BILL ANALYSIS                                                                                                                                                                                                    Ó


          |SENATE RULES COMMITTEE            |                        SB 239|
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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  

          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  

           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  

           12.Prohibits payments to Medi-Cal managed health care plans as  

           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  

           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  

           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.

          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  

                 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  

                 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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