BILL NUMBER: SB 289	AMENDED
	BILL TEXT

	AMENDED IN SENATE  JANUARY 4, 2012
	AMENDED IN SENATE  MARCH 24, 2011

INTRODUCED BY   Senator Hernandez

                        FEBRUARY 14, 2011

   An act to amend Section 14105.28 of the Welfare and Institutions
Code, relating to Medi-Cal.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 289, as amended, Hernandez. Medi-Cal: inpatient hospital
reimbursement methodology.
   Existing law provides for the Medi-Cal program, which is
administered by the State Department of Health Care Services and
under which qualified low-income persons receive health care
benefits. The Medi-Cal program is, in part, governed and funded by
federal Medicaid Program provisions.
   Existing law requires the department, subject to federal approval,
to develop and implement a Medi-Cal payment methodology based on
diagnosis-related groups that reflects the costs and staffing levels
associated with quality of care for patients in all general acute
care hospitals, as specified.  Existing law requires the
department to submit status reports to the Legislature on the
implementation of these provisions, and requires the methodology to
be implemented on July 1, 2012, or on the date that the Director of
Health Care Services executes a   specified declaration,
whichever is later.  
   This bill would require the department, when evaluating
alternative diagnosis-related group algorithms for this reimbursement
system to consider whether outlier payments, policy adjusters, or
other special provisions are required to adequately reimburse
specified comprehensive cancer centers.  
   This bill would require the department to include prescribed
information in the status reports submitted to the Legislature, and
would make other technical, nonsubstantive changes to these
provisions. 
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

   SECTION 1.    Section 14105.28 of the  
Welfare and Institutions Code   is amended to read: 
   14105.28.  (a) It is the intent of the Legislature to design a new
Medi-Cal inpatient hospital reimbursement methodology based on
diagnosis-related groups that more effectively ensures all of the
following:
   (1) Encouragement of access by setting higher payments for
patients with more serious conditions.
   (2) Rewards for efficiency by allowing hospitals to retain savings
from decreased length of stays and decreased costs per day.
   (3) Improvement of transparency and understanding by defining the
"product" of a hospital in a way that is understandable to both
clinical and financial managers.
   (4) Improvement of fairness so that different hospitals receive
similar payment for similar care and payments to hospitals are
adjusted for significant cost factors that are outside the hospital's
control.
   (5) Encouragement of administrative efficiency and minimizing
administrative burdens on hospitals and the Medi-Cal program.
   (6) That payments depend on data that has high consistency and
credibility.
   (7) Simplification of the process for determining and making
payments to the hospitals.
   (8) Facilitation of improvement of quality and outcomes.
   (9) Facilitation of implementation of state and federal provisions
related to hospital acquired conditions.
   (10) Support of provider compliance with all applicable state and
federal requirements.
   (b) (1) (A) (i) The department shall develop and implement a
payment methodology based on diagnosis-related groups, subject to
federal approval, that reflects the costs and staffing levels
associated with quality of care for patients in all general acute
care hospitals in state and out of state, including Medicare critical
access hospitals, but excluding public hospitals, psychiatric
hospitals, and rehabilitation hospitals, which include alcohol and
drug rehabilitation hospitals.
   (ii) The payment methodology developed pursuant to this section
shall be implemented on July 1, 2012, or on the date upon which the
director executes a declaration certifying that all necessary federal
approvals have been obtained and the methodology is sufficient for
formal implementation, whichever is later.
   (B) The diagnosis-related group-based payments shall apply to all
claims, except claims for psychiatric inpatient days, rehabilitation
inpatient days, managed care inpatient days, and swing bed stays for
long-term care services, provided, however, that psychiatric and
rehabilitation inpatient days shall be excluded regardless of whether
the stay was in a distinct-part unit. The department may exclude or
include other claims and services as may be determined during the
development of the payment methodology.
   (C) Implementation of the new payment methodology shall be
coordinated with the development and implementation of the
replacement Medicaid Management Information System pursuant to the
contract entered into pursuant to Section 14104.3, effective on May
3, 2010.
   (2) The department shall evaluate alternative diagnosis-related
group algorithms for the new Medi-Cal reimbursement system for the
hospitals to which paragraph (1) applies. The evaluation shall
include, but not be limited to, consideration of all of the following
factors:
   (A) The basis for determining diagnosis-related group base price,
and whether different base prices should be used taking into account
factors such as geographic location, hospital size, teaching status,
the local hospital wage area index, and any other variables that may
be relevant.
   (B) Classification of patients based on appropriate acuity
classification systems.
   (C) Hospital case mix factors.
   (D) Geographic or regional differences in the cost of operating
facilities and providing care.
   (E) Payment models based on diagnosis-related groups used in other
states.
   (F) Frequency of  grouper   group 
updates for the diagnosis-related groups.
   (G) The extent to which the particular grouping algorithm for the
diagnosis-related groups accommodates  ICD-10  
the International Classification of Diseases, 10th Revision (ICD-10),
 diagnosis and procedure codes, and applicable requirements of
the federal Health Insurance Portability and Accountability Act of
1996  (HIPAA; Public Law 104-191) .
   (H) The basis for calculating relative weights for the various
diagnosis-related groups.
   (I) Whether policy adjusters should be used, for which care
categories they should be used, and the frequency of updates to the
policy adjusters.
   (J) The extent to which the payment system is budget neutral and
can be expected to result in state budget savings in future years.
   (K) Other factors that may be relevant to determining payments,
including, but not limited to, add-on payments, outlier payments,
capital payments, payments for medical education, payments in the
case of early transfers of patients, and payments based on
performance and quality of care.
   (c) The department shall submit to the Legislature  a
status report   status reports  on the
implementation of this section on April 1, 2011, April 1, 2012, April
1, 2013, and April 1, 2014.  The status reports submitted
pursuant to this subdivision shall include a list of the claims and
services excluded pursuant to subparagraph (B) of paragraph (1) of
subdivision   (b). 
   (d) The alternatives for a new system described in paragraph (2)
of subdivision (b) shall be developed in consultation with recognized
experts with experience in hospital reimbursement, economists, the
federal Centers for Medicare and Medicaid Services, and other
interested parties.
   (e) In implementing this section, the department may contract, as
necessary, on a bid or nonbid basis, for professional consulting
services from nationally recognized higher education and research
institutions, or other qualified individuals and entities not
associated with a particular hospital or hospital group, with
demonstrated expertise in hospital reimbursement systems. The rate
setting system described in subdivision (b) shall be developed with
all possible expediency. This subdivision establishes an accelerated
process for issuing contracts pursuant to this section and contracts
entered into pursuant to this subdivision shall be exempt from the
requirements of Chapter 1 (commencing with Section 10100) and Chapter
2 (commencing with Section 10290) of Part 2 of Division 2 of the
Public Contract Code.
   (f) (1) The department may adopt emergency regulations to
implement the provisions of this section in accordance with
rulemaking provisions of the Administrative Procedure Act (Chapter
3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title
2 of the Government Code). The initial adoption of emergency
regulations and one readoption of the initial regulations shall be
deemed to be an emergency and necessary for the immediate
preservation of the public peace, health and safety, or general
welfare. Initial emergency regulations and the one readoption of
those regulations shall be exempt from review by the Office of
Administrative Law. The initial emergency regulations and the one
readoption of those regulations authorized by this section shall be
submitted to the Office of Administrative Law for filing with the
Secretary of State and publication in the California Code of
Regulations.
   (2) As an alternative to paragraph (1), and notwithstanding the
rulemaking provisions of Chapter 3.5 (commencing with Section 11340)
of Part 1 of Division 3 of Title 2 of the Government Code, or any
other provision of law, the department may implement and administer
this section by means of provider bulletins, all-county letters,
manuals, or other similar instructions, without taking regulatory
action. The department shall notify the fiscal and appropriate policy
committees of the Legislature of its intent to issue a provider
bulletin, all-county letter, manual, or other similar instruction, at
least five days prior to issuance. In addition, the department shall
provide a copy of any provider bulletin, all-county letter, manual,
or other similar instruction issued under this paragraph to the
fiscal and appropriate policy committees of the Legislature. 

  SECTION 1.    Section 14105.28 of the Welfare and
Institutions Code is amended to read:
   14105.28.  (a) It is the intent of the Legislature to design a new
Medi-Cal inpatient hospital reimbursement methodology based on
diagnosis-related groups that more effectively ensures all of the
following:
   (1) Encouragement of access by setting higher payments for
patients with more serious conditions.
   (2) Rewards for efficiency by allowing hospitals to retain savings
from decreased length of stays and decreased cost per day.
   (3) Improvement of transparency and understanding by defining the
"product" of a hospital in a way that is understandable to both
clinical and financial managers.
   (4) Improvement of fairness so that different hospitals receive
similar payment for similar care and payments to hospitals are
adjusted for significant cost factors that are outside the hospital's
control.
   (5) Encouragement of administrative efficiency and minimizing
administrative burdens on hospitals and the Medi-Cal program.
   (6) That payments depend on data that has high consistency and
credibility.
   (7) Simplification of the process for determining and making
payments to the hospitals.
   (8) Facilitation of improvement of quality and outcomes.
   (9) Facilitation of implementation of state and federal provisions
related to hospital acquired conditions.
   (10) Support of provider compliance with all applicable state and
federal requirements.
   (b) (1) (A) (i) The department shall develop and implement a
payment methodology based on diagnosis-related groups, subject to
federal approval, that reflects the costs and staffing levels
associated with quality of care for patients in all general acute
care hospitals in state and out of state, including Medicare critical
access hospitals, but excluding public hospitals, psychiatric
hospitals, and rehabilitation hospitals, which include alcohol and
drug rehabilitation hospitals.
   (ii) This section shall be implemented on the date that the
replacement Medicaid Management Information System, described in
subparagraph (C), becomes fully operational, but no later than June
30, 2014. The director shall execute a declaration stating the date
on which the replacement system has become fully operational.
   (B) The diagnosis-related group-based payments shall apply to all
claims, except claims for psychiatric inpatient days, rehabilitation
inpatient days, managed care inpatient days, and swing bed stays for
long-term care services, provided, however, that psychiatric and
rehabilitation inpatient days shall be excluded regardless of whether
the stay was in a distinct-part unit. The department may exclude or
include other claims and services as may be determined during the
development of the payment methodology.
   (C) Implementation of the new payment methodology shall be
coordinated with the development and implementation of the
replacement Medicaid Management Information System pursuant to the
contract entered into pursuant to Section 14104.3, effective on May
3, 2010.
   (2) The department shall evaluate alternative diagnosis-related
group algorithms for the new Medi-Cal reimbursement system for the
hospitals to which paragraph (1) applies. The evaluation shall
include, but not be limited to, consideration of all of the following
factors:
   (A) The basis for determining diagnosis-related group base price,
and whether different base prices should be used taking into account
factors such as geographic location, hospital size, teaching status,
the local hospital wage area index, and any other variables that may
be relevant.
   (B) Classification of patients based on appropriate acuity
classification systems.
   (C) Hospital case mix factors.
   (D) Geographic or regional differences in the cost of operating
facilities and providing care.
   (E) Payment models based on diagnosis-related groups used in other
states.
   (F) Frequency of grouper updates for the diagnosis-related groups.

   (G) The extent to which the particular grouping algorithm for the
diagnosis-related groups accommodates ICD-10 diagnosis and procedure
codes, and applicable requirements of the federal Health Insurance
Portability and Accountability Act of 1996 (HIPAA; Public Law
104-191).
   (H) The basis for calculating relative weights for the various
diagnosis-related groups.
   (I) Whether policy adjusters should be used, for which care
categories they should be used, and the frequency of updates to the
policy adjusters.
   (J) Whether outlier payments, policy adjusters, or other special
provisions are required to adequately reimburse National Cancer
Institute-designated comprehensive cancer centers that are exempt
from the prospective payment system pursuant to Section 1866(d)(1)(B)
(v) of the federal Social Security Act (42 U.S.C. 1395ww(d)(1)(B)
(v)).
   (K) The extent to which the payment system is budget neutral and
can be expected to result in state budget savings in future years.
   (L) Other factors that may be relevant to determining payments,
including, but not limited to, add-on payments, outlier payments,
capital payments, payments for medical education, payments in the
case of early transfers of patients, and payments based on
performance and quality of care.
   (c) The department shall submit to the Legislature status reports
on the implementation of this section on April 1, 2011, April 1,
2012, April 1, 2013, and April 1, 2014.
   (d) The alternatives for a new system described in paragraph (2)
of subdivision (b) shall be developed in consultation with recognized
experts with experience in hospital reimbursement, economists, the
federal Centers for Medicare and Medicaid Services, and other
interested parties.
   (e) In implementing this section, the department may contract, as
necessary, on a bid or nonbid basis, for professional consulting
services from nationally recognized higher education and research
institutions, or other qualified individuals and entities not
associated with a particular hospital or hospital group, with
demonstrated expertise in hospital reimbursement systems. The rate
setting system described in subdivision (b) shall be developed with
all possible expediency. This subdivision establishes an accelerated
process for issuing contracts pursuant to this section and contracts
entered into pursuant to this subdivision shall be exempt from the
requirements of Chapter 1 (commencing with Section 10100) and Chapter
2 (commencing with Section 10290) of Part 2 of Division 2 of the
Public Contract Code.
   (f) (1) The department may adopt emergency regulations to
implement the provisions of this section in accordance with
rulemaking provisions of the Administrative Procedure Act (Chapter
3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title
2 of the Government Code). The initial adoption of emergency
regulations and one readoption of the initial regulations shall be
deemed to be an emergency and necessary for the immediate
preservation of the public peace, health, and safety or general
welfare. Initial emergency regulations and the one readoption of
those regulations shall be exempt from review by the Office of
Administrative Law. The initial emergency regulations and the one
readoption of those regulations authorized by this section shall be
submitted to the Office of Administrative Law for filing with the
Secretary of State and publication in the California Code of
Regulations.
   (2) As an alternative to paragraph (1), and notwithstanding the
rulemaking provisions of Chapter 3.5 (commencing with Section 11340)
of Part 1 of Division 3 of Title 2 of the Government Code, or any
other provision of law, the department may implement and administer
this section by means of provider bulletins, all-county letters,
manuals, or other similar instructions, without taking regulatory
action. The department shall notify the fiscal and appropriate policy
committees of the Legislature of its intent to issue a provider
bulletin, all-county letter, manual, or other similar instruction, at
least five days prior to issuance. In addition, the department shall
provide a copy of any provider bulletin, all-county letter, manual,
or other similar instruction issued under this paragraph to the
fiscal and appropriate policy committees of the Legislature.