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 23, 2013      Consultant: Brendan McCarthy
          
          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.