BILL ANALYSIS Ó AB 1066 Page 1 Date of Hearing: April 12, 2011 ASSEMBLY COMMITTEE ON HEALTH William W. Monning, Chair AB 1066 (John A. Pérez) - As Amended: April 4, 2011 SUBJECT : Public health care: Medi-Cal: demonstration project waivers. SUMMARY : Enacts technical and conforming statutory changes necessary to implement the Special Terms and Conditions (STC) required by the federal Centers for Medicaid and Medicare Services (CMS) in the approval of the Section 1115 Medi-Cal Demonstration Project entitled "California's Bridge to Reform," approved on Nov 2, 2010. Specifically, this bill : 1)Makes technical and clarifying changes to distinguish the applicability of provisions between the 2005 Medi-Cal Section 1115 Hospital /Uninsured Care Demonstration waiver and the 2010 successor demonstration project. 2)Establishes, for the period of the 2010 waiver, a distribution formula for federal Disproportionate Share Hospital (DSH) Funds to designated public hospitals (DPH) (hospitals operated by counties and the University of California (UC)) based on uncompensated Medi-Cal costs, uninsured and unreimbursed costs, historic utilization, and per hospital discharge rates and provides a mechanism for use of Certified Public Expenditures (CPEs) and Intergovernmental Transfers (IGTs) as the matching funds. 3)Revises the formula for distribution of the Safety Net Care Pool (SNCP) funds to be used for the period of the successor waiver. 4)Establishes a methodology to distribute the Delivery System Reform Incentive Pool (DSRIP) funding established in the successor 2010 waiver to DPHs based on the achievement of milestones and other metrics, to be matched with IGTs. 5)Authorizes the Department of Health Care Service (DHCS) to establish incentives for improvement activities and milestone payments from the DSRIP funds for private DSH hospitals. 6)Establishes a priority order for claiming matching federal AB 1066 Page 2 funds for DPH funding in the successor 2010 waiver, including allowing reimbursement costs up to 100% and up to 175% as specified. 7)Establishes a priority order for claims from the SNCP during the period of the 2010 successor waiver, including claims by DHCS. 8)Revises the successor waiver terminology and defines the local Low Income Health Program (LIHP) and the Medi-Cal Coverage Expansion (MCE) populations. 9)Makes other technical and clarifying changes. EXISTING LAW : 1)Establishes the Medi-Cal Program, administered by DHCS, to provide comprehensive health care services and long-term care to pregnant women, children, and people who are aged, blind, and disabled. 2)Provides for the payment of hospital services including fee-for-service (FFS), negotiated by contract with California Medical Assistance Commission (CMAC) or with Medi-Cal managed care (MCMC) health plans. 3)Authorizes, under federal law, the waiving of specified Medicaid (Medi-Cal in California) requirements for demonstration or pilot projects. 4)Requires DHCS to seek federal approval of a comprehensive Section 1115 Medicaid waiver to replace the 2005 Medi-Cal Hospital/Uninsured Care Waiver. FISCAL EFFECT : This bill has not been analyzed by a fiscal committee. COMMENTS : 1)PURPOSE OF THIS BILL . According to the author, this bill provides technical changes to existing law related to the 2005 Section 1115(a) Medi-Cal Hospital/Uninsured Demonstration Waiver and the new 2010 "Bridge to Reform" Demonstration Waiver. The author states that at the time the implementing AB 1066 Page 3 legislation was enacted, the state had not received the final STC from CMS. The author also contends that while existing law includes provisions related to the overall allocation of certain funding to public hospitals as a whole, this bill is needed regarding the allocation of funding among each of the public hospitals. 2)BACKGROUND . California recently received federal approval for a new five year Section 1115 Medi-Cal Demonstration/Pilot Project Waiver, entitled "A Bridge to Reform." Section 1115 of the Social Security Act authorizes the federal Secretary of Health and Human Services to allow states to receive federal Medicaid matching funds without complying with all of the federal Medicaid rules. Traditionally designed as research and demonstration programs to test innovative program improvements and to facilitate coverage expansions to populations not otherwise eligible, they are also used to modify benefits structures and financing mechanisms. This waiver is a renewal of the Hospital Financing /Uninsured Waiver that was approved in 2005 and includes a continuation of the hospital financing provisions from the 2005 waiver but with modifications to the allocation of DSH funds and SNCP funds. The 2010 waiver also included a new DSRIP fund that is tied to achievement of specific milestones. 3)BRIDGE TO REFORM . The 2005 Section 1115 Hospital Financing Waiver included $180 million in years 3, 4, and 5 for the development and implementation of Health Care Coverage Initiative (HCCI) programs in 10 counties to expand services to low-income uninsured adults not otherwise eligible for Medi-Cal. The 2010 Replacement Waiver is intended as a bridge to implementation of the Patient Protection and Affordable Care Act which requires states to include childless adults, under age 65, who are not otherwise eligible for Medi-Cal or Medicare with incomes up to 133% of the federal poverty level (FPL) in its Medicaid program. Building on the HCCI model, the 2010 waiver establishes LIHP for this population and expands it statewide at county option. A county that chooses to participate will use CPEs as the matching funds. The STCs that accompanied the waiver approval provided that this county-based coverage is a bridge to the more significant coverage that is effective in 2014 and considers this transition an MCE. As such the STCs established various requirements in order to provide for a seamless transition for enrollees in 2014. Counties are authorized to provide LIHP AB 1066 Page 4 coverage to persons with income up to 200% FPL as well, but in a fashion that minimizes the need to impose a limit on the MCE population (0-133% FPL). This bill codifies this requirement. 4) HOSPITAL FINANCING . Medi-Cal hospital financing in California is a complex combination of mechanisms, funding sources, and rules. a) The Selective Provider Contracting Program (SPCP ). Originally established as a 1915(b) Waiver and now part of the Section 1115 Waiver, this allows CMAC to selectively contract for inpatient hospital beds in the Medi-Cal Program contract as long as there was adequate access to hospital beds to serve the Medi-Cal population in a Health Facility Planning Area. Except for emergencies, most FFS Medi-Cal beneficiaries in a closed area are required to receive in-patient care at a contract hospital. The 2010 Successor Section 1115 Demonstration Project, "Bridge to Reform" also provides for the continuation of the SPCP for private hospitals and non-DPHs. However, the state is authorized to discontinue this program at any time through a State Plan Amendment. b) DPH. One of the most significant revisions under the 2005 hospital waiver was to make fundamental changes in Medi-Cal hospital financing for public hospitals. Reimbursement for Medi-Cal per diem for 21 UC and county DPHs was based on CPEs, rather than General Fund. The inpatient reimbursement rate is no longer negotiated by CMAC and is determined by DHCS. The waiver also created the SNCP which provides a fixed amount of federal funds to cover uncompensated care, matched by CPEs. This bill revises the distribution criteria and bases it on unreimbursed expenses. c) DSH Fund . Just over $1 billion in federal funding is available to public hospitals in the DSH Fund during each year of the waiver to provide care to Medi-Cal and uninsured patients. DSH is a federal designation and funding mechanism available in the Medicaid Program to provide supplemental funding to hospitals caring for a significant proportion of indigent patients. The waiver DSH Fund is at a fixed level in a specific year, but may change over time and contains no State General Funds. AB 1066 Page 5 Hospitals submit CPEs and use IGTs to draw down federal funds. IGTs may only be used to fund the nonfederal share of DSH payments between 100-175% of the uncompensated costs. This bill revises the formula to account for the new LIHP and shifted the distribution to emphasis uncompensated care. d) DSRIP . This is a newly created source of funding within the SNCP to support California's public hospitals efforts to enhance the quality of care and health of the patients and families they serve. CMS has directed that the program of activity funded by DSRIP be foundational, ambitious, sustainable, and directly sensitive to the needs and characteristics of an individual hospital's particular circumstances and be deeply rooted in in the intensive learning and generous share that will accelerate meaningful improvement. Funding is up to $6.5 billion over 5 years. This bill clarifies that each hospital is individually responsible for progress towards, and achievement of, milestones and other metrics in its proposal. There are four areas for which funding is available: i) Infrastructure Development; ii) Innovation and Design; iii) Population-focused Improvement; and, iv) Urgent Improvement in Care, hospital specific. 5)SUPPORT . The California Association of Public Hospitals and Health Systems (CAPH) writes in support that although its members are just 6% of all California hospitals statewide, they service 2.5 million Californians each year and provide nearly half of all hospital care to the state's 6.7 million uninsured residents. CAPH also states in support that their members deliver 10 million outpatient visits per year and operate more than half of the state's top-level trauma centers and almost half the state's burn centers. They also provide almost 30% of the care provided to California's Medi-Cal population within the hospital setting and 35% of Medi-Cal visits in hospital outpatient settings. CAPH argues that Medi-Cal Waiver funding is fundamental to the ability of public hospital system to continue to provide services to Medi-Cal and uninsured individual. This bill is needed, according to the supporters, because it contains the technical language necessary to impellent the vital reimbursement and funding component contained in the waiver for DPHs. AB 1066 Page 6 6)PRIOR LEGISLATION . a) AB 342 (John A. Pérez), Chapter 723, Statutes of 2010 enacted the LIHP and Coverage Expansion and Enrollment Projects to provide health care benefits to uninsured adults up to 200% of the FPL, at county option through a Medi-Cal waiver demonstration project. b) SB 208 (Steinberg), Chapter 714, Statutes of 2010, implemented provisions of the 2010 Section 1115 replacement waiver including establishing the Public Hospital Investment, Improvement and Incentive Fund consisting of IGTS from counties or other specified governmental entities, to be matched with federal funds and to be used for investment, improvement and incentive payments for designated public hospitals and the affiliated governmental entities (Counties and UC), authorized DHCS to require the mandatory enrollment of seniors and people with disabilities in an MCMC plan commencing the later of either June 1, 2011 or obtaining federal approval and required DHCS to implement pilot projects to provide coordinated care to children in the California Children's Service and to persons who are eligible for Medi-Cal and Medicare. REGISTERED SUPPORT / OPPOSITION : Support California Association of Public Hospitals and Health Systems Urban Counties Caucus Western Center on Law and Poverty Opposition None on file Analysis Prepared by : Marjorie Swartz / HEALTH / (916) 319-2097