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.