BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 1653
                                                                  Page  1

          Date of Hearing:   April 21, 2010 

                                Felipe Fuentes, Chair

                 AB 1653 (Jones) - As Introduced:  January 14, 2010 

          Policy Committee:                              Health Vote:16-1

          Urgency:     Yes                  State Mandated Local Program:  
          No     Reimbursable:              No


          This bill lays out a general framework to extend a hospital  
          quality assurance fee (QAF) established by AB 1383 (Jones),  
          Chapter 627, Statutes of 2009. The bill contains blanks for the  
          calculation of the fee charged to hospitals as well as the  
          distribution method of the continuous appropriation. This bill  
          extends the the QAF from January 1, 2011 through June 30, 2011  
          to match a pending extension of enhanced Federal Medical  
          Matching Percentage (FMAP) funding established by the American  
          Recovery and Reinvestment Act (ARRA) in 2009.

           FISCAL EFFECT  

          1)A one-time increase of $1 billion in federal funding for the  
            six-month period, January 1, 2011 through June 30, 2011. This  
            estimate is based on AB 1383, which is expected to generate an  
            annual $2 billion in federal funding, if approved by the  
            federal Centers for Medicare and Medicaid (CMS). 

          2)Unknown costs in the range of $200,000 (50% GF) to the  
            California Department of Health Care Services (DHCS) to  
            administer the QAF until June 30, 2011. 

          3)Major GF pressure is created when the QAF expires. GF pressure  
            is created to continue increased Medi-Cal payments for  
            inpatient and outpatient rates paid to hospitals. The  
            increased rates under AB 1383 range from 50% to 100% of  
            baseline rates.  

          4)The bill contains blanks for calculation of the fee charged to  
            hospitals as well as the distribution method of the continuous  
            appropriation. The author and sponsor indicate the specificity  


                                                                  AB 1653
                                                                  Page  2

            of information is pending until additional direction from CMS  
            about AB 1383 is provided. For example, dates in AB 1383 may  
            need to be modified because of delays in implementation. 

          5)In late March of 2010 several hospitals in Arizona, Nevada,  
            and Oregon filed a lawsuit about AB 1383. The lawsuit  
            challenges the distribution of billions of dollars under AB  
            1383 to California hospitals without regard to these states on  
            California's borders that treat Medi-Cal patients. The case is  
            pending federal review. Regardless of the merits of the  
            plaintiff's suit, this legal action may delay and complicate  
            AB 1383 implementation. 

           1)Rationale  . This bill contains an urgency clause and is  
            co-sponsored by the California Hospital Association (CHA), the  
            California Children's Hospital Association (CCHA) and the  
            Daughters of Charity health system. This bill lays out a  
            general framework for extending AB 1383 to take advantage of  
            the enhanced FMAP that may become available. 

          The author and sposnors indicate this bill will support hospital  
            care with no state cost and without any cost to patients or  
            taxpayers. According to the author, this bill maximizes  
            funding opportunities generally available via federal Medicaid  
            QAF and while funding enhancement (61.59% federal) is  
            available under ARRA.  

          2)Quality Assurance Fees  . Federal law authorizes states to fund  
            a portion of Medicaid through provider fees that meet federal  
            requirements. These fees are matched with federal funding to  
            pay providers without state funds. Dozens of states collect  
            provider fees to drawn down federal funding. For example, 33  
            states collect QAF on nursing homes, 21 states collect QAF  
            from hospitals, and 15 states collect QAF from managed care  

          To be permissible under federal law, QAF must be broad-based,  
            uniform, and cannot hold a group of providers harmless with  
            respect to fees levied. California currently has several QAF  
            established via budget committee action and legislation. These  
            QAF generate revenues for Medi-Cal managed care plans ($252  
            million in 2008-09), nursing homes ($239 million in 2008-09),  
            and intermediate care facilities for the developmentally  


                                                                  AB 1653
                                                                  Page  3

            disabled ($19 million in 2008-09). 

           3)Hospital Finance Landscape  . Medi-Cal payment to hospitals  
            depends on whether a hospital contracts with DHCS through the  
            California Medical Assistance Commission (CMAC), if they  
            qualify as a disproportionate share hospital, and whether they  
            are a designated public hospital, a private hospital, or a  
            district hospital. Fee-for-service Medi-Cal outpatient  
            hospital rates are established in a DHCS fee schedule.  The  
            CMAC negotiates contracts with hospitals on behalf of DHCS for  
            in-patient services under the Medi-Cal program. The CMAC  
            selectively contracts on a competitive basis with hospitals  
            for inpatient services provided to beneficiaries in the  
            fee-for-service Medi-Cal program via the Selective Provider  
            Contracting Program (SPCP). CMAC contracts with about half of  
            California's 400 acute care hospitals. 
           Analysis Prepared by  :    Mary Ader / APPR. / (916) 319-2081