BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 1653
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           CORRECTED  - 06/02/2010 Technical change (Member name)

          AB 1653 (Jones)
          As Introduced January 14, 2010
          2/3 vote.  Urgency 

           HEALTH              16-1        APPROPRIATIONS      12-5        
          |Ayes:|Monning, Fletcher,        |Ayes:|Fuentes, Ammiano,         |
          |     |Ammiano, Carter, Conway,  |     |Bradford,                 |
          |     |Bradford, De Leon, Eng,   |     |Charles Calderon, Coto,   |
          |     |Hayashi, Hernandez,       |     |Davis,                    |
          |     |Jones,                    |     |Monning, Ruskin, Skinner, |
          |     |Bonnie Lowenthal, Nava,   |     |Solorio,                  |
          |     |V. Manuel Perez, Salas,   |     |Torlakson, Torrico        |
          |     |Smyth                     |     |                          |
          |     |                          |     |                          |
          |Nays:|Audra Strickland          |Nays:|Conway, Harkey, Miller,   |
          |     |                          |     |Nielsen, Norby            |
          |     |                          |     |                          |
           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  

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


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

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

             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  

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

           FISCAL EFFECT  :  According to the Assembly Appropriations  

          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% General Fund (GF))  
            to 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 (Jones), Chapter 627, Statutes  
            of 2009, range from 50% to 100% of baseline rates.  

          4)This 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  


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            specificity 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  

          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. 

           COMMENTS  :  According to the author, the purpose of this bill is  
          to be prepared to take advantage of an extension of the enhanced  
          FMAP under the American Reinvestment and Recovery Act (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 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.  

          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.
          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  


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          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.  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. 

          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.  

          The Governor's May revise assumes that enhanced federal funding  
          will be available through a six-month extension of ARRA.  DHCS  
          has proposed Budget Trailer Bill language to extend the hospital  
          fee for six-months to take advantage of this extension with the  
          same distribution of funds.  On May 27, 2010, the Assembly  
          Budget Committee, Sub-Committee 1 adopted the fiscal impact of a  
          six-month extension, but directed the accompanying legislation  
          to proceed through the policy legislation process.

           Analysis Prepared by  :    Marjorie Swartz / HEALTH / (916)  

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