BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1653 (Jones)
Hearing Date: 8/12/2010 Amended: 8/2/2010
Consultant: Katie Johnson Policy Vote: Health 6-2
_________________________________________________________________
____
BILL SUMMARY: AB 1653, an urgency measure, would amend the
methodology for the calculation, collection, and distribution of
the existing provider fee on general acute care hospitals for
the 21 months spanning April 1, 2009, to December 31, 2010, and
would also establish a similar fee, effective January 1, 2011,
through June 30, 2011.
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____
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Fee revenue prior to ($3,081,000) $0 $0 Special*
December 31, 2010
Supplemental payments $2,000,000 $0 $0
Special/**
to hospitals prior to $3,215,000 $0 $0 Federal
December 31, 2010
Grant to DPHs prior $516,000 $0 $0
Special*
to December 31, 2010
Children's coverage prior $560,000 $0 $0
Special***
to December 31, 2010 $560,000 - $1,040,000 $0 $0Federal
QAF revenue January 1, (likely $500 million - $1 billion)
Special*
2011, to June 30, 2011
Supplemental payments likely $500 million - $1.5 billion
Special/**
to hospitals January 1, 2011, Federal
through June 30, 2011-includes
managed care, DPH payments, children's coverage
DHCS QAF start-up and admin- likely hundreds of thousands of
dollars General/****
istration January 1, 2011 to commencing upon the passage of
this bill Federal
June 30, 2011
*Hospital Quality Assurance Revenue Fund (Hospital QA Revenue
Fund)
**Approximately 50 percent federal funds, 50 percent Hospital QA
Revenue Fund; significant General Fund cost pressure upon the
expiration of the QAF
***35-50 percent Hospital QA Revenue Fund, 50-65 percent federal
funds
****50 percent General Fund, 50 percent federal funds
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STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
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AB 1653 (Jones)
This bill would: 1) amend the provisions of existing law set in
statute by AB 1383 (Jones), Chapter 627, and its companion
measure AB 188 (Jones), Chapter 645, Statutes of 2009 (further
referred to as AB 1383), to conform to a pending agreement
between the Department of Health Care Services (DHCS) and the
federal Centers for Medicare and Medicaid Services (CMS), the
federal entity that approves provider fees, in order to allow
DHCS to collect the AB 1383 fee and to make the subsequent
supplemental payments to hospitals, as specified, and, 2)
establish a similar quality assurance fee (QAF) on specified
general acute care hospitals for the period January 1, 2011, to
June 30, 2011.
Background
Existing federal law permits the use of health-care related
taxes levied on providers of health care. However, they must
conform to specified standards, as follows, and be approved by
CMS: 1) be broad-based; 2) not exceed 25 percent of the state
share of Medicaid expenditures; 3) payers of the tax cannot be
explicitly held harmless.
Many states, including California, utilize health-care related
taxes, such as QAFs to fund a portion of the state share of
health care costs. These revenues are available to draw down
matching federal funds and enable states to increase provider
reimbursement rates. California currently imposes three provider
fees for Medi-Cal, specifically, a quality improvement fee on
Medi-Cal managed care plans, a quality assurance fee on skilled
nursing facilities (SNFs), and a quality assurance fee on
intermediate care facilities for the developmentally disabled
(ICF-DD).
In February of 2009, President Obama signed the American
Reinvestment and Recovery Act (ARRA) into law. As a result, the
federal medical assistance percentage (FMAP) increased from 50
percent to 61.59 percent. Retroactively from October 1, 2008,
through December 31, 2010, the federal government would pay for
61.59 percent and the state General Fund would pay for 38.41
percent of benefit-related Medi-Cal expenditures.
Amendments to Existing AB 1383 and Estimated Revenue Adjustments
AB 1383 was enacted with the intent to maximize the state's
opportunities to utilize the enhanced ARRA FMAP. It expires
December 31, 2010, and DHCS is in final negotiations with CMS.
This bill would make the agreed upon changes to existing
statute. In AB 1383, hospitals were required to pay a provider
fee to DHCS, which would deposit the revenues into the Hospital
Quality Assurance Revenue Fund, as follows:
1) $233.66 per fee-for-service day;
2) $27.25 per managed care day;
3) $293 per Medi-Cal day.
Total QAF revenue over a period of 21 months, April 1, 2009, to
December 31, 2010, was expected to be approximately $3.6 billion
in total and federal matching funds were estimated to bring the
total aggregate amount of supplemental payments to
non-designated public hospitals to $6.5 billion.
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AB 1653 (Jones)
This bill would change those amounts to be as follows:
1) $232.00 per Medi-Cal day;
2) $22.50 per managed care day;
3) $215.30 per fee-for-service day.
Over the same 21 month period, revenue estimates based on the
updated methodology in this bill are now $3.08 billion in total.
The decrease is expected revenue is mainly due to a decrease in
Medi-Cal managed care payments from $1.4 billion to $730 million
annualized.
Additionally, under AB 1383, designated public hospitals (DPHs)
were expected to receive $310 million per year; this bill would
decrease that amount to $295 million annualized, or a total of
$516 million over the 21 months. The $320 million annual QAF
revenue set aside for children's coverage would remain unchanged
and would total $560 million over 21 months and would be
eligible to draw down a federal match of $560 million - $1.04
billion depending on whether the funds would be matched at the
50 percent FMAP rate for Medi-Cal or at the 65 percent FMAP rate
for Healthy Families.
After subtracting out $516 million for DHPs and $560 million for
children's coverage, as discussed above, it is expected that $2
billion in QAF revenue would be eligible to be matched with
federal funds. The total federal funds would be $3.2 billion,
for a total of $5.2 billion in payments to hospitals other than
DPHs, as specified by the methodology updated by this bill.
Other amendments to AB 1383's existing payment methodology
include changes to the amount of supplemental payments to which
hospitals providing subacute services and hospitals that are
small and/or rural are entitled, and increased capitation
payments to managed care plans, as specified. QAF revenues would
represent 38.41 percent and the federal funds would be 61.59
percent of the $5.2 billion in payments.
The timing of the QAF payment and collection and the subsequent
matching with federal funds and supplemental payments to
hospitals will ultimately determine if these revenue and payment
projections are achieved. DHCS would need to disburse all of the
supplemental payments by December 31, 2010, in order to maximize
federal financial participation. While this bill contains a
timeline, the department has yet to confirm that it could meet
that timeline or to suggest an alternative.
Establishment of QAF for January 1, 2011 - June 30, 2011
This bill would establish a QAF on specified private general
acute care hospitals, as specified, as under AB 1383. The
revenues would be used to make supplemental payments for the
same purposes as provided for in AB 1383. The QAF would be
computed commencing January 1, 2011, and would continue through
June 30, 2011, via a method of calculation that is signified by
a blank space in this bill. This bill's timeframe is meant to
coincide with a possible extension of the enhanced FMAP. On
August 5, the Senate passed H.R. 1586 by a vote of 61-39, which
would extend the ARRA enhanced Medicaid match for six additional
months-January 1, 2011, through June 30, 2011.
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AB 1653 (Jones)
However, rates would be lower than for the existing enhanced
FMAP of 6.2 percent. The enhanced FMAP extension would be 3.2
percent for January 1, 2011, through March 31, 2011, and would
then decrease to 1.2 percent for April 1, 2011, through June 30,
2011. The House is expected to vote on H.R. 1586 on August 10.
Since the enhanced FMAP extension would be at a different level
than the one established by ARRA in 2009, the hospital QAF and
payment methodologies provided for in this bill to implement AB
1383 would need to be altered and approved by CMS for the
proposed January 1, 2011, through June 30, 2011, QAF to be
implemented. Although this bill would require DHCS to seek any
federal approvals necessary to implement these provisions and to
obtain matching federal financial participation to the maximum
extent possible, staff recommends that this bill be amended to
specify that its implementation be contingent upon federal
financial participation.
Since the method of calculation and the details of disbursement
are represented by blank spaces in this bill, the amount of
revenue expected to be collected and matched by federal funds
and the amount in payments DHCS would subsequently make to
hospitals are unknown. However, revenue estimates for AB 1383
are expected to be roughly $1.76 billion annually. Therefore, it
is likely that the revenue generated and the subsequent
supplemental payments made pursuant to this bill would be $500
million - $1.5 billion in the latter half of FY 2010-2011.
This bill would specify that the monies collected would be
"continuously appropriated, without regard to fiscal year, as
follows: ___." Staff recommends this bill be amended to instead
make the expenditure of the funds contingent upon appropriation
of the Legislature in order to make expenditures consistent with
those in the Hospital Quality Assurance Revenue Fund, which may
only be appropriated by the Legislature, and to maintain
Legislative oversight.
Staff additionally recommends that the bill be amended to
specify that QAF revenue and federal matching funds be
sufficient to cover the cost of the supplemental payments and
the department's administration of the QAF when specified by
this bill. AB 188 appropriated a $1 million loan from the
Private Hospital Supplemental Fund and $1 million in matching
funds from the Federal Trust Fund for administrative costs
related to the implementation of AB 1383. At its March 25
hearing, the Senate Budget Committee approved the proposed $2
million expenditure to fund 14 staff for two years to implement
AB 1383. A final budget has yet to be signed by the Governor. It
is possible that DHCS AB 1383 staff could absorb the
administrative workload related to this bill.
Staff notes that there would be considerable General Fund cost
pressure to continue to pay supplemental payments to hospitals
beyond June 30, 2011. In light of California's budget problems
and its already low Medi-Cal provider rates, it is unlikely that
the state would be able to fund provider supplemental payments
in the absence of a new funding source, such as subsequent QAF.
The author's proposed amendments would restore language relating
to district hospitals that was adopted in the Senate Health
Committee and subsequently removed.