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 







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          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 







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          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 







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          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 







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            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 







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            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.