BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 1653
                                                                  Page  1

          Date of Hearing:  April 6, 2010

                            ASSEMBLY COMMITTEE ON HEALTH
                              William W. Monning, Chair
                  AB 1653 (Jones) - As Introduced:  January 14, 2010
           
          SUBJECT  :  Med-Cal: hospitals: quality assurance fee.

           SUMMARY  :  Establishes a quality assurance fee (QAF) on specified  
          private general acute care hospitals, as a condition of  
          participation in state funded health insurance programs other  
          than the Medi-Cal program.  Specifically,  this bill  :  

          1)Requires private general acute care hospitals to pay a QAF  
            from January 1, 2011 until June 30, 2011, as a condition of  
            participation in state-funded health insurance programs, other  
            than the Medi-Cal Program.

          2)Exempts specified public district hospitals, county and  
            University of California hospitals small and rural hospitals,  
            and certain long-term care hospitals.

          3)Provides for an unspecified method of calculating the fee  
            amount.

          4)Requires the fee proceeds plus Federal Matching Assistance  
            Program (FMAP) funds, to be used exclusively for:

             a)   Administrative costs incurred by the Department of  
               Health Care Services (DHCS) for implementation; 

             b)   Health coverage for children up to $80 million per  
               quarter;

             c)   Grants to specified public hospitals and supplemental  
               payments to private acute care hospitals, as specified;

             d)   Increased payments to Medi-Cal managed care (MCMC) plans  
               to be passed through to hospitals;

             e)   Increased payments to Medi-Cal mental health plans to be  
               passed through to hospitals; and,

          5)Requires the director of DHCS to seek federal approvals or  
            waivers as necessary and obtain federal financial  








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            participation.

          6)Requires the fee and all federal funds to be deposited in the  
            Hospital Quality Assurance Revenue (HQAR) Fund and to be  
            continuously appropriated. 

           EXISTING LAW   

          1)Establishes the Medi-Cal Program, administered by DHCS, which  
            provides comprehensive health benefits to low-income children,  
            their parents or caretaker relatives, pregnant women, elderly,  
            blind or disabled persons, nursing home residents, and  
            refugees who meet specified eligibility criteria.

          2)Establishes a schedule of benefits under the Medi-Cal Program,  
            which includes hospital inpatient and outpatient services,  
            subject to utilization controls, and establishes Medi-Cal  
            hospital reimbursement requirements under the current federal  
            hospital waiver.

          3)Imposes a gross premium tax on MCMC plans and a QAF on skilled  
            nursing facilities and intermediate care facilities for the  
            developmentally disabled. 

          4)Under federal law, the American Reinvestment and Recovery Act  
            (ARRA), provides a temporary enhanced FMAP of 61.59%,  
            retroactively from October 1, 2008 through December 31, 2010.

          5)Establishes the Medi-Cal Hospital Provider Rate Stabilization  
            Act and the Quality Assurance Fee Act.

          6)Requires acute care hospitals to pay the fee as a condition of  
            participation in state-funded health insurance programs, other  
            than the Medi-Cal Program.

          7)Requires non-exempt hospitals to pay a fee of:

             a)   For patients covered by non MCMC plan, $27.25 per  
               inpatient day;

             b)   For patients covered by non Medi-Cal fee-for service  
               (FFS), $233.46 per inpatient day; and,

             c)   For patients covered by the Med-Cal Program, $293.00 per  
               inpatient day.








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          8)Authorizes DHCS to change the fee amounts if necessary for  
            federal approval but limits the percentage and dollar amount. 

          9)Makes the fee effective upon federal approval for all or a  
            portion of the 2009, 2010 and 2011 federal fiscal years, and  
            sunsets the fee on January 1, 2011.

          10)Creates the HQAR Fund for deposit of the fee, plus FMAP  
            funds, to be used exclusively as authorized in the following  
            priority:

             a)   Administrative costs incurred by DHCS for implementation  
               of this bill;

             b)   Health coverage for children up to $80 million per  
               quarter;

             c)   Grants to specified public hospitals and supplemental  
               payments to private acute care hospitals, as specified;

             d)   Increased payments to MCMC plans to be passed through to  
               hospitals; and, 

             e)   Increased payments to Medi-Cal mental health plans to be  
               passed through to hospitals.

          11)Directs DHCS to make supplemental payments to hospitals for  
            services provided in the Medi-Cal Program.

          12)Ensures that payments made to hospitals or reimbursement  
            rates set pursuant to other provisions of existing law are not  
            affected or reduced as a result of the supplemental payments  
            established by this bill.

           FISCAL EFFECT  :  This bill has not been analyzed by a fiscal  
          committee.

           COMMENTS  : 

           1)PURPOSE OF THIS BILL  .  According to the author, the purpose of  
            this bill is to be prepared to take advantage of an extension  
            of the enhanced FMAP under ARRA, if it is passed by the  
            Congress and enacted into law by the President.  The author  
            states that the specifics of the extension cannot be  








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            determined until there is federal approval of the pending  
            State Plan Amendment (SPA) implementing the fee enacted in AB  
            1383 (Jones), Chapter 627, Statutes of 2009.  

           2)BACKGROUND  .  AB 1383 requires hospitals that elect to  
            participate in state-funded health insurance programs other  
            than Medi-Cal to pay a hospital QAF.  Certain hospitals are  
            exempt from paying the fee, including all public hospitals,  
            long-term care hospitals, small and rural hospitals, and  
            certain specialty hospitals.  DHCS is authorized to alter the  
            fee amount within limitations if necessary to achieve federal  
            approval.  AB 1383 is estimated to generate $2 billion in  
            annual fee revenue, a portion of which is provided to public  
            hospitals as grants.  In addition, there is $320 million  
            annually for health coverage to children and funds for DHCS to  
            administer the program.  The remainder is matched with federal  
            Medicaid funds at the ARRA enhanced rate and is distributed as  
            supplemental payments to private hospitals based on the degree  
            to which they serve Medi-Cal and uninsured patients.  AB 188  
            (Jones), Chapter 645, Statutes of 2009, appropriates up to $15  
            billion for these payments and provided the administrative  
            funds to DHCS immediately upon enactment in October of 2009.  

           3)PROVIDER FEES  .  Under federal law, health-care related  
            provider fees and taxes may only be imposed on 19 particular  
            classes of health care items or services.  In addition, the  
            assessment must be broad-based on all providers in the class,  
            not just those who serve Medi-Cal.  Members of a class may not  
            be exempted without a waiver.  The assessment must be uniform  
            across the class.  Finally, states may not guarantee that  
            providers are held harmless.  The Centers for Medicare and  
            Medicaid Services (CMS) may waive the broad-based and  
            uniformity requirements and allow exemptions if the state  
            meets a complex statistical test that measure whether high  
            volume Medicaid providers are bearing a disproportionate share  
            of the fee. 

          California is one of 43 states with one or more provider taxes  
            or fees.  As of 2008, more than half of the states impose  
            provider taxes on nursing facilities (33 states) and  
            intermediate care facilities for the developmentally disabled  
            (ICF/DD).  Many states also impose provider taxes on hospitals  
            (21 states) and managed care organizations (15).  California's  
            provider fees include a QAF for free standing skilled nursing  
            facilities, a QAF for ICF/DDs.  California also had a Quality  








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            Improvement Fee for managed care organizations until it  
            expired on October 1, 2009.  It has been replaced by an  
            extension of the 2.35% premium tax imposed on all insurance to  
            include MCMC organizations.
           4)FEDERAL APPROVAL  .  The Governor's 2010-11 budget assumes  
            receipt of the AB 1383 funds before the end of the 2009-10  
            fiscal year.  DHCS filed a SPA on June 31, 2009 to preserve  
            retroactive application and to take maximum advantage of the  
            enhanced FMAP under ARRA.  However it is uncertain how many  
            quarters will be approved by CMS.  As a first step, CMS has  
            agreed to amend the Section 1115 Hospital and Uninsured Waiver  
            terms that prohibited California from imposing a hospital fee.  
             CMS must still approve the terms of the specific fee and  
            payment structure and also the payments to managed care plans.  
             

           5)SUPPORT  .  According to the sponsors, the California Hospital  
            Association, California Children's Hospital Association and  
            Daughters of Charity, hospitals in California are under  
            serious financial pressures as a result of the traditional low  
            Medi-Cal reimbursement rate in California, recent reductions,  
            the increase in the number of uninsured and the economic  
            downturn.  The sponsors, in support, state that this bill  
            would extend the Medi-Cal hospital provider fee to take  
            maximum advantage of an extension for the enhanced federal  
            match for an additional six months, if passed by Congress.   
            The supporters assert that this bill could provide an  
            additional $160 million to the state as well. 

           6)POLICY ISSUE .  This bill is essentially a "spot bill" as it  
            does not specify the methodology for assessing the fee, nor a  
            payment structure.  The author and sponsor have stated intent  
            to extend the precise structure of AB 1383 for six months but  
            have asserted that the details can't be determined until  
            federal approval.  For instance, the total amount of funds  
            that may be paid to hospitals and will be eligible for match  
            cannot be known until CMS approves the AB 1383 fee.  In  
            addition, AB 1383 contains specific time lines for collection  
            of the fee, the effective date of the dependent on the date of  
            federal approval and the dates that payments to hospitals are  
            to be made based on a fee that ends on January 1, 2011.  These  
            dates must all be revised.  The author may wish to describe  
            the plans to fill in the specifics of this bill.  This  
            committee may also request that the author agree to an  
            opportunity for this committee to review this bill when the  








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            details are finalized. 

           REGISTERED SUPPORT / OPPOSITION  :  

           Support 

           California Children's Hospital Association, cosponsor
          California Hospital Association, cosponsor
          Daughters of Charity, cosponsor
          Adventist Health
          Health Access
          San Bernardino County Board of Supervisors

           Opposition 
           
          None on file.


          Analysis Prepared by  :    Marjorie Swartz / HEALTH / (916)  
          319-2097