BILL ANALYSIS Ó
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THIRD READING
Bill No: SB 239
Author: Hernandez (D) and Steinberg (D)
Amended: 4/17/13
Vote: 27 - Urgency
SENATE HEALTH COMMITTEE : 8-0, 5/8/13
AYES: Hernandez, Anderson, Beall, De León, DeSaulnier, Monning,
Nielsen, Pavley
NO VOTE RECORDED: Wolk
SENATE APPROPRIATIONS COMMITTEE : 7-0, 5/23/13
AYES: De León, Walters, Gaines, Hill, Lara, Padilla, Steinberg
SUBJECT : Medi-Cal: hospital quality assurance fee
SOURCE : California Hospital Association
DIGEST : This bill 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
(Fund). Enacts the Medi-Cal Hospital Reimbursement Improvement
Act of 2014 (Reimbursement Improvement Act), 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.
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ANALYSIS :
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.
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 Medi-Cal
services, as specified, 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 varying hospital QAF, from July
1, 2011, to January 1, 2014, on each nonexempt hospital.
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:
1. Extends the sunset date of the 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 (GF)
until that date.
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2. Enacts the Private Hospital Quality Assurance Fee Act of
2014 (Fee Act of 2014), 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 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, as defined. 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 specified conditions
are met.
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 of 2014 only as long as specified conditions are
met.
8. Enacts the Reimbursement Improvement Act.
9. Requires private hospitals to be paid supplemental amounts
for the provision of hospital inpatient services for the
program period, as specified.
10.Requires DHCS to increase capitation payments to Medi-Cal
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managed health care plans for each subject fiscal year as
determined by DHCS.
11.Permits DHCS to accumulate funds in the Fund for the purpose
of funding managed health care capitation payments, as
specified.
12.Prohibits payments to Medi-Cal managed health care plans as
defined.
13.Requires each managed health care plan to expend 100% of any
increased capitation payments it receives under this bill on
hospital services.
14.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.
15.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.
16.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.
17.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.
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
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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.
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 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) and sunset on January 1, 2013. AB 1653 also established
an alternative mechanism for funding supplemental grants to
public hospitals and allowed the state to retain the funds that
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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 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee, at this time,
the fiscal impacts of the bill are not fully known. The DHCS 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
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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 will allow
the state to reduce General Fund expenditure by a similar
amount.
Annual administrative costs of $2 million for two years
for oversight by the DHCS (Hospital Quality Assurance
Revenue Fund and federal funds).
SUPPORT : (Verified 5/24/13)
California Hospital Association (source)
Adventist Health
Alliance of Catholic Health Care
Association of California Healthcare Districts
California Coverage & Health Initiatives
Children Now
Children's Defense Fund-California
Loma Linda University Medical Center
PICO California
Private Essential Access Community Hospitals
The Children's Partnership
ARGUMENTS IN 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 first two hospital
fee programs are essentially completed and have reached their
goals of providing nearly $3.5 billion in critical funding to
California's hospitals that provide services to Medi-Cal
patients. CHA notes, 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. CHA states that this bill
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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. 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.
JL:ej 5/24/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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