BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 335| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 335 Author: Hernandez (D) and Steinberg (D) Amended: 8/18/11 Vote: 27 - Urgency SENATE HEALTH COMMITTEE : 6-2, 6/22/11 AYES: Hernandez, Strickland, Alquist, De León, DeSaulnier, Wolk NOES: Anderson, Blakeslee NO VOTE RECORDED: Rubio SENATE APPROPRIATIONS COMMITTEE : 6-0, 7/11/11 AYES: Kehoe, Alquist, Lieu, Pavley, Price, Steinberg NO VOTE RECORDED: Walters, Emmerson, Runner SUBJECT : Medi-Cal: hospitals: quality assurance fee SOURCE : California Hospital Association DIGEST This bill imposes a Quality Assurance Fee (QAF) on specified hospitals for 30 months (from June 30, 2011 until December 31, 2013), 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 specified funding amounts from the QAF per quarter for children's health coverage until December 31, 2013. In addition, this bill requires county and University of California hospitals to be paid direct grants (not Medi-Cal payments), funded from the QAF. This bill establishes the CONTINUED SB 335 Page 2 Low-Income Health Program Medicaid Coverage Expansion Out-of-Network Emergency Care Services Fund (LIHP Fund), and requires moneys in the LIHP Fund to be used for medically necessary hospital emergency services for emergency medical conditions and post-stabilization care furnished by private hospitals and nondesignated public hospitals (NDPHs) outside of the LIHP coverage network. This bill reduces disproportionate share hospital (DSH) replacement payments and supplemental payments from the Private Hospital Supplemental Fund (Fund) to hospitals by specified amounts in 2012-13 and 2013-14. This bill appropriates $13.6 billion to the Department of Health Care Services for purposes of this bill. Senate Floor Amendments of 8/15/11 (1) extend the duration of the Medi-Cal hospital QAF and the supplemental payment provisions of this bill from 12 months to 30 months, (2) increase the amount of revenue for children's health coverage from the QAF from $80 million per quarter to $85 million per quarter, (3) require grants in specified amounts each year the bill is in effect, to be provided to designated public hospitals and nondesignated public hospitals, (4) establish the LIHP Fund, and requires moneys in the LIHP Fund to be used for medically necessary hospital emergency services for emergency medical conditions and post-stabilization care furnished by private hospitals and NDPHs outside of the Low Income Health Program coverage network, (5) prohibit disproportionate share replacement payments to private hospitals from being reduced, as specified, and appropriate $13.6 billion to the Department of Health Care Services for purposes of this bill. Senate Floor Amendments of 8/18/11 (1) reduce Medi-Cal payments to private hospitals from the Fund in the 2012-13 and 2013-14 fiscal years, (2) reduce DSH payments (General Fund) to private hospitals in the 2012-13 and 2013-14 fiscal years, (3) reduce the amount of direct grants to designated public hospitals (DPHs), (4) increase the amount of revenue from the QAF going to children's health coverage in the 2012-13 and 2013-14 fiscal years, (5) increase private hospital supplemental payment amounts in the 2012-13 fiscal year, and (6) increase specified QAF rates paid by private hospitals. CONTINUED SB 335 Page 3 ANALYSIS : Existing law: 1. 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. 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. 3. Establishes the Hospital QAF 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, with varying fee amounts by payor source and type of payment. 4. Requires all funds from the Hospital QAF Act of 2011 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. 5. Sunsets the Medi-Cal Hospital Rate Stabilization Act of 2011 and the 2011Act on January 1, 2013. 6. Allows hospitals that have received extensions to January 1, 2013 of the January 1, 2008 hospital seismic safety deadline, for their Structural Performance Category 1 buildings, to request an additional extension of up to seven years. 7. Allows the Office of Statewide Health Planning and Development (OSHPD) to grant the extension if the hospital meets several interim deadlines and requirements. 8. Requires OSHPD, in deciding whether to grant the extension as well as the length of the extension, to CONTINUED SB 335 Page 4 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. 9. 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. 10.Requires DHCS to authorize local Low Income Health Programs (LIHPs) to provide scheduled health care services to eligible low-income individuals 19 to 64 years of age, inclusive, who are not otherwise eligible for the Medi-Cal program or the Children's Health Insurance Program, with family incomes at or below 133 percent of the federal poverty level. This bill: 1. Enacts the Medi-Cal Hospital Provider Rate Improvement Act of 2011 to provide supplemental payments from July 1, 2011 to December 31, 2013 to private hospitals for inpatient and outpatient services in Medi-Cal fee-for-service. 2. Requires the supplemental payment amounts to be in addition to any other amounts payable to hospitals, and to result in payments equal to the state aggregate upper payment limit for private hospitals. 3. Requires 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 December 31, 2013: CONTINUED SB 335 Page 5 A. $917.66 multiplied by the number of the hospital's general acute care days for 2011-12 fiscal year, $1,086.72 for the 2012-13 fiscal year, and $1,305.53 for the 2013-14 fiscal year. B. $695 multiplied by the hospital's acute psychiatric days for the 2011-12 fiscal year, $790 for the 2012-13 fiscal year and $995 for the 2013-14 fiscal year. These payments are for hospital's psychiatric days that were paid directly by the DHCS and were not the responsibility of the mental health plan. C. $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 five percent, and at least five percent of the hospital's general acute care days are high acuity days. (This payment amount is in addition to the amounts specified above.) D. $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.) 4. Requires $85 million per quarter until December 31, 2013 to be provided for children's health coverage from the QAF, and provides $2.5 million in funding from the QAF for DHCS' staffing and administrative costs. 5. Requires direct grants to be provided to designated public hospitals (DPHs) (DPHs are University of California and county hospitals) of $50 million per year in 2011-12, $43 million in 2012-13, and $21.5 million in 2013-14. Requires direct grants to be provided to NDPHs (NDPHs are hospitals owned by hospital districts) of $10 million per year in 2011-12 and 2012-13, and $5 million per year in 2013-14. Requires the direct grant amounts CONTINUED SB 335 Page 6 to be allocated pursuant to a methodology developed by the director of DHCS in consultation with the DPHs and NDPHs. 6. Establishes the LIHP Fund, consisting of the following dollar amounts (which would be matched with federal funds): A. Funds transferred from governmental entities to the state in the amount of $20 million annually in 2011-12 and 2012-13, and $10 million in 2013-14. B. Funds from the QAF in the amount of $75 million in 2011-12 and 2012-13, and $37.5 million in 2013-14. C. Requires moneys in the LIHP Fund to be used as the nonfederal share of expenditures for coverage for the Medicaid Coverage Expansion population for medically necessary hospital emergency services for emergency medical conditions and post-stabilization care that is furnished by private hospitals and NDPHs outside of the LIHP coverage network. Requires 70 percent of the moneys in the LIHP Fund to be allocated for payments for out-of-network inpatient hospital post-stabilization care, and 30 percent of the funds to be allocated for approved out-of-network hospital emergency room services that result in an approved out-of-network hospital stay. Requires LIHPs to make the supplemental payments within 30 days of receiving funds from DHCS. States legislative intent that the first $20 million in 2011-12 and 2012-13 and the first $10 million in 2013-14 be funded through intergovernmental transfers. Requires federal approval and federal financial participation to be available for the LIHP-related provisions, and makes this funding the last order of priority in funding under this bill. Requires counties, as a condition of participation in the LIHP, to comply with these provisions. 7. Appropriates to DHCS for the purposes of this bill: A. $7.2 billion from the Hospital Quality Assurance Revenue Fund, to be available for expenditure up CONTINUED SB 335 Page 7 until January 1, 2015; B. $6.2 billion from the Federal Trust Fund, to be available for expenditure until January 1, 2015; and C. $237.5 million from the LIHP Fund, to be available for expenditure until January 1, 2015. 8. 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 five 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. 9. Requires a private hospital that provided Medi-Cal subacute services during the 2009 calendar year and has a Medicaid inpatient utilization rate that is greater than five percent and less 41.6 percent to be paid a supplemental amount during each subject fiscal year equal to 40 percent of the Medi-Cal subacute payments paid by DHCS to the hospital during the 2009 calendar year. For the 2013-14 subject fiscal year, the supplemental amount shall equal 20 percent of the Medi-Cal subacute payments paid by DHCS to the hospital during the 2009 calendar year. 10.Requires DHCS to increase payments to mental health plans for the purpose of making supplemental payments to private hospitals. 11.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. 12.Requires DHCS to increase capitation payments to Medi-Cal managed care plans 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 CONTINUED SB 335 Page 8 it receives on hospital services within 30 days of receiving the increased capitation payments. 13.Requires all payments made by DHCS to hospitals, managed health care plans and mental health plans under the Medi-Cal Hospital Provider Rate Improvement Act of 2011 to be made only from the QAF and federal reimbursement, and any related federal funds. 14.Prohibits Medi-Cal outpatient rates paid to private hospitals, NDPHs (NDPHs are district hospitals) and designated public hospitals provided before December 31, 2013, 2011 from being reduced below the rates in effect on July 1, 2011. 15.Prohibits California Medical Assistance Commission (CMAC) inpatient rates for Medi-Cal inpatient services furnished before December 31, 2013 from being reduced below the lower of the contract amounts in effect on July 1, 2011. 16.Prohibits private non-contract hospital rates for services furnished before January 1, 2014 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. 17.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. 18.Prohibits DSH replacement payments to private hospitals for the 2011-12 fiscal year from being less than the amount determined under existing law, as reduced by SB 90 (Steinberg) in 2011-12, except as specified below. (SB 90 required a reduction of $30 million in 2011-11 and $75 million in 2011-12 in DSH-replacement payments to private hospitals.) A. Reduces DSH replacement payments to private CONTINUED SB 335 Page 9 hospitals in the 2012-13 fiscal year by $10.5 million in General Fund (GF) moneys and by the corresponding federal financial participation. B. Reduces DSH replacement payments to private hospitals in the 2013-14 fiscal year by $5.2 million in GF moneys and by the corresponding federal financial participation. C. Reduces payments to private hospitals from the Fund for the 2012-13 fiscal year by $17.5 million, and by $8.7 million in the 2013-14 fiscal year. Specifies the reduction is to be allocated equally between children's hospitals and private hospitals that are eligible for payments from this fund. 19.Enacts the Private Hospital QAF Act of 2011 which levies a hospital QAF, from July 1, 2011 to December 31, 2013, 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: 20.Establishes the dollar amount of the QAF required to be paid by hospitals, with differing amounts depending upon the type of hospital and payor source, as follows: A. Establishes the fee-for-service per diem QAF rate of $309.86 per day. B. Establishes the managed care per diem quality QAF rate of $86.40 per day. C. Establishes the Medi-Cal per diem quality QAF rate of $383.20 per day. D. Establishes the prepaid health plan hospital managed care per diem QAF rate of $48.38 per day. E. Establishes the prepaid health plan hospital Medi-Cal managed care per diem QAF rate of $214.59 CONTINUED SB 335 Page 10 per day. 21.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: A. To pay for DHCS staffing, not to exceed $2.5 million; B. To pay for children's health care coverage in the amount of $85 million for each quarter for which payments from the QAF are made under this bill in 2011-12 and $96.7 million for each quarter in 2012-13 and 2013-14 (until December 31, 2013); C. To make increased capitation payments to managed care plans; D. To reimburse the GF for the increase in the overall compensation to a private hospital that is attributable to its change in status from a CMAC contract hospital to a non-contract hospital; E. To make increased payments to hospitals under this bill; F. To make increased payments to mental health plans under this bill; and, G. To make supplemental payments for out-of-network emergency and poststabilization services provided by private hospitals and NDPHs to Medi-Cal expansion enrollees in the LIHP in the amount of $37.5 million for each fiscal quarter 22.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 CONTINUED SB 335 Page 11 solely and exclusively for the purposes in this bill. 23.Sunsets the provisions of this bill on January 1, 2015, 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. Background 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 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 (Jones), Chapter 627, Statues of 2009, and AB 188 (Jones), 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 bills 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 21 month period in which those bills applied, the QAF provided $560 million for children's health coverage, and $513 million in unmatched direct CONTINUED SB 335 Page 12 grants to DPHs. The hospital QAF enacted under the bills by Assemblymember Jones sunsets 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 program that allows the 48 NDPHs and 21 DPHs to use intergovernmental transfers to increase the Medi-Cal capitation rate to managed care plans with which they contract. According to the California Hospital Association (CHA), 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 four 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. FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee analysis of 6/9/11 : 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 inSpecial* CONTINUED SB 335 Page 13 FY 2011-12) DHCS administration $2,000 $0 $0Federal/** Special/ General Supplemental payments Approximately $3,700,000 in Federal/** to hospitals FY 2011-12 Special Potential restoration of $39,000 $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 SUPPORT : (Verified 8/22/11) California Hospital Association (source) Adventist Health Alliance of Catholic Health Care California Children's Hospital Association Loma Linda University Medical Center Private Essential Access Community Hospitals, Inc. ARGUMENTS IN SUPPORT : This bill is sponsored by the CHA which writes 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 hospital fee in this bill covering the period from July 1, 2011, through December 31, 2013 will provides California's hospitals with an estimated net benefit of $5.2 billion. In addition, hospitals have committed to provide $850 million ($85 million per quarter) to the state to support the cost of children's health care coverage. CHA states it is vital to California hospitals that the CONTINUED SB 335 Page 14 provider fee be approved and implemented as the provider fee program will increase Medi-Cal payments at a time when there is simply no alternative way to do so. CTW:kc 8/22/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED