BILL ANALYSIS Ó
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 335
S
AUTHOR: Hernandez and Steinberg
B
AMENDED: June 9, 2011
HEARING DATE: June 15, 2011
3
CONSULTANT:
3
Bain and Hansel
5
SUBJECT
Medi-Cal: hospitals: quality assurance fee
SUMMARY
Imposes a Quality Assurance Fee (QAF) on specified
hospitals for one year (June 30, 2011 until June 30, 2012),
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, and to provide $320 million for
children's health coverage in the budget year (BY).
Permits county and University of California hospitals to be
paid direct grants (not Medi-Cal payments) in support of
health care expenditures, funded from the QAF. Takes
effect immediately as an urgency statute.
CHANGES TO EXISTING LAW
Existing law:
Establishes the Medi-Cal program, administered by the
Department of Health Care Services (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.
Continued---
STAFF ANALYSIS OF SENATE BILL 335 (Hernandez and Steinberg)
Page 2
Establishes 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.
Establishes the Hospital QAF Act of 2011 (2011 QAF) which
levies a hospital QAF, from January 1, 2011 to June 30,
2011, on each hospital that is not an exempt hospital, with
varying fee amounts by payor source and type of payment.
Requires all funds from the 2011 QAF to be used exclusively
to enhance federal financial participation (FFP) for
hospital services under Medi-Cal, to provide additional
reimbursement to hospitals, to fund children's health
coverage, in a specified order of priority.
Sunsets the Medi-Cal Hospital Rate Stabilization Act of
2011 and the Hospital QAF Act of 2011 on January 1, 2013.
Allows hospitals that have received extensions to January
1, 2013 of the January 1, 2008 hospital seismic safety
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. Conditions the
seismic extension provisions becoming 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.
This bill:
Enacts the Medi-Cal Hospital Provider Rate Stabilization
Act of 2012 and the Hospital Quality Assurance Fee Act of
2012.
Medi-Cal Hospital Provider Rate Stabilization Act of 2012
In the 2010-11 session, a series of bills enacted and
STAFF ANALYSIS OF SENATE BILL 335 (Hernandez and Steinberg)
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modified a hospital QAF. The resulting revenue was
generally used to draw down FFP to provide supplemental
payments to hospitals and grants to designated public
hospitals (DPHs are University of California and county
hospitals) and to provide funding for children's health
coverage. The QAF was in effect until December 31, 2010.
In April 2011, subsequent legislation enacted a second QAF
for the first six months of 2011.
Specifically, this bill:
§ Enacts the Medi-Cal Hospital Provider Rate Stabilization
Act of 2012 to provide supplemental payments from July 1,
2011 to June 30, 2012 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. Requires DHCS to structure
the supplemental payments so as to maximize the statewide
aggregate upper payment limit (UPL) for private
hospitals. Requires each private hospital to be paid an
amount equal to a percentage of the hospital's outpatient
base amount (the total amount of payments for hospital
outpatient services made to a hospital in the 2009
calendar year), and to result in payments to hospitals
that equal the applicable federal UPL.
§ Provides inpatient supplemental payment amounts that are
in addition to any other amounts payable to hospitals.
These payments are prohibited from affecting any other
payments to hospitals. Inpatient supplemental payment
amounts vary depending upon the type of hospital care
provided (for example, 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 the following amounts for
the provision of hospital inpatient services from July 1,
2011 through June 30, 2012:
--An unspecified amount (placeholder language);
--An unspecified amount (placeholder language)
multiplied by the hospital's number of acute
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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 described 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 described in the
bullets above.)
§ Requires a private hospital that provides Medi-Cal
subacute services from July 1, 2011 to June 30, 2012, 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 2009
calendar year.
§ Requires 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
hospital acute psychiatric supplemental payment amounts
for all hospitals for which FFP is available.
§ Requires DHCS to increase capitation payments to Medi-Cal
managed care plans exclusively for the purpose of making
payments to hospitals. Requires DHCS to determine the
amount of the increased capitation payments for each
plan, taking into account specified factors and federal
requirements. 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.
§ Permits designated public hospitals (county and
STAFF ANALYSIS OF SENATE BILL 335 (Hernandez and Steinberg)
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University of California hospitals) to be paid direct
grants (not Medi-Cal payments) in support of health care
expenditures, funded from the QAF.
§ Requires all payments made by DHCS to hospitals, managed
health care plans and mental health plans under the
Medi-Cal Hospital Provider Rate Stabilization Act of 2012
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, nondesignated public hospitals (NDPHs are
district hospitals) and DPHs provided before July 1, 2011
from being reduced below the rates in effect on July 1,
2011.
§ Prohibits California Medical Assistance Commission (CMAC)
inpatient rates for Medi-Cal inpatient services furnished
before July 1, 2011 from being reduced below the lower of
the contract amounts in effect on July 1, 2011.
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.
§ Requires, for purposes of this bill, a rate reduction or
a change in a rate methodology that is enjoined by a
court to be included in the determination of a rate or
rate methodology until all appeals or judicial reviews
have been exhausted and the rate reduction/change in
methodology has been permanently enjoined, denied or
otherwise prevented from being implemented.
Hospital Quality Assurance Fee Act of 2012
§ Enacts the Hospital QAF Act of 2012 which levies a
hospital QAF, from July 1, 2011 to June 30, 2012, on each
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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 an unspecified amount per day;
§ The managed care per diem QAF rate is a fixed
fee on managed care days of an unspecified amount
per day;
§ The Medi-Cal per diem QAF rate is a fixed fee on
Medi-Cal days of an unspecified amount 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 an unspecified amount 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 an unspecified amount per day.
§ Requires 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
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 $80 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 General Fund (GF) for the
increase in the overall compensation to a private
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hospital that is attributable to its change in
status from a 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.
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 QAF Act of 2012.
Sunset date
Sunsets the provisions of this bill on January 1, 2013, the
date of the last payment of the QAF payments or the date of
the last payment from DHCS under this bill, whichever is
later.
Urgency clause
Takes effect immediately as an urgency statute.
FISCAL IMPACT
This bill has not been analyzed by a fiscal committee.
BACKGROUND AND DISCUSSION
According to the author, this bill enacts a QAF for the
2011-12 budget year to draw down increased federal funds
for hospital services, and to provide $320 million in
revenue for children's health coverage. Federal law
authorizes states to levy fees on health care providers if
the fees meet federal requirements. The Legislature last
session enacted a QAF that ended in December 2010, and a
STAFF ANALYSIS OF SENATE BILL 335 (Hernandez and Steinberg)
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second QAF for the first six months of this year. This
bill would enact a third QAF, which will enable the state
to use the revenue generated by QAF to match federal funds,
which would then be used to boost Medi-Cal payments to
hospitals. In addition, the QAF would provide $320 million
for children's health coverage in the budget year. The
author argues that providing increased funding to hospitals
using state GF dollars alone is not otherwise possible
given the state's dire fiscal situation, and this bill
enables the state to achieve GF savings to fund children's
health coverage.
Background - Medi-Cal hospital payments
Federal Medicaid 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 the Centers
for Medicare and Medicaid Services (CMS) is required. In
addition to the hospital QAF, California currently has a
QAF for intermediate care facilities for the
developmentally disabled, and a separate QAF for skilled
nursing facilities.
AB 1383 and AB 188 (Jones), Chapter 627 and Chapter 645,
Statutes of 2009, enacted a Medi-Cal QAF, a methodology for
making supplemental payments to hospitals, which also
provided funds for children's health care coverage, and
funds for grants to public hospitals. These measures
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. In addition, over the
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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. The
hospital QAF enacted under the bills by Assemblymember
Jones sunset December 31, 2010.
In early 2011, the Legislature passed and the Governor
signed into law SB 90 (Steinberg), Chapter 19, Statutes of
2011. SB 90 establishes a new QAF and hospital
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 funding distribution in SB 90 as
compared to the funding distribution in 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 (from $80
million per quarter to $110 million per quarter). In
addition, SB 90 established a new intergovernmental
transfer (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. According to
the California Hospital Association, of the 357 licensed
general acute care hospitals in the state, 237 pay the QAF
under SB 90. 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, SB 90 was estimated to
provide $858 million in payments to private hospitals above
the amounts paid in QAF by these hospitals.
The one-year QAF in this bill is preliminarily projected to
generate approximately $2.2 billion in fee revenue paid by
private hospitals. Of this amount, $320 million would be
used for children's health coverage. The remaining $1.9
billion would be matched with approximately $1.9 billion in
federal matching funds, generating approximately $3.7
billion in new payments to private hospitals. Statewide,
the net benefit hospitals are preliminarily projected to
receive from the QAF-related provisions of this measure is
approximately $1.5 billion above what hospitals paid in
fees.
Differences from previous provider fee
This bill proposes a new fee and supplemental payment
STAFF ANALYSIS OF SENATE BILL 335 (Hernandez and Steinberg)
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program for the period between June 30, 2011 and July 1,
2012 that is generally modeled on the structure of the
previous fee and supplemental payment program, except that
it relies on more recent data on hospital utilization.
However, there is not a consensus in the hospital community
over the duration of the QAF and whether DPHs will receive
funding from the QAF (DPHs do not pay the QAF; they
received grants under the initial QAF legislation but not
under the second six-month extension enacted by SB 90).
Because the issue of whether DPHs will receive funds from
the QAF will affect the payment distribution amounts and
the amount of the fee, this bill contains placeholder
language in several places regarding the amount of the QAF
and the increased payments to hospitals. In addition,
several technical details need to be resolved, including
calculating the federal UPL and actuarially sound rates,
before modeling can be completed.
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, CMS in June of 2010 sent a letter raising
objections and concerns to the methodology which concluded
that the fee 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 90 (Steinberg), Chapter 19, Statutes of 2010, repeals
specified Medi-Cal hospital rate freezes and rate
reductions enacted in health budget trailer bills in 2008,
2010 and 2011. Imposes a 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
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pay for DHCS administrative costs in administering the
hospital fee and supplemental payment provisions of this
bill. Reduces disproportionate share GF payments to
private hospitals by $30 million GF in the CY and $75
million GF in the BY. Requires DHCS to design and
implement an IGT program for Medi-Cal managed care services
provided by DPH and NDPHs for the purpose of increasing
reimbursement to NDPHs and DPHs.
In addition, SB 90 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 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. SB 90 conditions the seismic
extension provisions becoming 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.
Arguments in support
This bill is sponsored by the California Hospital
Association (CHA), which writes that the creation and
implementation of the hospital fee program in California
has been extremely successful. The program has been
critical for hospitals to bolster their ability to preserve
health care services for the state's most vulnerable
patients. The 2009-10 program is now complete and delivered
on its goal of bringing $2.6 billion in new Medi-Cal
funding to California hospitals. In addition, the 2009-10
hospital fee program provided the state with $560 million
in funding for children's health care coverage. CHA states
the six-month extension is currently in process and is on
track to provide the state with $210 million in funding for
children's health care coverage and about $850 million to
hospitals in funding that is desperately needed to serve
the state's Medi-Cal population.
Despite the loss of the enhanced federal matching rate
included in the previous two programs (61.59 percent and
STAFF ANALYSIS OF SENATE BILL 335 (Hernandez and Steinberg)
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56.88 percent), CHA argues the hospital provider fee
program remains crucial to the preservation of California's
entire safety net. Without these programs, CHA states the
number of hospitals forced to restrict or end services to
Medi-Cal patients will continue to increase. The hospital
fee program proposed in SB 335 includes a federal match
rate of 50 percent, which is a loss of millions of federal
dollars compared to the prior programs. Despite that, CHA
writes that hospitals have committed to provide $320
million ($80 million per quarter) to the state to support
the cost of children's health care coverage.
CHA writes that this bill is a work-in-progress for a
hospital fee covering the period from July 1, 2011, through
June 30, 2012, and that a final proposal will be completed
soon. CHA states that, with the added complexity of fewer
federal dollars in the program, combined with cuts to
Medi-Cal rates, the commitment to provide $320 million for
children's coverage, and the growing Medi-Cal population,
several details remain open. Most of them are technical in
nature such as calculating the maximum amount of room
available in the UPL and actuarially certified rates that
will be included in the statewide hospital fee program, and
that hospitals are working hard to resolve the few
remaining open items.
CHA concludes that the provider fee will not solve
California's Medi-Cal shortfall, but it will continue to be
the largest programmatic action taken since the founding of
the program to mitigate the lack of sufficient funding.
CHA concludes that it is vital to California hospitals that
the provider fee be approved and implemented and the
provider fee program will increase Medi-Cal payments at a
time when there is simply no alternative way to do so.
POSITIONS
Support: California Hospital Association (sponsor)
Adventist Health
Alliance of Catholic Health Care
STAFF ANALYSIS OF SENATE BILL 335 (Hernandez and Steinberg)
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California Children's Hospital Association
Loma Linda University Medical Center
Private Essential Access Community Hospitals,
Inc.
Oppose: None on file.
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