BILL ANALYSIS                                                                                                                                                                                                    

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

        |COMMITTEE VOTE:  |16-0 |(August 30, 2010)   |RECOMMENDATION: |concur    |
        |                 |     |                    |                |          |

        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  

        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 follows:

           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;  


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

        4)Revise the supplemental payments to private hospitals as follows:

           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 factors.  

        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 hospitals.

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


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        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 bill.

        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.

        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 inoperative.


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        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 Committee: 

                            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         
        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         
        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
        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  


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        *Hospital Quality Assurance Revenue Fund (Hospital QA Revenue Fund)
        **Approximately 50% federal funds, 50% Hospital QA Revenue Fund;  
        significant General Fund cost pressure upon the expiration of the  
        ***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, 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  


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        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  

        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 hospitals.  

        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
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