BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 239
AUTHOR: Hernandez and Steinberg
AMENDED: April 17, 2013
HEARING DATE: May 8, 2013
CONSULTANT: Bain
SUBJECT : Medi-Cal: hospital quality assurance fee.
(Urgency)
SUMMARY : Enacts the Private Hospital Quality Assurance Fee
Act of 2014, which imposes, subject to federal approval, a
hospital quality assurance fee (QAF), as specified, on
certain general acute care hospitals from January 1, 2014,
through December 30, 2015, with the resulting revenue to be
deposited into the Hospital Quality Assurance Revenue Fund.
Enacts the Medi-Cal Hospital Reimbursement Improvement Act
of 2014, which requires, subject to federal approval,
supplemental payments to be made to private hospitals for
certain services and increased capitation payments to be
made to Medi-Cal managed care plans for hospital services,
as specified. Takes effect immediately as an urgency
statute.
Existing law:
1.Establishes the Medi-Cal program, administered by
Department of Health Care Services (DHCS), under which
health care services are provided to qualified low-income
persons. Inpatient and outpatient hospital services are a
covered benefit under the Medi-Cal program, subject to
utilization controls.
2.Enacts the Medi-Cal Hospital Provider Rate Improvement
Act of 2011 (Rate Act) to provide supplemental payments
from July 1, 2011, to December 31, 2013 to private
hospitals for inpatient and outpatient services in
Medi-Cal fee-for-service, managed care and acute
psychiatric days, and to make direct grants to designated
public hospitals in support of health care expenditures.
3.Establishes the Private Hospital Quality Assurance Fee
Act of 2011 (Fee Act), which levies a hospital QAF, from
July 1, 2011 to January 1, 2014, on each hospital that is
not an exempt hospital, with varying fee amounts by payor
Continued---
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source and type of payment.
4.Requires all funds from the QAF to be used exclusively to
enhance federal financial participation (FFP) for
hospital services under Medi-Cal, to provide additional
reimbursement to hospitals, to pay DHCS staffing and
administrative costs, to make increased payments to
managed care health plans and mental health plans, and to
fund children's health coverage, in a specified order of
priority.
5.Sunsets the Rate Act on July 1, 2014, the date the last
payment of QAF, or the date of the last payment from
DHCS, whichever is latest. Sunsets the Fee Act on
January 1, 2015, the date of the last payment of QAF
payments, or the date of the last payment from DHCS,
whichever is latest.
This bill:
Hospital Quality Assurance Revenue Fund
1.Extends the sunset date of the Hospital Quality Assurance
Revenue Fund from January 1, 2015 to January 1, 2017, and
extends the authority of the Controller to use the Fund
for cash flow loans to the General Fund until that date.
Private Hospital Quality Assurance Fee Act of 2014
2.Enacts the Private Hospital Quality Assurance Fee Act of
2014 (Fee Act), which imposes a QAF on each general acute
care hospital that is not an exempt facility or a
converted hospital, computed starting on January 1, 2014,
and continuing through and including December 31, 2015,
for deposit in the Hospital Quality Assurance Revenue
Fund (Fund).
3.Establishes under this bill a contractually enforceable
promise on behalf of the state to use the proceeds of the
QAF, including any federal matching funds, solely and
exclusively for the purposes in this bill as they existed
on the effective date of this bill, to limit the amount
of the proceeds of the QAF to be used to pay for the
health care coverage of children to the amounts specified
in this bill, to limit any payments for DHCS' costs of
administration to the amounts set forth in this bill on
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the effective date of this bill, to maintain and continue
prior reimbursement levels, and to otherwise comply with
all its obligations set forth in a specified provision of
existing law and this bill, except that amendments that
arise from, or have as a basis for, a decision, advice,
or determination by the federal Centers for Medicare and
Medicaid Services (CMS) relating to federal approval of
the QAF or the payments set forth in this bill are
required to control.
4.Requires all funds from the proceeds of the QAF in the
Fund, together with any interest and dividends earned on
money in the fund, upon appropriation by the Legislature,
to continue to be used exclusively to enhance FFP for
hospital services under the Medi-Cal program, to provide
additional reimbursement to hospitals, to support quality
improvement efforts of hospitals, and to minimize
uncompensated care provided by hospitals to uninsured
patients.
5.Implements the Fee Act only as long as all of the
following conditions are met:
a. The QAF is established in a manner that is
fundamentally consistent with the Fee Act;
b. The QAF, including any interest on the fee after
collection by DHCS, is deposited in a segregated fund
apart from the General Fund; and,
c. The proceeds of the QAF, including any interest
and related federal reimbursement, may only be used
for the purposes set forth in the Fee Act.
6.Prohibits a hospital from being required to pay the QAF
to DHCS unless and until the state receives and maintains
federal approval.
7.Requires hospitals to pay the QAF to DHCS as set forth in
the Fee Act only as long as all of the following
conditions are met:
a. CMS allows the use of the QAF as set forth in the
Fee Act in accordance with federal approval;
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b. The Medi-Cal Hospital Reimbursement Improvement
Act of 2014 is enacted and remains in effect and
hospitals are reimbursed the increased rates for
services during the program period (the program
period is January 1, 2014 through December 31, 2015);
and,
c. The full amount of the QAF assessed and collected
under the Fee Act remains available only for the
purposes specified in the Fee Act.
Medi-Cal Hospital Reimbursement Improvement Act of 2014
8.Enacts the Medi-Cal Hospital Reimbursement Improvement
Act of 2014 (Reimbursement Improvement Act), which
requires private hospitals to be paid supplemental
amounts for the provision of hospital outpatient services
that are in addition to any other amounts payable to
hospitals with respect to those services and are
prohibited from affecting any other payments to
hospitals. Requires the supplemental amounts to result in
payments equal to the statewide aggregate upper payment
limit for private hospitals for each subject fiscal year.
9.Requires private hospitals to be paid supplemental
amounts for the provision of hospital inpatient services
for the program period. Requires the supplemental amounts
to be in addition to any other amounts payable to
hospitals with respect to those services and prohibits
those payments from affecting any other payments to
hospitals. Requires the supplemental amounts to result in
payments equal to the statewide aggregate upper payment
limit (UPL) for private hospitals for each subject fiscal
year.
10. Requires DHCS to increase capitation payments to
Medi-Cal managed health care plans for each subject
fiscal year. Requires the increased capitation payments
to be made as part of the monthly capitated payments made
by DHCS to managed health care plans.
11. Requires the aggregate amount of increased capitation
payments to all Medi-Cal managed health care plans for
each subject fiscal year to be the maximum amount for
which federal financial participation is available on an
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aggregate statewide basis for the applicable subject
fiscal year.
12. Requires DHCS to determine the amount of the increased
capitation payments for each managed health care plan.
Requires DHCS to consider the composition of Medi-Cal
enrollees in the plan, the anticipated utilization of
hospital services by the plan's Medi-Cal enrollees, and
other factors that DHCS determines are reasonable and
appropriate to ensure access to high-quality hospital
services by the plan's enrollees.
13. Prohibits the amount of increased capitation payments
to each Medi-Cal managed health care plan from exceeding
an amount that results in capitation payments that are
certified by the state's actuary as meeting federal
requirements, taking into account the requirement that
all of the increased capitation payments under this bill
be paid by Medi-Cal managed health care plans to
hospitals for hospital services to Medi-Cal enrollees of
the plan.
14. Requires the increased capitation payments to managed
health care plans to be made to support the availability
of hospital services and ensure access to hospital
services for Medi-Cal beneficiaries.
15. Requires the increased capitation payments to managed
health care plans to commence within 90 days of the date
on which all necessary federal approvals have been
received, and to include, but not be limited to, the sum
of the increased payments for all prior months for which
payments are due.
16. Permits DHCS, to secure the necessary funding for the
payment or payments made above, to accumulate funds in
the Fund for the purpose of funding managed health care
capitation payments, regardless of the date on which
capitation payments are scheduled to be paid in order to
secure the necessary total funding for managed health
care payments by December 31, 2015.
17. Prohibits payments to Medi-Cal managed health care
plans that would be paid consistent with actuarial
certification and enrollment in the absence of the
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payments made under the Reimbursement Improvement Act,
including, but not limited to, payments made through
intergovernmental transfers, from being reduced as a
consequence of payments under the Reimbursement
Improvement Act.
18. Requires each managed health care plan to expend 100
percent of any increased capitation payments it receives
under this bill on hospital services.
19. Requires the increased capitation payments to be
reduced proportionately to the amount for which FFP is
available in the event FFP is not available for all of
the increased capitation payments determined for a month
for any reason.
20. Requires each managed health care plan receiving
increased capitation payments under this bill to expend
the capitation rate increases in a manner consistent with
actuarial certification, enrollment, and utilization on
hospital services. Requires each Medi-Cal managed health
care plan to expend increased capitation payments on
hospital services within 30 days of receiving the
increased capitation payments to the extent they are made
for a subject month that is prior to the date on which
the payments are received by the managed health care
plan.
21. Requires the sum of all expenditures made by a managed
health care plan for hospital services to equal, or
approximately equal, all increased capitation payments
received by the managed health care plan, consistent with
actuarial certification, enrollment, and utilization,
from DHCS.
22. Prohibits any delegation or attempted delegation by a
Medi-Cal managed health care plan of its obligation to
expend the capitation rate increases under this bill from
relieving the plan from its obligation to expend those
capitation rate increases. Requires Medi-Cal managed
health care plans to submit the documentation that DHCS
may require to demonstrate compliance. Requires the
documentation to demonstrate actual expenditure of the
capitation rate increases for hospital services, and not
assignment to subcontractors of the managed health care
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plan's obligation of the duty to expend the capitation
rate increases.
23. Requires the supplemental hospital payments made by
managed health care plans pursuant to this bill to
reflect the overall purpose of Reimbursement Improvement
Act and the Fee Act.
24. States the Reimbursement Improvement Act is not
intended to create a private right of action by a
hospital against a managed care plan, provided that the
managed health care plan expends all increased capitation
payments for hospital services.
25. Prohibits Medi-Cal payment rates for hospital
outpatient services furnished by private hospitals,
non-designated public hospitals, and designated public
hospitals before December 31, 2015, exclusive of amounts
payable under Reimbursement Improvement Act, from being
reduced below the rates in effect on January 1, 2014.
26. Prohibits rates payable to hospitals for hospital
inpatient services furnished before December 31, 2015,
under contracts negotiated pursuant to the selective
provider contracting program from being reduced below the
contract rates in effect on January 1, 2014. States that
this provision does not prohibit changes to the
supplemental payments paid to individual hospitals from
the Private Hospital Supplemental Fund, the
Non-designated Public Hospital Supplemental Fund, and
payments to distressed hospitals, provided that the
aggregate amount of the payments for each subject fiscal
year is not less than the minimum amount permitted under
a repealed provision of law.
27. Requires, notwithstanding the Medi-Cal inpatient rate
freeze in existing law, payments to private hospitals for
hospital inpatient services furnished before January 1,
2014, that are not reimbursed under a contract negotiated
pursuant to the selective provider contracting program,
exclusive of amounts payable under this bill, from being
less than the amount of payments that would have been
made under the payment methodology in effect on the
effective date of this bill.
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28. Requires, upon the implementation of the new Medi-Cal
inpatient hospital reimbursement methodology based on
diagnosis-related groups (DRGs), the requirements in 26)
and 27) above to be met if the DRG rates paid result in
an average payment per discharge to all hospitals subject
to DRGs that is not less than the average payment per
discharge to the hospitals, calculated on an aggregate
basis for the fiscal year ending June 30, 2012, adjusted,
in consultation with the hospital community, to reflect
the movement of seniors and persons with disabilities
into managed care. Excludes certain supplemental payments
to hospitals in making the above calculation.
29. Requires, solely for purposes of this bill, a Medi-Cal
rate reduction or a change in a rate methodology that is
enjoined by a court to be included in the determination
of a rate or a rate methodology until all appeals or
judicial reviews have been exhausted and the rate
reduction or change in rate methodology has been
permanently enjoined, denied by the federal government,
or otherwise permanently prevented from being
implemented.
30. Prohibits disproportionate share replacement payments
to private hospitals from being less than the amount
determined pursuant to existing law in effect on the
effective date of the act that added this subdivision.
FISCAL IMPACT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1.Author's statement. This bill is the legislative vehicle
to enact a hospital QAF for the two additional years to
draw down increased federal funds for hospital services,
and to provide millions in additional revenue for
children's health coverage. Federal law authorizes states
to levy fees on health care providers if the fees meet
federal requirements. The author argues this bill provide
increased federal funding to hospitals without using
state General Fund (GF) dollars, and would enable the
state to achieve GF savings by using revenue from the QAF
to help fund children's health coverage.
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2.Background. Federal Medicaid law authorizes states to
levy fees on health care providers if the fees meet
federal requirements. Many states (including California)
fund a portion of their share of Medicaid program costs
through a fee on health care providers. Under these
funding methods, states collect funds (through fees,
taxes, or other means) from providers, which are then
matched to allow increased Medicaid reimbursement to
providers. The Legislature enacted a series of bills
establishing a time-limited hospital QAF in 2009, and an
additional six-month QAF for the first six months of
2011. In addition to the hospital QAF, California
currently has a QAF for intermediate care facilities for
the developmentally disabled, and a separate QAF for
skilled nursing facilities.
Last session, SB 335 (Hernandez) Chapter 286, Statutes
2011, imposed a QAF on hospitals for 30 months (from June
30, 2011, until December 31, 2013). SB 335 uses the
resulting revenue to draw down federal funds to provide
supplemental payments to private hospitals in
fee-for-service Medi-Cal, Medi-Cal managed care, and to
provide specified funding amounts from the QAF per
quarter for children's health coverage until December 31,
2013. In addition, SB 335 requires county and University
of California hospitals to be paid direct grants (not
Medi-Cal payments), funded from the QAF. SB 335 also
reduced disproportionate share hospital replacement
payments and supplemental payments from the Private
Hospital Supplemental Fund to hospitals by specified
amounts in 2012-13 and 2013-14. Finally, SB 335
appropriates $13.6 billion to DHCS for purposes of that
measure. SB 335 took effect as an urgency statute upon
signature by the Governor in September 2011. The Medi-Cal
managed care payments to hospitals have not been
federally approved to date.
3.Prior legislation. AB 1383 (Jones), Chapter 627,
Statutes of 2009 and AB 188 (Jones), Chapter 645,
Statutes of 2009, enacted the original Medi-Cal hospital
QAF and a methodology for making supplemental payments to
hospitals, and provided funds for children's health care
coverage and grants to public hospitals. In response to
the state's request for federal approval, the CMS in June
of 2010 sent a letter raising objections and concerns
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about the methodology which concluded that the fee
enacted by AB 1383 did not meet federal standards. CMS
also suggested modifications, which were made by AB 1653
(Jones), Chapter 218, Statutes of 2010. AB 1653 also
established an alternative mechanism for funding
supplemental grants to public hospitals and allowed the
state to retain the funds that were previously allocated
to these hospitals.
SB 90 (Steinberg), Chapter 19, Statutes of 2010, repealed
specified Medi-Cal hospital rate freezes and rate
reductions enacted in health budget trailer bills in
2008, 2010 and 2011. SB 90 also imposed a QAF on
specified hospitals for six months (January 1, 2011,
until June 30, 2011), and used the resulting revenue to
draw down federal funds to provide supplemental payments
to private hospitals in fee-for-service Medi-Cal,
Medi-Cal managed care, and for acute psychiatric days, to
provide $210 million for children's health coverage, and
to pay for DHCS administrative costs in administering the
hospital fee and supplemental payment provisions of this
bill. SB 90 also reduced disproportionate share General
Fund (GF) payments to private hospitals by $105 million
GF over two fiscal years. SB 90 also required DHCS to
design and implement an inter-governmental transfer
program for Medi-Cal managed care services provided by
designated public hospitals (DPH) and non-designated
public hospitals (NDPH) for the purpose of increasing
reimbursement to NDPHs and DPHs.
In addition, SB 90 allows hospitals that have received
extensions to January 1, 2013, of the January 1, 2008,
seismic deadline, for their Structural Performance
Category 1 buildings, to request an additional extension
of up to seven years.
4.Support. This bill is sponsored by the California
Hospital Association (CHA), which argues the creation and
implementation of the hospital fee program in California
has been extremely successful. CHA states the program has
been critical for hospitals to bolster their ability to
preserve health care services for the state's most
vulnerable patients. The first two hospital fee programs
are essentially completed and have reached their goals of
providing nearly $3.5 billion in critical funding to
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California's hospitals that provide services to Medi-Cal
patients. In addition, the first two programs fulfilled a
commitment to provide the State with $770 million in
funding for children's health care coverage. The current
fee program that runs through December 31, 2013 is still
waiting for several federal approvals before it can reach
its goals to help mitigate the severely low Medi-Cal
payments to hospitals. The hospital provider fee program
remains crucial to the preservation of California's
entire safety net, and without this program the number of
hospitals forced to restrict or end services to Medi-Cal
patients will continue to increase. CHA states that this
bill reflects a work-in-progress for a final proposal
that will be completed soon as with the added complexity
of an expanding, yet shifting population, several details
remain open. Most of them technical in nature such as
calculating the maximum amount of room available in the
upper payment limit and actuarially certified rates are
included in the statewide program. CHA states it and DHCS
are working hard to resolve these critical open items.
CHA concludes that the provider fee will not solve the
state's Medi-Cal shortfall, but it will continue to be
the largest programmatic action taken since the founding
of the program to mitigate the lack of sufficient
funding, and it is vital to California hospitals that the
provider fee be approved and implemented.
5.Governor's Budget Proposal. The Governor's proposed
2013-14 budget assumes a savings of $310 million General
Fund in 2013-14, as a result of extending the hospital
fee, which will sunset on December 31, 2013 and a three
year extension of the QAF.
SUPPORT AND OPPOSITION :
Support: California Hospital Association (sponsor)
Alliance of Catholic Health Care
The Children's Partnership
Children Now
Children's Defense Fund-California
California Coverage & Health Initiatives
PICO California
Private Essential Access Community Hospitals
(PEACH)
Oppose:None received.
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