BILL ANALYSIS Ó
AB 900
Page 1
Date of Hearing: April 30, 2013
ASSEMBLY COMMITTEE ON HEALTH
Richard Pan, Chair
AB 900 (Alejo) - As Amended: April 19, 2013
SUBJECT : Medi-Cal: reimbursement: provider payments.
SUMMARY : Requires Medi-Cal payments to fee for service (FFS)
providers that would otherwise have been reduced by 10% on June
1, 2011 and Medi-Cal payments to skilled nursing facilities that
are a distinct part of a general acute care hospital (DP-SNFs)
and sub-acute care units that are a distinct part of a general
acute care hospital to be determined without the Medi-Cal rate
reductions and rate roll-back required under existing law.
Contains an urgency clause to ensure that the provisions of this
bill go into immediate effect upon enactment.
EXISTING LAW :
1)Existing law establishes the Medi-Cal program, administered by
the Department of Health Care Services (DHCS), under which
qualified low-income individuals receive health care services.
Establishes a schedule of benefits for Medi-Cal
beneficiaries, which includes outpatient care, primary and
specialty care, pharmacy services, hospital services, and
nursing facility services.
2)Defines, in the Medi-Cal state plan, a DP-SNF as any nursing
facility which is licensed together with an acute care
hospital and establishes a reimbursement rate that is based on
the per diem rate for each facility based on the median
projected cost from eligible facilities. A facility whose
projected costs are equal to or greater than the median
projected cost receives a per diem rate equal to the median
projected cost. A facility whose projected costs are less
than the median projected cost receives a per diem rate equal
to its projected costs.
3)Requires Medi-Cal FFS provider payments to DP-SNFs to be
reduced by 5% for dates of service on and after March 1, 2009.
Requires payments to Medi-Cal managed care plans to be
reduced by the actuarially equivalent amount of the 5% payment
reduction.
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4)Requires Medi-Cal FFS provider payments to DP-SNFs to not
exceed the reimbursement rates to DP-SNFs in the 2008-09 rate
year, reduced by 10% for dates of service on and after June 1,
2011. Requires payments to be reduced by 10% for Medi-Cal FFS
benefits for dates of service on and after June 1, 2011.
Requires payments to Medi-Cal managed care plans to be reduced
by the actuarial equivalent amount of the 10% payment
reduction.
5)Requires, under federal law, every state's Medicaid plan to
provide such methods and procedures relating to the
utilization of, and the payment for, care and services
available under the plan as may be necessary to safeguard
against unnecessary utilization of such care and services and
to assure that payments are consistent with efficiency,
economy, and quality of care and are sufficient to enlist
enough providers so that care and services are available under
the plan, at least to the extent that such care and services
are available to the general population in the geographic
area.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the sponsors of this bill,
the California Hospital Association (CHA) and the California
Medical Association (CMA), this bill is needed to stop the
implementation of the rate cuts contained in AB 97, Chapter
29, Statutes of 2011, the health services trailer bill to the
2011-12 state budget. The author points out that this bill
does two things: a) eliminates the state's ability to
implement the 10% Medi-Cal provider rate cuts that were
enacted through AB 97 for all Medi-Cal providers; b)
eliminates the state's ability to 'claw back' rate cuts from
various Medi-Cal providers who have not yet been cut for the
period of time from June 1, 2011 to the present day. The
author argues that this ensures access to medically necessary
care for California's most vulnerable by providing critical
stability to health care provider networks within the Medi-Cal
program. The author states that AB 97 sought to help balance
the state's significant budget deficit by scoring state
'savings' through a 10% reduction to Medi-Cal provider payment
rates. According to author, when the budget was enacted, the
assumed revenue resulting from the rate cut was approximately
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$623 million during that budget year (2011-12). The author
further points out that in his proposed 2013-14 Budget
released in January, Governor Brown scored the rate cuts as
generating nearly $500 million per year in General Fund
savings. Moreover, current law contains no sunset date for
the rate cuts. The author argues that in order to meet the
full promise of the federal Patient Protection and Affordable
Care Act (ACA), California is looking to expand its Medi-Cal
program to hundreds of thousands-potentially millions-of
individuals who aren't currently eligible. California cannot
continue to cut provider rates to the bone and also anticipate
those same providers to take on more Medi-Cal patients than
they do today. California's health care providers are ready
to embrace health reform, but our state needs to repair its
broken safety net.
2)BACKGROUND . As the result of the economic downturn in 2008
and in the face of significant state budget deficits, the
Legislature adopted a number of rate freezes and/or rate
reductions with regard to Medi-Cal services. In earlier
economic downturns, based on federal Medicaid law that
requires care and services to be available to Medicaid
beneficiaries at least to the extent that care and services
are available to the general population in the geographic
area, providers had successfully sued to prevent rate
reductions. For instance sixteen years ago, in Orthopaedic
Hospital v. Belshe 103. F.3d 1491 (1997) the court held that
the federal law requires states to set Medicaid rates based
upon a consideration of provider costs, and precludes rate
reductions based solely on state budgetary concern. The Court
recognized that it is impossible for a state to meet the
statutory standards otherwise as the statute provides that
payments for services must be consistent with efficiency,
economy, and quality of care, and that those payments must be
sufficient to enlist enough providers to provide access to
Medicaid recipients. The court held that the Department
[i.e., the state Medicaid agency] cannot know that it is
setting rates that are consistent with efficiency, economy,
quality of care, and access without considering the costs of
providing such services. However, at the time the Orthopaedic
Hospital v. Belshe decision was rendered, the state had not
obtained approval of the rate cuts in the form of a State Plan
Amendment (SPA) from the Secretary of the federal Department
of Health and Human Services (HHS). The Secretary has
delegated SPA approval authority to HHS's 10 Centers for
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Medicare and Medicaid Services (CMS) regional offices.
In implementing later enacted rate reductions, DHCS began to
seek federal approval first. As additional providers sued to
enjoin the reductions, DHCS also began to collect data to
defend against the arguments that were successful in
Orthopaedic Hospital v. Belshe . Specifically, whether access
would be adversely impacted by the propose rate reduction. In
November of 2008 CMS disapproved a set of SPAs seeking
reductions because the state had not provided sufficient
information concerning the impact of the proposed
reimbursement reductions on beneficiary access to services.
In addition, CMS was concerned that, given the time that had
elapsed since the SPAs had been submitted, the cumulative
effect of approval of and subsequent implementation of these
reimbursement reductions would exacerbate beneficiary access
concerns. On March 25, 2011, the State submitted
documentation to support a demonstration of compliance with
federal law to demonstrate that reimbursement rates would be
sufficient to enlist enough providers so that care and
services are available at least to the extent that care and
services are available to the general population in the
geographic area.
In October 2011, CMS finally approved a number of the rate
reductions including those from AB 97, stating that from March
25, 2011, through approximately September 30, 2011, it had
been working with the state to refine the information
initially submitted and, as a result of this collaborative
process, the State was able to provide metrics that adequately
demonstrated beneficiary access. According to CMS, in
general, these metrics included data which provided: a) total
number of providers by type and geographic location and
participating Medi-Cal providers by type and geographic area;
b) total number of Medi-Cal beneficiaries by eligibility type;
c) utilization of services by eligibility type over time; and,
d) analysis of benchmark service utilization where available.
CMS also favorably commented on modifications that had been
made that would ameliorate access problems that may be created
due to recoupment of retroactive reductions. In addition,
DHCs submitted a plan to monitor predetermined metrics on a
quarterly or annual basis in order to ensure that beneficiary
access is comparable to services available to the general
population in the geographic area. Specifically, three
proposals were approved: a) a 10% provider payment reduction
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on a number of outpatient services, including physicians,
clinics, optometrists, therapists, laboratories, dental,
durable medical equipment and pharmacy; b) a new 10% provider
payment reduction for freestanding nursing and adult sub-acute
facilities; and, c) A 10% provider payment reduction and rate
freeze for DP-SNF.
In announcing the CMS approval, DHCS explained that it selected
23 measures identified in three key areas (beneficiary
measures, provider availability and service use and outcomes)
from a Medicaid and Children's Health Insurance Program
Payment and Access Commission's report to Congress. Combined,
these measures provide a comprehensive portrayal of health
care access in the Medi-Cal program. The services analyzed
included physician/clinic services, pharmacy, durable medical
equipment, transportation, various long-term care services by
facility type, and other outpatient services. Based upon the
analyses, DHCS concluded there were some areas where an
additional 10% payment reduction was not advisable.
Therefore, DHCS is not moving forward with the 10% reduction
to physician/clinic services for children, home health
services or distinct part sub-acute facilities. DHCS is still
reviewing some long-term care services to determine if
additional proposed reductions should be reduced or if any
additional reduction would be appropriate.
Following CMS' approval of the AB 97 rate cuts, CMA, the
California Dental Association, the California Pharmacists
Association, the National Association of Chain Drug Stores,
the California Association of Medical Product Suppliers, Aids
Healthcare Foundation and American Medical Response, all filed
suit against both DHCS and HHS, seeking to stop implementation
of the cuts. On February 1, 2012, the coalition won an
injunction from the court, preventing the cuts from going into
place. The provider coalition is still in court with the
state, and the cuts on the provider types that sued have not
been put into place. Four cases gave rise to 11 consolidated
appeals and an opinion was rendered by the United States Court
of Appeals for the Ninth Circuit on December 13, 2012. This
time the court distinguished the holding in the Orthopaedic
Hospital v. Belshe case on, among other grounds, the fact that
the SPA had been approved by CMS. The Court gave great
deference to CMS and DHCS stating that the Secretary had
reasonably determined that the State's reimbursement rates
complied with federal law. The Court went on to point to the
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DHCS study of the potential impact of rate reductions on many
Medi-Cal services that reviewed data collected and analyzed
over several years in the process. The court also noted that
DHCS submitted an 82-page monitoring plan, which identified 23
different measures DHCS would study on a recurring basis to
ensure the SPAs do not negatively affect beneficiary access.
CMA, CHA, and California Medical Transportation Association et
al. petitioned for rehearing of the December 13, 2012 decision
in January 2013. The decision also reversed and vacated the
District Court's preliminary injunctions preventing
implementation of a 10% across-the-board cut in Medi-Cal
provider payment rates. Although the lawsuit prevented the
state from implementing most of the Medi-Cal provider rate
reductions, it did not stop all of them from going into place.
The current injunction prevents the state from cutting
payments to physicians, dentists, pharmacists, pharmacies,
home medical equipment, durable medical equipment, orthotics
and prosthetics, HIV/AIDS care, nursing homes, ambulances, and
air ambulances.
DHCS indicates it obtained federal approval to implement the
payment reduction and the DP-SNF rate freeze. Even though
litigation is currently ongoing, DHCS anticipates a decision
by the end of the fiscal year. Assuming the state prevails,
DHCS has indicated that, once it has authority to implement
the payment reductions, it will do so retroactive to June 1,
2011.
3)RECOUPMENT . DHCS indicates it has conducted a legal analysis
of whether the state would be required to retroactively recoup
payments in order to repay the federal share of the payments
made during the period of the injunction, if that injunction
is overturned. DHCS indicates rate reductions which were set
forth in a SPA that was approved by CMS were delayed by a
federal district court injunction. During the period that the
injunction was in effect, DHCS has been paying Medi-Cal
providers at pre-existing higher rates and received federal
matching funds for those payments. DHCS indicates the basic
federal rule is that a state is entitled to federal Medicaid
funds (FFP) only to the extent authorized by the state's
approved Medicaid plan. DHCS indicates that when a state pays
a provider more than what is authorized by the approved state
plan, it is obligated to return to the federal government the
FFP associated with the overpayment.
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DHCS notes that there is a federal regulation that allows FFP
for payments "for services provided within the scope of the
Federal Medicaid program and made under a court order."
However, DHCS states the HHS Appeals Board has addressed that
regulation in the context of payments made to providers that
were greater than provided in the state plan pursuant to a
court injunction that was later reversed. The question was
whether the regulation protected the FFP received by the state
during the period the injunction was in effect, and DHCS
indicates the answer was no. DHCS states that it is also not
possible to retroactively amend the state's Medicaid state
plan to increase the payment rates to the levels paid during
the period the injunction was in effect as it has long been a
federal rule that the effective date of a SPA that increases
payment amounts for services covered by a state plan can be no
earlier than the first day of the quarter in which an
approvable plan is submitted to the federal agency. DHCS
indicates CMS and its predecessor agencies have zealously
applied that limitation despite many efforts of states over
the years to avoid its effect, and this rule would preclude
reinstating now the former Medi-Cal reimbursement rates for
the period during which the injunction was in effect.
For DP-SNF's that rely most heavily Medi-Cal, the retroactive
recoupment is particularly onerous. According to CHA, there
are about 60 impacted facilities. For most of them the
reduction is not 10%, but 25% because it is a 10% reduction
from the facility's 2008-09 rates. In addition to this rate
reduction, there is also the 'claw back' that the state
intends to collect, going back to June 1, 2011, which is two
years of rate reductions.
4)SUPPORT . CHA, a cosponsor of this bill, writes in support
that it would eliminate pending cuts to a number of Medi-Cal
providers - physicians, dentists, pharmacists, and many more.
Specifically, for hospitals, this bill requires Medi-Cal
reimbursement for DP-SNFs to be determined without the
Medi-Cal rate reductions and rate roll-back required under
existing law. CHA points out that as compared to
free-standing facilities, DP/SNFs care for patients of greater
medical complexity and are often the only option for patients
with specialized medical or behavioral needs or for
individuals living in rural areas. This sponsor, further
states that in the last five years, approximately one-third of
California's DP/SNFs (approximately 40 facilities) have closed
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because of financial pressures. According to CHA, if the
pending cuts are not rescinded, closures will continue and
increase. CHA argues that if additional facilities close,
many displaced patients/residents will have no place to go.
CMA, a cosponsor of this bill, writes in support, that it is a
measure to help stabilize the state's safety net by stopping
the imposition of the 10% reimbursement rate reduction to
Medi-Cal providers. According to CMA, the AB 97
across-the-board 10% reduction in Medi-Cal provider payments
impacts many provider types, including physicians, dentists,
ambulance providers, pharmacists, nursing homes, and others.
CMA states that Medi-Cal is the largest Medicaid program of
any state in the country, with total enrollment of over 10
million in 2009, and yet the program pays some of the lowest
reimbursement rates of any Medicaid program in the nation.
CMA further states that if the AB 97 rate cuts are
implemented, California will likely hold the dubious
distinction of number one in total Medicaid program enrollment
and 50th in provider payments. CMA further states that
California's patient, provider, and payor communities want to
be a partner with the state in the effort to fully implement
federal health reform. According to this sponsor, expanding
Medi-Cal to meet the ACA's requirements could mean millions of
new Medi-Cal enrollees will be added to the state's already
tattered safety net. CMA also states that further reducing
provider payments at the precise time the system is proposed
to be expanded to those currently uninsured is the wrong
solution for California, and makes the Medi-Cal program an
empty promise to California's poor and needy.
Other supporters, such as CenCal Health, the California
Association for Adult Day Services (ADHC), write in support
that ADHC, skilled nursing facilities and sub-acute care units
are a critical component to providing care for seniors and
those who are frail and disabled. The rate cuts place severe
distress on these facilities. CenCal states that if any of
the facilities are forced to close, hundreds of seniors who
are currently receiving custodial care will be displaced.
Moreover, hospitals will no longer be able to discharge
seniors who are in desperate need to be placed in these
facilities thereby increasing the tenure and cost of caring
for these patients in a hospital setting.
The California Retailers Association, writes in support that in
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order to collect the savings from the retroactive and
prospective provider rate cuts, DHCS has stated in recent
budget committee hearings that they intend to collect 15% for
the next four years until the full savings are scored. For
Medi-Cal pharmacy providers and other providers alike, a rate
reduction like this would be devastating. According to this
supporter, pharmacies, whose reimbursement would be cut on
both their professional dispensing fee as well as the drug
ingredient cost, the implementation of a 15% cut means that
pharmacies will be reimbursed at less than their cost of
acquiring and dispensing the drug on roughly one-third of all
prescriptions reimbursed by Medi-Cal and all 10 of the most
commonly prescribed medications.
5)RELATED LEGISLATION .
a) SB 640 (Lara) would exempt from the Medi-Cal payment
reduction Medi-Cal FSS providers, pharmacy providers,
DP-SNFs and sub-acute care units that are a distinct part
of a general acute care hospital for dates of service on or
after June 1, 2011, and Medi-Cal managed care plans. SB
640 contains an urgency clause to ensure that the
provisions of this bill go into immediate effect upon
enactment.
b) SB 646 (Nielsen) requires Medi-Cal reimbursement for
nursing facilities that are a DP-SNFs to be determined
without the Medi-Cal rate reductions and rate roll-back
required under existing law. Limits the provisions of SB
646 to rural or sole community provider DP-SNFs that meet
specified criteria. SB 646 contains an urgency clause to
ensure that the provisions of this bill go into immediate
effect upon enactment.
6)PREVIOUS LEGISLATION .
a) AB 5 X3 (Committee on Budget), Chapter 3, Statutes of
2008, reduced Medi-Cal provider payments by 10% for FFS
benefits for dates of service on and after July 1, 2008 and
for specified non-Medi-Cal programs. AB 5 X3 reduced
payments to Medi-Cal managed care plans by the actuarial
equivalent amount of 10%, effective July 1, 2008. Exempts
specified providers from the payment reductions. Reduced
non-contract hospital payments in Medi-Cal, as specified.
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b) AB 1183 (Committee on Budget), Chapter 758, Statutes of
2008, sunset the AB 5 X3 rate reduction as of February 28,
2009, and applied the payment reductions to small and rural
hospitals only from July 1, 2008, through October 31, 2008.
Instead, AB 1183 reduced Medi-Cal provider payments for
most classes of services by 1% for Medi-Cal FFS benefits
for dates of service on and after March 1, 2009, and
reduced Medi-Cal provider payments by 5% for dates of
service on and after March 1, 2009 for the following types
of providers: DP-SNFs, intermediate care facilities (ICF)
(except for ICFs for the developmentally disabled
(ICF-DD)), rural swing-bed facilities and sub-acute care
units that are a distinct part of a general acute care
hospital, pediatric sub-acute care units that are a
distinct part of a general acute care hospital, adult day
health care centers, and pharmacies. AB 1183 reduced
payments to Medi-Cal managed care plans and PACE plans by
the actuarial equivalent amount of 5%, effective July 1,
2008 or thereafter.
c) AB 5 X4 (Evans), Chapter 5, Statutes of 2009, froze
Medi-Cal rates for services beginning in the 2009-10 rate
year and each rate year thereafter, by prohibiting the
reimbursement rates from exceeding the rates that were
applicable in the 2008-09 rate year for the following
providers after the 5% reduction made by AB 1183: DP-SNFs,
ICF-DD or facilities providing continuous SNF care to DD
individuals under a pilot program (previously exempt from
the AB 1183 reduction), freestanding pediatric sub-acute
care units.
d) AB 97 makes the rate reductions enacted by AB 1183 and
AB 5 X4 inoperative for dates of service on and after June
1, 2011, with specified exceptions. Reduces Medi-Cal
provider payments by 10% for FFS benefits for dates of
service and after June 1, 2011. Requires, for DP-SNFs and
certain other providers, the 10% rate reduction to apply to
the rates in effect for those providers during the 2008-09
Medi-Cal rate year. Requires Medi-Cal managed care plan
rates by the actuarial equivalent amount, effective July 1,
2011. Reduces payments for non-Medi-Cal programs for
services on and after June 1, 2011, with exceptions.
Implements the payment reductions only if the reductions
comply with federal Medicaid requirements, and prohibits
implementation until federal approval is obtained. Applies
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the payment reduction retroactively to June 1, 2011 or on
such other date as may be applicable when federal approval
is obtained. Federal approval of the AB 97 rate reductions
were obtained in October 2011 and thereby made the Medi-Cal
reductions called for in AB 1183 and AB X4 5 inoperative.
e) AB 102 (Committee on Budget), Chapter 29, Statutes of
2011, continues the 1% and 5 % Medi-Cal reductions that
were due to expire for dates of service on and after June
1, 2011 until a Medi-Cal rate reduction of up to 10% and
the AB 97 reduction and adjustment receive federal
approval. Requires, when federal approval is obtained, the
payments to be implemented retroactively to June 1, 2011 or
on any other date or dates as may be applicable. Exempts
pharmacy drug product payments from the rate reduction when
DHCS determines the average acquisition cost methodology
has been fully implemented and DHCS budget reduction
targets have been met.
REGISTERED SUPPORT / OPPOSITION :
Support
California Hospital Association (cosponsor)
California Medical Association (cosponsor)
Alzheimer's Association
American Congress of Obstetricians and Gynecologists, District
IX
Antelope Valley Healthcare District
Association of California Healthcare Districts
Board of Directors of Barton Health
Brandel Manor
Bruceville Terrace Skilled Nursing Facility
California Advocates for Nursing Home Reform
California Ambulance Association
California Association for Adult Day Services
California Association for Health Services at Home
California Association of Health Plans
California Association of Medical Product Suppliers
California Children's Hospital Association
California Medical Transportation Association
California Nurse-Midwives Association
California Radiological Society
California Retailers Association
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California Society of Anesthesiologists
California Society of Pathologists
California State Association of Counties
Californians for Patient Care
Catalina Island Medical Center
CenCal Health
City and County of San Francisco
City of Alameda Health Care District
City of Coalinga
City of Loyalton
Coalinga Regional Medical Center
County of San Diego
County of San Francisco
Daughters of Charity Health System
DaVita
Dignity Health
Eastern Plumas Health Care
Emanuel Medical Center
Escondido Chamber of Commerce
George L. Mee Memorial Hospital
Health Access California
Hi-Desert Medical Center
Hi-Desert Memorial Health Care District
Hospital Corporation of America
John C. Fremont Healthcare District
Joyce Eisenberg-Keefer Medical Center of the Los Angeles Jewish
Home
Kaiser Permanente
Kaweah Delta Health Care District
Laborers' Locals 777 & 792
LeadingAge California
Lompoc Valley Medical Center
Los Medanos Community Healthcare District
Mayer Memorial Hospital District
Mayers Memorial Hospital District
Motion Picture & Television Fund
Mountain Communities Healthcare District
Mountains Community Hospital
Oak Valley Hospital District
Pacific West Pharmacy
Palomar Health
Planned Parenthood Affiliates of California
Plumas County Board of Supervisors
Rural County Representatives of California
San Benito Healthcare District (Hazel Hawkins)
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San Francisco Department of Public Health
Sharp HealthCare
Sharp Chula Vista Medical Center
Sharp Coronado Hospital
Sierra County Board of Supervisors
Sonora Regional Medical Center
Southern Inyo Healthcare District
Southern Inyo Hospital
St. Mary's Medical Center
Surprise Valley Health Care District
Trinity Hospital
United Public Employees of California Local 792
More than 500 individuals
Opposition
None on file.
Analysis Prepared by : Marjorie Swartz / HEALTH / (916)
319-2097