BILL ANALYSIS Ó AB 498 Page 1 Date of Hearing: May 15, 2013 ASSEMBLY COMMITTEE ON APPROPRIATIONS Mike Gatto, Chair AB 498 (Chávez) - As Amended: May 7, 2013 Policy Committee: HealthVote:18-0 Urgency: No State Mandated Local Program: No Reimbursable: No SUMMARY This bill prohibits payments to a nondesignated public hospital (NDPH), pursuant to existing law provisions for inpatient services on or after July 1, 2012, as specified, from being subject to a peer grouping inpatient reimbursement limitation (PIRL) established by the Department of Health Care Services (DHCS), unless required by federal law. FISCAL EFFECT As currently drafted, costs are likely to be negligible as this bill is intended to ensure the state takes advantage of federal funds for district hospital Medi-Cal payments. COMMENTS 1)Rationale . This bill, sponsored by the District Hospital Leadership Forum (DHLF) on behalf of district hospitals, seeks to prevent application of an existing statutory or regulatory rate limitation on a NDPH when DHCS converts its Medi-Cal inpatient reimbursement methodology to the Certified Public Expenditures (CPE) system. DHLF states this bill addresses a technical issue to which NDPHs were subject prior to July 1, 2012. 2)Background . The existing law amended by this bill, 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 (GF) and allow NDPHs to be compensated for the loss by drawing down additional federal funds. Until it is AB 498 Page 2 implemented, NDPHs continue to receive either the California Medical Assistance Commission (CMAC) negotiated per diem rate or a cost-based reimbursement for Medi-Cal fee-for-service (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 designated public hospitals (DPHs) in that they will use their CPEs to draw down federal funds. DPHs are county hospitals and University of California (UC) hospitals. This change was estimated to result in $94.4 million GF savings because local governmental funds (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 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 increased funding and approval of a state plan amendment (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)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 AB 498 Page 3 (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 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. Analysis Prepared by : Debra Roth / APPR. / (916) 319-2081