BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1066
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          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 








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            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 








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            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 








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            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.  








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               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. 









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           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