BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           2599 (Bass)
          
          Hearing Date:  8/12/2010        Amended: 6/1/2010 and as  
          proposed
          Consultant: Katie Johnson       Policy Vote: Health 5-1
          _________________________________________________________________ 
          ____
          BILL SUMMARY:  AB 2599, an urgency measure, would require the  
          Department of Health Care Services (DHCS) and the California  
          Medical Assistance commission (CMAC) to ensure Medi-Cal funding,  
          as specified, for a new, private, nonprofit hospital that would  
          serve the population formerly served by the Los Angeles County  
          Martin Luther King, Jr.-Harbor Hospital (MLK-Harbor). Proposed  
          author's amendments would specify that the new hospital that  
          would receive funds from this bill would be a hospital  
          established pursuant to an agreement between the County of Los  
          Angeles (LA County) and the University of California (UC).
          _________________________________________________________________ 
          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2010-11      2011-12       2012-13     Fund
                                                                  
          CMAC SPCP contract/      at least in the tens of  
          millionsGeneral/*
          SB 1732 capital debt payments/  of dollars commencing  
          likelyFederal
          outpatient services             late 2012 or early 2013

          South LA Medical Services  $50,000 - $75,000 $100,000   
          $100,000Federal**
          Preservation Fund

          *Costs shared 50 percent General Fund, 50 percent federal funds
          **Federal funds matched by an equal amount of county funds  
          (CPEs)
          _________________________________________________________________ 
          ____

          STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED.

          Pending author's amendments that were agreed to in the Senate  
          Health Committee and will be adopted in the Senate  










          Appropriations Committee would require that the new hospital  
          referred to in this bill would be required to be a private,  
          nonprofit hospital established pursuant to an agreement between  
          LA County and the UC, and would make specified technical  
          changes. This analysis includes the proposed amendments.
          
          This bill would state that it is the Legislature's intent to  
          facilitate the success of the new hospital in providing critical  
          health care to the South Los Angeles population, which is  
          dependent upon adequate and predictable funding levels, and was  
          formerly served by MLK-Harbor. 

          MLK-Harbor, one of the state's 22 designated public hospitals  
          under the 1115 Medi-Cal Hospital Financing Waiver, closed in  
          August 2007. Existing law established the South Los Angeles  
          Medical Services Preservation Fund into which a maximum amount  
          of $100 million of Safety Net Care Pool funds, provided for by  
          the existing 1115 Waiver, could be deposited for the project  
          years 2007-2008, 2008-2009, and 2009-2010 to pay 
          Page 2
          AB 2599 (Bass)

          for services provided by LA County facilities continuing to  
          operate on the MLK-Harbor site, other LA County designated  
          public hospitals, and other providers that contract with LA  
          County. Existing law also requires LA County to make IGTs to  
          DHCS to provide the nonfederal share of increased Medi-Cal  
          payments to those private hospitals that serve the population  
          formerly served by MLK-Harbor.

          This bill would require CMAC to take all necessary steps to  
          ensure the availability of Medi-Cal funding for the new  
          hospital, or to implement mechanisms to provide equivalent  
          funding under successor or modified Medi-Cal payment systems, as  
          follows:

             1)   Ensure that the rates for Medi-Cal inpatient hospital  
               services negotiated under the Selective Provider  
               Contracting Program (SPCP) would reimburse the new hospital  
               at at least 60 percent of cost; these payments would be  
               shared 50 percent General Fund and 50 percent federal  
               funds. To implement this provision, the new hospital would  
               need to choose to become a contracting hospital under the  
               SPCP. Currently, hospitals that contract with CMAC  
               negotiate their per diem inpatient reimbursement rates  
               based on the hospital's available services. Placing a  










               reimbursement rate requirement in statute would limit  
               CMAC's ability to negotiate with the hospital. It is  
               unclear if some of the Medi-Cal payments going to other Los  
               Angeles hospitals would transfer to this new hospital, thus  
               decreasing the overall net payments associated with opening  
               this new hospital.
             2)   Ensure that Medi-Cal debt service incurred by LA County,  
               and, if applicable, by the new hospital, with respect to  
               capital projects located at the site of the new hospital  
               that were previously determined eligible under the SB 1732  
               program, would be made to the new hospital. Costs would be  
               shared 50 percent General Fund and 50 percent federal  
               funds;
             3)   Ensure that Medi-Cal outpatient services, including  
               emergency room services, would be reimbursed at cost. These  
               services would be reimbursed 50 percent General Funds and  
               50 percent federal funds; 
             4)   Ensure that the funding provided to LA County through  
               the South Los Angeles Medical Services Preservation  
               (SLAMSP) Fund would continue to be made available to the  
               county. Currently, LA County may access up to $100 million  
               in federal funds if it matches that amount with a similar  
               amount of county certified public expenditures (CPEs).  
               These funds are used to compensate LA hospitals that  
               currently serve the population formerly served by  
               MLK-Harbor hospital and was the approximate amount that  
               MLK-Harbor would have received under the 1115 Medi-Cal  
               Hospital Financing Waiver as a designated public hospital.  
               It is unclear to which hospitals these funds would be  
               distributed under the provisions of this bill. This new  
               hospital would not be a designated public hospital and  
               would receive Medi-Cal reimbursement either through a SPCP  
               contract or a cost-based interim rate if it were a  
               non-contracting hospital that would be 50 percent General  
               Fund and 50 percent federal funds.

          On November 19, 2009, LA County and the University of California  
          (UC) announced that they would partner to reopen MLK-Harbor as a  
          nonprofit organization. The hospital would no longer be run by  
          the county, but it would contribute $50 million in start-up  
          funds, $353.8 million in capital project commitment, and $63  
          million annually in 
          Page 3
          AB 2599 (Bass)

          operating funds, including $13.3 million to support care for the  










          uninsured. The facility is scheduled to reopen as early as late  
          2012.

          This bill would require that specified future funding be  
          guaranteed for this new hospital and for LA County. Since all of  
          these funding streams currently rely on federal matching funds,  
          staff recommends that the bill be amended to specify that it  
          would be contingent upon federal financial participation and to  
          require that DHCS apply for all necessary federal approvals, in  
          order to alleviate potential General Fund costs should federal  
          financial participation be unavailable.

          This bill would modify the system of reimbursement to private  
          hospitals that serve this population under the current Section  
          1115 Medi-Cal Hospital Financing Waiver. The existing 1115  
          Waiver specifies the methodology by which the 22 designated  
          public hospitals, of which MLK-Harbor is one, access federal  
          funds for reimbursement for CPEs for treatment of Medi-Cal  
          beneficiaries and uninsured Californians. It expires August 31,  
          2010, and is currently being renegotiated by the Department of  
          Health Care Services (DHCS). The terms and conditions of the  
          renewed 1115 Waiver have not been finalized and it is unclear  
          whether or not the reimbursement methodology for public  
          hospitals would change. The new waiver could change the funding  
          source for the SLAMSP fund.

          Medi-Cal fee-for-service CPEs are generally matched by federal  
          funds at 50 cents on the dollar. However, as a result of the  
          passage of the American Reinvestment and Recovery Act (ARRA) in  
          February of 2009, California's Federal Medical Assistance  
          Percentage (FMAP) increased from 50 percent to 61.59 percent.  
          Thus, retroactively from October 1, 2008, through December 31,  
          2010, the federal government would pay for approximately 62  
          cents for every CPE dollar spent. After December 31, 2010, the  
          FMAP reduces back to 50 cents on the dollar, unless Congress  
          approves and the President signs an extension. The Senate  
          recently approved a H.R. 1586, which would extend the FMAP  
          enhancement through June 30, 2011, but at a lower rate than  
          under ARRA.