BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   SB 335|
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                                 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 
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          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.

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           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 

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             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:

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             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 

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             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 

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                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 

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             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 

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                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 

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                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 

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             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 

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          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* 

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                                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 

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          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

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