BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 335 (Hernandez)
Hearing Date: 7/11/2011 Amended: 6/9/2011
Consultant: Katie Johnson Policy Vote: Health 6-2
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BILL SUMMARY: SB 335, an urgency measure, would impose a
quality assurance fee (QAF) on specified hospitals for FY
2011-2012 and make corresponding supplemental payments to other
specified hospitals. The bill would provide $320 million for
children's health coverage in FY 2011-2012, permit direct grants
to be made to public hospitals, and trigger hospital seismic
safety standards deadline extensions.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
Children's health $320,000 $0 $0 Special*
care coverage
QAF Revenue (Approximately $2,200,000 in FY
2011-12)Special*
DHCS administration $2,000 $0 $0
Federal/**
Special/
General
Supplemental payments Approximately $3,700,000 in FY
2011-12Federal/**
to hospitals Special
Potential restoration of $26,000*** $0
$0General
hospital outpatient rates
*Hospital Quality Assurance Revenue Fund
**50 percent federal funds, 50 percent Hospital Quality
Assurance Revenue Fund; General Fund costs if bill is not
amended to permit QAF revenue to cover all of DHCS'
administrative needs.
***See Staff Comments. Depends on how the language is
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interpreted.
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
SB 335 would require that specified hospitals pay a QAF to the
Department of Health Care Services (DHCS) and that the
department make supplemental payments consisting of QAF revenues
and matching federal funds to hospitals as specified. Currently,
this bill contains the methodology framework for both the QAF
and the supplemental payments, but does not yet specify the
formula for calculating the fees to be charged or the
supplemental payments. The California Hospital Association and
DHCS are in the process of calculating the necessary figures to
complete the methodology. DHCS would need approximately $2
million in FY 2011 - 2012 to administer the QAF program. This
bill currently authorizes $500,000 in QAF revenue for DHCS
administration, which would be matched with an equal amount of
federal funds. If this bill is not amended to authorize
additional administration funds to DHCS from the QAF revenue,
then there could be General Fund costs in an amount sufficient
to cover their costs.
Preliminarily, it is estimated that this year long QAF will 1)
generate approximately $2.2 billion in fee revenue, 2) provide
$320 million of that to the state for children's health
programs, and 3) provide supplemental payments to hospitals of
about $3.7 billion (50 percent federal matching funds, 50
percent QAF revenue). In order to disburse these funds, staff
notes that this bill would need to be amended to specifically
appropriate the funds, as has been done with previous QAFs.
Additionally, due to some ambiguous language, this bill could
restore a cut made by AB 97 (Committee on Budget), Chapter 3,
Statutes of 2011, to outpatient hospital services rates; $26
million General Fund savings were scored in the budget.
In order to access a full year of federal funding, 1) this bill
would need to be amended to include the methodology and be
signed, and 2) DHCS would need to submit a state plan amendment
(SPA) to the federal Centers for Medicare and Medicaid Services
(CMS) by the end of the first quarter of FY 2011-2012, September
30, 2011, and obtain federal approval. This bill would provide
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that the QAF would sunset January 1, 2013, or June 1, 2012, if
federal approval is not received by that date.
Previous QAF Legislation
The most recent QAF was established for January 1, 2011, to June
30, 2011, by SB 90 (Steinberg), Chapter 19, Statutes of 2011,
and AB 113 (Monning), Chapter 20, Statutes of 2011. The previous
QAF, from April 1, 2009, to December 31, 2010, was established
by AB 1383 (Jones), Chapter 627, Statutes of 2009, and AB 188
(Jones), Chapter 645, Statutes of 2009, and amended by AB 1653
(Jones), Chapter 218, Statutes of 2010. Since this bill would
significantly augment payments to hospitals for a limited time,
as with other the QAFs, there would be General Fund cost
pressure to continue to pay supplemental payments beyond FY
2011-2012.
The passage of SB 335 and the receipt of $320 million in QAF
revenue for children's health care services would operationalize
the seismic safety extensions from January 1, 2013, up to a
maximum of seven years, contained in SB 90.
Supplemental Payments
The Medi-Cal Hospital Provider Rate Stabilization Act of 2012,
established by this bill, would:
a. Require that private hospitals be paid
supplemental payments for the provision of hospital
inpatient and outpatient services sufficient to
maximize the statewide aggregate upper payment limit
(UPL) for private hospitals in FY 2011-2012, to the
extent FFP is available, as specified. This bill has
blanks in some of the spaces that would contain the
amount of payment for inpatient services for private
hospitals. However, it does specify that eligible
hospitals would be paid $1,350 for each high acuity
and trauma center day and that hospitals that
provide Medi-Cal subacute services would receive an
amount equal to 20 percent of the Medi-Cal subacute
payments made to the hospital during the 2009
calendar year, as specified.
b. Increase payments to mental health plans
for the purpose of making payments to hospitals for
acute psychiatric days. There is a blank in the
definition of "individual hospital acute psychiatric
supplemental payment."
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c. Require DHCS to increase capitation
payments to Medi-Cal managed health care plans (MCO)
for purposes of making supplemental payments from
the MCO to hospitals based on the consideration of
the composition of Medi-Cal enrollees in each MCO,
anticipated utilization of hospital services by the
MCO's Medi-Cal enrollees, and other reasonable
factors. This bill would require that the payments
to MCOs would commence no later than December 31,
2011, or within 60 days of receipt of all federal
approvals. In order to make these supplemental
payments, DHCS would need to update, and CMS would
need to approve, MCO contracts. This bill would
permit DHCS to assess charges on MCOs in order to
pay for the administrative costs associated with
contract changes. MCOs would be required to expend
the increased capitation payments with 30 days of
receipt.
d. Permit designated public hospitals to be
paid direct grants in support of health care
expenditures funded by the QAF revenues.
e. Require the department to make
disbursements periodically within 15 days of each
date on which QAFs are due from the hospitals and to
make all supplemental and increased payments, to the
maximum extent possible, prior to July 1, 2012.
f. Preserve levels of inpatient and
outpatient hospital payments at the level in place
on July 1, 2011. As mentioned above, this could
result in a cost of $26 million General Fund.
g. Require the department to seek and obtain
any necessary federal approvals in implementing this
bill including changing Medi-Cal MCO contracts.
QAF Revenue Collection
The Hospital Quality Assurance Fee Act of 2012, established by
this bill, would:
a. Impose on each general acute care hospital that is
not an exempt facility a QAF for the period July 1, 2011,
through June 30, 2012. Hospitals would be required to pay
the aggregate QAF in four equal installments, at least
one month apart, as specified by DHCS upon receipt of the
notice of federal approval.
b. Exempt public, small, rural, specialty and long-term
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care hospitals from paying the fee.
c. Specify the amount of QAF to be remitted to DHCS by
hospitals based on the annual fee-for-service and managed
care days of each hospital. As mentioned above, there are
blanks in this bill since the QAF methodology specifying
the amount that hospitals must pay has yet to be
determined.
d. State that this bill would create a contractually
enforceable promise on behalf of the state to use the
proceeds of the QAF, including matching federal funds,
solely and exclusively for these purposes.
e. Provide that the fee revenues be deposited in the
Hospital Quality Assurance Revenue Fund and that they be
available upon appropriation by the Legislature for
expenditure in the following order:
i. DHCS staffing and administration up to
$500,000 in special funds. However, since the amount
required for administration of the QAF is based on
its being operational for 6 months, not for a full
year, it is likely that the department would need up
to $1,000,000 in QAF revenue and $1,000,000 in
federal funds for administration to administer the
QAF for FY 2011-2012. Staff notes that this bill
would need to be amended to permit that expense. If
the bill is not amended to cover DHCS administrative
costs, there would be General Fund cost pressure to
fully fund DHCS administration of this bill.
ii. Health care for children up to $80
million for each fiscal quarter for which payments
are made to hospitals. Over the four quarters of FY
2011-2012, $320 million in QAF revenues would be
available to pay the state share of costs for
children's health care programs in lieu of General
Fund. This reduction in General Fund was taken into
account in the budget.
iii. Increase capitation payments to managed
health care plans, as specified.
iv. Reimburse the General Fund for the
increase in the overall compensation to a private
hospital that is attributable to its change in
status from contract to noncontract.
v. Make increased payments or grants to
hospitals, as specified. In the first QAF,
designated public hospitals received direct grants
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of QAF revenue. They did not receive such grants in
the most recent QAF. If they receive grants pursuant
to this bill, then supplemental payments to other
hospitals would decrease accordingly.
vi. Make increased payments to mental health
plans, as specified.
f. Permit DHCS to modify any methodology or other
provisions in this part of this bill, in consultation
with the hospital community, to the extent necessary to
meet federal requirements to obtain and maintain federal
approval and compliance.
g. Require DHCS to request approval from CMS for the
implementation of these provisions, including the
exemption of specified providers, including the
submission, as necessary, of a waiver.
h. Permit DHCS to collect the QAF and make payments
based upon receiving a letter from CMS that indicates
likely federal approval. If approval is denied, DHCS
would be permitted to recoup the supplemental payments
and refund the fees.