BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



           ------------------------------------------------------------ 
          |SENATE RULES COMMITTEE            |                  AB 1653|
          |Office of Senate Floor Analyses   |                         |
          |1020 N Street, Suite 524          |                         |
          |(916) 651-1520         Fax: (916) |                         |
          |327-4478                          |                         |
           ------------------------------------------------------------ 
           
                                         
                                 THIRD READING


          Bill No:  AB 1653
          Author:   Jones (D), et al
          Amended:  8/27/10 in Senate
          Vote:     27 - Urgency

           
           SENATE HEALTH COMMITTEE :  6-2, 6/30/10
          AYES: Alquist, Cedillo, Leno, Negrete McLeod, Pavley,  
            Romero
          NOES: Strickland, Aanestad
          NO VOTE RECORDED: Cox

           SENATE APPROPRIATIONS COMMITTEE  :  10-1, 8/12/10
          AYES: Kehoe, Ashburn, Alquist, Corbett, Emmerson, Leno,  
            Price, Wolk, Wyland, Yee
          NOES: Walters

           ASSEMBLY FLOOR  :  63-14, 6/1/10 - See last page for vote


           SUBJECT  :    Medi-Cal:  hospitals:  managed health care  
          plans:  mental
                        health plans

           SOURCE  :     California Childrens Hospital Association
                      California Hospital Association
                      Daughters of Charity Health System


           DIGEST  :    This bill amends 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.  
                                                           CONTINUED





                                                               AB 1653
                                                                Page  
          2


           Senate Floor Amendments  of 8/27/10:  (1) grant the  
          Department of Health Care Services (DHCS) the authority to  
          use provider bulletins instead of the regulatory process  
          when attempting to maximize federal funding with state and  
          local match, (2) provide DHCS with flexibility to make the  
          inpatient supplemental payments for mental health directly  
          to private hospitals, instead of routing the payments  
          through county mental health plans.  The county mental  
          health plans will still make the payments to designated  
          public hospitals, and (3) allow DHCS to implement the  
          provisions of the bill when they receive a letter from  
          federal Centers for Medicare and Medicaid Services (CMS)  
          that indicated "likely approval" by CMS, replacing the  
          current language that allows implementation on  
          "conditional" approval from CMS.  

           ANALYSIS  :    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.

          This bill makes various changes to the formulas used to  
          determine the amount of supplemental payments made to  
          private and designated public hospitals.  This bill expands  
          the definition of a nondesignated public hospital. 

          Existing law proscribes 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 requires 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.








                                                               AB 1653
                                                                Page  
          3

          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, instead, refers to the payments made by the  
          department to the managed health care plans and mental  
          health plans as increased capitation payments.  The bill  
          requires the department to determine the amount of  
          increased capitation payments for each Medi-Cal managed  
          care plan and to consider certain factors in making that  
          determination.

          The bill prohibits the amount of increased capitation  
          payments to each Medi-Cal managed care health 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 the increased capitation  
          payments it receives from the department on hospital  
          services.

          This bill:

          1. Allows implementation of the quality assurance fee upon  
             DHCS receiving likely federal approval.  Establish  
             requirements for what will constitute likely approval,  
             including receiving such approval in a written form from  
             an official of CMS or its parent agency, the Department  
             of Health and Human Services that the likely federal  
             approval provide sufficient justification for  
             implementing the quality assurance fee.  Requires DHCS  
             to consult with the hospital community.

          2. Requires DHCS to seek approval from the federal  
             government to make payments to hospitals that meet the  
             definition of a converted hospital, meaning they have  
             undergone a change in ownership status during the period  
             that the quality assurance fee is in effect, and also  
             are a nondesignated public hospital.  Require that DHCS  







                                                               AB 1653
                                                                Page  
          4

             await federal approval for the overall implementation  
             before requesting a change for converted hospitals.

          3. Provides a timetable for DHCS to accumulate funds for  
             making lump sum increased payments to managed care  
             plans.  Provide a timetable for accumulating funds for  
             payments to the state for children's health coverage and  
             for funds that are either used for grants to designated  
             public hospitals or retained by the state.

          4. Grants DHCS authority to modify timelines if federal  
             approval or conditional federal approval is not obtained  
             by September 1, 2010 and such modification is necessary  
             to implement the program.

          5. Provides that if likely federal approval is not obtained  
             on or before December 1, 2010, then the statutes  
             creating the quality assurance fee are inoperative.

          6. Allows payments to hospitals and managed care plans to  
             be recouped by the state if the final approval is not  
             obtained from the federal government.  Establishes that  
             fees paid by hospitals will be refunded if federal  
             approval is not obtained.

          7. Clarifies the definition of a nondesignated public  
             hospital (district hospitals).

          8. Clarifies the contractual obligation created by the  
             original legislation whereby the state agreed to use fee  
             proceeds only for the specific purposes stated in the  
             legislation, can be altered by subsequent amendments to  
             the original legislation.

          9. Allows the state to retain $420 million from quality  
             assurance fee revenues that were originally to be  
             allocated for grants to designated public hospitals.  

          10.Provides an alternative mechanism for designated public  
             hospitals to claim an equal amount of federal funds from  
             the safety net care pool, in effect allowing a swap of  
             funds between the state and the designated public  
             hospitals.  Provide protections to ensure that the swap  
             does not jeopardize funding for designated public  







                                                               AB 1653
                                                                Page  
          5

             hospitals.

          11.Grants DHCS the authority to use provider bulletins  
             instead of the regulatory process when attempting to  
             maximize federal funding with state and local match.

          12.Provides DHCS with flexibility to make the inpatient  
             supplemental payments for mental health directly to  
             private hospitals, instead of routing the payments  
             through county mental health plans.  The county mental  
             health plans will still make the payments to designated  
             public hospitals.  Makes other changes related to  
             payments to mental health plans.

          13.Allows DHCS to implement the provisions of the bill when  
             they receive a letter from federal Centers for Medicare  
             and Medicaid Services (CMS) that indicated "likely  
             approval" by CMS, replacing the current language that  
             allows implementation on "conditional" approval from  
             CMS.  

          The bill provides 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 deletes 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.








                                                               AB 1653
                                                                Page  
          6

          This bill deletes the above-described authorization.

          Existing law, effective January 1, 2011, and subject to the  
          authority of a subsequent statute enacted to take effect on  
          or after January 1, 2011, that meets certain conditions,  
          imposes a quality assurance fee in a manner necessary to  
          obtain federal Medicaid matching funds that shall be due  
          and payable to the department by each general acute care  
          hospital at specified rates for the purpose of making  
          Medi-Cal payments to hospitals.

          This bill, effective January 1, 2011, imposes on each  
          general acute care hospital that is not an exempt facility,  
          as defined, a quality assurance fee, as a condition of  
          participation in state-funded health insurance programs,  
          other than the Medi-Cal program. This bill would require  
          the quality assurance fee to be computed starting on the  
          effective date of the bill and continue through and  
          including December 31, 2010.  The bill would require the  
          proceeds from the fee to be used for the same purposes as  
          the above-described quality assurance fee that is imposed  
          on hospitals through and including December 31, 2010. The  
          bill would provide that the method of calculation and  
          collection of the quality assurance fee is to be determined  
          in an unspecified manner.

          This bill requires the director to seek federal approvals  
          or waivers as may be necessary to implement the  
          above-described provisions and to obtain federal financial  
          participation to the maximum extent possible with the  
          proceeds from the quality assurance fee paid pursuant to  
          those provisions.

          This bill requires the fee payments and any related federal  
          reimbursement under the above-described provisions that  
          become effective January 1, 2011, to be deposited in the  
          Hospital Quality Assurance Revenue Fund. The bill would  
          continuously appropriate these moneys in an unspecified  
          manner.

           FISCAL EFFECT  :    Appropriation:  Yes   Fiscal Com.:  Yes    
          Local:  No

          According to the Senate Appropriations Committee: 







                                                               AB 1653
                                                                Page  
          7


                          Fiscal Impact (in thousands)

           Major Provisions                2010-11     2011-12     
           2012-13   Fund 
          Fee revenue prior to               ($3,081,000)   $0    
          $0Special*
          December 31, 2010 

          Supplemental payments         $2,000,000     $0    
          $0Special/**
          to hospitals prior to                   $3,215,000      
          $0$0Federal
          December 31, 2010

          Grant to DPHs prior                $516,000  $0    
          $0Special*
          to December 31, 2010     

          Children's coverage prior     $560,000  $0         
          $0Special***
          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                                   
          likely hundreds of thousands of dollars                 
          General/****
          administration 1/1/11 tocommencing upon the passage of this  
          bill  Federal
          6/30/11








                                                               AB 1653
                                                                Page  
          8

          *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

           SUPPORT  :   (Verified  8/26/10)

          California Children's Hospital Association (co-source) 
          California Hospital Association (co-source) 
          Daughters of Charity Health System (co-source) 
          Adventist Health 
          Alliance of Catholic Health Care
          American Federation of State, County and Municipal  
          Employees 
          County of Los Angeles Board of Supervisors
          County of San Bernardino Board of Supervisors
          Health Access
          Loma Linda University
          Private Essential Access Community Hospitals, Inc. (PEACH)
          Service Employees International Union

           ARGUMENTS IN SUPPORT  :    According to 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.  Supporters  
          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 note that this bill  
          could provide an additional $160 million to the state as  
          well. 


           ASSEMBLY FLOOR  :  
          AYES: Adams, Ammiano, Arambula, Bass, Beall, Bill  
            Berryhill, Block, Blumenfield, Bradford, Brownley,  
            Buchanan, Caballero, Charles Calderon, Carter, Chesbro,  







                                                               AB 1653
                                                                Page  
          9

            Conway, Cook, Coto, Davis, De La Torre, De Leon,  
            Emmerson, Eng, Evans, Feuer, Fletcher, Fong, Fuentes,  
            Fuller, Furutani, Galgiani, Gilmore, Hall, Hayashi,  
            Hernandez, Hill, Huber, Huffman, Jones, Lieu, Bonnie  
            Lowenthal, Ma, Mendoza, Monning, Nava, Nestande, Niello,  
            Nielsen, V. Manuel Perez, Portantino, Ruskin, Salas,  
            Saldana, Skinner, Smyth, Solorio, Swanson, Torlakson,  
            Torres, Torrico, Villines, Yamada, John A. Perez
          NOES: Anderson, Blakeslee, DeVore, Gaines, Garrick, Hagman,  
            Harkey, Jeffries, Knight, Logue, Miller, Norby, Silva,  
            Tran
          NO VOTE RECORDED: Tom Berryhill, Audra Strickland, Vacancy


          CTW:nl  8/27/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

                                ****  END  ****