BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair AB 113 (Monning) Hearing Date: 4/7/2011 Amended: 3/31/2011 Consultant: Katie Johnson Policy Vote: Health 9-0 _________________________________________________________________ ____ BILL SUMMARY: AB 113, an urgency measure, would: 1)Create a program for non-designated public hospitals (NDPHs) to use local funds to draw down the maximum available federal funds for Medi-Cal expenditures, 2)Appropriate $1.5 billion from the Hospital Quality Assurance Revenue Fund (HQAR Fund) and the same amount from the Federal Trust Fund for the purposes of the 6-month Medi-Cal quality assurance fee (QAF) program that would be established by AB 113's companion measure, SB 90 (Steinberg), and, 3)Make the bill contingent upon the enactment of SB 90. _________________________________________________________________ ____ 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 2010-11 Federal/* state payments $27,700 in FY 2010-11; Local to NDPHs ongoing unknown 9 percent IGT fee expenditures for $3,000 in FY 2010-11;Local/** state programs and administration ongoing unknown General HQAF Fund appropriation $1,500,000 in FY 2010-11; Special*** for provisions of SB 90 available until January 1, 2014 Federal funds appropriation $1,500,000 in FY 2010-11;Federal for provisions of SB 90 available 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. **See staff comments on General Fund cost pressure in ongoing years. ***Hospital Quality Assurance Revenue Fund (HQAR Fund)-revenue from private hospitals paid to the state under the QAF program to be established by SB 90. ****Medi-Cal costs between April 1, 2011, and June 30, 2011, are AB 113 (Monning) Page 3 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. _________________________________________________________________ ____ STAFF COMMENTS: This bill meets the criteria for referral to the Suspense File. This bill would establish the Nondesignated Public Hospital Medi-Cal Rate Stabilization Act and would require the Department of Health Care Services (DHCS) to establish the Non-Designated Public Hospital Intergovernmental Transfer Program (NDPH IGT Program), upon the receipt of federal approval, during FY 2010-11 and ongoing. The program would provide supplemental payments to NDPHs for inpatient hospital services provided in fee-for-service Medi-Cal in a manner that maximizes available federal financial participation through IGTs provided voluntarily by public entities (city, county, special purpose district, or other governmental unit). The 48 NDPHs in California are primarily owned by hospital districts. Between April 1, 2011, and June 30, 2011, Medi-Cal costs are shared 56.9 percent federal funds and 43.1 percent non-federal funds, which is an enhanced rate compared to California's normal federal medical assistance percentage (FMAP) of 50 percent federal funds and 50 percent non-federal funds. Commencing July 1, 2011, the enhanced FMAP will be reduced to the normal FMAP. In FY 2010-11, DHCS expects to collect $30.7 million in IGTs from NDPHs, which would include a $3 million fee for administrative purposes and children's health care programs discussed below. The state would match the $27.7 million with $36.3 million federal funds for a total of $64 million in supplemental payments. In order to take advantage of the enhanced FMAP, the supplemental payments related to fee-for-service claims must be made by June 30, 2011. The $64 million is the "Upper Payment Limit (UPL) room" for FY 2010-11 for NDPH inpatient Medi-Cal services. The UPL is established in federal law and is the maximum payment that categories of hospitals can receive under Medicaid. This bill would require that DHCS calculate the UPL annually and use that information to determine the "allocation", or the amount of supplemental payments, an NDPH could receive that year if it AB 113 (Monning) Page 4 were to choose to participate in the IGT Program. This bill would provide a methodology to be used for determining each hospital's allocation based on a hospital's contracting status with the California Medical Assistance Commission (CMAC), the location of each NDPH, the amount of charity care provided, the amount of bad debt held, the amount of Medi-Cal charges, and the number of staffed acute care beds. Since DHCS would need to calculate the UPL and the available room annually, ongoing program costs are unknown. Any future supplemental payments to NDPHs through this program, like those for FY 2010-11, would consist solely of local and federal funds. However, there would be General Fund cost pressure of an unknown amount to maintain these supplemental payments to NDPHs in future years in the event that the available UPL room is insufficient to maintain or augment a previous year's rates. Additionally, the state would retain 9 percent of the IGTs for administrative purposes and for Medi-Cal children's health care programs. This amount is approximately $3 million in local funds for FY 2010-11 that could be matched by federal funds. DHCS administrative expenses for the IGT program would be approximately $350,000 annually in total funds. To the extent that any of these funds offset what would otherwise have been General Fund expenditures, there would be General Fund cost pressure of unknown amounts to backfill these funds in the event the amount changes and results in deficient funding from year to year. This bill also appropriates $1.5 billion from the HQAR Fund and $1.5 billion from the Federal Trust Fund. The monies would be available for expenditure until January 1, 2014, in order to make the supplemental payments to private hospitals provided for under the hospital QAF program that would be established by SB 90. There would be General Fund cost pressure in the hundreds of millions of dollars to maintain these supplemental payments when the 6-month fee ends June 30, 2011. Companion Measure: SB 90 (Steinberg) SB 90, which will be amended to also be an urgency measure, is contingent upon the enactment of this bill. The bill passed out of the Assembly Health Committee 14 - 1 on Tuesday, April 5, and is scheduled to be heard in the Senate Health Committee pursuant to Senate Rule 29.10 (c) as a new bill back on concurrence. Although requested, it will not be heard by the Senate AB 113 (Monning) Page 5 Appropriations Committee. The General Fund savings from all of the provisions of SB 90 and AB 113, and assuming the enactment of a FY 2011-12 QAF program, are estimated to be $57 million in FY 2010-11 and $305 million in FY 2011-12. If the state continues to be unable to fully implement a Medi-Cal rate freeze due to a court injunction, savings could be even greater at an estimated $88 million in FY 2010-11 and $412 million in FY 2011-12. SB 90 would: a)Require the payment of a quality assurance fee (QAF) by private hospitals to DHCS and the subsequent supplemental payments by DHCS to private hospitals for Medi-Cal fee-for-service, Medi-Cal managed care, and acute psychiatric services under the Hospital Quality Assurance Fee Act of 2011 and the Medi-Cal Hospital Rate Stabilization Act of 2011, respectively. The program would run from January 1, 2011, through June 30, 2011. In FY 2010-11, the QAF program that would be established by this bill, subject to federal approval, would raise $1.04 billion in revenue from private hospitals; of that amount, $210 million would go to the state for children's health care programs and $831 million would be matched by $1.07 billion in federal funds at the 56.9 percent FMAP. DHCS staff and administrative costs to implement the QAF program would be approximately $770,000 in total funds. To maximize the federal funds available under the enhanced FMAP that ends June 30, 2011, DHCS would need to collect all of the QAF revenues and make all of the Medi-Cal fee-for-service supplemental payments by June 30, 2011. Medi-Cal managed care payments may be paid after the June 30 deadline because they would be tied to dates of service, not to dates of payment. This 6-month QAF program would net $858 million in supplemental payments for private hospitals. The DPHs and NDPHs would not participate in the program nor would they receive any supplemental payments, unlike in the previous QAF program, after which this program is modeled, that ended December 31, 2010, where they did not pay the fee, but did receive supplemental payments. The previous QAF was established by AB 1383 (Jones), Chapter 627, Statutes of 2009, and AB 188 (Jones), Chapter 645, Statutes of 2009, and amended by AB 1653 (Jones), Chapter 218, Statutes of 2010. SB 90 would prohibit payment of the supplemental payments prior to 1) the AB 113 (Monning) Page 6 receipt of federal approval for both the QAF and the payment provisions, and 2) the fee being imposed and collected. If federal approval or a letter indicating likely federal approval for the supplemental payment methodology is not received by June 1, 2011, the payment methodology would become inoperative. Similarly, if federal approval for the QAF is not received prior to January 1, 2012, the QAF program would become inoperative. b)Require DHCS to establish an IGT program for all public hospitals, commencing June 30, 2011, or upon federal approval, whichever is later, to provide supplemental payments related to Medi-Cal managed care services. In FY 2010-11, DPHs and NDPHs could maximize federal financial participation up to approximately $80 million in total funds. The public entities would pay $34.5 million in IGTs to the state and would receive $45.5 million in federal funds at the 56.9 percent FMAP in enhanced payments through increased capitation payments made by the state to Medi-Cal managed care plans. Ongoing annual amounts would be unknown as they are based on future calculations. Payments would be solely local and federal funds. However, there would be General Fund cost pressure in an unknown amount to maintain higher rates in years where there was not a sufficient amount of federal financial participation available to maintain or augment a previous year's rates. c)Repeal various hospital rate freezes and reductions made in the 2008, 2010, and 2011 budget acts that are enjoined by the courts. This would result in a loss of $27 million in savings in FY 2010-11 and $93 million in savings as compared to the proposed FY 2011-12 budget. d)Give the CMAC new options when negotiating rates with contract hospitals to deter a contracted hospital from becoming a non-contracted hospital until January 1, 2013. It is anticipated that this would slow the growth of hospital Medi-Cal fee-for-service rates in future years. e)Reduce disproportionate share hospital replacement payments by $30 million in FY 2010-11 and by $75 million in FY 2011-12 for General Fund savings. f)Permit the Office of Statewide Health Planning and Development (OSHPD) to extend hospitals' seismic safety deadlines for up to 7 years. This provision would be contingent upon the AB 113 (Monning) Page 7 enactment and federal approval of legislation that would create a QAF program for FY 2011-12 that would include $320 million in fee revenue to pay for health care coverage for children. OSHPD would have authority to increase fees for increased administrative costs of approximately $1 million in Hospital Building Fund special funds in FY 2011-12 and ongoing until at least 2020. There are 455 SPC-1 buildings that have yet to be reviewed by HAZUS that could apply for a 2013 deadline extension. New staff, including Senior Structural Engineers, Senior Architects, and administrative support, would likely be needed to implement this section.