BILL ANALYSIS Ó SB 335 Page 1 SENATE THIRD READING SB 335 (Ed Hernandez and Steinberg) As Amended August 18, 2011 2/3 vote. Urgency SENATE VOTE :35-2 HEALTH 16-0 APPROPRIATIONS 17-0 ----------------------------------------------------------------- |Ayes:|Monning, Logue, Atkins, |Ayes:|Fuentes, Harkey, | | |Eng, Garrick, Gordon, | |Blumenfield, Bradford, | | |Roger Hernández, Bonnie | |Charles Calderon, Campos, | | |Lowenthal, Mansoor, | |Davis, Donnelly, Gatto, | | |Mitchell, Nestande, Pan, | |Hall, Hill, Lara, | | |V. Manuel Pérez, Silva, | |Mitchell, Nielsen, Norby, | | |Smyth, Williams | |Solorio, Wagner | | | | | | ----------------------------------------------------------------- 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 : 1)Establishes a per diem fee assessed on every private acute care hospital for every acute, psychiatric, and rehabilitation inpatient day at a rate of $86.40 per managed care day (other than Medi-Cal), $383.20 per Medi-Cal day, $48.38 per prepaid health plan hospital managed care day, $214.59 per prepaid health plan hospital Medi-Cal managed care (MCMC) day, $309.86 per fee-for-service 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)Authorizes the Department of Health Care Services (DHCS) to SB 335 Page 2 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. 4)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 upper payment limits (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%. 5)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. 6)Requires DHCS to increase monthly capitation payments to MCMC plans to the maximum total amount allowable under federal law SB 335 Page 3 for supplemental payments to hospitals, including district and public hospitals, for inpatient services within specified time limits and authorizes DHCS to set aside fee revenue as specified in order to accumulate the required amounts. 7)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 and requires the MCMC plans 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. 8)Specifies legislative intent that payments made to Designated Public Hospitals (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. 9)Requires DHCS to deposit the fees in the Hospital Quality Assurance Revenue Fund (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 and 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 for children in the amount of $85 million quarterly during 2011-12, and in the amount of $96.75 million quarterly during 2012-13 and 2013-14; c) To make increased capitation payments to MCMC plans; SB 335 Page 4 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; and, 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. 10)Creates a contractually enforceable promise on behalf of the state to use the proceeds of the fee and the HQARF only for the purposes, in the amounts authorized by this bill and to comply with all obligations imposed pursuant to this bill. 11)Authorizes DHCS and the Director 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 and 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. 12)Requires the 21 DPHs, (hospitals owned or operated by the University of California and counties) 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. 13)Requires nondesignated public hospitals (NDPH), which are public hospitals owned or operated by local hospital districts, 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. 14)Establishes the LIHP MCE Out-of Network Emergency Care SB 335 Page 5 Services Fund to consist of: a) For FYs 2011-12 and 2012-13, $20 million and for FY 2013-14, $10 million 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. 15)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 Section 1115(a) waiver and specifies legislative intent that IGT funds are to be used first and requires DHCS to obtain federal financial participation (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. 16)Requires compliance with the out-of-network emergency care services payments program as a condition of participation in the voluntary LIHP. 17)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. 18)Authorizes DHCS to implement by means of policy letters, provider bulletins, or all plan letters. 19)Requires DHCS to seek approval from CMS, as specified, and allows for conditional approval and implementation based on receipt of a letter from CMS indicating likely federal approval as specified, provides that the provisions requiring supplemental payments shall be inoperative if this notification of approval is not received by September 1, 2013, and provides that if federal approval, as specified, is not obtained by December 1, 2013, the statutes creating the SB 335 Page 6 hospital provider fee shall become inoperative. 20)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. 21)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 and the amount shall be transferred to the GF. 22)Prohibits payment rates for hospital outpatient services furnished before December 31, 2013, by any hospital from being reduced below those in effect on July 1, 2011. 23)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. 24)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. 25)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. 26)Reduces funds available for payments to private hospitals SB 335 Page 7 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. 27)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 or if a judicial determination results in specified impact to the GF. 28)Provides for withholding of payment to any hospital that sues to enjoin implementation and conditions a hospital's receipt of payments on continued participation in the Medi-Cal program. 29)Extends the sunset date on the HQARF created by AB 1383 (Jones), Chapter 627, Statutes of 2009, to January 1, 2015, and appropriates $7.2 billion to DHCS, $6.2 billion from the federal trust fund, and $237, 500,000 from the LIHP Fund to be available until January 1, 2015. 30)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. FISCAL EFFECT : According to the Assembly Appropriations Committee: 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. SB 335 Page 8 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 FY 2011-12 and $97.5 million per quarter in FYs 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 FY 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 FY 2012-13 and of $17.5 million (50% GF) for FY 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 FY 2012-13 and $17.8 million in FY 2013-14 ($87.4 million total estimated loss of savings). 4)Direct grants to designated public hospitals 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. 5)Direct grants to non-designated public hospitals of $10 million for FYs 2011-12 and 2012-13, and $5 million in FY 2013-14. 6)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 : According to the author, this bill is intended to SB 335 Page 9 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 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 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 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. SB 90 (Steinberg) established a new QAF and hospital SB 335 Page 10 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. SB 90 also authorized the Office of Statewide Health Planning and Development 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. 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. Analysis Prepared by : Marjorie Swartz / HEALTH / (916) 319-2097 FN: 0002251