BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 1653
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          AB 1653 (Jones)
          As Amended August 27, 2010
          2/3 vote.  Urgency
          |ASSEMBLY:  |     |(June 1, 2010)  |SENATE: |31-2 |(August        |
          |           |     |                |        |     |27,2010)       |
               (vote not relevant)                          

          Original Committee Reference:   HEALTH

          SUMMARY  .  Revises the Medi-Cal hospital provider fee and  
          supplemental payments enacted by AB 1383 (Jones), Chapter 627,  
          Statutes of 2009.  

           The Senate amendments  delete the Assembly version of this bill,  
          and instead:

          1)Reduce the annualized amount of the Medi-Cal hospital provider  
            fee revenue from $ 2.1 billion to $1.8 billion.  

           2)Revise the per diem fee rate to be paid by hospitals as  

             a)   Reduce the non-Medi-Cal managed care per day fee from  
               $27.25 to $22.50;

             b)   Reduce the Medi-Cal inpatient per day fee from $293.00  
               to $ 232.00; and,

             c)   Reduce the non-Medi-Cal fee-for-service per diem fee  
               from $233.66 to $215.00.

          3)Add a category that applies to a prepaid health plan hospital,  
            as defined, and establish a separate fee applicable to these  
            hospitals as follows:

             a)   A per diem fee on non-Medi-Cal managed care days of  
               $12.60; and,

             b)   A per diem fee on Medi-Cal managed care days of  $129.92


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          4)Revise the supplemental payments to private hospitals as  

             a)   Reduce the amount paid for inpatient days from $647.70  
               to $640.46; and,

             b)   Revise the criteria for eligibility to receive  
               supplemental payments for high acuity and subacute  
               inpatient days.

          5)Revise the methodology for payment to Medi-Cal managed care  
            plans, by deleting the specific calculation methodology and  
            instead require the Department of Health Care Services (DHCS)  
            to determine the increase in capitation payments by  
            considering specified factors not to exceed an amount that is  
            certified by the state's actuary as meeting federal  
            requirements and revise the methodology by which the plans are  
            to calculate the amount of the increased capitation for  
            hospital services.

          6)Reduce the aggregate amount of annualized increased managed  
            care capitation payments from $1.5 million to $730 million.  

          7)Delete the methodology for calculating increased capitation  
            payments to mental health managed care plans and instead  
            require DHCS to make increased payments based on specified  

          8)Delete the authority to allow the mental plans to receive an  
            administrative fee, delete the requirement that DHCS provide  
            the mental health plan with individual hospital payment  
            amounts and revise the timeframe for payments from the plan to  

          9)Revise the definition of a converted and nondesignated public  
            hospital (district hospital) and require DHCS to seek approval  
            to make payments to a hospital that has undergone a change in  
            ownership status, and is also a district hospital, during the  
            period that the hospital provider fee is in effect.  Require  
            DHCS seek federal approval for the overall implementation  
            before requesting a change for converted hospitals.

          10)Establish a mechanism for the designated public hospitals  
            (county and University of California (UC)) to use certified  
            public expenditures (CPEs) to match excess federal funds  


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            available under the current Section 1115 Medical  
            Hospital/Uninsured Care Demonstration Waiver. 

          11)Reduce the amount of the grants to designated public  
            hospitals from $310 million to $295 million on an annual basis  
            and provide an alternative mechanism to allow up to $420  
            million total to be retained by the state if an equal amount  
            can be obtained by the designated public hospitals as federal  
            matching funds, using CPEs, under the waiver.

          12)Revise the implementation dates and effective dates of the  
            hospital provider fee and payments and authorize additional  
            flexibility at the discretion of DHCS to allow for additional  
            federal requirements or directions from the federal Centers  
            for Medicare and Medicaid Services (CMS).

          13)Revise the timetable for DHCS to collect the fees and the  
            schedule for making supplemental payments to private and  
            nondesignated public hospitals, grants to public hospitals,  
            increased capitation payments to Medi-Cal managed care plans  
            and other payments and deductions and authorize additional  
            modifications as necessary.  

          14)Delete the requirement that a hospital is 60 days past due in  
            its payment of assessed fees prior to DHCS withholding funds  
            and replace with a one-day past due requirement. 

          15)Modify the provisions that create a contractually enforceable  
            promise to create an exception for revisions made by this  

          16)Delete the authority of DHCS to make specified modifications  
            in the fee. 

          17)Allow for implementation based on receipt of a letter from  
            CMS indicating likely federal approval as specified and  
            authorizes the Director of DHCS to have broad collection  
            authority pending final approval.

          18)Allow pro rata fee collection, quarterly deductions, and  
            payments based on accumulated amounts as specified. 

          19)Provide for refund and recoupment of all funds if federal  
            approval is denied.


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          20)Provide that if federal approval, as specified, is not  
            obtained by December 1, 2010 the statutes creating the  
            hospital provider fee and supplemental payments become  

          21)Make other technical and clarifying changes.

          AS PASSED BY THE ASSEMBLY  , this bill established a new Medi-Cal  
          hospital provider fee as specified on private general acute care  
          hospitals, as a condition of participation in state funded  
          health insurance programs other than the Medi-Cal Program,  
          effective January 1, 2011 until June 30, 2011.  

           FISCAL EFFECT  :  According to the Senate Appropriations  

                            Fiscal Impact (in thousands)

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

          Supplemental payments             $2,000,000   $0         
          to hospitals prior to             $3,215,000   $0         
          December 31, 2010

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

          Children's coverage prior         $560,000     $0         
          to December 31, 2010              $560,000 - $1,040,000   

          QAF revenue January 1, 2011       (likely $500 million - $1  
          billion)                          Special*
          to June 30, 2011
          Supplemental payments    likely $500 million - $1.5  
          to hospitals January 1, 2011                             Federal


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          through June 30, 2011 - includes
          managed care, DPH payments,
          children's coverage                                      

          DHCS QAF start-up and    likely hundreds of thousands of  
          administration 1/1/11 to commencing upon the passage of this  
          bill                     Federal

          *Hospital Quality Assurance Revenue Fund (Hospital QA Revenue  
          **Approximately 50% federal funds, 50% Hospital QA Revenue Fund;  
          significant General Fund cost pressure upon the expiration of  
          the QAF
          ***35-50% Hospital QA Revenue Fund, 50 - 65% federal funds
          ****50% General Fund, 505 federal funds

          This fiscal does not reflect the amendments that authorize the  
          state to retain up to $420 million from the grants to public  
          hospitals and establish a mechanism to allow public hospitals to  
          use certified CPEs to match an equivalent amount of federal  
          funds under the current waiver. 

           COMMENTS  :  According to the author, this bill is intended to  
          make the necessary revisions in the hospital provider fee that  
          was enacted by AB 1383 in order to obtain the approval of CMS.   
          Implementation of AB 1383 was dependent on this approval through  
          a State Plan Amendment (SPA).  The SPA was first submitted in  
          June 2009.  Since the passage of AB 1383 there have been  
          significant discussions between the administration and CMS.   
          These culminated in CMS sending DHCS a letter on June 16, 2010  
          stating that CMS did not believe the fee and payments proposed  
          in AB 1383 met federal requirements.  CMS made extensive  
          comments, has requested additional information and suggested  
          modifications to address the specific concerns raised, as well  
          as suggestions as to how to develop a fee that meets federal  
          law.  This bill reflects the CMS requested modifications  
          necessary to obtain federal approval.  The delay in obtaining  
          federal approval has also necessitated a revision of the  
          collection and payment timeframes. 

          This bill also adds authorization for the use of CPEs to draw  
          down federal funding.  The current hospital/uninsured care  
          waiver included the receipt of $360 million in federal funds,  


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          over two years, conditioned on the expansion of Medi-Cal Managed  
          Care through "mandatory" enrollment of seniors and persons with  
          disabilities.  This expansion was not implemented and the $360  
          million was not provided to California.  The July 2009 budget  
          assumed that California would obtain these federal funds pending  
          discussions with CMS.  

          DHCS has reached a tentative agreement to obtain the $360  
          million in federal funding plus an additional $423.8 million in  
          federal funding to reflect the enhanced Federal Medical  
          Assistance Percentage available for Medi-Cal under the American  
          Recovery and Reinvestment Act.  The draw down of this additional  
          federal funding requires nonfederal matching funds.  

          Due to the structure of the current waiver, including the fixed  
          amount of the Safety Net Care Pool (SNCP) funding, not all of  
          the available CPE's are being used to match federal funds.   
          Therefore, these excess CPEs can be used to draw down this  
          additional federal funding.  

          This bill allows the state to retain up to $420 million of the  
          federal funding that was previously designated as grants to  
          public and UC hospitals from the hospital provider fee revenues.  
           This bill establishes an alternate mechanism for the hospitals  
          to claim an equal amount of federal funds from the SNCP, in  
          effect allowing a swap of funds between the state and the  
          designated public hospitals.  It also includes protections to  
          ensure that the swap does not jeopardize other funding for these  

          This bill was substantially amended in the Senate and the  
          Assembly-approved version of this bill was deleted.  This bill,  
          as amended in the Senate, is inconsistent with Assembly actions  
          and the provisions of this bill, as amended in the Senate, have  
          not been heard in an Assembly policy committee.

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