BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair SB 239 (Hernandez and Steinberg) - Medi-Cal: hospital quality assurance fee. Amended: April 17, 2013 Policy Vote: Health 8-0 Urgency: Yes Mandate: No Hearing Date: May 20, 2013 Consultant: Brendan McCarthy This bill meets the criteria for referral to the Suspense File. Bill Summary: SB 239, an urgency measure, would impose a quality assurance fee on certain hospitals from January 1, 2014 to December 30, 2015. The bill would require the Department of Health Care Services to use the resulting revenues (and federal matching funds) to make supplemental payments to private hospitals and Medi-Cal managed care plans. Fiscal Impact: At this time, the fiscal impacts of the bill are not fully known. The Department of Health Care Services is working with the California Hospital Association to determine the maximum amount of federal funding that can be drawn down with quality assurance fee revenues. The following fiscal estimates are based on the current hospital quality assurance fee (set to sunset on December 31, 2013). Annual quality assurance fee revenue of $2.8 billion per year for two years (Hospital Quality Assurance Revenue Fund). Annual payments to private hospitals of $3.1 billion per year for two years (Hospital Quality Assurance Revenue Fund and federal funds). Annual payments to Medi-Cal managed care plans of $1.4 billion per year for two years (Hospital Quality Assurance Revenue Fund and federal funds). Annual expenditures of $475 million per year for two years to support children's health care coverage (Hospital Quality Assurance Revenue Fund and federal funds). By using quality assurance fee revenues, the bill would allow the state to reduce General Fund expenditure by a similar SB 239 (Hernandez) Page 1 amount. See below. Annual administrative costs of $2 million for two years for oversight by the Department of Health Care Services (Hospital Quality Assurance Revenue Fund and federal funds). Background: Under federal law, states are authorized to impose certain taxes on health care providers and then use the resulting revenues to draw down federal matching funds to support state Medicaid programs. Under current state law, California has imposed quality assurance fees on several types of medical providers to support the state's Medi-Cal program and to generate General Fund savings. The state has enacted a series of quality assurance fees on private hospitals. The currently authorized hospital quality assurance fee is scheduled to sunset on January 1, 2014. In addition to supplemental payments made to private hospitals and Medi-Cal managed care plans, the current hospital quality assurance fee supports grants to certain public hospitals. Federal law establishes an Upper Payment Limit which is the maximum amount a state Medicaid program may pay a type of provider in the aggregate, statewide, in fee-for-service Medicaid programs. State Medicaid programs cannot claim federal matching dollars for provider payments in excess of the applicable Upper Payment Limit. Proposed Law: SB 239 would impose a quality assurance fee on certain hospitals from January 1, 2014 to December 30, 2015. The bill would require the Department of Health Care Services to use the resulting revenues (and federal matching funds) to make supplemental payments to private hospitals and Medi-Cal managed care plans. Specific provisions of the bill would: Extend the sunset on the existing Hospital Quality Assurance Revenue Fund to January 1, 2017; Impose a quality assurance fee on each general acute care hospital (with certain exceptions), from January 1, 2014 to December 31, 2015; Require the state to use funds generated from the hospital quality assurance fee for purposes included in the bill; Require private hospitals to be paid supplemental payments SB 239 (Hernandez) Page 2 for the provision of both inpatient and outpatient services; Require the payments to private hospitals, when combined with other payments for services to Medi-Cal beneficiaries, to result in payments to private hospitals equal to the federal Upper Payment Limit; Require the Department of Health Care Services to increase capitation payments made to Medi-Cal managed care plans to reflect use of private hospital services; Generally require Medi-Cal managed care plans to use all of any increase in capitation payments under the bill for payments to private hospitals; Prohibit the state from reducing Medi-Cal payments to hospitals (or capitated payments to Medi-Cal managed care plans) below the rates that will be in effect on January 1, 2014; Prohibit the state from reducing disproportionate share replacement payments to private hospitals below the amount in effect on the effective date of this bill. This bill is an urgency measure. Related Legislation: SB 335 (Hernandez, Statutes of 2011) imposed a hospital quality assurance fee from June 30, 2011 to December 31, 2013. SB 90 (Steinberg, Statutes of 2010) repealed specified Medi-Cal hospital rate reductions and imposed a hospital quality assurance fee from January 1, 2011 to June 30, 2011. AB 1383 (Jones, Statutes of 2009), AB 188 (Jones, Statutes of 2009), and AB 1653 (Jones, Statutes of 2010) established the original hospital quality assurance fee. Staff Comments: As noted above, the federal upper payment limit has not yet been determined, so the total amount of federal funding that can be drawn down is not yet known. The bill in print does not specify the amount to be generated by the quality assurance fee or the uses of those revenues (including the amount of funding that would be available to the state for children's' health coverage). The fiscal estimates above are based on the annualized revenues and expenditures of the current hospital quality assurance fee. Note that the payment to support children's health programs (and the resulting General Fund savings) cited above are based on the SB 239 (Hernandez) Page 3 projected expenditures for the current hospital quality assurance fee, resulting from the prior bill establishing the program and changes made in the 2012-13 Budget Act which resulted in additional General Fund savings.