BILL ANALYSIS Ó
AB 498
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Date of Hearing: April 30, 2013
ASSEMBLY COMMITTEE ON HEALTH
Richard Pan, Chair
AB 498 (Chávez) - As Amended: April 23, 2013
SUBJECT : Medi-Cal.
SUMMARY : Exempts cost-based fee-for-service (FFS) payments to a
non-designated public hospital (NDPH) for inpatient services on
or after July 1, 2012, and supplemental payments from the Safety
Net Care Pool (SNCP) and the Delivery System Reform Incentive
Pool (DSRIP), established in the 2012 Section 1115 Medi-Cal
Waiver, Bridge to Reform, from being subject to any other
limitations established by the Department of Health Care
Services (DHCS), unless otherwise required by federal law.
EXISTING LAW :
1)Establishes the Medi-Cal program, administered by DHCS, under
which qualified low-income individuals receive health care
services. Includes inpatient hospital services as a covered
benefit under the Medi-Cal program.
2)Provides for the payment of hospital services in the Medi-Cal
program, including fee-for-service (FFS), negotiated by
contract with the California Medical Assistance Commission
(CMAC) or with Medi-Cal managed care (MCMC) health plans.
3)Requires DHCS to develop and implement a new Medi-Cal
reimbursement methodology for private inpatient general acute
care hospitals based upon diagnosis related groups (DRGs),
subject to federal approval, that reflects the costs and
staffing levels associated with quality of care for patients
in all general acute care hospitals in state and out-of-state.
4)Requires the DRG payment methodology to be implemented on July
1, 2012, or on the date upon which the Director of DMHC
executes a declaration certifying that all necessary federal
approvals have been obtained and the methodology is sufficient
for formal implementation, whichever is later. Exempts county
hospitals and University of California (UC) hospitals
(designated public hospitals or DPHs) and NDPHs from the DRG
payment methodology.
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5)Provides that DPHs are reimbursed based on their costs, and
use their own funds [instead of state General Fund (GF)] as
the state match to draw down federal Medicaid matching funds,
pursuant to a Section 1115 waiver.
6)Upon approval of a waiver amendment, and state plan amendment
(SPA), provides that NDPHs (district hospitals) are to be
reimbursed in the same fashion as DPHs.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, this bill
prohibits DHCS or the federal Centers for Medicare and
Medicaid Services (CMS) from applying an existing statutory or
regulatory rate limitation on a NDPH when they convert their
Medi-Cal inpatient reimbursement methodology to the Certified
Public Expenditures (CPE) system. The author states the
current Peer Grouping Inpatient Limitation (PIRL) is in place
for traditional Medi-Cal providers, specifically non-contract
providers. This bill will prevent the PIRL rate limitation
from being applied and will allow NDPH's to report their full
costs to CMS.
2)BACKGROUND . AB 1467 (Budget Committee), Chapter 23, Statutes
of 2012, the Health Omnibus Budget Trailer Bill, revised the
reimbursement methodology for NDPHs, effective July 1, 2012.
The new methodology is intended to result in savings to the
general fund and allow NDPHs to be compensated for the loss by
drawing down additional federal funds. Until it is
implemented, NDPHs continue to receive either the CMAC
negotiated per diem rate or a cost-based reimbursement for
Medi-Cal FFS inpatient services. These payments are 50% GF
and 50% federal funds. With the proposed change in
methodology, NDPHs would be reimbursed for their inpatient
Medi-Cal FFS days in the same manner as DPHs in that they will
use their CPEs to draw down federal funds. This change was
estimated to result in $94.4 million GF savings as local
governmental funds or CPEs would be used instead of state GF
as a match for federal funds to reimburse NDPHs. In addition,
qualified NDPHs were previously receiving supplemental
reimbursements from the NDPH Supplemental Fund, which is
funded with 50% GF and 50% federal funds. This supplemental
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reimbursement will no longer be available, resulting in an
additional GF savings of $1.9 million. Finally, NDPHs will no
longer be eligible for the supplemental payments authorized by
AB 113 (Monning), Chapter 20, Statutes of 2011, which are
funded by intergovernmental transfers (IGTs) and federal
funds. The reimbursement changes are contingent upon DHCS
receiving federal approval via an amendment to the Section
1115 Medicaid Demonstration Waiver, A Bridge to Reform which
requests an increase in the SNCP and the DSRIP for the
supplemental funding, as well as approval of a SPA. Approval
of the waiver amendment and SPA are still pending. The
additional funds will be made available to NDPHs to offset
their uncompensated care costs and to support their efforts to
enhance the quality of care and the health of the patients and
families they serve. NDPHs are currently not eligible for
these funds.
3)HOSPITAL FINANCING . The Selective Provider Contracting
Program (SPCP) was established by the Legislature in 1982 (AB
3480, Robinson, Chapter 329, Statutes of 1982) under a 1915(b)
waiver and allowed 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 are required to receive in-patient care at a
contracting hospital. Selective contracting allowed CMAC to
negotiate a competitive rate in place of the traditional
"cost-based" reimbursement system used by most states. Since
its inception CMAC has saved the state $12.7 billion in state
GF savings. Hospitals in an open area continue to be
reimbursed on a cost-based system. On July 1, 2012 CMAC was
eliminated and the SPCP was transferred to DHCS for
negotiation and administration until the SPCP is replaced by
the implementation of the new discharge-based DRG hospital
inpatient payment methodology scheduled for July 1, 2013.
a) DRG . DHCS is using a three year transition period to
implement DRGs that limits hospitals' projected change from
what they would have received under the current
reimbursement methodology, with full implementation in year
four. The purpose of the transition period is to allow
time for hospitals to make adjustments to systems of care
due to the fundamental change in the payment system.
b) Public hospitals . In 2005, the State of California
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sought a five year federal waiver as a Medicaid
demonstration project under the authority of Section
1115(a) of the Social Security Act. Under this waiver,
hospital financing was fundamentally restructured. The
waiver created the SNCP to pay for services to the
uninsured and for unreimbursed Medi-Cal expenditures
delivered through DPHs, other governmental entities and
state-funded programs. Contracting through the SPCP
program continued in a modified fashion under the 2005
hospital waiver. CMAC retained authority to continue
negotiating rates under the SPCP for private and NDPHs for
the provision of hospital inpatient services in the
Medi-Cal FFS program.
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 the 21 UC and county DPHs is now based on
CPEs, rather than state GF. The in-patient reimbursement
rate was no longer negotiated by CMAC and is determined by
DHCS. The waiver also created the SNCP which provides a
fixed amount of federal funds to cover uncompensated care.
CPEs are the expenditures certified by counties, state
university teaching hospitals, or other public entities as
having been spent on Medi-Cal patients or on the uninsured.
c) PIRL . The PIRL became effective for Medi-Cal
non-contract inpatient FFS acute care services beginning
with the state's 1993 fiscal period. It replaced the
Medi-Cal Inpatient Reimbursement Limitation that went into
effect in the state's 1980 fiscal year. The limit's
purpose was to slow down the rate of Medi-Cal inpatient
acute care expenditures through two sets of limitations.
Both limitations are based upon a hospital's Medi-Cal cost
per discharge. According to the sponsor of this bill, the
District Hospital Leadership Forum (DHLF), the first is to
limit the growth of Medi-Cal expenditures by the hospital
from one period to the next, while the other capped the
hospital's Medi-Cal cost per discharge at the 60th
percentile of its peer group. These limitations are found
in regulations and were intended to control costs for
non-contract hospitals, as the CMAC contracting program was
created to control costs for contract hospitals through the
negotiations process. The PIRL is the lowest of: a) the
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all-inclusive rate per discharge limitation; b) the peer
grouping rate per discharge limitation; c) customary
charges; or, d) allowable costs. It is applied to the
hospitals' FFS charges in calculating the maximum allowable
reimbursement rate.
4)BRIDGE TO REFORM . In November 2010, California received
federal approval for a new five year Section 1115 Medi-Cal
Demonstration/Pilot Project Waiver, entitled "A Bridge to
Reform." This waiver is a renewal of the 2005 Hospital
Financing /Uninsured Waiver and includes a continuation of the
hospital financing provisions from the 2005 waiver but with
modifications to the allocation of SNCP funds. Hospitals
submit CPEs and use IGTs to draw down federal funds.
The DSRIP is a newly created source of funding within the SNCP
to support California's public hospitals' efforts to enhance
the quality of care and health of the patients and families
they serve. Funding is up to $6.5 billion over five years.
Each hospital is individually responsible for progress
towards, and achievement of, milestones and other metrics in
its proposal. There are four areas for which funding is
available:
a) Infrastructure development;
b) Innovation and design;
c) Population-focused improvement; and,
d) Urgent improvement in care, hospital specific.
5)SUPPORT . The DHLF, sponsor of this bill, states that this
bill addresses a technical issue related to the PIRL that
non-contract district/municipal hospitals (otherwise known as
NDPHs) were subject to prior to July 1, 2012. The 2012-13
state Budget proposed that district/municipal hospitals
transition to CPEs for Medi-Cal inpatient FFS reimbursement
coupled with accessing supplemental federal funds as part of
the 2010 Medi-Cal 1115 Waiver. DHLF explains that in other
words, the state will achieve a savings of approximately $100
million annually and these public hospitals will provide the
non-federal share of Medi-Cal funds by certifying their costs
of providing care to Medi-Cal FFS beneficiaries. This
transition is slated for implementation on July 1, 2012 and
currently the state and the NDPHs are awaiting final approval
on the various components by CMS. The transition to CPEs for
these hospitals means that there will no longer be any state
GF expenditure to these hospitals for those services, making
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the PIRL regulation obsolete. However, to ensure there are
not unintended consequences resulting in the application of
the PIRL after the transition to CPEs, these hospitals believe
this bill is necessary.
6)RELATED LEGISLATION . SB 645 (Nielsen) prohibits the Medi-Cal
hospital payment methodology based on DRGs from being
implemented until the DHCS develops a methodology for
hospitals to review base payment rates for health care
services, requires the DRG methodology to include an appeals
process for changes to a hospital's base rate, requires DHCS
to collect codes and establish a database, and requires DHCS
to develop an education and training program for hospital
billing staff. Takes effect immediately as an urgency
statute.
7)PREVIOUS LEGISLATION .
a) AB 1467 (Budget Committee), Chapter 23, Statutes of
2012, creates a transition plan for the staff CMAC and
redirects positions to DHCS on July 1, 2012. Provides that
CMAC staff continue to operate the SPCP until the new
inpatient hospital payment system based on DRG is
implemented. Changes the reimbursement methodology of
NDPHs from the current CMAC negotiated per diem rates or
cost-based reimbursement for inpatient Medi-Cal FFS,
eliminate supplemental reimbursement from the NDPH
Supplemental Fund and IGTs contingent on DHCS receiving
federal approval to increase the SNCP and DSRIP funding
available to California. The additional funds would be
made available to NDPHs to offset their uncompensated care
costs and to support their efforts to enhance the quality
of care and the health of the patients and families they
serve.
b) AB 113 establishes the NDPH IGT Program, administered by
the DHCS, under which public entities would voluntarily
transfer funds to the state for the purpose of drawing down
federal funds to make supplemental Medi-Cal payments to
these NDPHs.
c) AB 102 (Budget Committee), Chapter 29, Statutes of 2011,
requires DHCS to implement the DRG payment methodology by
July 1, 2012.
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d) SB 853 (Budget and Fiscal Review Committee), Chapter
717, Statutes of 2010, requires DHCS, subject to federal
approval, to develop and implement a Medi-Cal payment
methodology based on DRGs for private inpatient hospital
services.
e) AB 1066, (John A. Pérez), Chapter 86, Statutes of 2011,
enacts technical and conforming statutory changes necessary
to implement the Special Terms and Conditions required by
the CMS in the approval of the Section 1115 Medi-Cal
Demonstration Project entitled "California's Bridge to
Reform," approved on November 2, 2010.
f) SB 208 (Steinberg), Chapter 714, Statutes of 2010,
implemented provisions of the 2010 Section 1115 replacement
waiver including establishing the DSRIP 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, authorized DHCS to require the mandatory enrollment
of seniors and people with disabilities 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 Service and to persons who are
eligible for Medi-Cal and Medicare.
8)POLICY COMMENT . The need for and effect of this bill is
unclear. Medi-Cal in-patient reimbursement for private
hospitals is transitioning to DRG methodology as of July 1,
2013. With regard to NDPHs, reimbursement will transition to
a cost based CPE system as soon as the pending SPA and waiver
amendment are approved, retroactive to July 2012. In both
cases the PIRL, which applies to non-contracting hospitals,
will become obsolete as there will be no longer be a
distinction between contracting and non-contracting hospitals
in the reimbursement methodology.
9)TECHNICAL AMENDMENT . This bill refers to any limitations but
is intended to only apply to the PIRL. The author has agreed
to a technical amendment to clarify this reference.
REGISTERED SUPPORT / OPPOSITION :
Support
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District Hospital Leadership Forum (sponsor)
Opposition
Analysis Prepared by : Marjorie Swartz / HEALTH / (916)
319-2097