BILL ANALYSIS Ó
SB 335
Page 1
Date of Hearing: August 23, 2011
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
SB 335 (Hernandez and Steinberg) - As Amended: August 18, 2011
SENATE VOTE : 35-2
SUBJECT : Medi-Cal: hospitals: quality assurance fee.
SUMMARY : For the period from July 1, 2011 through December 31,
2013, enacts a Medi-Cal hospital provider quality assurance fee
(QAF), provides supplemental payments to private hospitals in
the Medi-Cal Program, provides for grants to public hospitals,
funds for children's health care coverage and for supplemental
payments to hospitals for services provided through the Low
Income Health Program (LIHP) Medicaid Expansion (MCE).
Specifically, this bill :
FEE PROVISIONS
1)Establishes a per diem fee assessed on every private acute
care hospital for every acute, psychiatric, and rehabilitation
inpatient day at the following:
a) A rate of $86.40 per managed care day (other than
Medi-Cal);
b) A rate of $383.20 per Medi-Cal day;
c) A rate of $48.38 per prepaid health plan hospital
managed care day;
d) A rate of $214.59 per prepaid health plan hospital
Medi-Cal managed care (MCMC) day; and,
e) A rate of $309.86 per Fee for Service (FFS) day (other
than Medi-Cal).
2)Imposes the requirement to pay the fee on all private general
acute care hospitals, on a 30 month basis from July 1, 2011 to
December 31, 2013, exempts any hospital that has been
converted from a private hospital to a public hospital or
district hospital, long term care hospitals, specified
specialty hospital and small and rural hospitals.
3)Requires the Department of Health Care Services (DHCS), within
10 business days of receipt of federal approval, to send
notice to each hospital and to post on its Internet Web site,
the date that the state received notice of federal approval,
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the applicable percentage of fee that will be due for each
fiscal year, the aggregate fee amount, the amount due from the
particular hospital, and the payment due date.
4)Requires hospitals to pay the fee in 10 equal quarterly
installments, as specified and requires all fees to be paid by
December 15, 2013.
5)Authorizes DHCS to deduct fee payments owed by a hospital from
other payments due to the hospital, to assess interest and
penalties, authorizes the penalties to be waived and provides
that such determination is not subject to judicial review.
6)Provides that the fee shall not exceed the maximum aggregate
net patient revenue percentage that is allowed under federal
law as necessary to preclude a finding of an indirect
guarantee.
7)Provides that the fee is inoperative if the federal Centers
for Medicare and Medicaid Services (CMS) denies approval
before July 1, 2014 and the provisions cannot be modified as
authorized in order to meet federal requirements.
8)Provides that the fee shall not be considered as an allowable
cost for Medi-Cal cost reporting.
9)Creates a contractually enforceable promise on behalf of the
state to use the proceeds of the fee and the Hospital Quality
Assurance Revenue Fund (HQARF) only for the purposes and in
the amounts authorized by this bill and to comply with all
obligations imposed pursuant to this bill.
10)Requires DHCS to deposit the fees in the HQARF, provides for
the disposition of funds that are remitted after the date
final payments are due and funds that are collected in excess
of the amount needed for payments.
11)Requires all proceeds of the fee to be used as specified in
the following order of priority;
a) To pay for staffing and administrative costs of DHCS up
to $2.5 million;
b) To pay for health care coverage for children in the
amount of $85 million quarterly during 2011-12, and in the
amount of $96.75 million per quarter during 2012-13 and
2013-14;
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c) To make increased capitation payments to MCMC plans;
d) To reimburse the General Fund (GF) for the increase in
compensation due to a hospital that changes status from
contracting to noncontracting;
e) To make increased payments or grants to hospital;
f) To make increased payments to mental health plans;
g) To make supplemental payments to private hospitals for
out of network emergency and post stabilization services
provided to LIHP MCE enrollees in the amount of $37.5
million per quarter.
SUPPLEMENTAL PAYMENT PROVISIONS
12)Requires private hospitals to be paid a supplemental payment
for Medi-Cal outpatient services based on the hospital's
percentage of all Medi-Cal FFS outpatient services up to a
total amount equal to the maximum amount allowable under
federal upper payment limits (UPL).
13)Requires DHCS to make supplemental payments to private
hospitals for Medi-Cal inpatient services from the proceeds of
the fees, other funds established by this bill, plus matching
federal funds, in addition to payments otherwise payable to
these hospitals, up to the maximum amount allowed under
federal UPL and other law, as follows:
a) For each general acute care day, $917.66 for fiscal year
(FY) 2011-12; $1,086.72 for FY 2012-13; and, $1,305.53 for
FY 2013-14;
b) For each acute psychiatric day directly reimbursed by
DHCS, $695 for FY 2011-12; $790 for FY 2012-13; and, $955
for FY 2013-14;
c) An additional $1,350 for each high acuity day, as
defined, for hospitals with Medi-Cal inpatient utilization
rates between 5% and 41.1%;
d) An additional $1,350 for each high acuity day for
qualifying hospitals with certain trauma centers, as
specified; and,
e) For Medi-Cal sub-acute services: 40% for FYs 2011-12;
and FY 2012-13; and, 20% for FY 2013-14 of the amount of
Medi-Cal sub-acute payments made to the hospitals in 2009
for hospitals with Medi-Cal inpatient utilization rates
between 5% and 41.6%.
14)Excludes from receipt of supplemental payments, any new
private hospital that that does not have a data source or
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where the new owner did not assume responsibility for
outstanding debts to the state in the Medi-Cal Program or any
hospital that converted from a private hospital to a designate
public hospital (DPH) or nondesignated public hospital (NPDH)
on or after July1, 2011.
15)Requires DHCS to increase monthly capitation payments to
Medi-Cal mental health managed care plans for supplemental
payments to private hospitals for acute psychiatric inpatient
days at the same rate as for days that are reimbursed directly
by DHCS and authorizes direct payment by DHCS for days that
were the financial responsibility of the mental health plan as
an alternative, as permitted by federal law.
16)Requires DHCS to increase monthly capitation payments to MCMC
plans to the maximum total amount allowable under federal law
for supplemental payments to hospitals, including DPHs and
NDPHs, for inpatient services within specified time limits and
authorizes DHCS to set aside fee revenue as specified in order
to accumulate the required amounts.
17)Requires DHCS to determine the amount of increased capitation
for each plan by considering the composition of Medi-Cal
enrollees in each plan, anticipated hospital utilization and
other factors related to ensuring access, but in no event to
exceed an amount certified by the state's actuary as meeting
federal requirements, and provides that payments made to
managed care plans in the absence of these payments are not to
be reduced as a consequences of these payments.
18)Specifies legislative intent that payments made to DPHs by
MCMC plans are to replace revenue that would otherwise be
payable from the managed care Intergovernmental Transfer (IGT)
program enacted by SB 90 (Steinberg), Chapter 19, Statutes of
2011 and further states that if necessary future legislation
will be enacted to ensure this result.
19)Requires the MCMC plans receiving the increased capitation
payments under this bill to expend 100% to make payments to
hospitals based on actuarial certification, enrollment and
hospital utilization within 30 days of receipt in a total
amount that equals the increased capitation amount, to
document the payments, and specifies that these provisions are
not intended to create a private right of action by a
hospital.
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20)Authorizes DHCS to amend MCMC contracts, issue policy
letters, and take other administrative actions as necessary to
implement the provisions related to increased capitation
payments for supplemental payments for hospital inpatient
services.
21)Requires DPHs to be paid direct grants, for health care
expenditures other than Medi-Cal, funded by the QAF, in the
aggregate amount of $50 million in FY 2011-12, $43 million in
FY 2012-13 and $21.5 million in FY 2013-14, to be allocated by
the Director of DHCS pursuant to a methodology to be developed
in consultation with the DPHs.
22)Requires NDPHs to be paid direct grants, for health care
expenditures funded by the QAF, in the aggregate amount of $10
million for FYs 2011-12 and 2012-13 and $5 million in FY
2013-14, to be allocated by the Director of DHCS pursuant to a
methodology to be developed in consultation with the NDPHs.
23)Provides methodologies for proportionate reductions or
recalculations of all fees, hospital payments, and increased
capitation payments if federal financial participation (FFP)
is different than estimated under this bill, if amounts
allowable as payments for specified categories must be
adjusted due to the application of the UPL under federal law,
if a hospital is closed for part of a year or if any
supplemental payment would result in the reduction of other
amounts payable to a hospital or managed care plan.
LIHP OUT-OF-NETWORK EMERGENCY CARE SERVICES
24)Establishes the LIHP MCE Out-of Network Emergency Care
Services Fund to consist of:
a) For FYs 2011-12 and 2012-13, $20 million and for FY
2013-14, $10 million in from optional IGT funds transferred
from local entities; and,
b) For FYs 2011-12 and 2012-13, $75 million and for FY
2013-14 $37.5 million transferred from the HQARF.
25)Requires proceeds of the LIHP Fund to be used by the LIHPs
solely for the nonfederal share of supplemental payments for
emergency and post-stabilization services provided by private
and NDPH hospitals to individuals covered under the LIHP MCE,
as established by the State's 2010 Bridge to Reform Medi-Cal
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Section 1115(a) waiver and specifies legislative intent that
IGT funds are to be used first.
26)Requires DHCS to obtain FFP, to disburse the funds as
specified, in consultation with the hospital community and
based on an allocation of 70% of the funds for inpatient and
30% for outpatient emergency and post-stabilization services
and authorizes DHCS to adjust the allocation and other
operational requirements as necessary to obtain federal
approval.
27)Requires each LIHP to report utilization data to DHCS within
60 days of the end of each year and requires DHCS, based on
the utilization data, the total amount of funding available,
and the distribution formula between inpatient and outpatient,
to determine the amount of the supplemental payments for each
service, in consultation with the hospital community.
28)Provides that payments for the LIHP Fund are to be
supplemental and not to supplant payments that would otherwise
be made, requires DHCS to distribute the funds to the LIHPs
within 60 days and requires LIHPs to make the supplemental
payments to hospitals within 30 days.
29)Conditions implementation of the LIHP supplemental payments
on the receipt of federal approval, authorizes the Director of
DHCS to make specified modifications as necessary to the
approval and provides that federal disapproval shall not
affect implementation of other provisions of this bill.
30)Requires compliance with the out-of-network emergency care
services payments program as a condition of participation in
the voluntary LIHP.
MISCELLANEOUS AND GENERAL PROVISIONS
31)Authorizes DHCS to make modifications to the QAF, payment
methodologies, and other adjustments as necessary, in
consultation with the hospital community, to the extent
necessary to obtain federal approval.
32)Requires DHCS to seek federal approval for implementation
including specific approval, by waiver if necessary, for the
provider exemptions as specified.
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33)Authorizes DHCS to implement this bill by means of policy
letters, provider bulletins, or all plan letters.
34)Allows for implementation based on receipt of a letter from
CMS indicating likely federal approval as specified,
authorizes the Director of DHCS to have broad collection
authority pending final approval, specifies that payments made
prior to final approval are conditional and provides that the
provisions requiring supplemental payments shall be
inoperative if this notification of final approval is not
received by September 1, 2013.
35)Specifies payments may only be made to the extent there are
sufficient fee funds collected.
36)Grants the Director of DHCS discretion to consult with the
hospital community and make modifications as necessary if
there are insufficient funds to make all the scheduled
payments by December 15, 2013
37)Provides that if federal approval, as specified, is not
obtained by December 1, 2013 the statutes creating the
hospital provider fee shall become inoperative.
38)Ensures that payments made to hospitals or reimbursement
rates set pursuant to other provisions of existing law are not
affected or reduced as a result of the supplemental payments
established by this bill.
39)Provides that supplemental payments made pursuant to this
bill shall not affect a determination of rate adequacy under
federal law.
40)Provides that supplemental payments under the bill are in
addition to Disproportionate Share Hospital (DSH) replacement
supplemental payments, do not impact eligibility for DSH
payments, DSH replacement payments, or stabilization payments
under the 2005 hospital waiver or the 2010 Medi-Cal Bridge to
Reform waiver and are not to be considered in the
determination of adequacy of any rate under federal law.
41)Provides that, if the Selective Provider Contracting Program
(SPCP) is in effect, the supplemental payment to a hospital
that becomes a noncontracting hospital during the period of
this bill shall be reduced by the resulting increase in costs
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and the amount shall be transferred to the General Fund.
42)Establishes timelines for the disbursement of the HQARF,
authorizes DHCS to set aside funds for increased capitation
amounts and requires all payments to be made by December 31,
2013, except supplemental payments for out-of-network LIHP
services which shall be made by April 1, 2014.
43)Prohibits payment rates for hospital outpatient services
furnished before December 31, 2013, by private, NDPH or DPH
hospitals from being reduced below those in effect on July 1,
2011.
44)Prohibits payment rates for hospital inpatient services
furnished before December 31, 2013, under contracts negotiated
under the SPCP from being reduced below those in effect on
July 1, 2011, allows changes to supplemental payments as long
as the aggregate is not reduced as specified and establishes a
methodology to measure this requirement if a new
diagnosis-related groups (DRG) hospital reimbursement
methodology is implemented.
45)Prohibits payments to private hospitals for inpatient
services furnished before January 1, 2014 that are not under
contracts negotiated under the SPCP from being reduced below
the amount that would have been made under the methodology in
effect on the effective date of this bill and establishes a
methodology to measure this requirement if a new
diagnosis-related hospital reimbursement methodology is
implemented.
46)Reduces (DSH) replacement payments to private hospitals by
$10.5 million in FY 2012-13, by $5.25 million for FY 2013-14
and prohibits any further reductions during the effective date
of this QAF.
47)Reduces funds available for payments to private hospitals
from the Private Hospital Supplemental Fund by $17.5 million
for FY 2012-13 and by $8.75 million for FY 2013-14, requires
the reductions to be allocated equally between children's
hospitals and other private hospital and provides for
alternative distribution if a DRG payment methodology is
implemented.
48)Requires the Director of DHCS to take all necessary steps to
obtain federal approval or waivers to implement this bill,
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including actions to amend and seek approval of contracts with
managed care plans.
49)Makes this bill inoperative if a court of appellate
jurisdiction or CMS determines that any element cannot be
implemented and the provisions cannot be modified consistent
with the terms of this bill or if it is not approved by CMS
before January 1, 2013 and the provisions cannot be modified
to meet the requirements of federal law.
50)Provides for recoupment of funds to implement a court order,
if necessary, to prevent a GF cost or if federal approval has
not been obtained.
51)Provides for withholding of payment to any hospital that sues
to enjoin implementation.
52)Conditions a hospital's receipt of payments on continued
participation in the Medi-Cal program.
53)Requires that all payments to hospitals, managed health care
plans and mental health plans be solely from the QAF
authorized by this bill and federal matching reimbursement.
54)Authorizes the director to reduce payments if necessary to
prevent reductions of other amounts payable to hospitals or
managed care plans, to retroactively invalidate or to
discontinue implementation.
55)Make this bill inoperative, on the first day of the month of
the calendar quarter following notification to the Joint
Legislative Budget Committee by the Department of Finance that
one of the following conditions has occurred:
a) A final determination of a court that the fee proceeds
are GF revenue or local proceeds of taxes;
b) Federal financial approval has been sought, but not
received;
c) A lawsuit related to this bill has been filed and a
court order has been issued that results in financial
disadvantage to the state; or,
d) The director of DHCS determines that implementation
would result in a financial disadvantage to the state as
specified.
56)Extends the sunset date on the HQARF created by AB 1383 to
January 1, 2015 and appropriates $7.2 billion to DHCS, $6.2
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billion from the federal trust fund, and $237, 500,000 from
the LIHP Fund to be available until January 1, 2015.
57)Specifies legislative intent to consider legislation
requiring the director of DHCS to seek approval for an
increase in the fees and increased payments if there is a
determination that additional FFP is available within the UPL
or the limits on managed care payments and specifies that
these increases shall have priority over any other purposes.
EXISTING LAW :
1)Establishes, under federal law, the Medicaid Program (Medi-Cal
in California, administered by DHCS) to provide comprehensive
health care services and long-term care to low income
populations such as pregnant women, children, and seniors and
people with disabilities.
2)Establishes a schedule of benefits under the Medi-Cal Program,
which includes hospital inpatient and outpatient services,
subject to utilization controls, and establishes Medi-Cal
hospital reimbursement requirements.
3)Defines, under federal law, the UPL for hospital reimbursement
as the reasonable estimate of what Medicare would pay to all
hospitals within a class.
4)Authorizes DHCS to contract with qualified individuals,
entities, or organizations to provide services to, arrange
for, or case manage, the care of Medi-Cal beneficiaries,
including hospital inpatient services.
5)Defines a MCMC plan as any entity that enters into one of
several types of contracts with DHCS including county
organized health systems, geographic managed care plans, and
local initiatives.
6)Requires, under federal law, payments to MCMC plans to be set
at a capitation rate that is actuarially sound.
7)Authorizes local entities to establish, pursuant to a Section
1115(a) Medicaid waiver, the LIHP MCE to provide health care
services to low-income childless adults as a voluntary program
funded with local governmental expenditures and matched with
federal funds.
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8)Establishes and grants the Office of Statewide Health Planning
and Development (OSHPD) authority and responsibility for
reviewing and approving all plans relating to construction,
additions to, reconstruction, or alteration of, health care
facilities, as defined.
9)Establishes deadlines by which hospital buildings that are
providing acute care services must meet specified seismic
safety standards and grant OSHPD authority to approve
extensions as specified.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, this bill is
intended to enact a 30-month extension to the current Medi-Cal
hospital provider fee or QAF to draw down federal funds and
increase payments to private hospitals in the Medi-Cal
Program, to pay for children's health care coverage, to
provide grants to DPHs and NDPHs, to increase payments to MCMC
plans for hospital services and to assure rate stability for
hospitals that participate in the Medi-Cal Program. The
author points out that federal law authorize states to levy
fees on health care providers if the fees meet federal
requirements. According to the author, the Legislature last
session enacted a QAF that ended in December 2010 and a second
QAF for the first six months of this year. The author states
that this bill will enact a third QAF, and enable the state to
use the revenue to match federal funds, in order to boost
Medi-Cal payments to hospitals. In addition, according to the
author, the QAF would provide a total of $930 million for
children's health coverage. The author argues that providing
increased funding to hospitals using state GF dollars alone
would not otherwise be possible given the state's dire fiscal
situation. Furthermore, the author points out, this bill
enables the state to achieve GF savings to fund children's
health coverage.
According to the sponsor, the California Hospital Association
(CHA), a new element in this 30-month proposal is the use of
the hospital QAF funds to provide $75 million a year for the
non-federal share of supplemental payments to hospitals that
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provide out-of-network emergency services to enrollees in
LIHPs. The sponsor points out that under the LIHP, hospitals
excluded from the provider networks are only entitled to
receive 30% of the average Medi-Cal rate as payment for
providing emergency room and inpatient care services. CHA
points out that use of hospital fees to supplement these
out-of-network payments is specifically allowed by CMS under
California's 2010 Section 1115 Waiver.
CHA estimates that over the 30-month period, the fee will
raise approximately $7 billion and will be matched with
approximately $6.1 billion in federal funds with a net benefit
to the hospital industry of $5.2 billion. According to CHA,
private hospitals could receive up to approximately $6 billion
in supplemental payments for inpatient services, $1.8 billion
for outpatient services, and $475 million for out-of-network
emergency medical services to LIHP enrollees. All hospitals
will be eligible for up to $3.9 billion in payments from MCMC
plans. DPHs and NDPHs will be eligible for up to $139 million
in grants. In addition, over $900 million will be available
for children's health care coverage and the administrative
costs to DHCS.
2)BACKGROUND . California first enacted a Medi-Cal Hospital
Provider Fee also called a QAF in 2009. AB 1383 (Jones),
Chapter 627, Statutes of 2009, and AB 188 (Jones), Chapter
645, Statutes of 2009, enacted the framework for a Medi-Cal
hospital provider fee, established fee payment amounts, a
methodology for calculating and paying supplemental payments
to private and district hospitals, supplemental payments to
MCMC plans for hospital services and allocated funds for
children's health care coverage, DHCS administrative costs,
and grants to public hospitals from the funds collected by the
fee. AB 1383 was to become effective upon receipt of CMS
approval and become inoperative on January 1, 2011. This was
timed to take advantage of the increase in federal matching
funds available under the American Recovery and Reinvestment
Act of 2009 (ARRA). ARRA increased California's Federal
Medicare Assistance Percentages (FMAP) by 11.59% from of a
base of 50% to 61.59% from October 1, 2008 thru December 31,
2010. In other words, the revenue derived from a hospital
provider fee could be matched by federal funds at a two to one
ratio for this limited period of time. These measures
generated $3.1 billion in revenue from hospitals paying the
QAF. The QAF drew down an additional $3.2 billion in federal
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funds, and provided an overall benefit to the hospital
industry of $2.6 billion. In addition, over the 21 month
period in which AB 1383 and AB 188 applied, the QAF provided
$560 million for children's health coverage, and $513 million
in unmatched direct grants to DPHs.
The Federal Education, Jobs, and Medicaid Assistance Act
extended the availability of increased FMAP but phased it out
over the additional six months by providing an increased FMAP
of 8.77% for January 2011 thru April 2011 and an increased
FMAP of 5.66% for April 2011 thru June 2011. In order to
benefit from the increase in federal matching funds, payments
must actually be made during the specified period, regardless
of when the services were provided. The hospital industry was
not able to agree on a fee mechanism in time to take advantage
of the January to April 2011 increase. However, agreement was
reached within the industry and with DHCS in time to enact
legislation to benefit from the increase for the April to June
2011 period ÝSB 90 (Steinberg), Chapter 19, Statutes of 2011,
and AB 113 (Monning), Chapter 20, Statutes of 2011]. AB
113 was a companion bill that enacted an IGT program for
NDPHs.
SB 90 established 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 was the elimination of
supplemental payments to the 48 NDPHs and grants to the 21
DPHs, 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 an IGT program that
allows the 48 NDPHs and 21 DPHs to use IGTs to increase the
Medi-Cal capitation rate to MCMC plans with which they
contract. According to the 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.
3)MEDI-CAL HOSPITAL PROVIDER FEES . Federal law authorizes
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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
and states are prohibited from having a provision that would
ensure providers are "held harmless" from the impact of the
fee. Health care related provider fees may only be imposed on
19 particular classes of health care items or services.
Federal approval through 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.
4)SUPPLEMENTAL PAYMENTS . Among other provisions, SB 90 enacted
a six-month fee, assessed on private hospitals matched with
federal Medicaid funds and paid out to private hospitals as
supplemental payments and to MCMC plans for the purpose of
making supplemental payments for Medi-Cal services provided
to enrollees by private hospitals.
This bill enacts a fee that is similar in structure to that
enacted by SB 90 and AB 1383 however there are modifications
and additions caused by changing circumstances such as the
elimination of the enhanced FMAP and implementation of the
2010 Medicaid Section 1115 waiver. Depending on federal
approval, this new fee will be effective retroactively, to
coincide with the expiration of the SB 90 six-month fee on
July 1, 2011, as long as DHCS has submitted a State Plan
Amendment (SPA) to CMS by the end of the federal quarter
ending September 30, 2011.
AB 1383 included NDPHs in the category of hospitals that were
eligible for supplemental payments. In addition, both DPHs
and NDPHs were eligible for supplemental payments from managed
care plans. SB 90 limited supplemental payments only to
private hospitals. The revenue loss was partially offset by
expanding the IGT program payments for these hospitals.
Specifically, SB 90 authorized NDPHs and DPHs to use IGTs to
increase the capitation rate to MCMC plans with which they
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contract, within actuarially sound limits. The increase is
then passed on to the DPH or NDPH by contract. In addition,
AB 113 established an IGT program for NDPHs that are
reimbursed on a FFS basis. AB 113 could result in a net
benefit to this category of hospitals of $33 million.
This bill again excludes DPHs and NDPHs from the category of
hospitals eligible for supplemental payments; however funding
is restored for supplemental payments to DPHs and NDPHs that
contract with MCMC plans. AB 1383 provided $513 million in
unmatched grants to DPHs; however this was eliminated in SB
90. This bill again provides unmatched grants to DPHs and
adds NDPHs. However the agreement to reinstate these grants
was not reached in time to develop a distribution formula.
5)CHILDREN'S COVERAGE . Over the 21 month period in which the
first QAF was applied, the state received $560 million for
children's health coverage. Under SB 90 the state received
$105 million per quarter for two quarters or a total of $210
million in the 2010-11 Budget Year. This bill allocates $85
million per quarter for the 2011-12 Budget Year and $96.8
million per quarter for FYs 2012-13 and 2013-14 for an
estimated total of $920 million. As this bill includes an
allocation of $340 million for children's coverage in FY
2011-12, federal approval of the fee proposed by this bill
will trigger the seismic extension authority as specified in
SB 90.
6)HOSPITAL FINANCING . Medi-Cal hospital financing in California
is a complex amalgamation of mechanisms, methodologies,
funding sources, and rules. Generally payment varies
depending on whether a hospital is a private hospital, one of
the 21 county or University of California (UC) operated
hospitals known as DPHs, or a district owned or operated
hospital known as NDPH. Additional funding is also provided
if hospitals are classified as DSH based on the amount of
Medi-Cal and unreimbursed or indigent care they provide.
Private and NDPH hospitals may be reimbursed for inpatient
services on a FFS basis or through a negotiated contract with
the state. Another factor affecting reimbursement is whether
the Medi-Cal patient is covered through managed care. FFS
Medi-Cal outpatient hospital rates are established by DHCS
through a fee schedule.
Adding to the complexity is the ever-changing nature of the
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funding and methodologies. For instance, DHCS is currently in
the process of transferring approximately 600,000 seniors and
people with disabilities (SPDs) from Medi-Cal FFS to MCMC. In
the near future, DHCS plans to convert the inpatient hospital
payment methodology to a DRG-based methodology. In 2005,
funds from counties and other local entities replaced state GF
dollars as the nonfederal source of funds for payment to DPHs.
In order to advance the purpose of this bill to provide
increased funding in the Medi-Cal program, to stabilize
hospital reimbursement rates and to provide supplemental
payments, adjustments are required to most of these funding
sources and mechanism as follows:
a) SPCP . This was established by the Legislature in 1982
under a 1915(b) waiver and allowed the California Medical
Assistance Commission (CMAC) to selectively contract as
long as there was adequate access to hospital beds to serve
the Medi-Cal population in a Health Facility Planning Area.
Except for emergencies, most FFS Medi-Cal beneficiaries in
a closed area were required to receive in-patient care at a
contract hospital. Selective contracting allowed CMAC to
negotiate a competitive rate in place of the traditional
"cost-based" reimbursement system used by most states.
According to CMAC's Annual Report to the Legislature, 2009,
this has saved the State a total of approximately $10.9
billion in State GF savings since 1983. Hospitals in an
open area continued to be reimbursed on a cost-based
system. SPCP continued in a modified fashion under the
2005 Medicaid Section 1115 Hospital Financing/Uninsured
Waiver. The 2010 Successor Section 1115 Waiver, "Bridge to
Reform" also provides for the continuation of the SPCP
program for private hospitals and NDPHs. However, the
state is authorized to discontinue this program at any time
through a SPA.
As part of the 2011-12 Budget, the Legislature conformed to
the Governor's May Revision to continue CMAC through June
30, 2012, after which time it shall be dissolved. Upon
dissolution of CMAC, all powers, duties, and
responsibilities of CMAC will be transferred to the
Director of the DHCS. A CMAC staff transition plan is to
be included in the Governor's 2012-13 Budget to ensure a
smooth transition. This bill reflects an agreement that
there will not be additional rate reductions through the
SPCP process.
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b) DRG . SB 853 (Committee on Budget and Fiscal Review),
Chapter 717, Statutes of 2010, the 2010 health budget
trailer bill required DHCS to implement a new payment
methodology for inpatient hospital care in the Medi-Cal
Program based upon DRG on the date that a new Medicaid
Management Information System becomes fully operational,
but no later than June 31, 2014. The DRG payment
methodology is subject to federal approval and must reflect
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. This bill
provides for alternative methodologies for calculation of
hospital payment rates in the event of a transition to DRGs
during the time it is in effect to perfect the agreement
that there will be no reductions in hospital inpatient
payments during the period this bill is in effect.
c) DPH . One of the most significant revisions under the
2005 hospital waiver was to make fundamental changes in
Medi-Cal hospital financing for public hospitals.
Reimbursement for Medi-Cal per diem for 21 UC hospitals and
county DPHs was based on certified public expenditures
(CPEs), rather than GF. The inpatient reimbursement rate
is no longer negotiated by CMAC and is determined by DHCS.
The waiver also created the Safety Net Care Pool (SNCP)
which provides a fixed amount of federal funds to cover
uncompensated care, matched by CPEs. The distribution
criteria have been revised in the 2010 Section 1115 waiver
and will be based on unreimbursed expenses.
d) IGTs . The 2005 hospital waiver was also a response to
the increasing federal scrutiny by CMS of IGTs. IGTs are
transfers of public funds from one level of government to
another. California relied on IGTs as the nonfederal share
for various supplemental payment programs such as the
Private Supplemental Payment Program and DSH payments and
to backfill General Fund in the Medi-Cal Program. Under
the terms of the 2005 hospital waiver, the use of IGTs as
the non-federal share for these payments was severely
restricted. However SB 208 (Steinberg), Chapter 714,
Statutes of 2010, SB 90, AB 113, and the 2010 Medi-Cal
Bridge to Reform waiver have expanded use of IGTs. For
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instance, SB 90 authorized the use of IGTs for supplemental
payments through MCMC plans for both NDPH and DPH. AB 113
implemented an IGT program for NDPHs regardless of whether
they contracted through the SPCP program. IGTs are also
used as the nonfederal share of payments made to DPHs for
SPDs who are enrolled into MCMC plans.
e) DSH Fund . Just over $1 billion in federal funding is
available to public hospitals in the DSH Fund during each
year of the waiver to provide care to Medi-Cal and
uninsured patients. DSH is a federal designation and
funding mechanism available in the Medicaid Program to
provide supplemental funding to hospitals caring for a
significant proportion of indigent patients. The waiver
DSH Fund is at a fixed level in a specific year, but may
change over time and contains no State General Funds.
Hospitals submit CPEs and IGTs to draw down federal funds.
IGTs may only be used to fund the nonfederal share of DSH
payments between 100-175% of the uncompensated costs.
f) DSH Replacement Fund . Approximately $250 million in
federal funding is available annually for private and
district hospitals via the DSH Replacement Fund. These
funds provide support for uncompensated care provided to
Med-Cal and uninsured patients. The Replacement Fund
backfills for DSH funding previously available to private
and district hospitals that is now available exclusively to
public hospitals in the current waiver. The non-federal
share of this fund is provided by the GF and is fixed each
year by an allocation from the federal government and
through the annual budget act.
g) DSH Replacement Fund and Private Supplemental Payment
Reductions . AB 5 X4 (Evans), Chapter 5, Statutes of
2009-10 Fourth Extraordinary Session, reduced these
payments by 10% in the 2009-10 budget year. The negotiated
agreement between the Governor and CHA and codified in SB
90 included a further reduction of $30 million in GF for
the 2010-11 budget year and a $75 million GF reduction for
2011-12. This bill clarifies that each reduction applies
solely to the applicable budget year and it is not DHCS's
intention to carry over the 10% reduction from the 2009-10
Budget. This bill also reflects agreement to further limit
reductions for the 2012-13 budget year to a totatl of $28
million and for the 2013-14 budget year to a total of $14
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million.
7)SECTION 1115(a) MEDICAID WAIVER . In November 2010, California
received federal approval for a new five year Section 1115(a)
Medi-Cal Demonstration/Pilot Project Waiver, entitled "A
Bridge to Reform." Section 1115(a) of the Social Security Act
authorizes the federal Secretary of Health and Human Services
to allow states to receive federal Medicaid matching funds
without complying with all of the federal Medicaid rules.
Traditionally designed as research and demonstration programs
to test innovative program improvements and to facilitate
coverage expansions to populations not otherwise eligible,
they are also used to modify benefits structures and financing
mechanisms. This waiver is a renewal of the Hospital
Financing /Uninsured Waiver that was approved in 2005 and
includes a continuation of the hospital financing provisions
from the 2005 waiver but with modifications to the allocation
of DSH funds and SNCP funds. The 2010 waiver also included a
new Delivery System Reform Incentive Pool (DSRIP) fund that is
tied to achievement of specific milestones.
This 2010 Replacement Waiver is intended as a bridge to
implementation of the Patient Protection and Affordable Care
Act which requires states to include childless adults, under
age 65, who are not otherwise eligible for Medi-Cal or
Medicare with incomes up to 133% of the federal poverty level
(FPL) in its Medicaid program. Building on the Health Care
Coverage Initiative (HCCI) model from the 2005 waiver, the
2010 waiver establishes the LIHP for this population and
expands it statewide at the option of a county option or other
local entity. A local entity that chooses to participate will
use CPEs as the matching funds. The Special Terms and
Conditions (STCs) that accompanied the waiver approval
provided that this locally-based coverage is a bridge to the
more significant coverage that is effective in 2014 and CMS
considers this transition a MCE. As such, CMS imposed a
number of Medicaid requirements in the STCs but allowed for
flexibility within the parameters of a Medicaid demonstration
project.
a) LIHP Out-of-Network Emergency Services Payments . The
STCs treat the LIHP as a managed care organization and
therefore allow a closed network of providers. Because the
source of the nonfederal matching funds is CPEs, most of
the network providers are expected to be DPHs. However,
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the STCs also require the LIHP to reimburse a hospital that
is not in the network for emergency care or approved
post-stabilization services provided to a LIHP enrollee.
The reimbursement rate however is limited to 30% of the
rate that a MCMC plan would ordinarily be required to pay
for similar out-of-network services (so-called "Rogers
Amendment Rate"). This bill establishes a fund that will
be used to supplement these payments. The total over the
duration of the bill is $475 million. The first $20
million is composed of IGTs provided by DPHs plus $20
million in federal matching funds. Private hospitals will
contribute $75 million in fee revenue which will also be
matched by an equal amount of federal funds. Over the 30
month period, the pool will total $475 million. NDPHs will
also be eligible to receive supplemental payments.
The distribution of the funds cannot be determined until
the out-of-network emergency services utilization data is
available. Currently the 10 HCCI counties have begun
implementation of the LIHP. However none of the other
counties have been approved for implementation. This bill
provides authority for DHCS to allocate and disburse these
funds to the LIHPs for payment to hospitals for these
services once the utilization data is available. It also
requires the 70% of the funds be allocated to inpatient
services and 30% to outpatient services.
b) Budget Neutrality . Section 1115(a) Medicaid waivers
allow states to have flexibility with regard to many of the
usual Medicaid requirements as long as there is "budget
neutrality" so that the federal spending would be no more
than it would have been in the absence of the waiver. SB
208 and the 2010 Section 1115(a) authorized DHCS to
implement a mandatory enrollment of SPDs into MCMC plans
and established an IGT mechanism in order for DPHs to
continue to receive federal matching funds for services
provided to this population through managed care plans. In
order to assure that these payments do not jeopardize the
budget neutrality limit, DPH hospitals have agreed to forgo
$160 million in payments through this process. As part of
this agreement, this bill provides for direct grants to
these hospitals and allows them to participate in the
supplemental payments that are made to MCMC plans for
hospital inpatient services from fee revenue.
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8)SUPPORT . CHA, sponsor of this bill, states in support that
the creation and implementation of the hospital fee program in
California has been extremely successful. According to CHA,
the program has been critical for hospitals to bolster their
ability to preserve health care services for the state's most
vulnerable patients. In further support, CHA states that this
bill reflects a hospital fee covering the period from July 1,
2011, through December 31, 2013, with an estimated net benefit
of $5.2 billion to California's hospitals. The sponsor states
that this final proposal was agreed upon by all hospitals and
includes participation for private hospitals, DPHs and
nondesignated public hospitals. In addition, according to
CHA, hospitals have committed to provide more than $950
million to the state to support the cost of children's health
care coverage.
Private Essential Access Community Hospitals (PEACH), also in
support states that California's hospital provider fee program
is a lifeline for California's community safety net hospitals
which are struggling with Medi-Cal reimbursements that are
among the lowest in the nation, losses of nearly $900 million
in annual Medi-Cal and uninsured patient care losses, and
ongoing state budget reductions such as the recently enacted
$210 million in cuts which were directed only to private DSHs.
According to PEACH, without California's hospital provider
fee programs many private safety net hospitals would be forced
to restrict or eliminate essential services not just to
Medi-Cal patients, but entire communities. The supporters
further state that it is essential that all Medi-Cal
supplemental payments for California's community DSH hospitals
be maintained and further erosion curtailed.
California's Children's Hospitals Association (CCHA) also in
support states that the California hospital provider fee
assists Children's Hospitals in continuing to provide access
to high-quality care in a timely manner for all California
children. According to CCHA, it is the only available option
to mitigate the current and historic low rate of Medi-Cal
funding. CCHA also argues in support that the program also
provides almost $1 billion of direct support to the state for
the same period.
The California Association of Public Hospitals and Health
Systems (CAPH), also in support states that California's 19
public hospitals are the core of the state's health care
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safety net, delivering care to all who need it, regardless of
ability to pay or insurance status. According to CAPH
although these hospitals are just 6% of all California
hospitals statewide, public hospitals provide almost 30% of
the care provided to California's Medi-Cal population within
the hospital setting, and 35% of Medi-Cal visits in hospital
outpatient settings. The supporters point about that they
serve 2.5 million Californians each year and provide nearly
half of all hospital care to the state's 6.7 million uninsured
residents. Furthermore, according to CAPH, they deliver 10
million outpatient visits per year and operate more than half
of the state's top-level trauma centers and almost half of the
state's burn centers. CAPH argues in support that to a large
extent, their patient population has complex and multiple
medical needs. In addition, 43% of new doctors in the state
are trained in public hospitals. California's public and
private hospitals experience billions in Medi-Cal shortfalls
each year. In support CAPH concludes that this fee program
would result in an estimated net benefit to hospitals of $5.2
billion that will help reduce those shortfalls.
9)RELATED LEGISLATION .
a) AB 342 (John A. Pérez), Chapter 723, Statutes of 2010,
enacted the LIHP and Coverage Expansion and Enrollment
Projects to provide health care benefits to uninsured
adults up to 200% of the FPL, at county option through a
Medi-Cal waiver demonstration project.
b) SB 208 implemented provisions of the 2010 Section 1115
replacement waiver including establishing the Public
Hospital Investment, Improvement and Incentive Fund
consisting of IGTs from counties or other specified
governmental entities, to be matched with federal funds and
to be used for investment, improvement, and incentive
payments for DPHs and the affiliated governmental entities
(Counties and UC), authorized DHCS to require the mandatory
enrollment of SPDs in an MCMC plan commencing the later of
either June 1, 2011 or obtaining federal approval and
required DHCS to implement pilot projects to provide
coordinated care to children in the California Children's
Services and to persons who are eligible for Medi-Cal and
Medicare.
10)PREVIOUS LEGISLATION .
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a) SB 90 established a new QAF and hospital supplemental
payment program for the period between January 1, 2011 and
June 30, 2011, established a new 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, increased the per quarter amount for
children's coverage (from $80 million per quarter to $110
million per quarter) and authorized OSHPD to grant
specified extensions of hospital seismic safety
requirements, contingent on passage of legislation and
federal approval of a new QAF that allocated $320 million
for children's coverage in FY 2011-12.
b) AB 113, a companion bill to SB 90, enacted an IGT
program for NDPHs.
c) AB 97 (Committee on Budget), Chapter 3, Statutes of
2011, enacted a freeze on all hospital inpatient rates,
except DPHs, including rate increases previously negotiated
by contract with CMAC.
d) SB 853 enacted a freeze on Medi-Cal reimbursement paid
to private hospitals for one-year, retroactive to January
1, 2010 and established a process for implementation of a
new rate setting methodology which uses DRGs.
e) AB 1653 (Jones), Chapter 218, Statutes of 2010, enacted
modifications to the Medi-Cal hospital provider fee,
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.
f) AB 188 (Jones), appropriated the funds necessary to
implement the AB 1383 hospital fee.
g) AB 1383 enacted a Medi-Cal hospital provider fee, a
methodology for making supplemental payments to hospitals,
provided funds for children's health care coverage and
grants to public hospitals.
h) AB 5 X4 reduced by 10% the payments made to DSH private
hospitals under the state's Hospital Financing Waiver and
reduced by 10% the FFS inpatient rate reimbursement to
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certain small and rural hospitals, exempted previously,
except for those designated as "critical access" hospitals
and those designated as "rural referral centers".
i) AB 5 X3 (Committee on Budget), Chapter 3, Statutes of
2007-08 Third Extraordinary Session, reduced, for services
provided on and after July 1, 2008, Medi-Cal interim
payments and cost report settlements by 10% for amounts
paid for inpatient hospital services provided by hospitals
that are not under contract with the state.
j) AB 1183 (Committee on Budget), Chapter 758, Statutes of
2008, reduced non-contract rates to the lesser of the 10%
reduction enacted by AB 5 X3 or the regional average CMAC
per diem contract rate, reduced by 5% and multiplied by the
number of Medi-Cal covered inpatient days.
11)POLICY COMMENTS .
a) Hospital Seismic Safety Standards Extension. SB 90
authorized OSHPD to grant extensions of existing hospital
seismic safety requirements, to become operative on the
date DHCS receives all necessary federal approvals for a FY
2011-12 hospital QAF program that includes $320 million in
fee revenue to pay for health care coverage for children as
a result of legislative enactment of a FY 2011-12 hospital
QAF program. This bill meets the requirement of providing
the required level of funding. As a result the authority
for hospitals to request additional extensions will be
triggered upon federal approval. Notice of federal
approval is required to be sent to each hospital and posted
on the DHCS Web site within 10 days, but is not required to
be sent to the Legislature.
b) Need for Additional Legislation . This bill specifies
legislative intent that future legislation will be enacted
if necessary. One provision memorializes a guarantee that
DPHs will be made whole in exchange for forgoing $80
million in payments from IGT funds if the equivalent amount
is not recouped through managed care payments funded by the
fee. Another provision specifies legislative intent to
consider requiring the director of DHCS to seek approval to
increase payments under specified circumstances. As this
is neither binding nor enforceable, the author and sponsor
may wish to explain the need for this language.
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c) Unspecified Distribution . This bill reflects negotiated
agreements among the hospital community and with DHCS. The
details of some of these agreements could not be determined
in timely fashion to be reflected in this bill. In some
cases the agreement was reached too late to accommodate
legislative deadlines and in other cases, the details
cannot be known until more data becomes available. For
instance, the DPHs have agreed to provide the first $20
million for the LIHP emergency services pool from IGT funds
and will receive $114.5 million in direct grants from fee
revenues. The NDPHs will receive $25 million in direct
grants. However there was not enough time to develop a
distribution formula for the direct grants. The
distribution of the LIHP emergency services pool will not
be known until full implementation of the LIHPS. Unless
there is a commitment that future legislation will also
include these distributions, there will be no legislative
oversight.
REGISTERED SUPPORT / OPPOSITION :
Support
California Hospital Association (sponsor)
Adventist Health and Loma Linda University
California Association of Public Hospitals and Health Systems
California's Children's Hospitals Association
District Hospital Leadership Forum
Private Essential Access Community Hospitals
United Hospital Association
University of California
Opposition
None on file
Analysis Prepared by : Marjorie Swartz / HEALTH / (916)
319-2097