BILL ANALYSIS Ó
SB 335
Page 1
Date of Hearing: August 25, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 335 (Hernández and Steinberg) - As Amended: August 18, 2011
Policy Committee: HealthVote:16-0
Urgency: Yes State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill, subject to federal approval, modifies and extends a
hospital quality assurance fee (QAF) program that ended June 30,
2011 for an additional 30 months and provides funding to the
state for children's health care coverage programs throughout
this period. Specifically, this bill:
1)Describes, for the period from July 1, 2011 until December 31,
2013, a framework for collection of fees from private
hospitals and distribution of an estimated $13 billion in
supplemental Medi-Cal payments to private hospitals and grant
funding to hospitals. Specifies that monies are deposited into
the Hospital Quality Assurance Revenue Fund (HQARF) for
purposes of this program.
2)Provides $85 million per quarter in 2011-12 and $97.5 million
per quarter in 2012-13 and 2013-14 ($920 million total for the
30-month program) in QAF revenues to the state for children's
health care coverage.
3)Creates an additional pool of funds to make supplemental
payments to private and non-designated public hospitals that
provide out-of-network emergency services for enrollees of
county-based Low-Income Health Programs (LIHP) established
through the state's recent Medicaid demonstration waiver.
Creates the LIHP Managed Care Expansion (MCE) Out-of Network
Emergency Care Services Fund for administration of this pool.
4)Provides $140 million in direct grant funding to designated
and non-designated public hospitals. Specifies that the
distribution methodology for this funding shall be determined
SB 335
Page 2
by the director in consultation with the hospitals.
5)Prohibits, for the life of the program, Medi-Cal payment rates
for outpatient and inpatient services from being reduced.
Specifies a methodology through which this requirement will be
satisfied if the state transitions to a different payment
methodology during this time.
6)Reduces supplemental payments to hospitals through the
Disproportionate Share (DSH) replacement program and the
Private Hospital Supplemental Fund.
7)Provides methodologies for proportionate reductions or
recalculations of all fees, hospital payments, and increased
capitation payments, if specified circumstances occur that
prevent full payment from being made. Stipulates payments may
only be made to the extent there are sufficient fee funds
collected.
8)Provides discretion to the director of DHCS to modify the
program in order to gain federal approval, and administrative
flexibility to DHCS to administer the program by means of
policy letters, provider bulletins, or all plan letters.
FISCAL EFFECT
1)An increase of $12.4 billion total (50% hospital QAF/50% FFP)
paid to private hospitals through December 2013 in the form of
supplemental Medi-Cal payments for hospital services. This
estimate assumes hospitals subject to the QAF will contribute
$6.9 billion, and that this funding it is matched with FFP at
the rate of 50% and paid as supplemental payments, except for
those funds set aside to the state and for other purposes as
explained below.
2)Estimated administrative costs in the Department of Health
Care Services (DHCS) of approximately $2 million (50% hospital
QAF/50% FFP) annually for the life of the 30-month program ($5
million total).
3)Total estimated net GF savings of $875 million for the life of
the 30-month program. This is comprised of:
a) GF savings associated with direct QAF revenue for
children's coverage of $85 million per quarter in 2011-12
SB 335
Page 3
and $97.5 million per quarter in 2012-13 and 2013-14
($920.5 million total GF savings).
b) Reduced DSH replacement payments to private hospitals of
$21 million (50% GF) in 2012-13 and of $10.5 million (50%
GF) for 2013-14 ($15.8 million GF savings).
c) Reduced funds available for payments to private
hospitals from the Private Hospital Supplemental Fund of
$31 million (50% GF) for 2012-13 and of $17.5 million (50%
GF) for 2013-14 ($26.3 million GF savings).
d) Offsetting loss of GF savings associated with the repeal
of outpatient rate reductions in the Budget Act of 2011 of
$34 million. Assumed loss of savings associated with
prohibition of future outpatient reductions of $35.6
million in 2012-13 and $17.8 million in 2013-14 ($87.4
million total estimated loss of savings).
1)Direct grants to designated public hospitals in the aggregate
amount of $50 million in 2011-12, $43 million in 2012-13, and
$21.5 million in 2013-14.
2)Direct grants to non-designated public hospitals of $10
million for 2011-12 and 2012-13, and $5 million in 2013-14.
3)Upon the expiration of this program in 2014, GF cost pressure
is created to maintain the higher level of payments to
hospitals and the children's health care coverage programs
funded by the QAF.
COMMENTS
1)Rationale . The California Hospital Association (CHA), the
sponsor of SB 335, states that the hospital provider fee
program remains crucial to the preservation of Medi-Cal
services provided by California's hospitals. CHA notes that
this program will provide an estimated net benefit of $5.2
billion to California's hospitals throughout its 30-month
life. In addition, CHA points out that the program will
provide significant benefit to the state, as hospitals have
committed through this program to provide more than $920
million directly to the state to support the cost of
children's health care coverage and have agreed to reduce
other hospital supplemental payments for GF savings.
2)Reason for Urgency . Federal approval is required for
implementation of the hospital QAF program described in SB
SB 335
Page 4
335. DHCS must submit a State Plan Amendment (SPA) to the
Center for Medicaid and Medicare Services (CMS) by September
30, 2011 in order for the program to be operative in the
quarter ending on that date.
3)Background . Federal law authorizes states to fund a portion of
Medicaid through provider fees that meet federal requirements
and are matched with FFP to pay providers without state funds.
State QAF must be broad-based, uniform, and cannot hold a
group of providers harmless with respect to fees paid and
payments received. In California, two prior hospital QAF
programs have been enacted. AB 1383 (Jones), Chapter 627,
Statutes of 2009 established a QAF direct grants to designated
public hospitals in the aggregate amount of $50 million in
2011-12, $43 million in 2012-13, and $21.5 million in 2013-14.
Non-designated public hospitals will receive $10 million for
2011-12 and 2012-13, and $5 million in 2013-14 that ended
January 1, 2011, and SB 90 (Steinberg), Chapter 19, Statutes
of 2011 established a 6-month hospital QAF program that ended
June 30, 2011. QAF have also been used to generate revenues
for Medi-Cal managed care plans, skilled nursing facilities
(SNF, nursing homes), and intermediate care facilities for the
developmentally disabled (ICF-DD).
4)Hospital QAF Program . The program is designed to make
supplemental inpatient and outpatient Medi-Cal payments to
private hospitals, including additional payments for certain
facilities that provide high-acuity care and trauma services
to the Medi-Cal population. This hospital QAF program provides
a mechanism for increasing payments to hospitals that serve
Medi-Cal patients, with no impact on the state's General Fund.
Some of these payments will be made directly by the state,
while others will be made by Medi-Cal managed care plans that
will receive increased capitation rates from the state in
amounts equal to the supplemental payments.
5)Changes from Prior QAF Program . The structure of the fee and
the supplemental payment methodologies are largely similar to
that of the prior two QAF programs. A significant change from
the prior program is the creation of a new pool of funds to
provide supplemental payments to hospitals that provide
out-of-network emergency services to enrollees in county-based
Low Income Health Programs (LIHPs). The QAF revenues, as well
as intergovernmental transfers provided by designated public
hospitals, will leverage federal funding to create a pool of
SB 335
Page 5
$190 million annually ($475 million total) for this purpose.
Secondly, the prior 6-month QAF program did not include grants
to public hospitals, while the 30-month program includes
direct grants to designated public hospitals in the aggregate
amount of $50 million in 2011-12, $43 million in 2012-13, and
$21.5 million in 2013-14. Non-designated public hospitals
will receive $10 million for 2011-12 and 2012-13, and $5
million in 2013-14. The funding is to be allocated by the
director pursuant to a methodology to be developed in
consultation with the public hospitals.
This bill also increases the amount of fee revenue to the
state for children's coverage from $80 to $85 million per
quarter in 2011-12, and to $97.5 million per quarter in
2012-13 and 2013-14.
Finally, this QAF program makes reductions to two programs
that currently provide supplemental Medi-Cal payments to
private hospitals, the Disproportionate Share (DSH)
replacement program and the Private Supplemental Payment
program, in order to provide additional GF savings to the
state.
The increases for children's coverage and the reduction in the
two other supplemental payment pools effectively make up for
savings associated with proposed hospital rate reductions that
the state will not have the ability to implement, given
prohibitions on such reductions in SB 335.
6)Low-Income Health Program (LIHP) Component . In 2010, DHCS
received CMS approval for a new Medi-Cal demonstration waiver
that expanded on current county-based coverage initiatives by
creating the LIHP. Through the LIHP, the population from
0-133% of the federal poverty level (FPL), who under federal
law will receive coverage under Medi-Cal in 2014, will be
provided a core set of services, including inpatient and
outpatient services, prescription drugs, mental health, and
other medically necessary services. The LIHP is funded
through local funds and federal matching funds.
Because of the reliance on public hospitals as contracted
providers to the LIHP population, there was concern about the
potential for non-contracted hospitals to receive very low
SB 335
Page 6
rates for the provision of emergency services to this
population. Directing some of the QAF revenue to the LIHP
Managed Care Expansion (MCE) Out-of Network Emergency Care
Services Fund, and using this fund to pay supplemental
payments to non-contract hospitals proportional to their
provision of emergency services to LIHP enrollees, is intended
to mitigate these low rates.
7)OSHPD and Seismic Compliance Deadlines . The enactment of SB
335 will allow some hospitals to apply for extensions to
seismic deadlines, based on trigger language that was included
in SB 90 (Steinberg), Chapter 19, Statutes of 2011. SB 90
contained a provision that allowed Structural Performance
Category-1 (SPC-1) hospital buildings flexibility to meet
seismic deadlines, contingent on a future hospital QAF
program. Previously, SPC-1 buildings had been required to be
retrofitted, replaced, or removed from acute-care service by
January 1, 2008, unless a hospital had been granted an
extension to 2013. SPC-1 buildings are those that pose a
significant risk of collapse and a danger to the public after
a strong earthquake.
Specifically, SB 90 allowed a hospital categorized as SPC-1
that has not yet complied with the state's seismic safety
standards to apply for a deadline extension of up to seven
years, contingent on enactment of a hospital QAF program for
2011-12 and the provision of at least $320 million to the
state for children's health care coverage (which would occur
if SB 335 is enacted). The bill stipulated that OSHPD examine
a variety of hospital-specific factors on a case-by-case
basis, including structural integrity, community access to
hospital services, and the hospital's financial capacity when
considering whether to grant an extension and for how long.
8)Hospital Finance Landscape . Medi-Cal payment to hospitals
depends on whether a hospital contracts with DHCS through the
California Medical Assistance Commission (CMAC), if they
qualify as a disproportionate share hospital (DSH), and
whether they are a private hospital, a designated public
hospital, or a non-designated public hospital. Designated
public hospitals use Certified Public Expenditures (local
funds), rather than GF, to draw down FFP for hospital
services.
Fee-for-service Medi-Cal outpatient hospital rates are
SB 335
Page 7
established in a DHCS fee schedule. The CMAC selectively
contracts on a competitive basis with hospitals for inpatient
services provided to beneficiaries in the fee-for-service
Medi-Cal program via the Selective Provider Contracting
Program (SPCP). CMAC contracts with about 200 general acute
care hospitals. Those hospitals that do not contract with CMAC
are non-contract hospitals, and Medi-Cal recipients are
generally restricted from receiving routine hospital inpatient
services from a non-contract hospital when a contract hospital
is available.
9)Prior Legislation .
a) SB 90 (Steinberg), Chapter 19, Statutes of 2011
established a 6-month QAF that ended June 30, 2011,
provided funding to the state for children's health care
coverage.
b) AB 113 (Monning), Chapter 20, Statutes of 2011
established a Medi-Cal intergovernmental transfer program
for non-designated public hospitals.
c) AB 1383 (Jones), Chapter 627, Statutes of 2009
established the QAF that ended January 1, 2011 and provided
funding to the state for children's health care coverage.
d) AB 188 (Jones), Chapter 645, Statutes of 2009
appropriated funds to DHCS to implement the QAF.
e) AB 1653 (Jones), Chapter 218, Statutes of 2010 made
necessary changes to the methodology, timing, and frequency
of the supplemental payments made with QAF revenue in order
to gain federal approval of the QAF.
Analysis Prepared by : Lisa Murawski / APPR. / (916) 319-2081