BILL ANALYSIS Ó
------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 113|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 445-6614 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: AB 113
Author: Manning (D) et al
Amended: 3/31/11 in Senate
Vote: 27- Urgency
WITHOUT REFERENCE TO FILE
SENATE HEALTH COMMITTEE : 9-0, 04/06/11
AYES: Hernandez, Strickland, Alquist, Anderson, Blakeslee,
De León, DeSaulnier, Rubio, Wolk
SENATE APPROPRIATIONS COMMITTEE : Not available
ASSEMBLY FLOOR : Not relevant
SUBJECT : Medi-Cal intergovernmental transfer program for
non-
designated public hospitals.
SOURCE : California Hospital Association
DIGEST : This bill establishes the Non-Designated Public
Hospital Inter-governmental Transfer Program, administered
by the Department of Health Care Services (DHCS), for
non-designated public hospitals (hospitals owned by health
care districts), under which public entities would
voluntarily elect to transfer funds to the state for the
purpose of drawing down federal Medicaid funds to make
supplemental payments to these hospitals, and establishes
an allocation formula for the provision of the supplemental
CONTINUED
AB 113
Page
2
payments made available by this bill to these hospitals.
This bill becomes operative only if SB 90 (Steinberg) is
enacted, which enacts standards for an extension of
hospital seismic safety requirements, enacts a Medi-Cal
six-month hospital provider fee, an intergovernmental
transfer (IGT) program for public hospitals related to
Medi-Cal managed care, and makes other changes necessary to
implement savings related to the 2010-11 Budget and the
2011-12 Budget Act.
ANALYSIS : Existing law:
1. Establishes the Medi-Cal program, administered by DHCS,
under which health care services are provided to
qualified low-income persons. Inpatient and outpatient
hospital services are a covered benefit under the
Medi-Cal program, subject to utilization controls.
2. Provides for Medi-Cal payments to hospitals, including
non-designated public hospitals (NDPHs). The method of
payment in fee-for-service Medi-Cal NDPHs depends upon
whether the hospital contracts with the state through
the California Medical Assistance Commission (CMAC) or
receives reimbursement as a non-contract hospital. CMAC
rates are negotiated between the hospital and CMAC,
while non-contract hospitals are reimbursed, through
regulation, at the lessor of the following:
A. Customary charges.
B. Allowable costs determined by DHCS, in
accordance with applicable Medicare standards and
principles of cost based reimbursement, as
specified in federal regulations and publication.
C. All-inclusive rate per discharge limitation.
D. The peer grouping rate per discharge limitation.
3. Contains various Medi-Cal rate hospital reductions and
rates freezes enacted through health budget trailer
bills from 2011, 2010 and 2008.
CONTINUED
AB 113
Page
3
4. Establishes the continuously appropriated Medi-Cal
Inpatient Payment Adjustment Fund in the State Treasury.
Funds in the account are IGTs from public entities,
which are the nonfederal share of payments which are
used to match federal funds to make payments to
disproportionate share hospitals.
5. Permits any county, other political subdivision of the
state, or governmental entity in the state to elect to
transfer funds to DHCS in support of the Medi-Cal
program. DHSC has discretion to accept or not accept
any elective transfer from a county, political
subdivision, or other governmental entity, as well as
the discretion of whether to deposit the transfer in the
Medi-Cal Inpatient Payment Adjustment Fund, but if DHCS
accepts a transfer, it must obtain federal matching
funds to the full extent permitted by federal law.
This bill:
1. Enacts the "Non-Designated Public Hospital Medi-Cal Rate
Stabilization Act" to provide supplemental federal
Medicaid payments for hospital inpatient services
provided in fee-for-service Medi-Cal to NDPHs in a
manner that maximizes federal financial participation
through IGTs from public entities (city, county, special
purpose district, or other governmental unit in the
state) to the state through a newly-created
Non-designated Public Hospital Inter-governmental
Transfer Program (NPHIGT). The NPHIGT will be
administered by DHCS. Upon federal approval, DHCS is
required to implement the IGT program in the 2010-11
fiscal year.
2. Makes participation in the IGT program voluntary for
public entities. The state will retain nine percent of
each IGT amount to reimburse DHCS for its administrative
costs, and for the benefit of Medi-Cal children's health
care programs.
3. Establishes an allocation formula for making the
supplemental Medicaid payments to NDPHs. DHCS
determines the maximum amount these hospitals could be
paid under federal Medicaid law (known as the Upper
CONTINUED
AB 113
Page
4
Payment Limit or UPL). From this total UPL amount, DHCS
will then determine the funds these hospitals will be
allocated based upon the ratio of Medi-Cal
fee-for-service acute patient days provided by hospitals
that contract (contract hospitals) with the state
through CMAC as compared to hospitals that do not
contract with CMAC (non-contract hospitals). The
allocation for each group (contract hospitals versus
non-contract hospitals) will be determined by the ratio
of the total Medi-Cal fee-for-service acute patient days
provided by all NDPHs. For example, if the contract
NDPH as a group provided 70 percent of the Medi-Cal
inpatient care days, 70 percent of the allocation in
this bill would be set aside for these hospitals.
After the dollar allocation for contract and
non-contract hospitals is established, this bill
establishes a point scoring method for determining
funding for each individual NDPH in the contract and
non-contract hospital groups. The scoring method is
based on the location of the NDPH (such as whether it is
located in a designated medically underserved area or
population, or health professional shortage area) and
type of hospital (such as whether the hospital is a
critical access hospital or a sole community provider),
the NDPH's charity care charges, the NDPH's bad debt
charges, and the NDPH's Medi-Cal charges. Each NDPH
receives a score of one to nine under the scoring
system, and is grouped in one of three groups based on
their contract and non-contract status: hospitals with
one to three points, hospitals with four to six points
and hospitals with seven to nine points. NDPHs with
seven to nine points will receive three times the amount
of funding as NDPHs in the one to three group, and NDPHs
in the four to six group will receive an allocation two
times the amount of a NDPH in the one to three group.
After the point system establishes a preliminary funding
allocation for each hospital within each group (e.g.,
contract NDPHs with one to three points, four to six
points, and seven to nine points and non-contract NDPHs
with one to three points, four to six points, and seven
to nine points), funding is reallocated among the NDPHs
within each point group based on the ratio of each
CONTINUED
AB 113
Page
5
NDPH's staffed acute care beds to the total staffed
acute beds of all NDPHs in that particular group.
DHCS will be required to provide notice to NDPHs by
September 1st of each year of its estimated IGT
allocation, with the calculations and data source used
by DHCS. NDPH will have 30 days of the IGT allocation
notice to notify DHCS of any data or calculation errors.
By December 1st of each year, DHCS will be required to
provide each NDPH of its estimated allocation, and the
NDPH will have twenty business days to determine to
either accept or decline the offer. IGTs must be
transferred to the state by February 5th of each fiscal
year, and funds received from entities transferring to
DHCS for purposes of the IGT must be placed in the
existing Medi-Cal Inpatient Payment Adjustment Fund,
which is continuously appropriated. DHCS must make
supplemental payments to NDPHs by March 31st of each
fiscal year.
4. Requires DHCS to report annually for four years to the
Legislature on the NPHIGT.
5. Appropriate $1.5 billion from the Hospital Quality
Assurance Revenue Fund and $1.5 billion from the Federal
Trust Fund to DHCS to make supplemental payments to
private hospitals under SB 90 (Steinberg).
6. Makes this bill operative only if SB 90 (Steinberg) is
enacted and becomes operative.
Background
NDPHs are hospitals owned by hospital districts. NDPHs are
reimbursed differently by Medi-Cal than designated public
hospitals (county and University of California hospitals),
which are paid cost-based reimbursement with federal funds
and their own funds (instead of state General Fund) as the
required match. NDPHs are paid by Medi-Cal with federal
funds and state GF, and the amounts vary by hospital.
NDPHs choosing to contract with the state through CMAC are
paid by Medi-Cal a per diem rate (a daily rate) for each
day a Medi-Cal beneficiary is in the hospital that is
negotiated between CMAC and the hospital. Under the
CONTINUED
AB 113
Page
6
state's Medicaid 1115 waiver (called "California Bridge to
Reform Implementation"), CMAC payments can include
supplemental payments using GF and federal funds, provided
these payments do not exceed the federal upper payment
limit (UPL) under federal regulations.
NDPHs that do not contract with the state in the
fee-for-service Medi-Cal program are known as non-contract
hospitals, and they are initially paid an interim rate.
Noncontract hospitals are then required to submit a cost
report before the close of their fiscal period. DHCS
reviews each hospital's cost report and prepares a
tentative settlement, which is a determination of the
Medi-Cal allowable reimbursable reported costs for the
noncontract hospital's fiscal period. DHCS compares what a
noncontract hospital was paid in interim payments for the
hospital's fiscal period, to the hospital's allowable
reimbursable reported costs for that fiscal period.
In addition, NDPHs are eligible for Medicaid
disproportionate share (DSH) payments if they meet the
criteria to be a DSH hospital. Under the state's Medicaid
1115 waiver, the nonfederal share of DSH payments to NDPHs
is the state General Fund.
There are 48 NDPHs in California. Federal law establishes
a maximum payment that categories of hospitals can receive
under Medicaid, known as the UPL. NDPHs are estimated to
have "room" under their UPL under Medicaid law that will
allow them to receive $64 million in supplemental Medi-Cal
payments in 2010-11. Under this bill, public entities
would transfer (through an IGT) $30.7 million to the state,
which would then be matched by $33.2 million in federal
funds. The resulting $64 million in total revenue will be
returned to these facilities under the allocation formula
contained in this measure. The IGT program established
under this bill will be an on-going program.
Under the hospital Quality Assurance Fee (HQAF) enacted by
legislation last session, NDPHs were exempt from paying the
HQAF, but received supplemental payments resulting from
revenue generated by the HQAF. Under the six-month
extension of the HQAF contained in SB 90 (Steinberg), NDPHs
do not receive supplemental payments from the new HQAF.
Instead, this bill establishes an IGT program for these
CONTINUED
AB 113
Page
7
NDPHs whereby public entities would transfer funds to the
state, and these funds would be matched by federal funds to
provide additional funds up to the federal UPL. The
advantage of an IGT program is that, unlike the fee
program, all transferring hospitals benefit from additional
federal funds above amounts they contribute.
Comments
This bill is joined to SB 90 (Steinberg), which repeals
specified Medi-Cal hospital rate freezes and rate
reductions enacted in the just enacted and previous year
health budget trailer bills. SB 90 imposes a HQAF on
specified hospitals for six months (January 1, 2011 until
June 30, 2011), and use the resulting revenue to do several
things: to draw down federal funds to provide supplemental
payments to private hospitals in fee-for-service Medi-Cal,
Medi-Cal managed care, and for acute psychiatric days; to
provide $210 million in funding for children's health
coverage in the current year; and to reduce by $30 million
in the current year and $75 million in the budget year (BY)
funds used to pay private hospitals.
SB 90 also requires DHCS to design and implement an IGT
program for Medi-Cal managed care services provided by
designated and non-designated public hospitals in order to
increase capitation payments for the purpose of increasing
reimbursement to these hospitals.
In addition, SB 90 also allows hospitals that have received
extensions to 2013 of the seismic deadlines for their SPC-1
buildings to request an additional extension of up to seven
years, and would allow the Office of Statewide Health
Planning and Development (OSHPD) to grant the extension if
the hospital meets several interim deadlines. In deciding
whether to grant the extension, as well as the length of
the extension, OSHPD would be required to consider several
criteria, including the structural integrity of the
building(s), community access to the hospital services, and
the hospital owner's financial capacity. The length of any
extension could not exceed the amount of time that the
owner reasonably needs to complete construction; however, a
hospital will be able to adjust the length of the extension
by up to six months under certain circumstances. OSHPD is
CONTINUED
AB 113
Page
8
authorized to revoke an extension if a hospital falsifies
information, fails to meet any interim deadlines, or if
construction is abandoned or suspended, as specified.
Hospital owners who apply for extensions under this bill
will be required to pay additional fees to cover OSHPD's
costs of reviewing the requests for extensions. OSHPD
will be allowed to use emergency regulations to implement
the bill's seismic extension provisions. The bill provides
that the seismic extension provisions will become operative
on the date that DHCS receives federal approvals for a
2011-12 hospital quality assurance fee program that
includes $320 million in fee revenue to pay for health
coverage for children, as specified.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: No
The General Fund (GF) savings from all of the provisions of
SB 90 are estimated to be $50 million in the current year
and $305 million in the BY. If the state is assumed to
continue to be unable to fully implement a Medi-Cal rate
freeze due to a court injunction, the savings resulting
from this bill are estimated to be greater, resulting in a
net gain to the state of $88 million in the current year
and $412 million in the BY, for a total of $500 million.
According to the Senate Appropriations Committee analysis:
Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13
2013-14 Fund
IGT Program local revenue ($30,700 in FY
2010-11) Local*
to state for federal matching(ongoing unknown)
IGT Program $36,300 in FY
2010-11Federal/*
state payments $27,700 in FY
2010-11; Local
to NDPHs ongoing unknown
9 percent IGT fee $3,000 in FY
2010-11; Local/
CONTINUED
AB 113
Page
9
expenditures for ongoing unknownGeneral
state programs and administration
HQAF Fund approp. $1,500,000 in FY
2010-11; Special**
for provisions of SB 90available until January 1, 2014
Federal funds approp,
$1,500,000 billion in FY 2010-11; Federal
for provisions of SB 90available until January 1, 2014
*Local funds are held in the Medi-Cal Inpatient Payment
Adjustment Fund and appropriated back to local entities;
federal matching funds come into the state via the Federal
Trust Fund and are deposited into the Health Care Deposit
Fund for appropriation to local entities.
**Hospital Quality Assurance Revenue Fund (HQAR Fund)
revenue from private hospitals paid to the state under the
HQAF program to be established by SB 90.
Medi-Cal costs between April 1, 2011, and June 30, 2011,
are shared 56.9 percent federal funds and 43.1 percent
non-federal funds. Commencing July 1, 2011, and ongoing,
Medi-Cal costs will be shared 50 percent federal funds and
50 percent non-federal funds. Here and in SB 90, the
non-federal share would consist of local funds.
SUPPORT : (Verified 4/7/11)
California Hospital Association (source)
Adventist Health
Alameda Hospital
California Children's Hospital Association
Catholic Healthcare West
Citrus Valley Health Partners
College Health Enterprises
Community Hospital of San Bernardino
Desert Regional Medical Center
District Hospital Leadership Forum
Doctors Hospital of Manteca
Feather River Hospital/Adventist Health
Garden Grove Hospital Medical Center
Henry Mayo Newhall Memorial Hospital
Hi-Desert Medical Center
CONTINUED
AB 113
Page
10
Hoag Memorial Hospital Presbyterian
JFK Memorial Hospital
Kaweah Delta Health Care District
Lodi Memorial Hospital
Loma Linda University Medical Center
Lompoc Valley Medical Center
Los Alamitos
Lucile Packard Children's Hospital
Marshall Medical Center
Mee Memorial Hospital
Mercy
Mercy Medical Center Mt. Shasta
Pioneers Memorial Healthcare District
Pomona Valley Hospital Medical Center
Private Essential Access Community Hospitals
Saint Louise Regional Hospital
Salinas Valley Memorial Healthcare System
San Dimas Community Hospital
San Gorgonio Memorial Hospital
Sharp
Sierra View District Hospital
Sierra Vista Regional Medical Center
St. Elizabeth Community Hospital
St. John's Regional Medical Center/St. John's Pleasant
Valley Hospital
St. Joseph's Behavioral Health Center
St. Joseph's Medical Center
Tehachapi Valley Healthcare District
Tri-City Healthcare District
Twin Cities Community Hospital
Watsonville Community Hospital
ARGUMENTS IN SUPPORT : The California Hospital
Association (CHA) writes in support that the IGT program is
crucial to the preservation of California's non-designated
public hospital safety net. CHA states the IGT program,
once implemented, will be an ongoing program that does not
require subsequent approval or additional legislation, and
provides a permanent mechanism to improve Medi-Cal payments
to non-designated public hospitals. CHA argues that
without this program, the number of hospitals forced to
restrict or end services to Medi-Cal patients will continue
to increase. CHA states the IGT program is formula driven,
CONTINUED
AB 113
Page
11
with a focus on the hospitals' contracting status with
Medi-Cal, Medi-Cal inpatient volume, hospitals in
underserved areas, and the level of charity care provided.
The IGT program is voluntary, and all that participate in
it receive a net benefit, unlike the hospital quality
assurance fee program, which requires ''winners'' and
"losers." CHA states that, in an IGT program, all
participants are "winners," and while the IGT program will
not solve the Medi-Cal shortfall to non-designated public
hospitals, it will mitigate the lack of sufficient funding.
CHA concludes that this bill is vital to California's
non-designated public hospitals and that the IGT program be
supported by the Legislature as it will increase Medi-Cal
payments at a time when there is simply no alternative way
to do so.
ASSEMBLY FLOOR :
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block,
Blumenfield, Bonilla, Bradford, Brownley, Buchanan,
Charles Calderon, Campos, Carter, Cedillo, Chesbro,
Davis, Dickinson, Eng, Feuer, Fong, Fuentes, Furutani,
Galgiani, Gatto, Gordon, Hall, Hayashi, Roger Hernandez,
Hill, Huber, Hueso, Huffman, Lara, Ma, Mendoza, Mitchell,
Monning, Pan, Perea, V. Manuel Perez, Portantino,
Skinner, Solorio, Torres, Wieckowski, Williams, Yamada,
John A. Perez
NO VOTE RECORDED: Achadjian, Bill Berryhill, Butler,
Conway, Cook, Donnelly, Fletcher, Garrick, Gorell, Grove,
Hagman, Halderman, Harkey, Jeffries, Jones, Knight,
Logue, Bonnie Lowenthal, Mansoor, Miller, Morrell,
Nestande, Nielsen, Norby, Olsen, Silva, Smyth, Swanson,
Valadao, Wagner, Vacancy
DLW:do 4/7/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED