BILL ANALYSIS �
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 90
S
AUTHOR: Steinberg
B
AMENDED: April 7, 2011
HEARING DATE: April 7, 2011
9
CONSULTANT:
0
Bain & Hansel
PURSUANT TO S.R. 29.10
SUBJECT
Health: hospitals: Medi-Cal
SUMMARY
Repeals specified Medi-Cal hospital rate freezes and rate
reductions enacted in health budget trailer bills in 2008,
2010 and 2011. Imposes a Quality Assurance Fee (QAF) on
specified hospitals for six months (January 1, 2011 until
June 30, 2011), and uses the resulting revenue 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 for children's health coverage in the current year
(CY); and to pay for Department of Health Care Services
(DHCS) administrative costs in administering the hospital
fee and supplemental payment provisions of this bill.
Reduces disproportionate share General Fund (GF) payments
to private hospitals by $30 million GF in the CY and $75
million GF in the budget year (BY). Requires DHCS to
design and implement an intergovernmental transfer (IGT)
program for Medi-Cal managed care services provided by
designated public hospitals (DPH) and nondesignated public
hospitals (NDPH) for the purpose of increasing
reimbursement to NDPHs and DPHs.
Continued---
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Allows hospitals that have received extensions to January
1, 2013 of the January 1, 2008 seismic deadline, for their
SPC-1 buildings, to request an additional extension of up
to seven years. Allows the Office of Statewide Health
Planning and Development (OSHPD) to grant the extension if
the hospital meets several interim deadlines and
requirements. Requires OSHPD, in deciding whether to grant
the extension as well as the length of the extension, to
consider several criteria including the structural
integrity of the building, community access to the hospital
services, and the hospital owner's financial capacity, as
specified.
This bill would take effect immediately as an urgency
statute and would take effect only if AB 113 (Monning) also
takes effect.
CHANGES TO EXISTING LAW
Existing law:
Medi-Cal hospital payments
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. Existing law provides for
Medi-Cal payments to hospitals, including private
hospitals, DPHs (consisting of the 21 county and University
of California hospitals), and NDPHs (consisting of the 48
hospitals owned by health care districts). DPHs receive
cost-based reimbursement using their own funds as the
required state match. The method of payment in
fee-for-service Medi-Cal for private and 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:
� Customary charges;
� Allowable costs determined by DHCS, in accordance with
applicable Medicare standards and principles of
cost-based reimbursement, as specified in federal
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regulations and publication;
� All-inclusive rate per discharge limitation; or,
� The peer grouping rate per discharge limitation.
Contains various Medi-Cal hospital rate reductions and rate
freezes enacted through health budget trailer bills from
2011, 2010 and 2008 that affect contract and non-contract
hospital rates of private hospitals and NDPHs.
Hospital seismic safety requirements
Establishes timelines for hospital compliance with seismic
safety standards, including a requirement that buildings
posing a significant risk of collapse and a danger to the
public (referred to as SPC -1 buildings) be rebuilt or
retrofitted to be capable of withstanding an earthquake, or
removed from acute care service, by January 1, 2008, and a
requirement that hospital buildings be capable of
remaining intact after an earthquake, and must also be
capable of continued operation by January 1, 2030.
Allows OSHPD to grant an extension of up to five years to
the 2008 deadline for hospitals for which compliance will
result in a loss of health care capacity, as defined.
Existing law also allows OSHPD to grant various further
extensions beyond this, including up to two years for
certain hospitals that face construction delays, hospitals
that encounter delays due to an attempt to reclassify their
buildings to higher seismic status, and hospitals that
experience local planning delays. Existing law also allows
certain hospitals that have received five year extensions
beyond 2008, to rebuild their buildings by 2020 in lieu of
meeting the January 1, 2013 deadline.
Requires owners of general acute care hospital buildings
that are classified as SPC-1 buildings to submit reports to
OSHPD annually describing the status of each building in
complying with the 2013 deadline.
Allows OSHPD to utilize computer modeling based on HAZUS,
which is a seismic risks analysis tool, for purposes of
determining the structural performance category of general
acute care hospital buildings.
This bill:
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Hospital seismic safety provisions
Allows hospitals that have received extensions to January
1, 2013 of the January 1, 2008 seismic deadline for their
SPC-1 buildings to request an additional extension of up to
seven years.
Allows the Office of Statewide Health Planning and
Development (OSHPD) to grant the extension if the hospital
meets several interim deadlines and requirements or if the
hospital building is reclassified to a higher seismic
status, allowing it to operate beyond 2013. The milestones
and requirements are as follows:
� The hospital owner submits to OSHPD, no later than March
31, 2012, a letter of intent stating whether it intends
to rebuild, replace, or retrofit the building, or remove
all general acute care beds and services from the
building and the amount of time necessary to complete the
construction;
� The hospital owner submits to OSHPD, no later than March
31, 2012, a schedule detailing why the requested
extension is necessary and specifically how the hospital
intends to meet the requested deadline;
� The hospital owner submits to OSHPD, no later than
September 30, 2012, an application for a structural
reassessment of each of its SPC-1 buildings using HAZUS
modeling;
� The hospital owner submits to the office, no later than
January 1, 2015, plans that are ready for review and are
consistent with the letter of intent and the schedule
submitted by the hospital owner;
� The hospital owner submits a financial report to the
office at the time the plans are submitted that
demonstrates the hospital owner's financial capacity to
implement the construction plans that are submitted;
� The hospital owner receives a building permit that is
consistent with the letter of intent and schedule no
later than July 1, 2018.
Requires OSHPD, in deciding whether to grant the extension,
as well as the length of the extension, to consider several
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criteria, including the structural integrity of the
building based on its HAZUS score, community access to the
hospital services, and the hospital owner's financial
capacity, as specified.
Provides that the length of any extension may not exceed
the amount of time that the owner reasonably needs to
complete construction; however, a hospital would be able to
adjust the length of the extension by up to six months
under certain circumstances.
Allows OSHPD to revoke an extension if a hospital falsifies
information or fails to meet any interim deadlines, or if
construction is abandoned or suspended, as specified.
Allows a hospital owner to appeal a denial of a requested
extension under the bill to the Hospital Building Safety
Board.
Requires hospital owners who apply for extensions under
this bill to pay additional fees for OSHPD's costs of
reviewing the request for the extension.
Allows OSHPD to use emergency regulations to implement the
seismic extension provisions of the bill.
Provides that the seismic extension provisions would become
operative on the date that DHCS receives federal approvals
for a 2011-12 hospital QAF program that includes $320
million in fee revenue to pay for health coverage for
children, as specified (subsequent legislation is needed to
establish a QAF for the 2011-12 fiscal year).
Repeal of Medi-Cal hospital rate freezes and specified rate
reductions
This bill would:
� Exempt non-contract fee-for-service Medi-Cal payments for
hospital inpatient services from the scheduled Medi-Cal
reimbursement reductions in the recently adopted 2011
health budget trailer bill. The 2011 health budget
trailer bill reduces Medi-Cal rates by 10 percent for
dates of service on and after June 1, 2011.
� Repeal the Medi-Cal hospital rate freeze for contract and
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non-contract private hospitals and NDPHs enacted through
the health budget trailer bill of 2010. Any rates that
were frozen would be restored retroactively to the rate
that would have been in effect without the rate freeze.
DHCS would instead be required to explore other avenues
for achieving the stability needed in order to transition
to an inpatient hospital reimbursement methodology based
on diagnosis-related groups.
� Repeal the Medi-Cal non-contract hospital 10 percent
interim payment inpatient fee-for-service rate reduction
which was enacted in health budget trailer bills in 2008.
This reduction would remain in effect for purposes of
the rates Medi-Cal managed care plans pay hospitals they
do not contract with. Under existing law, these
provisions remain in effect until January 1, 2013.
� Repeal reductions enacted in the health budget trailer
bill in 2008 which cap non-contract hospital Medi-Cal
fee-for-service rates at amounts below the regional
average per diem contract rates for hospitals, and
further reduce those rates by five percent. Under
existing law, these provisions remain in effect until
January 1, 2013.
� Repeal a non-contract hospital interim Medi-Cal
fee-for-service interim payment rate reduction of 10
percent for services provided after July 1, 2008, and a
provision that limits a Medi-Cal fee-for-service
non-contract hospital's cost report settlement to 90
percent of a hospital's audited allowable costs, which
were to take effect on January 1, 2013 pursuant to the
2008 health budget trailer bill.
� Require, under this bill, Medi-Cal reimbursement for
inpatient hospital services for hospitals that receive
Medi-Cal reimbursement from DHCS that are not under
contract for inpatient hospital services to be determined
in accordance with the applicable provisions in state
law, the California Code of Regulations, and the
applicable provisions of the California Medicaid State
Plan that have been approved by the federal Centers for
Medicare and Medicaid Services.
"Medi-Cal Hospital Rate Stabilization Act of 2011" for six
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months of current year
Last session, a series of bills enacted and then modified a
hospital QAF which was imposed on hospitals. The resulting
revenue was generally used to draw down federal matching
funds to provide supplemental payments to hospitals and
grants to DPHs. The fee was in effect until December 31,
2010, and its provisions generated $3.1 billion in revenue
from hospitals paying the QAF. The QAF drew down an
additional $3.2 billion in federal funds, and provided an
overall benefit to the hospital industry of $2.6 billion
(the statewide net additional payments made to hospitals
above the QAF amounts paid by hospitals). In addition,
over the 21 month period in which those bills applied, the
QAF provided $560 million for children's health coverage,
and $513 million in unmatched direct grants to DPHs.
This bill would provide supplemental payments to private
hospitals for inpatient and outpatient services in the
current budget year (BY), but not to NDPHs or DPHs, which
instead would have an IGT program which is established by
this bill (which is described later in the analysis) and AB
113 (Monning).
Specifically, this bill would:
� Enact the Medi-Cal Hospital Rate Stabilization Act of
2011 to provide supplemental payments from January 1,
2011 to June 30, 2011 to private hospitals for inpatient
and outpatient services in Medi-Cal fee-for-service,
managed care and acute psychiatric days. Outpatient
supplemental payments are in addition to any other
amounts payable to hospitals, and these supplemental
payments are prohibited from affecting any other payments
to hospitals. Hospitals would be paid an amount equal to
a percentage of the total amount of payments to the
hospital in the 2007 calendar year. The percentage is
required to be the same for each hospital, and is
required to result in payments to hospitals that equal
the federal upper payment limit (UPL), minus any amounts
paid under the prior hospital supplemental payment
provisions and counted toward the federal UPL in the
entire 2010-11 fiscal year.
� Provide inpatient supplemental payments amounts that are
in addition to any other amounts payable to hospitals.
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These payments are prohibited from affecting any other
payments to hospitals. Inpatient supplemental payment
amounts vary depending upon the type of hospital care
provided (general acute care, psychiatric, high acuity
days) and whether the hospital is a private trauma center
or a private hospital that provides Medi-Cal subacute
services with a specified Medi-Cal inpatient utilization
rate. Each private hospital is required to be paid 50
percent of the following amounts for the provision of
hospital inpatient services from January 1, 2011 to June
30, 2011:
--$911.48 multiplied by the hospital's number of
general acute care days;
--$485 multiplied by the hospital's number of acute
psychiatric days that were paid directly by DHCS and
were not the financial responsibility of a mental
health plan;
--$1,350 multiplied by the number of the hospital's
high acuity days if the hospital's Medicaid inpatient
utilization rate is less than 41.1 percent, and
greater than 5 percent, and at least 5 percent of the
hospital's general acute care days are high acuity
days. (This payment amount is in addition to the
amounts specified above.)
--$1,350 multiplied by the number of the hospital's
high acuity days if the hospital qualifies to receive
the $1,350 amount above and has been designated as a
Level I or Level II trauma center, an Adult/Pediatric
Level I trauma center, or an Adult/Pediatric Level II
trauma center. (This payment amount is in addition to
the amounts in the bullets above.)
� Require a private hospital that provides Medi-Cal
subacute services from January 1, 2011 to June 30, 2011
and has a Medicaid inpatient utilization rate that is
greater than 5 percent and less than 41.1 percent to be
paid a supplemental amount equal to 20 percent of the
Medi-Cal subacute payments made to the hospital during
the 2008 calendar year.
� Require DHCS to increase payments to mental health plans
for the purpose of making supplemental payments to
hospitals. Requires the aggregate amount of the
increased payments to be the total of the individual
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hospital acute psychiatric supplemental payment amounts
for all hospitals for which federal financial
participation (FFP) is available.
� Require DHCS to increase capitation payments to Medi-Cal
managed care plans in the aggregate amount of $324
million, or the maximum amount for which FFP is
available. Requires Medi-Cal managed care plans to
expend 100 percent of any increased capitation payments
it receives on hospital services within 30 days of
receiving the increased capitation payments.
� Require all payments made by DHCS to managed health care
plans and mental health plans under the Medi-Cal Rate
Stabilization Act of 2011 to be made only from the QAF
and federal reimbursement, and any related federal funds.
Spending maintenance of effort on state rates paid to
hospitals
� Prohibits Medi-Cal outpatient rates paid to private
hospitals, NDPHs and DPHs designated public hospitals
provided before July 1, 2011 from being reduced below
the rates in effect on January 1, 2011.
� Prohibits Medi-Cal CMAC inpatient rates for
inpatient services furnished before January 1, 2011
from being reduced below the lower of the amounts in
effect on January 1, 2010 or July 1, 2010. Prohibits
private non-contract hospital rates for services
furnished before July 1, 2011 from being less than the
amount of payments that would have been made under the
payment methodology in effect on the effective date of
this bill.
Provision to prevent hospitals from switching from contract
to non-contract status.
� Reduce supplemental payments to new non-contract
hospitals by the amount by which that hospital's
overall payment for Medi-Cal services was increased by
its becoming a non-contract hospital.
Hospital QAF of 2011 for Current Year
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The six month QAF in this measure is projected to generate
$1 billion in fee revenue paid by private hospitals. Of
this amount, $211 million would be used for children's
health coverage and state administrative costs. The
remaining $831 million would be matched with $1 billion in
federal matching funds, generating $1.9 billion in new
payments to private hospitals. Statewide, the net benefits
hospitals would receive from the QAF-related provisions of
this measure is $858 million above what hospitals paid in
fees.
Specifically, this bill would:
� Enact the "Hospital Quality Assurance Fee Act of 2011"
which levies a hospital QAF, from January 1, 2011 to June
30, 2011, on each hospital that is not an exempt
hospital. Hospitals exempt from paying the fee are DPHs,
NDPHs, small and rural hospitals, a hospital that
satisfies the criteria to be a long-term care hospital
and a hospital that converts from one type of hospital to
another type (e.g., private to NDPH). The fee amounts
for hospitals subject to the QAF are as follows:
� The fee-for-service per diem QAF rate must be
no greater than $253.29 per day;
� The managed care per diem QAF rate is a fixed
fee on managed care days of $27.25 per day;
� The Medi-Cal per diem QAF rate is a fixed fee on
Medi-Cal days of $275 per day;
� The prepaid health plan hospital managed care
per diem QAF rate is a fixed fee on non-Medi-Cal
managed care days for prepaid health plan hospitals
of $15.26 per day; and,
� The prepaid health plan hospital Medi-Cal
managed care per diem QAF rate is a fixed fee on
Medi-Cal managed care days for prepaid health plan
hospitals of $154 per day.
� Require all funds from the QAF to be used exclusively to
enhance FFP for hospital services under Medi-Cal, to
provide additional reimbursement to hospitals, in the
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following order of priority:
� To pay for DHCS staffing, not to exceed
$500,000;
� To pay for children's health care coverage in
the amount of $105 million for each quarter for
which payments from the QAF are made under this
bill;
� To make increased capitation payments to
managed care plans;
� To reimburse the GF for the increase in the
overall compensation to a private hospital that is
attributable to its change in status from CMAC
contract hospital to a non-contract hospital;
� To make increased payments to hospitals under
this bill; and,
� To make increased payments to mental health
plans under this bill.
Reduction to private hospital "disproportionate share"
payments
Private hospitals that provide a large amount of care to
Medi-Cal and uninsured hospitals receive "replacement"
disproportionate share payments (DSH) because they treat a
large amount of hospital care to uninsured and Medi-Cal
patients. These payments are referred to as "replacement"
payments because these hospitals no longer receive federal
DSH payments, and are instead funded by the state General
Fund and federal funds. DSH replacement payments to
private hospitals were reduced by 10 percent in 2009-10.
Specifically, this bill would:
� Reduce DSH replacement payments to private hospitals by
$30 million (GF) in the 2010-11 fiscal year, and by the
corresponding amount of federal financial participation.
To the extent permitted by federal law, the additional
room under the federal UPL limit created by this
provision is required to be used to increase supplemental
payments under the Medi-Cal Hospital Rate Stabilization
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Act of 2011 and the Hospital QAF Act of 2011 created by
this bill.
� Reduce DSH hospital replacement payments to private
hospitals in the 2011-12 fiscal year by $75 million GF,
and by the corresponding amounts of federal financial
participation. To the extent permitted by federal law,
the additional room created under the federal UPL by this
provision is required to be used to increase supplemental
payments under subsequent legislation extending or
creating a new supplemental hospital payment program
supported by a fee.
IGT Program for Medi-Cal managed care payments to public
hospitals.
Existing law 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. Existing law also
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.
DHCS 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 establishes an IGT program for designated and
nondesignated public hospitals related to the Medi-Cal
managed services these entities provide, with the local
entities providing the state match needed to draw down
federal funds.
Specifically, this bill would:
� Require DHCS to design and implement an IGT program
relating to Medi-Cal managed care services provided by
designated and nondesignated public hospitals in order to
increase capitation payments for the purpose of
increasing reimbursement to these hospitals.
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Provisions affecting new and previous hospital payments
QAF.
Legislation last session enacting the QAF and hospital
payment provisions required Medi-Cal managed health care
plans receiving increased capitation payments as a result
of the QAF to expend the capitation rate increases in a
manner consistent with actuarial certification, enrollment,
and utilization of hospital services. While all Medi-Cal
managed care plans were relied upon to distribute
supplemental Medi-Cal managed care payments to hospitals,
two statewide health plans that participate in Medi-Cal
were used to distribute additional managed care payments to
hospitals for in and out-of-network services. One of the
two health plans expressed concern that the utilization of
hospital services in the model used to provide supplemental
payments to hospitals through managed care plans did not
reflect the actual utilization of hospital services. To
address this health plan's concern that payments to
hospitals were based on utilization rather than amounts
hospitals anticipated receiving based upon the model, the
language being added below would clarify that payments made
by managed care plans must reflect the overall purpose of
the previous legislation, and that the payment provisions
were not intended to create a private right of action.
This language is also included in the six month QAF and
supplemental payment provisions of this bill.
Specifically, this bill would:
� Require supplemental hospital payments made by managed
health care plans to hospitals from the QAF levied on
hospitals by legislation last session to reflect the
overall purpose of the legislation establishing the QAF
and the supplemental payments funded through the QAF.
� Prohibit the supplemental payments made to hospitals
under the new QAF and the previous QAF from being
intended to create a private right of action by a
hospital against a managed care plan, provided the
managed care plan expends all increased capitation
payments for hospital services.
Sunset date
This bill sunsets the Medi-Cal Rate Stabilization Act of
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2011 and the Hospital QAF Act of 2011 on January 1, 2013.
Conditions on QAF and payment provisions
This bill establishes requirements for the QAF and the
supplemental payment provisions to be in effect, including
that federal approval is received and federal funding is
available, that QAF funds are segregated from the GF and
not considered GF proceeds of taxes under the state
Constitution, and that there is a contractually enforceable
promise on behalf of the state to use the proceeds of the
QAF and any federal matching funds solely and exclusively
for the purposes in this Hospital Quality Assurance Fee Act
of 2011.
This bill becomes operative only if AB 113 (Monning) is
enacted and becomes operative.
Urgency clause
This bill takes effect immediately as an urgency statute.
FISCAL IMPACT
According to the Assembly Appropriations Committee:
1)A one-time increase of $1.9 billion (43 percent hospital
QAF/57 percent FFP) paid to hospitals through June 2011
in the form of increased Medi-Cal payments for inpatient
and outpatient services. This estimate assumes hospitals
subject to the QAF will contribute $1.0 billion to be
matched with FFP at the enhanced rate of 57 percent, for
a total Medi-Cal payment increase of $1.9 billion. Some
of the hospitals will receive payments directly from the
state, while others will receive the payments from the
state through Medi-Cal managed care plans.
2)As compared to the 2010-11 Budget Act, this bill would
provide a net additional $53 million in savings in
2010-11. The components of the net $53 million are as
follows:
a) Additional GF savings of $50 million from
additional QAF revenue to the state for children's
health care coverage. In total, the package provides
$210 million in QAF revenue to the state for
children's health care coverage, but $160 million is
already assumed in the 2010-11 budget.
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b) Additional GF savings of $30 million associated
with reductions in payments to certain private
hospitals of approximately $30 million GF and matching
FFP in the CY.
c) Estimated net loss of GF savings of approximately
$22 million associated with the repeal of the rate
freeze, and approximately $5 million associated with
the repeal of the rate reductions.
d) The actual impact of this bill on the state budget
is a net $75 million in additional savings instead of
a net $53 million, as it is unlikely that the state
would have achieved the $22 million in savings assumed
in the budget.
1)As compared to the 2011-12 budget as passed by the
Legislature, a net loss of savings of $18 million. The
components of the net $18 million are as follows:
a) Additional GF savings of $75 million due to a
decrease in payments of $75 million GF and matching
FFP to private hospitals.
b) Additional GF savings of $41 million associated
with estimates of slower growth in hospital rates as a
result of provisions in this bill that provide the
state greater leverage in rate negotiations.
c) Estimated net loss of GF savings of approximately
$107 million associated with the repeal of the rate
freeze, and approximately $27 million associated with
the repeal of the rate reductions.
d) The actual impact of this bill on the state budget
is a net $89 million in additional savings instead of
a loss of $18 million, as it is unlikely that the
state would have achieved the $107 million in savings
assumed in the budget. Additionally, the bill
earmarks $320 million in additional GF savings in
2011-12 associated with the future enactment of a QAF
program in 2011-12.
1)Estimated one-time administrative costs in the Department
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of Health Care Services (DHCS) of approximately $800,000
(57 percent QAF, 43 percent FFP) in the CY.
2)Estimated one-time costs administrative costs at OSHPD of
$56,000 for equipment in 2011-12, and ongoing costs of $1
million annually beginning in 2011-12, to be funded
through increased fees on hospitals submitting
applications.
3)Upon the expiration of this program, General Fund cost
pressure is created to maintain the higher level of
payments to hospitals and the children's health care
coverage programs funded by the QAF.
BACKGROUND AND DISCUSSION
This bill is a result of an agreement reached between the
California Hospital Association (CHA) and the Brown
Administration that would end Medi-Cal hospital rate
reductions and the associated lawsuits filed against the
state and extend the state's QAF on hospitals for an
additional six months to draw $1 billion in revenue. The
resulting revenue would provide $211 million for children's
health coverage in the CY, and provide $1.9 billion from
the QAF and federal matching funds for supplemental
payments to private hospitals for Medi-Cal inpatient and
outpatient services. This bill would provide $858 million
in payments to private hospitals above the amounts paid in
QAF by these hospitals.
This bill would also generate GF savings by reducing
DSH-type GF payments to private hospitals by $30 million in
the CY and $75 million in the BY.
In addition, this bill would require DHCS to design and
implement an IGT program relating to Medi-Cal managed care
services provided by DPHs and NDPHs in order to increase
capitation payments to Medi-Cal managed care plans for the
purpose of increasing reimbursement to these hospitals.
Finally, this bill would extend the state's seismic safety
deadline of 2013 and 2015 for hospital buildings that are
classified as SPC-1 buildings, meaning they are at risk of
collapse in an earthquake. This seismic extension would
only take effect if the state receives $320 million from
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the QAF in the BY (July 1, 2011 through June 30, 2012) for
children's health coverage through a subsequently passed
bill.
The GF savings from all of the provisions of SB 90 are
estimated to be $50 million in the CY 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 CY and $412 million in the BY,
for a total of $500 million.
Background - Medi-Cal hospital payments
Federal law authorizes states to levy fees on health care
providers if the fees meet federal requirements. Many
states (including California) fund a portion of their share
of Medicaid program costs through a fee on health care
providers. Under these funding methods, states collect
funds (through fees, taxes, or other means) from providers,
which are then matched to allow increased Medicaid
reimbursement to providers. To prevent states from levying
an assessment on only Medicaid providers, federal law
requires provider fees to be "broad based" and uniformly
applied to all providers within specified classes of
provider (unless the broad based and uniform requirements
are waived by the federal government).
States are prohibited from having a provision that would
ensure providers are "held harmless" from the impact of the
fee. Federal approval of provider fees through Centers for
Medicare and Medicaid Services (CMS) is required.
California currently has a QAF for intermediate care
facilities for the developmentally disabled, and a separate
QAF for skilled nursing facilities (SNF). The SNF QAF
sunsets July 31, 2012.
AB 1383 and AB 188 (Jones), Chapter 645, Statutes of 2009,
enacted a Medi-Cal QAF, a methodology for making
supplemental payments to hospitals, provided funds for
children's health care coverage and grants to public
hospitals. AB 1383 was to become effective upon receipt of
CMS approval and become inoperative on January 1, 2011.
This was timed to take advantage of the increased Federal
Medicaid Assistance Percentage (FMAP) available under the
STAFF ANALYSIS OF SENATE BILL 90 (Steinberg) Page
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American Recovery and Reinvestment Act of 2009 (ARRA).
ARRA provided an increased FMAP from October 1, 2008
through December 31, 2010. ARRA increased California's
FMAP by 11.59 percent from of a base of 50 percent to 61.59
percent. The Education, Jobs, and Medicaid Assistance Act
extended the availability of increased FMAP but phased it
out over the additional six months by providing an
increased FMAP of 8.77 percent for January 2011 through
April 2011 and an increased FMAP of 5.66 percent for April
2011 through June 2011. The advantage of a higher FMAP is
less revenue is needed from the QAF. The hospital QAF
sunset December 31, 2010.
Differences from previous provider fee
This bill proposes a new fee and supplemental payment
program for the period between January 1, 2011 and June 30
2011 that is similar to the previous fee and supplemental
payment program. The most significant changes made to the
QAF and resulting payment program from the previous
legislation are the elimination of supplemental payments to
the 48 NDPH and grants to the 21 DPH, and an increase in
the per quarter amount for children's coverage (previously
$80 million, increased to $110 million per quarter under
this bill). Under the previous waiver, DPHs received $516
million and NDPHs received supplemental payments in
Medi-Cal fee-for-service and managed care.
Instead, this bill establishes a new IGT program that
allows the 48 NDPHs and 21 DPHs to use IGTs to increase the
Medi-Cal capitation rate to managed care plans with which
they contract. After federal matching funds are received,
the resulting increased revenue would then be passed on to
these hospitals for a net benefit of approximately $44
million. In addition, AB 113 (Monning) establishes an IGT
program for NDPHs that are reimbursed on a fee-for-service
basis that is estimated to provide a net benefit to these
48 hospitals of $33 million. Neither NDPHs or DPHs pay the
QAF under the prior QAF program, or under this bill.
According to the California Hospital Association, of the
357 licensed general acute care hospitals in the state, 237
pay the QAF under this bill. Of the 237 hospitals paying
the QAF, 15 independent hospitals and 4 hospital systems
pay more in QAF than they receive back in supplemental
payments. Across all private hospitals, this bill would
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provide $858 million in payments to private hospitals above
the amounts paid in QAF by these hospitals.
Language clarification
The Department of Health Care Services (DHCS), at the
request of the California Hospital Association, has written
a letter clarifying the intent of a provision of this bill
that reduces disproportionate share GF payments to private
hospitals. Private hospitals have expressed concern that
the language in this bill would continue a 10 percent rate
reduction in 2009-10 to subsequent budget years. The DHCS
letter states it is their intent that the state achieve $30
million in savings in the CY and $75 million in the BY
through the reduction of DSH (GF) replacement payments to
private hospitals. The DHCS letter states it is not DHCS'
intent to carry over this reduction, and that the statute
does not allow the state to carry over this reduction to
the 2010-11 or the 2011-12 fiscal year.
Background - hospital seismic requirements
Following the 1971 San Fernando Valley earthquake,
California enacted the Alfred E. Alquist Hospital Facility
Seismic Safety Act of 1973 (Alquist Act), which mandated
that all new hospital construction meet stringent seismic
safety standards. In 1994, after the Northridge
earthquake, the Legislature passed and the Governor signed
SB 1953 (Alquist), which required the Office of Statewide
Health Planning and Development (OSHPD) to establish
earthquake performance categories for hospitals, and
established a January 1, 2008, deadline by which general
acute care hospitals must be retrofitted or replaced so
that they do not pose a risk of collapse in the event of an
earthquake, and a January 1, 2030, deadline by which they
must be capable of remaining operational following an
earthquake. SB 1953 also allowed most hospitals to qualify
for an extension of the January 1, 2008 deadline to January
1, 2013.
Current law allows an extension of the 2008 deadline if
compliance will result in an interruption of health care
services provided by hospitals within the area. Hospital
owners can request extensions in one-year increments up to
a maximum of five years after January 1, 2008. Hospitals
may also request extensions of up to five years if acute
care services will be moved to an existing conforming
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building, relocated to a new building, or if the existing
building will be retrofitted to designated seismic
performance categories.
In addition to the five-year extension, the Legislature has
passed additional bills allowing hospitals to extend the
deadlines for retrofitting beyond the 2013 deadline. SB
1661 (Cox , Chapter 679, Statutes of 2006) authorizes an
extension of up to an additional two years for hospitals
that have already received extensions of the January 1,
2008, seismic safety compliance deadline if specified
criteria are met, including that the hospital building is
under construction at the time of the request for extension
and the hospital is making reasonable progress toward
meeting its deadline, but factors beyond the hospital's
control make it impossible for the hospital to meet the
deadline. Requests for this two-year extension have been
filed for 75 hospital buildings.
SB 306 (Ducheny) of 2007-2008 permits a hospital owner to
comply with seismic safety deadlines and requirements in
current law by replacing all of its buildings subject to
seismic retrofit by January 1, 2020, rather than
retrofitting by 2013, and then replacing them by 2030, if
the hospital meets several conditions and OSHPD certifies
that the hospital owner lacks the financial capacity to
meet seismic standards, as defined. Among the conditions a
hospital must meet to be eligible for this extension are
that it maintains a contract to provide Medi-Cal services,
maintains a basic emergency room, and is either in an
underserved area, serves an underserved community, is an
essential provider of Medi-Cal services, or is a heavy
provider of services to Medi-Cal and indigent patients.
Eighteen hospitals have qualified for extensions to 2020
under this authority.
Reclassification of hospital buildings based on seismic
risk
SB 499-Ducheny, Chapter 601, Statutes of 2009) gave OSHPD
emergency regulatory authority to adopt changes to HAZUS,
which is a seismic risk analysis tool which was developed
by the Federal Emergency Management Agency. OSHPD's
regulations, which it refers to as HAZUS 2010, revised a
previously adopted collapse probability threshold from .75
percent to 1.2 percent, and allows hospitals to apply for
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reevaluations under HAZUS 2010 by January 1, 2012. The
regulations additionally require buildings with collapse
probabilities of .75 percent to 1.2 percent to mitigate any
deficiencies identified by January 1, 2015.
Status of compliance with hospital seismic requirements
Based on the most recent status reports received by OSHPD
in fall 2010, OSHPD estimates that of the 677 SPC-1
buildings in acute care use, 196 are likely to comply with
the 2013 deadline, or already have an extension to 2020;
another 319 buildings will possibly comply with the 2013
(or 2015, if they receive two-year extensions already
provided under existing law) deadline; and 162 buildings
will likely not comply with the 2013 or 2015 deadlines.
Hospital owners have several means by which they are
planning to meet the 2013 seismic deadline. According to
the information submitted to OSHPD, owners state that they
are planning to meet the deadline for 167 of the 677 SPC-1
buildings by removing them from service; for 198 buildings
by replacing them with new buildings; and for 256 buildings
by retrofitting them. Hospital owners provided no clear
plans for compliance for 56 of the buildings.
Seismic risk posed by SPC-1 buildings
According to information submitted by OSHPD and reports
issued by the U.S. Geological Survey, the California
Geological Survey, and the Southern California Earthquake
Center, California has a 99 percent chance of having a
magnitude 6.7 or greater earthquake within the next 30
years. California also faces a 94 percent probability of a
7.0 earthquake, a 46 percent chance of a 7.5 earthquake,
and a 5 percent chance of an 8.0 earthquake in the next 30
years.
According to OSHPD, the seismic risk posed by SPC-1
buildings is affected by both their location and their
vulnerability based on their building characteristics.
While extensive information is not available for all SPC-1
buildings, many are known to have one or more
characteristics that place them at a heightened risk of
collapse in the event of an earthquake, including design
flaws; construction before 1973, the date the state began
imposing more stringent seismic safety requirements
pursuant to the Alquist Hospital Seismic Safety Act of
STAFF ANALYSIS OF SENATE BILL 90 (Steinberg) Page
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1972; and high probabilities of collapse based on HAZUS
modeling.
Related bills
This bill is joined to AB 113 (Monning), which would enact
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 (FFP) 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 would be administered by DHCS. Upon federal
approval, DHCS would be required to implement the IGT
program in the 2010-11 fiscal year, and it would be an
ongoing program.
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 AB 113, public entities would
transfer (through an IGT) $30.7 million to the state in the
CY, which would then be matched by $33.2 million in federal
funds. The resulting $64 million in total revenue would be
returned to these facilities under the allocation formula
contained in this measure. The IGT program established
under this bill would be an ongoing program.
SB 630 (Alquist) establishes several targeted extensions of
hospital seismic deadlines similar to those contained in SB
289 (Ducheny) of 2009-10, which was vetoed by the Governor.
Pending in the Senate Health Committee
AB 510 (Lowenthal) provides that a hospital shall not
provide general acute care inpatient services in a building
that does not comply with applicable seismic deadlines.
Requires DPH to suspend or refuse to renew the license of a
hospital that does not provide basic general acute care
services as a result of moving general acute care inpatient
services out of a noncompliant building. Awaiting hearing
in the Assembly Health Committee.
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Two bills have been introduced to impose a QAF for the
2011-12 fiscal year:
AB 62 (Monning), effective July 1, 2011, would impose a QAF
on each hospital that is not an exempt facility. This bill
would require the QAF to be computed starting on the
effective date of the bill, and to continue through and
including October 31, 2015. The proceeds from the QAF
would be used for the same purposes as the QAF imposed on
hospitals through December 31, 2010. This bill would
provide that the method of calculation and collection of
the QAF is to be determined in an unspecified manner. This
bill would require the director of DHCS to seek federal
approvals or waivers as may be necessary to implement the
above-described provisions and to obtain federal financial
participation to the maximum extent possible with the
proceeds from the QAF paid pursuant to those provisions.
This bill would require the QAF payments and any related
federal reimbursement to be deposited in the Hospital
Quality Assurance Revenue Fund. Awaiting hearing in the
Assembly Health Committee.
SB 335 (Hernandez) would state legislative intent to
consider legislation that would impose a QAF on hospitals
for the period of July 1, 2011, through June 30, 2012,
which would be used to increase federal financial
participation in order to make supplemental Medi-Cal
payments to hospitals and pay for health care coverage for
children, as specified. This bill would state legislative
intent that the QAF be implemented only if specified
conditions are met. SB 335 would take effect immediately
as an urgency bill. Awaiting hearing in the Senate Health
Committee.
Prior legislation
AB 1383(Jones), Chapter 627, Statutes of 2009 and AB 188
(Jones), Chapter 645, Statutes of 2009, enacted a Medi-Cal
hospital provider fee and a methodology for making
supplemental payments to hospitals, and provided funds for
children's health care coverage and grants to public
hospitals. In response to the state's request for federal
approval, the Centers for Medicare and Medicaid Services
(CMS) in June of 2010 sent a letter raising objections and
concerns to the methodology which concluded that the fee
STAFF ANALYSIS OF SENATE BILL 90 (Steinberg) Page
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enacted by AB 1383 did not meet federal standards. CMS
also suggested modifications, which were made by AB 1653
(Jones), Chapter 218, Statutes of 2010. AB 1653 also
established an alternative mechanism for funding
supplemental grants to public hospitals and allowed the
state to retain the funds that were previously allocated to
these hospitals.
SB 608 (Alquist), Chapter 623, Statutes of 2010, permits
OSHPD to grant two separate extensions to a hospital for a
total of five years, under specified circumstances related
to local planning delays, for compliance with existing
state seismic safety requirements.
SB 289 (Ducheny) of 2010 would have revised and extended,
under specified conditions, hospital seismic safety
construction and reporting requirements. SB 289 was vetoed
by Governor Arnold Schwarzenegger stating that hospitals
have been granted one extension after another and that
these types of extensions reward the exact behavior that
should not be allowed to continue. The Governor's veto
message further stated that any additional requests for
extensions to seismic deadlines must also include tough
penalties.
SB 499 (Ducheny), Chapter 601, Statutes of 2009, allows
hospitals that sought, but did not receive, seismic
reclassifications under HAZUS to qualify for a two-year
extension that is available to hospital buildings that have
filed building plans, submitted a construction timeline,
and are under construction. Moves up the deadline for
reports that hospitals with SPC-1 buildings must file with
OSHPD, and requires hospitals to file annual updates to the
reports, and subjects hospitals that do not submit reports
to fines, as specified. Authorizes OSHPD, until January 1,
2013, to utilize computer modeling, as specified, for
purposes of determining the structural performance category
of general acute care hospital buildings.
AB 303 (Beall), Chapter 428, Statutes of 2009, allows
specified county and UC disproportionate share hospitals
that serve Medi-Cal patients to receive supplemental
Medi-Cal reimbursement from the Construction and Renovation
Reimbursement Program for debt service on new capital
projects to meet seismic safety deadlines if plans are
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submitted to the state after January 1, 2007 and before
December 31, 2011.
AB 523 (Huffman), Chapter 243, Statutes of 2009, allows
OSHPD to grant a two-year extension of the 2013 seismic
deadline for a hospital building that is owned by Marin
Healthcare District. Establishes interim deadlines and
requirements the hospital must meet in order to qualify for
the extension, as specified.
SB 306 (Ducheny), Chapter 642, Statutes of 2008, amends the
Alquist Act to permit a hospital that has received an
extension of the 2008 seismic retrofit deadline to January
1, 2013, to instead replace a SPC-1 building by January 1,
2020, if the hospital demonstrates it lacks financial
capacity to retrofit by 2013 and meets other specified
conditions.
SB 1661 (Cox), Chapter 693, Statutes of 2006, authorizes up
to two additional years for hospitals that have already
received an extension to January 1, 2013 of the 2008
seismic safety compliance deadline if specified criteria
are met, and requires hospitals with SPC-1 buildings to
submit reports with specified information, to be posted on
the website of OSHPD.
Arguments in support
The California Hospital Association (CHA), as the sponsor
of the measure, writes in support that the creation and
implementation of the hospital fee program in California
has been extremely successful. CHA states the program has
been critical for hospitals to bolster their ability to
preserve health care services for the state's most
vulnerable patients. CHA writes the six-month fee program
is expected to provide a net benefit to hospitals of
approximately $858 million. In addition, the fee program
will provide $210 million to the state to help pay for
children's health care coverage. With the IGT program
created in this bill and AB 113 (Monning), CHA estimates
the benefit of these other programs is expected to be
approximately $80 million for the six-month period,
bringing the total fee and IGT program net benefit for
hospitals to $938 million.
CHA states, in light of the ongoing state budget crisis, it
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agreed to a comprehensive solution that includes Medi-Cal
reductions, a hospital fee program for fiscal year 2011-12,
hospital participation in helping resolve the state General
Fund budget deficit, relief in the area of seismic
compliance for hospitals, settlement of most CHA Medi-Cal
lawsuits against the state, and incentives for hospitals to
continue contracting with CMAC through June 30, 2012, by
which time a new Medi-Cal payment system should be in
place. CHA states that California's Medi-Cal program
underfunds hospital providers by more than $4 billion
annually, that hospitals have seen significant increases in
uninsured patients and patients enrolled in Medi-Cal in the
last two years. CHA concludes the hospital fee programs
will increase Medi-Cal payments at a time when there is
simply no alternative way to do so.
The Service Employees International Union (SEIU) writes in
support that, in the face of massive reductions in funding
for health and social services, this bill is of vital
importance to the patients its members serve, the members
of SEIU and to the economic viability of the health care
delivery system in California.
Arguments in opposition
The American Federation of State, County, and Municipal
Employees (AFSCME) and the United Nurses Associations of
California/Union of Health Care Professionals (UNAC/UHCP)
state that 85 percent of hospitals have reported that they
are on track to comply with the seismic deadlines and
requirements. Despite this, SB 90 gives OSHPD discretion
to grant seven-year extensions to hospitals that would
otherwise have complied by 2013, no matter how great the
seismic risk, no matter how unnecessary the hospital
building is, and no matter how wealthy the hospital is.
AFSCME and UNAC/UHCP argue that relying on the Hospital
Building Safety Board (Board) to review the emergency
regulations that OSHPD would develop to implement these
provisions is flawed because the Board has a history of
easing seismic risk and construction standards for
hospitals. AFSCME and UNAC/UHCP argue that the bill puts
hospital workers and patients at risk.
The California Nurses Association (CNA) states that it is
disturbing that SB 90 would grant a seven-year extension to
any hospital with a building at risk of collapse in an
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earthquake, even those that were previously on track to
comply with the 2013 deadline. For nearly four decades
California hospitals have been on notice about seismic
requirements since 1971, yet the seismic deadlines have
been repeatedly delayed. In a seismically active state
such as California, the time for compliance is now and the
reward for delays in compliance should not be more
extensions.
POSITIONS
Support: California Hospital Association (sponsor)
Adventist Health
Alameda Hospital
Alliance of Catholic Health Care
Bakersfield Memorial Hospital
Barlow Respiratory Hospital
Barton Health
California Children's Hospital Association
Catholic Healthcare West
Cedars-Sinai Health System
Children's Hospital Los Angeles
Citrus Valley Health Partners
City of Hope
College Health Enterprises
Community Hospital of San Bernardino
Community Medical Centers
Community Memorial Health System
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Desert Regional Medical Center
District Hospital Leadership Forum
Doctors Hospital of Manteca
Doctors Medical Center
Dominican Hospital
Enloe Medical Center
Fallbrook Hospital
Feather River Hospital/Adventist Health
Garden Grove Hospital Medical Center
Garfield Medical Center, AHMC
Henry Mayo Newhall Memorial Hospital
Hi-Desert Medical Center
Hoag Memorial Hospital Presbyterian
JFK Memorial Hospital
John C. Fremont Healthcare District
Kaweah Delta Health Care District
Lodi Memorial Hospital
Loma Linda University Medical Center
Lompoc Valley Medical Center
Los Alamitos Medical Center
Lucile Packard Children's Hospital
Marian Medical Center
Marshall Medical Center
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Mee Memorial Hospital
MemorialCare Health System
Mercy Hospital of Folsom
Mercy Hospitals of Bakersfield
Mercy Medical Center Mt. Shasta
Mercy San Juan Medical Center
Northridge Hospital Medical Center
Orange Coast Memorial
Physicians for Healthy Hospitals
Pioneers Memorial Healthcare District
Pomona Valley Hospital Medical Center
Private Essential Access Community Hospitals,
Inc.
Rady Children's Hospital - San Diego
Saint Francis Memorial Hospital
Saint Louise Regional Hospital
Salinas Valley Memorial Healthcare System
San Dimas Community Hospital
San Gabriel Valley Medical Center, AHMC
San Gorgonio Memorial Hospital
Sequoia Hospital
Service Employees International Union
Sharp Chula Vista Medical Center
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Sharp HealthCare, San Diego
Shasta Regional Medical Center
Sierra View District Hospital
Sierra Vista Regional Medical Center
St. Elizabeth Community Hospital
St. John's Pleasant Valley Hospital
St. John's Regional Medical Center
St. Joseph's Behavioral Health Center
St. Joseph's Medical Center
St. Mary Medical Center
Surprise Valley Health Care District
Sutter Tracy Community Hospital
Tehachapi Valley Healthcare District
Twin Cities Community Hospital
Victor Valley Community Hospital
Watsonville Community Hospital
Two individuals
Oppose: American Federation of State, County and
Municipal Employees, AFL-
CIO
California Nurses Association
United Nurses Association of California/Union of
Health Care
Professionals
-- END --
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