, the payments to
hospitals under this section shall be reduced proportionately to the
amount for which federal financial participation is available and the
department's notice under subdivision (a) shall reflect the
reduction.
  SEC. 17.  Section 14167.14 of the Welfare and Institutions Code is
amended to read:
   14167.14.  (a) The director shall do all of the following:
   (1) Submit any state plan amendment or waiver request that may be
necessary to implement this article.
   (2) Seek federal approval for the use of the entire federal upper
payment limits applicable to hospital services for payments under
this article for the 2008-09, 2009-10, and 2010-11 federal fiscal
years.
   (3) Seek federal approvals or waivers as may be necessary to
implement this article and to obtain federal financial participation
to the maximum extent possible for the payments under this article.
   (4) Amend the contracts between the managed health care plans and
the department as necessary to incorporate the provisions of Sections
14167.6 and 14167.10 and promptly seek all necessary federal
approvals of those amendments. The department shall pursue amendments
to the contracts as soon as possible after the effective date of
this article and Article 5.22 (commencing with
                   Section 14167.31), and shall not wait for federal
approval of this article or Article 5.22 (commencing with Section
14167.31) prior to pursuing amendments to the contracts. The
amendments to the contracts shall, among other provisions, set forth
an agreement to increase payment rates to managed health care plans
under Section 14166.6 and increase payments to hospitals under
Section 14166.10 effective April 2009 or as soon thereafter as
possible, conditioned on obtaining all federal approvals necessary
for federal financial participation for the increased capitation
payments to the managed health care plans.
   (b) In implementing this article, the department may utilize the
services of the Medi-Cal fiscal intermediary through a change order
to the fiscal intermediary contract to administer this program,
consistent with the requirements of Sections 14104.6, 14104.7,
14104.8, and 14104.9. Contracts entered into for purposes of
implementing this article or Article 5.22 (commencing with Section
14167.31) shall not be subject to Part 2 (commencing with Section
10100) of Division 2 of the Public Contract Code.
   (c) This article shall become inoperative if either of the
following occurs:
   (1) In the event, and on the effective date, of a final judicial
determination made by any court of appellate jurisdiction or a final
determination by the federal Department of Health and Human Services
or the federal Centers for Medicare and Medicaid Services that any
element of this article cannot be implemented.
   (2) In the event both of the following conditions exist:
   (A) The federal Centers for Medicare and Medicaid Services denies
approval for, or does not approve before January 1, 2012, the
implementation of Article 5.22 (commencing with Section 14167.31) or
this article.
   (B) Either or both articles cannot be modified by the department
pursuant to subdivision (e) of Section 14167.35 in order to meet the
requirements of federal law or to obtain federal approval.
   (d) If this article becomes inoperative pursuant to paragraph (1)
of subdivision (c) and the determination applies to any period or
periods of time prior to the effective date of the determination, the
department shall have authority to recoup all payments made pursuant
to this article during that period or those periods of time.
   (e) In the event any hospital, or any party on behalf of a
hospital, shall initiate a case or proceeding in any state or federal
court in which the hospital seeks any relief of any sort whatsoever,
including, but not limited to, monetary relief, injunctive relief,
declaratory relief, or a writ, based in whole or in part on a
contention that any or all of this article is unlawful and may not be
lawfully implemented, both of the following shall apply:
   (1) No payments shall be made to the hospital pursuant to this
article until the case or proceeding is finally resolved, including
the final disposition of all appeals.
   (2) Any amount computed to be payable to the hospital pursuant to
this section for a project year shall be withheld by the department
and shall be paid to the hospital only after the case or proceeding
is finally resolved, including the final disposition of all appeals.
   (f) Subject to Section 14167.352, no payment shall be made under
this article until all necessary federal approvals for the payment
and for the fee provisions in Article 5.22 (commencing with Section
14167.31) have been obtained and the fee has been imposed and
collected. Notwithstanding any other provision of law, payments under
this article shall be made only to the extent that the fee
established in Article 5.22 (commencing with Section 14167.31) is
collected and available to cover the nonfederal share of the
payments.
   (g) Supplemental payments for the 2008-09 federal fiscal year
shall not reduce the maximum federal funds available annually
pursuant to the Special Terms and Conditions, as amended October 5,
2007, of the Current Section 1115 Waiver.
   (h) (1) The director shall negotiate the federal approvals
required to implement this article and Article 5.22 (commencing with
Section 14167.31) for the 2009-10 and 2010-11 federal fiscal years
concurrently with the negotiation of a federal waiver that will
replace the Current Section 1115 Waiver, with a goal of obtaining
federal approvals that do not adversely impact the federal funds that
would otherwise be available for services to Medi-Cal beneficiaries
and the uninsured. The director may initiate the concurrent
negotiations required by this subdivision by submitting a concept
paper to the federal Centers for Medicare and Medicaid Services
outlining the key elements of the replacement waiver consistent with
the goals set forth in this subdivision.
   (2) In negotiating the terms of a federal waiver that will replace
the Current 1115 Waiver, the department shall explore opportunities
for reform of the Medi-Cal program and strengthen California's health
care safety net. Subject to subsequent legislative approval, the
department shall explore program reforms, that may include, but need
not be limited to, strategies to accomplish payment system reforms
for hospital inpatient and outpatient care, including incentive based
payments, new payment methodologies such as diagnostic-related
group-based (DRG-based), or similar methodologies, patient safety
protocols, and quality measurement.
   (3) This article and Article 5.22 (commencing with Section
14167.31) shall not be implemented with respect to the 2009-10 and
2010-11 federal fiscal years until the earlier of April 30, 2010, or
the date the federal government approves a federal waiver for a
demonstration that will replace the Current Section 1115 Waiver.
   (i) A hospital's receipt of payments under this article for
services rendered prior to the effective date of this article is
conditioned on the hospital's continued participation in Medi-Cal for
at least 30 days after the effective date of this article.
   (j) All payments made by the department to hospitals, managed
health care plans, and mental health plans under this article shall
be made only from the following:
   (1) The quality assurance fee set forth in Article 5.22
(commencing with Section 14167.31) and due and payable on or before
December 31, 2010.
   (2) Federal reimbursement and any other related federal funds.
  SEC. 18.  Section 14167.15 of the Welfare and Institutions Code is
amended to read:
   14167.15.  Notwithstanding any other provision of this article or
Article 5.22 (commencing with Section 14167.31), the director may
proportionately reduce the amount of any supplemental payments,
increased capitation payments, or grants under this article to the
extent that the payment or grant would result in the reduction of
other amounts payable to a hospital or managed health care plan or
mental health plan due to the application of federal law.
  SEC. 19.  Section 14167.18 is added to the Welfare and Institutions
Code, to read:
   14167.18.  Notwithstanding any other provision of law, if the
letter that indicates likely federal approval in accordance with
Section 14167.352 has not been received on or before December 1,
2010, then this article shall become inoperative, and as of December
1, 2010, is repealed, unless a later enacted statute, that is enacted
before December 1, 2010, deletes or extends that date.
  SEC. 20.  Section 14167.31 of the Welfare and Institutions Code is
amended to read:
   14167.31.  For the purposes of this article, the following
definitions shall apply:
   (a) (1) "Aggregate annual quality assurance fee" means, with
respect to a hospital that is not a prepaid health plan hospital, the
sum of all of the following:
   (A) The annual fee-for-service days for an individual hospital
multiplied by the fee-for-service per diem quality assurance fee
rate.
   (B) The annual managed care days for an individual hospital
multiplied by the managed care per diem quality assurance fee rate.
   (C) The annual Medi-Cal days for an individual hospital multiplied
by the Medi-Cal per diem quality assurance fee rate.
   (2) "Aggregate annual quality assurance fee" means, with respect
to a hospital that is a prepaid health plan hospital, the sum of all
of the following:
   (A) The annual fee-for-service days for an individual hospital
multiplied by the fee-for-service per diem quality assurance fee
rate.
   (B) The annual managed care days for an individual hospital
multiplied by the prepaid health plan hospital managed care per diem
quality assurance fee rate.
   (C) The annual Medi-Cal managed care days for an individual
hospital multiplied by the prepaid health plan hospital Medi-Cal
managed care per diem quality assurance fee rate.
   (D) The annual Medi-Cal fee-for-service days for an individual
hospital multiplied by the Medi-Cal per diem quality assurance fee
rate.
   (3) "Aggregate quality assurance fee after the application of the
fee percentage" shall be determined separately for each subject
federal fiscal year and means the aggregate annual quality assurance
fee multiplied by the fee percentage for the subject federal fiscal
year.
   (4) "Aggregate quality assurance fee" means the sum of the
aggregate quality assurance fee after the application of the fee
percentage for a hospital for each subject federal fiscal year.
   (b) "Annual fee-for-service days" means the number of
fee-for-service days of each hospital subject to the quality
assurance fee in the 2007 calendar year, as reported on the days data
source.
   (c) "Annual managed care days" means the number of managed care
days of each hospital subject to the quality assurance fee in the
2007 calendar year, as reported on the days data source.
   (d) "Annual Medi-Cal days" means the number of Medi-Cal days of
each hospital subject to the quality assurance fee in the 2007
calendar year, as reported on the days data source.
   (e) "Converted hospital" shall mean a hospital described in
subdivision (b) of Section 14167.1.
   (f) "Days data source" means the following:
   (1) For a hospital that did not submit an Annual Financial
Disclosure Report to the Office of Statewide Health Planning and
Development for a fiscal year ending during 2007, but submitted that
report for a fiscal period ending in 2008 that includes at least 10
months of 2007, the Annual Financial Disclosure Report submitted by
the hospital to the Office of Statewide Health Planning and
Development for the fiscal period in 2008 that includes at least 10
months of 2007.
   (2) For a hospital owned by Kaiser Foundation Hospitals that
submitted corrections to reported patient days to the Office of
Statewide Health Planning and Development for its fiscal year ending
in 2007 before July 31, 2009, the corrected data.
   (3) For all other hospitals, the hospital's Annual Financial
Disclosure Report in the Office of Statewide Health Planning and
Development files as of October 31, 2008, for its fiscal year ending
during 2007.
   (g) "Designated public hospital" shall have the meaning given in
subdivision (d) of Section 14166.1 as that section may be amended
from time to time.
   (h) "Exempt facility" means any of the following:
   (1) A public hospital, which shall include either of the
following:
   (A) A hospital, as defined in paragraph (25) of subdivision (a) of
Section 14105.98.
   (B) A tax-exempt nonprofit hospital that is licensed under
subdivision (a) of Section 1250 of the Health and Safety Code and
operating a hospital owned by a local health care district, and is
affiliated with the health care district hospital owner by means of
the district's status as the nonprofit corporation's sole corporate
member.
   (2) With the exception of a hospital that is in the Charitable
Research Hospital peer group, as set forth in the 1991 Hospital Peer
Grouping Report published by the department, a hospital that is a
hospital designated as a specialty hospital in the hospital's Office
of Statewide Health Planning and Development Hospital Annual
Disclosure Report for the hospital's fiscal year ending in the 2007
calendar year.
   (3) A hospital that satisfies the Medicare criteria to be a
long-term care hospital.
   (4) A small and rural hospital as specified in Section 124840 of
the Health and Safety Code designated as that in the hospital's
Office of Statewide Health Planning and Development Hospital Annual
Disclosure Report for the hospital's fiscal year ending in the 2007
calendar year.
   (i) (1) "Federal approval" means the last approval by the federal
government required for the implementation of this article and
Article 5.21 (commencing with Section 14167.1).
   (2) If federal approval is sought initially for only the 2008-09
federal fiscal year and separately secured for subsequent federal
fiscal years, the implementation date, as defined in subdivision (i)
of Section 14167.1, for the 2008-09 federal fiscal year shall occur
when all necessary federal approvals have been secured for that
federal fiscal year.
   (j) "Fee-for-service per diem quality assurance fee rate" means a
fixed fee on fee-for-service days of two hundred fifteen dollars and
thirty cents ($215.30) per day.
   (k) "Fee-for-service days" means inpatient hospital days where the
service type is reported as "acute care," "psychiatric care," and
"chemical dependency care and rehabilitation care," and the payer
category is reported as "Medicare traditional," "county indigent
programs-traditional," "other third parties-traditional," "other
indigent," and "other payers," for purposes of the Annual Financial
Disclosure Report submitted by hospitals to the Office of Statewide
Health Planning and Development.
   (l) "Fee percentage" means, for each subject federal fiscal year,
a fraction, expressed as a percentage, the numerator of which is the
amount of payments for the subject federal fiscal year under Sections
14167.2, 14167.3, and 14167.4, subdivision (d) of Section 14167.5,
and Sections 14167.6 and 14167.11, including payments made directly
to hospitals pursuant to subdivision (g) of Section 14167.11, for
which federal financial participation is available and the
denominator of which is two billion nine hundred eighty-two million
one hundred twenty thousand five hundred sixty dollars
($2,982,120,560).
   (m) "General acute care hospital" means any hospital licensed
pursuant to subdivision (a) of Section 1250 of the Health and Safety
Code.
   (n) "Hospital community" means any hospital industry organization
or system that represents children's hospitals, nondesignated public
hospitals, designated public hospitals, private safety-net hospitals,
and other public or private hospitals.
   (o) "Managed care days" means inpatient hospital days in the 2007
calendar year as reported on the days data source where the service
type is reported as "acute care," "psychiatric care," and "chemical
dependency care and rehabilitation care," and the payer category is
reported as "Medicare managed care," "county indigent
programs-managed care," and "other third parties-managed care," for
purposes of the Annual Financial Disclosure Report submitted by
hospitals to the Office of Statewide Health Planning and Development.

   (p) "Managed care per diem quality assurance fee rate" means a
fixed fee on managed care days of twenty-two dollars and fifty cents
($22.50) per day.
   (q) "Medi-Cal days" means inpatient hospital days in the 2007
calendar year as reported on the days data source where the service
type is reported as "acute care," "psychiatric care," and "chemical
dependency care and rehabilitation care," and the payer category is
reported as "Medi-Cal-traditional" and "Medi-Cal-managed care," for
purposes of the Annual Financial Disclosure Report submitted by
hospitals to the Office of Statewide Health Planning and Development.

   (r) "Medi-Cal fee-for-service days" means inpatient hospital days
in the 2007 calendar year as reported on the days data source where
the service type is reported as "acute care," "psychiatric care," and
"chemical dependency care and rehabilitation care," and the payer
category is reported as "Medi-Cal traditional" for purposes of the
Annual Financial Disclosure Report submitted by hospitals to the
Office of Statewide Health Planning and Development.
   (s) "Medi-Cal managed care days" means inpatient hospital days in
the 2007 calendar year as reported on the days data source where the
service type is reported as "acute care," "psychiatric care," and
"chemical dependency care and rehabilitation care," and the payer
category is reported as "Medi-Cal managed care" for purposes of the
Annual Financial Disclosure Report submitted by hospitals to the
Office of Statewide Health Planning and Development.
   (t) "Medi-Cal per diem quality assurance fee rate" means a fixed
fee on Medi-Cal days of two hundred thirty-two dollars ($232) per
day.
   (u) "Nondesignated public hospital" means either of the following:

   (1) A public hospital that is licensed under subdivision (a) of
Section 1250 of the Health and Safety Code, is not designated as a
specialty hospital in the hospital's annual financial disclosure
report for the hospital's latest fiscal year ending in 2007, and
satisfies the definition in paragraph (25) of subdivision (a) of
Section 14105.98, excluding designated public hospitals.
   (2) A tax-exempt nonprofit hospital that is licensed under
subdivision (a) of Section 1250 of the Health and Safety Code, is not
designated as a specialty hospital in the hospital's annual
financial disclosure report for the hospital's latest fiscal year
ending in 2007, is operating a hospital owned by a local health care
district, and is affiliated with the health care district hospital
owner by means of the district's status as the nonprofit corporation'
s sole corporate member.
   (v) "Prepaid health plan hospital" means a hospital owned by a
nonprofit public benefit corporation that shares a common board of
directors with a nonprofit health care service plan.
   (w) "Prepaid health plan hospital managed care per diem quality
assurance fee rate" means a fixed fee on non-Medi-Cal managed care
days for prepaid health plan hospitals of twelve dollars and sixty
cents ($12.60) per day.
   (x) "Prepaid health plan hospital Medi-Cal managed care per diem
quality assurance fee rate" means a fixed fee on Medi-Cal managed
care days for prepaid health plan hospitals of one hundred
twenty-nine dollars and ninety-two cents ($129.92) per day.
   (y) "Prior fiscal year data" means any data taken from sources
that the department determines are the most accurate and reliable at
the time the determination is made, or may be calculated from the
most recent audited data using appropriate update factors. The data
may be from prior fiscal years, current fiscal years, or projections
of future fiscal years.
   (z) "Private hospital" means a hospital that meets all of the
following conditions:
   (1) Is licensed pursuant to subdivision (a) of Section 1250 of the
Health and Safety Code.
   (2) Is in the Charitable Research Hospital peer group, as set
forth in the 1991 Hospital Peer Grouping Report published by the
department, or is not designated as a specialty hospital in the
hospital's Office of Statewide Health Planning and Development Annual
Financial Disclosure Report for the hospital's latest fiscal year
ending in 2007.
   (3) Does not satisfy the Medicare criteria to be classified as a
long-term care hospital.
   (4) Is a nonpublic hospital, nonpublic converted hospital, or
converted hospital as those terms are defined in paragraphs (26) to
(28), inclusive, respectively, of subdivision (a) of Section
14105.98.
   (aa) "Subject federal fiscal year" means a federal fiscal year
ending after the implementation date, as defined in Section 14167.1,
and beginning before December 31, 2010.
   (ab) "Upper payment limit" means a federal upper payment limit on
the amount of the Medicaid payment for which federal financial
participation is available for a class of service and a class of
health care providers, as specified in Part 447 of Title 42 of the
Code of Federal Regulations.
  SEC. 21.  Section 14167.32 of the Welfare and Institutions Code is
amended to read:
   14167.32.  (a) There shall be imposed on each general acute care
hospital that is not an exempt facility a quality assurance fee, as a
condition of participation in state-funded health insurance
programs, other than the Medi-Cal program, provided that a quality
assurance fee under this article shall not be imposed on a converted
hospital for a subject federal fiscal year in which the hospital
becomes a converted hospital or for subsequent federal fiscal years.
   (b) The quality assurance fee shall be computed starting on the
implementation date, as defined in Section 14167.1, and continue
through and including December 31, 2010.
   (c) Subject to Section 14167.352, upon receipt of federal
approval, the following shall become operative:
   (1) Within 30 days following receipt of the notice of federal
approval from the federal government, the department shall send
notice to each hospital subject to the quality assurance fee, and
publish on its Internet Web site, the following information:
   (A) The date that the state received notice of federal approval.
   (B) The fee percentage or percentages for each subject federal
fiscal year.
   (2) The notice to each hospital subject to the quality assurance
fee shall also state the following:
   (A) The aggregate quality assurance fee after the application of
the fee percentage for each subject federal fiscal year.
   (B) The aggregate quality assurance fee.
   (C) The amount of each installment payment due from the hospital
with respect to the aggregate quality assurance fee.
   (D) The date on which each installment payment is due.
   (3) (A) The hospitals shall pay the aggregate quality assurance
fee in seven equal installments.
   (B) (i) The first installment payment shall be made on or before
the later of September 14, 2010, or the 14th day after the notice
described in this section is sent to each hospital.
   (ii) The additional installment payments shall be made in six
consecutive semimonthly payments that shall be due and payable on or
before the later of each of the first and 15th days of October,
November, and December 2010, or the 14th day after the notice
described in this section is sent to each hospital.
   (4) Notwithstanding paragraph (3), the amount of each hospital's
aggregate quality assurance fee that has not been paid by the
hospital before December 15, 2010, pursuant to paragraph (3), shall
be paid by the hospital no later than December 15, 2010.
   (d) The quality assurance fee, as paid pursuant to this
subdivision, shall be paid by each hospital subject to the fee to the
department for deposit in the Hospital Quality Assurance Revenue
Fund. Deposits may be accepted at any time and will be credited
toward the fiscal year for which they were assessed.
   (e) This section shall become inoperative if the federal Centers
for Medicare and Medicaid Services denies approval for, or does not
approve before January 1, 2012, the implementation of this article or
Article 5.21 (commencing with Section 14167.1), and either or both
articles cannot be modified by the department pursuant to subdivision
(e) of Section 14167.35 in order to meet the requirements of federal
law or to obtain federal approval.
   (f) In no case shall the aggregate fees collected in a subject
federal fiscal year pursuant to this section exceed the maximum
percentage of the annual aggregate net patient revenue for hospitals
subject to the fee that is prescribed pursuant to federal law and
regulations as necessary to preclude a finding that an indirect
guarantee has been created.
   (g) (1) Interest shall be assessed on quality assurance fees not
paid on the date due at the greater of 10 percent per annum or the
rate at which the department assesses interest on Medi-Cal program
overpayments to hospitals that are not repaid when due. Interest
shall begin to accrue the day after the date the payment was due and
shall be deposited in the Hospital Quality Assurance Revenue Fund.
   (2) In the event that any fee payment is more than 60 days
overdue, a penalty equal to the interest charge described in
paragraph (1) shall be assessed and due for each month for which the
payment is not received after 60 days.
   (h) When a hospital fails to pay all or part of the quality
assurance fee on or before the date that payment is due, the
department may the following day immediately begin to deduct the
unpaid assessment and interest owed from any Medi-Cal payments or
other state payments to the hospital in accordance with Section
12419.5 of the Government Code until the full amount is recovered.
All amounts, except penalties, deducted by the department under this
subdivision shall be deposited in the Hospital Quality Assurance
Revenue Fund. The remedy provided to the department by this section
is in addition to other remedies available under law.
   (i) The payment of the quality assurance fee shall not be
considered as an allowable cost for Medi-Cal cost reporting and
reimbursement purposes.
   (j) The department shall work in consultation with the hospital
community to implement the quality assurance fee.
   (k) This subdivision creates a contractually enforceable promise
on behalf of the state to use the proceeds of the quality assurance
fee, including any federal matching funds, solely and exclusively for
the purposes set forth in this article as they existed on the
effective date of this article, to limit the amount of the proceeds
of the quality assurance fee to be used to pay for the health care
coverage of children to the amounts specified in this article and to
make any payments for the department's costs of administration to the
amounts set forth in this article on the effective date of this
article to maintain and continue prior reimbursement levels as set
forth in Article 5.21 (commencing with Section 14167.1) on the
effective date of that article, and to otherwise comply with all its
obligations set forth in Article 5.21 (commencing with Section
14167.1) and this article provided that the following amendments to
this article or Article 5.21 (commencing with Section 14167.1) made
during the 2010 portion of the 2009-10 Regular Session shall control
for purposes of this section:
   (1) Amendments affecting the timing of the fee to be imposed or
the payments to be made to a hospital or hospital group.
   (2) Amendments affecting the amount of fee to be imposed on a
hospital or hospital group, or the amount or method of payments to be
made to any hospital or hospital group that are contained in
Assembly Bill 1653, if enacted in the 2009-10 Regular Session, or
arise from, or have as a basis, a
             decision, advice, or determination by the federal
Centers for Medicare and Medicaid Services relating to federal
approval of the Quality Assurance Fee or the payments set forth in
this article or Article 5.21 (commencing with Section 14167.1).
   (l) For the purpose of this article, references to the receipt of
notice by the state of federal approval of the implementation of this
article shall refer to the last date that the state receives notice
of all federal approval or waivers required for implementation of
this article and Article 5.21 (commencing with Section 14167.1),
subject to Section 14167.14.
   (m) (1) Effective January 1, 2011, the rates payable to hospitals
and managed health care plans under Medi-Cal shall be the rates then
payable without the supplemental and increased capitation payments
set forth in Article 5.21 (commencing with Section 14167.1).
   (2) The supplemental payments and other payments under Article
5.21 (commencing with Section 14167.1) shall be regarded as quality
assurance payments, the implementation or suspension of which does
not affect a determination of the adequacy of any rates under federal
law.
  SEC. 22.  Section 14167.35 of the Welfare and Institutions Code is
amended to read:
   14167.35.  (a) The Hospital Quality Assurance Revenue Fund is
hereby created in the State Treasury.
   (b) (1) All fees required to be paid to the state pursuant to this
article shall be paid in the form of remittances payable to the
department.
   (2) The department shall directly transmit the fee payments and
any related federal reimbursement to the Treasurer to be deposited in
the Hospital Quality Assurance Revenue Fund. Notwithstanding Section
16305.7 of the Government Code, any interest and dividends earned on
deposits in the fund shall be retained in the fund for purposes
specified in subdivision (c).
   (c) All funds in the Hospital Quality Assurance Revenue Fund,
together with any interest and dividends earned on money in the fund,
shall, upon appropriation by the Legislature, be used exclusively to
enhance federal financial participation for hospital services under
the Medi-Cal program, to provide additional reimbursement to, and to
support quality improvement efforts of, hospitals, and to minimize
uncompensated care provided by hospitals to uninsured patients, in
the following order of priority:
   (1) To pay for the department's staffing and administrative costs
directly attributable to implementing Article 5.21 (commencing with
Section 14167.1) and this article, including any administrative fees
that the director determines shall be paid to mental health plans
pursuant to subdivision (d) of Section 14167.11 and repayment of the
loan made to the department from the Private Hospital Supplemental
Fund pursuant to the act that added this section.
   (2) To pay for the health care coverage for children in the amount
of eighty million dollars ($80,000,000) for each quarter for which
payments are made under Article 5.21 (commencing with Section
14167.1). In any quarter for which payments reflect room under the
upper payment limit that was available from prior or subsequent
quarters, the prior or subsequent quarters shall constitute quarters
for purposes of the payment for health care coverage for children
required by this paragraph.
   (3) To pay funds from the Hospital Quality Assurance Fund pursuant
to Section 14167.5 that would have been used for grant payments and
that are retained by the state, and to make increased payments to
hospitals, including grants, pursuant to Article 5.21 (commencing
with Section 14167.1), both of which shall be of equal priority.
   (4) To make increased capitation payments to managed health care
plans pursuant to Article 5.21 (commencing with Section 14167.1).
   (5) To make increased payments to mental health plans pursuant to
Article 5.21 (commencing with Section 14167.1).
   (d) Any amounts of the quality assurance fee collected in excess
of the funds required to implement subdivision (c), including any
funds recovered under subdivision (d) of Section 14167.14 or
subdivision (e) of Section 14167.36, shall be refunded to general
acute care hospitals, pro rata with the amount of quality assurance
fee paid by the hospital, subject to the limitations of federal law.
If federal rules prohibit the refund described in this subdivision,
the excess funds shall be deposited in the Distressed Hospital Fund
to be used for the purposes described in Section 14166.23, and shall
be supplemental to and not supplant existing funds.
   (e) Any methodology or other provision specified in Article 5.21
(commencing with Section 14167.1) and this article may be modified by
the department, in consultation with the hospital community, to the
extent necessary to meet the requirements of federal law or
regulations to obtain federal approval or to enhance the probability
that federal approval can be obtained, provided the modifications do
not violate the spirit and intent of Article 5.21 (commencing with
Section 14167.1) or this article and are not inconsistent with the
conditions of implementation set forth in Section 14167.36.
   (f) The department, in consultation with the hospital community,
shall make adjustments, as necessary, to the amounts calculated
pursuant to Section 14167.32 in order to ensure compliance with the
federal requirements set forth in Section 433.68 of Title 42 of the
Code of Federal Regulations or elsewhere in federal law.
   (g) The department shall request approval from the federal Centers
for Medicare and Medicaid Services for the implementation of this
article. In making this request, the department shall seek specific
approval from the federal Centers for Medicare and Medicaid Services
to exempt providers identified in this article as exempt from the
fees specified, including the submission, as may be necessary, of a
request for waiver of the broad based requirement, waiver of the
uniform fee requirement, or both, pursuant to paragraphs (1) and (2)
of subdivision (e) of Section 433.68 of Title 42 of the Code of
Federal Regulations.
   (h) (1) For purposes of this section, a modification pursuant to
this section shall be implemented only if the modification, change,
or adjustment does not do either of the following:
   (A) Reduces or increases the supplemental payments or grants made
under Article 5.21 (commencing with Section 14167.1) in the aggregate
for the 2008-09, 2009-10, and 2010-11 federal fiscal years to a
hospital by more than 2 percent of the amount that would be
determined under this article without any change or adjustment.
   (B) Reduces or increases the amount of the fee payable by a
hospital in total under this article for the 2008-09, 2009-10, and
2010-11 federal fiscal years by more than 2 percent of the amount
that would be determined under this article without any change or
adjustment.
   (2) The department shall provide the Joint Legislative Budget
Committee and the fiscal and appropriate policy committees of the
Legislature a status update of the implementation of Article 5.21
(commencing with Section 14167.1) and this article on January 1,
2010, and quarterly thereafter. Information on any adjustments or
modifications to the provisions of this article or Article 5.21
(commencing with Section 14167.1) that may be required for federal
approval shall be provided coincident with the consultation required
under subdivisions (f) and (g).
   (i) Notwithstanding Chapter 3.5 (commencing with Section 11340) of
Part 1 of Division 3 of Title 2 of the Government Code, the
department may implement this article or Article 5.21 (commencing
with Section 14167.1) by means of provider bulletins, all plan
letters, or other similar instruction, without taking regulatory
action. The department shall also provide notification to the Joint
Legislative Budget Committee and to the appropriate policy and fiscal
committees of the Legislature within five working days when the
above-described action is taken in order to inform the Legislature
that the action is being implemented.
  SEC. 23.  Section 14167.352 is added to the Welfare and
Institutions Code, to read:
   14167.352.  (a) Notwithstanding any other provision of this
article or Article 5.21 (commencing with Section 14167.1) requiring
federal approvals, the department may impose and collect the quality
assurance fee and may make payments under this article and Article
5.21 (commencing with Section 14167.1), including increased
capitation payments, based upon receiving a letter from the federal
Centers for Medicare and Medicaid Services or the United States
Department of Health and Human Services that indicates likely federal
approval, but only if and to the extent that the letter is
sufficient as set forth in subdivision (b).
   (b) In order for the letter to be sufficient under this section,
the director shall find that the letter meets all of the following
requirements:
   (1) The letter is in writing and signed by an official of the
federal Centers for Medicare and Medicaid Services or an official of
the United States Department of Health and Human Services.
   (2) The director, after consultation with the hospital community,
has determined, in the exercise of his or her sole discretion, that
the letter provides a sufficient level of assurance to justify
advanced implementation of the fee and payment provisions.
   (c) Nothing in this section shall be construed as modifying the
requirement under Section 14167.14 that payments shall be made only
to the extent a sufficient amount of funds collected as the quality
assurance fee are available to cover the nonfederal share of those
payments.
   (d) (1) Upon notice from the federal government that final federal
approval for the fee model under this article or for any payment
method under Article 5.21 (commencing with Section 14167.1) has been
denied, any fees collected pursuant to this section shall be refunded
and any payments made pursuant to this article or Article 5.21
(commencing with Section 14167.1) shall be recouped, including, but
not limited to, supplemental payments, increased capitation payments,
payments to hospitals by health care plans resulting from the
increased capitation payments, grants, increased payments, and
payments for the health care coverage of children. To the extent fees
were paid by a hospital that also received payments under this
section, the payments may first be recouped from fees that would
otherwise be refunded to the hospital prior to the use of any other
recoupment method allowed under law.
   (e) Any payment made pursuant to this section shall be a
conditional payment until all final federal approvals necessary to
fully implement this article and Article 5.21 (commencing with
Section 14167.1) have been received.
   (f) The director shall have broad authority under this section to
collect the quality assurance fee for an interim period pending
receipt of all necessary federal approvals. This authority shall
include discretion to determine both of the following:
   (1) Whether the quality assurance fee should be collected on a
full or pro rata basis during the interim period.
   (2) The dates on which payments of the quality assurance fee are
due.
   (g) The department may draw against the Hospital Quality Assurance
Revenue Fund for all administrative costs associated with
implementation under this article or Article 5.21 (commencing with
Section 14167.1).
   (h) This section shall be implemented only to the extent federal
financial participation is not jeopardized by implementation prior to
the receipt of all necessary final federal approvals.
  SEC. 24.  Section 14167.353 is added to the Welfare and
Institutions Code, to read:
   14167.353.  (a) Notwithstanding any other provision of law, the
director shall have discretion to modify any timeline or timelines in
this article or Article 5.21 (commencing with Section 14167.1) if
the letter that indicates likely federal approval, as described in
Section 14167.352, is not secured by September 1, 2010, and the
director determines that it is impossible from an operational
perspective to implement a timeline or timelines without the
modification.
   (b) The department shall notify the fiscal and policy committees
of the Legislature prior to implementing a modified timeline or
timelines under subdivision (a).
   (c) The department shall consult with representatives of the
hospital community in developing a modified timeline or timelines
pursuant to this section.
   (d) The discretion to modify timelines under this section shall
include, but not be limited to, discretion to accelerate payments to
plans or hospitals.
  SEC. 25.  Section 14167.354 is added to the Welfare and
Institutions Code, to read:
   14167.354.  (a) (1)  Upon receipt of a letter that indicates
likely federal approval that the director determines is sufficient
for implementation under Section 14167.352, or upon the receipt of
all final federal approvals necessary for the implementation of this
article and Article 5.21 (commencing with Section 14167.1), the
following shall occur:
   (A) To the maximum extent possible, and consistent with the
availability of funds in the Hospital Quality Assurance Revenue Fund,
the department shall make all of the payments under Sections
14167.2, 14167.3, 14167.4, 14167.6, and 14167.11, and subdivision (d)
of Section 14167.5, including, but not limited to, supplemental
payments and increased capitation payments, prior to January 1, 2011.

   (B) The department shall make supplemental payments to hospitals
under Article 5.21 (commencing with Section 14167.1) consistent with
the timeframe described in Section 14167.9 or a modified timeline
developed pursuant to Section 14167.353.
   (2) (A) In determining the amount available for the nonfederal
share of payments in a particular payment cycle, the department shall
deduct no more than the following amounts to account for the
priority payments to the state under paragraph (2) of subdivision (c)
of Section 14167.35:
   (i) Eighty million dollars ($80,000,000) for children's health
coverage for each quarter for which some or all supplemental payments
to hospitals have already been made.
   (ii) Eighty million dollars ($80,000,000) for children's health
coverage for each quarter for which supplemental payments are being
calculated to be paid to hospitals, subject to the availability of
funding, in the current payment cycle.
   (iii) Eighty million dollars ($80,000,000) for children's health
coverage for each quarter for which room under the upper payment
limit for private hospitals for hospital inpatient services was used
or will be used in calculating payments in the current payment cycles
where the quarters were not already accounted for in clause (i) or
(ii).
   (B) Notwithstanding any other provision of law, in determining the
amount available for the nonfederal share of payments in a payment
cycle described in subparagraph (A), the department shall not
consider any payments for children's health care coverage previously
made under paragraph (2) of subdivision (c) of Section 14167.35.
   (3) (A) In determining the amount available in a particular
payment cycle, the department shall deduct no more than the following
amounts whether made directly to the designated public hospitals or
retained by the state:
   (i) Seventy-three million seven hundred fifty thousand dollars
($73,750,000) for each quarter for which some or all supplemental
payments to hospitals have already been made.
   (ii) Seventy-three million seven hundred fifty thousand dollars
($73,750,000) for each quarter for which supplemental payments are
being calculated to be paid to hospitals, subject to the availability
of funding, in the current payment cycle.
   (iii) Seventy-three million seven hundred fifty thousand dollars
($73,750,000) for each quarter for which room under the upper payment
limit for private hospitals for hospital inpatient services was used
or will be used in calculating payments in the current payment
cycles where the quarters were not already accounted for in clause
(i) or (ii).
   (B) Notwithstanding any other provision of law, in determining the
amount available for a payment cycle described in subparagraph (A),
the department shall not consider any payments of direct grants
previously made to the designated public hospitals or transferred to
the state from the Quality Assurance Revenue Fund under Section
14167.5 to account for the direct grants described in Section
14167.5.
   (b) Notwithstanding any other provision of this article or Article
5.21 (commencing with Section 14167.1), if the director determines,
on or after December 15, 2010, that there are insufficient funds
available in the Hospital Quality Assurance Revenue Fund to make all
scheduled payments under Article 5.21 (commencing with Section
14167.1) by the end of the 2010 calendar year, he or she shall
consult with representatives of the hospital community to develop an
acceptable plan for making additional payments to providers in the
first two quarters of 2011 to maximize the use of delinquent fee
payments or other deposits or interest projected to become available
in the fund after December 15, 2010, but before June 30, 2011.
   (c) Nothing in this section shall require the department to
continue to make payments under Article 5.21 (commencing with Section
14167.1) if, after the consultation required under subdivision (b),
the director determines in the exercise of his or her sole discretion
that a workable plan for the continued payments cannot be developed.

   (d) Subdivisions (b) and (c) shall be implemented only if and to
the extent federal financial participation is available for continued
supplemental payments to providers.
   (e) If any payment or payments made pursuant to this section are
found to be inconsistent with federal law, the department shall
recoup the payments by means of withholding or any other available
remedy.
   (f) Nothing in this section shall be read as affecting the
department's ongoing authority to continue, after December 31, 2010,
to collect quality assurance fees imposed on or before December 31,
2010.
  SEC. 26.  Section 14167.355 is added to the Welfare and
Institutions Code, to read:
   14167.355.  Notwithstanding any other provision of law, if the
letter that indicates likely federal approval in accordance with
Section 14167.352 has not been received on or before December 1,
2010, then this article shall become inoperative, and as of December
1, 2010, is repealed, unless a later enacted statute, that is enacted
before December 1, 2010, deletes or extends that date.
  SEC. 27.  Section 14167.36 of the Welfare and Institutions Code is
amended to read:
   14167.36.  (a) This article shall only be implemented so long as
the following conditions are met:
   (1) Subject to Section 14167.35, the quality assurance fee is
established in a manner that is fundamentally consistent with this
article.
   (2) The quality assurance fee, including any interest on the fee
after collection by the department, is deposited in a segregated fund
apart from the General Fund.
   (3) The proceeds of the quality assurance fee, including any
interest and related federal reimbursement, may only be used for the
purposes set forth in this article.
   (b) No hospital shall be required to pay the quality assurance fee
to the department unless and until the state receives and maintains
federal approval of the quality assurance fee and Article 5.21
(commencing with Section 14167.1) from the federal Centers for
Medicare and Medicaid Services.
   (c) Hospitals shall be required to pay the quality assurance fee
to the department as set forth in this article only as long as all of
the following conditions are met:
   (1) The federal Centers for Medicare and Medicaid Services allows
the use of the quality assurance fee as set forth in this article.
   (2) Article 5.21 (commencing with Section 14167.1) is enacted and
remains in effect and hospitals are reimbursed the increased rates
beginning on the implementation date, as defined in Section 14167.1.
   (3) The full amount of the quality assurance fee assessed and
collected pursuant to this article remains available only for the
purposes specified in this article.
   (d) This article shall become inoperative if either of the
following occurs:
   (1) In the event, and on the effective date, of a final judicial
determination made by any court of appellate jurisdiction or a final
determination by the federal Department of Health and Human Services
or the federal Centers for Medicare and Medicaid Services that any
element of this article cannot be implemented.
   (2) In the event both of the following conditions exist:
   (A) The federal Centers for Medicare and Medicaid Services denies
approval for, or does not approve before January 1, 2012, the
implementation of Article 5.21 (commencing with Section 14167.1) or
this article.
   (B) Either or both articles cannot be modified by the department
pursuant to subdivision (e) of Section 14167.35 in order to meet the
requirements of federal law or to obtain federal approval.
   (e) If this article becomes inoperative pursuant to paragraph (1)
of subdivision (d) and the determination applies to any period or
periods of time prior to the effective date of the determination, the
department may recoup all payments made pursuant to Article 5.21
(commencing with Section 14167.1) during that period or those periods
of time.
   (f) This article and Article 5.21 (commencing with Section
14167.1) shall not be implemented with respect to the 2009-10 and
2010-11 federal fiscal years until the earlier of April 30, 2010, or
the date the federal government approves a federal waiver for a
demonstration that will replace the Current Section 1115 Waiver, as
defined in subdivision (c) of Section 14167.1.
   (g) (1) In the event that all necessary final federal approvals
are not received as described and anticipated under this article or
under Article 5.21 (commencing with Section 14167.1), the director
shall have the discretion and authority to develop procedures for
recoupment from managed health care plans, and from hospitals under
contract with managed health care plans, of any amounts received
pursuant to this article or Article 5.21 (commencing with Section
14167.1).
   (2) Any procedure instituted pursuant to this subdivision shall be
developed in consultation with representatives from managed health
care plans and representatives of the hospital community.
   (3) Any procedure instituted pursuant to this subdivision shall be
in addition to all other remedies made available under the law,
pursuant to contracts between the department and the managed health
care plans, or pursuant to contracts between the managed health care
plans and the hospitals.
  SEC. 28.  This act is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety within
the meaning of Article IV of the Constitution and shall go into
immediate effect. The facts constituting the necessity are:
   In order to make the necessary statutory changes to increase
Medi-Cal payments to hospitals and improve access, at the earliest
possible time, it is necessary that this act take effect immediately.