BILL ANALYSIS Ó
SB 239
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Date of Hearing: August 20, 2013
ASSEMBLY COMMITTEE ON HEALTH
Richard Pan, Chair
SB 239 (Ed Hernandez and Steinberg) - As Amended: August 14,
2013
SUBJECT : Medi-Cal: hospitals: quality assurance fee.
SUMMARY : Enacts the Medi-Cal Hospital Reimbursement Improvement
Act of 2013 to provide supplemental Medi-Cal payments to private
hospitals; increased payments to Medi-Cal managed care plans
(MCPs) for hospital services to Medi-Cal managed care (MCMC)
enrollees; direct grants to designated public hospitals (DPHs)
[hospitals owned or operated by counties or the University of
California (UC)]; direct grants to nondesignated public
hospitals (NDPHs) (hospitals owned or operated by hospital
districts); and, funding for children's health care coverage.
Enacts the Private Hospital Quality Assurance Fee (QAF) Act of
2013 requiring all private acute care hospitals to pay a
specified fee. Provides for matching the fee with federal funds
to make supplemental payments. Specifically, this bill :
PRIVATE HOSPITAL QAF PROVISIONS
1)Establishes a per diem fee assessed on every private acute
care hospital for every acute, psychiatric, and rehabilitation
inpatient day as follows:
a) A rate of $140 per day for calendar year 2014 and $165
per day for calendar year 2015 for in-patient managed care
days that are acute care, psychiatric care, or
rehabilitation care and the payer is Medicare managed care,
county indigent programs-managed care, or other third party
managed care;
b) A rate of $474.64 per fee-for-service (FFS) Medi-Cal
in-patient day for calendar year 2014 and $542.36 per day
for calendar year 2015;
c) A rate of $78.40 per prepaid health plan hospital
non-MCMC day for calendar year 2014 and $92.40 per day for
calendar year 2015;
d) A rate of $265.80 per prepaid health plan hospital MCMC
day for calendar year 2014 and $303.72 per day for calendar
year 2015;
e) A rate of $401.41 per day for calendar year 2014 and
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$452.73 per day for calendar year 2015 for FFS inpatient
days that are acute care, psychiatric care, or
rehabilitative care and the payer is Medicare, county
indigent programs-traditional, other third
party-traditional, other indigent, or other payers.
2)Imposes the requirement to pay the fee on all private general
acute care hospitals from January 1, 2014 to December 31,
2015, exempts DPHs, NDPHs, any hospital that has been
converted from a private hospital to a public hospital on or
after January 1, 2014, long term care hospitals, specified
specialty hospitals, and small and rural hospitals.
3)Requires the Department of Health Care Services (DHCS), within
10 business days of receipt of federal approval, to send
notice to each hospital and to post on its Internet Website,
the date that the state received notice of federal approval,
the applicable percentage of fee that will be due for each
fiscal year, the aggregate fee amount, the amount due from the
particular hospital, and the payment due date.
4)Requires hospitals to pay the fee in eight installments, as
specified, and requires all fees to be paid by December 15,
2015.
5)Authorizes DHCS to deduct fee payments owed by a hospital from
other payments due to the hospital, to assess interest and
penalties, and to waive the penalties, as specified, and
provides that such determination is not subject to judicial
review.
6)Prohibits the fee from being considered as an allowable cost
for Medi-Cal cost reporting.
7)Requires the Director of DHCS to determine the amount of each
fee installment for each hospital each year, the aggregate QAF
amount, and to perform other calculations as necessary for the
collection of the fee and distribution of the proceeds and
payments. Authorizes interim determinations pending federal
approvals, as necessary, and requires notice to hospitals of
these amounts, with final notice required within 15 days of
the final determination. Requires refunds of any
overpayments.
8)Prohibits the fee from exceeding the maximum aggregate net
patient revenue percentage that is allowed under federal law,
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as necessary, to preclude a finding of an indirect guarantee.
9)Requires QAF payments, remittances, interest and dividends,
but not penalties, or the amount allocated to DHCS, to be for
deposit in the Hospital Quality Assurance Revenue Fund
(HQARF). Allows for fees remitted after expiration of this
bill to be deposited in the Distressed Hospital Fund.
10)Provides that the fee is inoperative if the federal Centers
for Medicare and Medicaid Services (CMS) denies approval
before July 1, 2016, and that the provisions cannot be
modified as provided for, in consultation with the hospital
community, in order to meet federal requirements.
11)Creates a contractually enforceable promise on behalf of the
state to use the proceeds of the fee and the HQARF only for
the purposes and in the amounts authorized by this bill, to
limit the proceeds to be used to pay for health care coverage
of children up to the amounts specified, to limit any payments
to DHCS for administrative costs to the amounts specified, and
to comply with all obligations imposed pursuant to this bill.
12)Establishes a timeline for disbursements and requires all
proceeds of the fee to be used, upon appropriation by the
Legislature, exclusively to enhance federal financial
participation (FFP) for hospital services under the Medi-Cal
program, to provide additional reimbursement to, and to
support quality improvement efforts of, hospitals and to
minimize uncompensated care provided by hospitals to uninsured
patients, as well as to pay for the state's administrative
costs and to provide funding for children's health coverage,
as specified, in the following order of priority:
a) To pay for staffing and administrative costs of DHCS in
administering the QAF and payments, up to $2 million;
b) To pay for health care coverage for children in the
amount of $155 million quarterly, for calendar years 2014
and 2015;
c) To make increased capitation payments to Medi-Cal MCPs;
d) To make increased payments or direct grants to DPHs and
NDPHs;
e) Amounts in excess of those paid out for a), b), and c)
above are to be refunded pro rata to general acute care
hospitals, if allowed by federal law, otherwise to the
Distressed Hospital Fund.
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SUPPLEMENTAL PAYMENT PROVISIONS
13)Requires private hospitals to be paid a supplemental payment
for Medi-Cal outpatient services based on the hospital's
percentage of all Medi-Cal FFS outpatient services up to a
total amount equal to the maximum amount allowable under
federal upper payment limits (UPL) for the period between
January 1, 2014 and January 1, 2016.
14)Requires DHCS to make supplemental payments to private
hospitals for Medi-Cal FFS inpatient services from the
proceeds of the fees, other funds established by this bill,
plus matching federal funds, in addition to payments otherwise
payable to these hospitals, up to the maximum amount allowed
under federal UPL and other law, as follows:
a) For each general acute care day, $896.48 for calendar
year 2014; and $1,081.84 for calendar year 2015;
b) For each acute psychiatric day directly reimbursed by
DHCS, $965 for calendar year 2014; and $975 for calendar
year 2015;
c) For calendar years 2014 and 2015, $2,500 for each high
acuity day, as defined, if at least 5% of the hospital's
general acute care days are high acuity days and the
hospital's Medi-Cal inpatient utilization rate is between
5% and 43%;
d) For calendar years 2014 and 2015, an additional $2,500
for each high acuity day for qualifying hospitals with
specified designated trauma centers;
e) For calendar years 2014 and 2015, an additional $2,500
for each transplant day if the hospital's Medi-Cal
inpatient utilization rate is between 5% and 43%; and,
f) If a hospital provided Medi-Cal sub-acute services
during the 2010 calendar year and had a Medi-Cal inpatient
utilization rate between 5% and 43%; for calendar year
2014, an amount equal to 50% of the amount of Medi-Cal
sub-acute payments made to the hospitals in 2010; and for
calendar year 2015, an amount equal to 60% of the amount of
Medi-Cal sub-acute payments made to the hospitals in
calendar year 2010.
15)Defines acute psychiatric days as the total number of
Medi-Cal specialty mental health service administrative days,
Medi-Cal specialty mental health service acute care days,
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acute psychiatric administrative days, and acute psychiatric
acute days identified from the Final Medi-Cal Utilization
Statistics for 2012-13.
16)Defines general acute care days as the number of Medi- Cal
general acute care days paid by DHCS on a FFS basis for
service provided in the 2010 calendar year.
17)Defines high acuity days as Medi-Cal coronary care unit days,
pediatric intensive care unit days, intensive care unit days,
neonatal intensive care unit days, and burn unit days paid by
the DHCS during the 2010 calendar year, as reflected in the
state paid claims file prepared by the DHCS on April 26, 2013.
18)Excludes any new or converted hospitals, as defined from
receipt of payments.
19)Requires DHCS to increase monthly capitation payments to
Medi-Cal mental health MCPs for supplemental payments to
private hospitals for acute psychiatric inpatient days at the
same rate as for days that are reimbursed directly by DHCS,
and authorizes direct payment by DHCS for days that were the
financial responsibility of the mental health plan as an
alternative, as permitted by federal law.
20)Requires DHCS to increase monthly capitation payments to
Med-Cal MCPs to the maximum total amount allowable under
federal law; to determine the amount for each Medi-Cal MCP by
considering the composition of Medi-Cal enrollees in each
Medi-Cal MCP, anticipated hospital utilization, and other
factors related to ensuring access to high-quality hospital
services, but in no event to exceed an amount certified by the
state's actuary as meeting federal requirements, taking into
account the requirement that all of the increased capitation
payments are to be paid to hospitals for hospital services to
Medi-Cal MCP enrollees. Authorizes DHCS to set aside fee
revenue, as specified, in order to accumulate the required
amounts and issue change orders or amend contracts as needed.
21)Requires the increased capitation payments to be for the
purpose of supporting the availability of hospital services
and ensuring access for Medi-Cal enrollees; requires each plan
to expend 100% of the increased capitation on hospital
services; requires that payments are to commence within 90
days of the receipt of federal approval; and provides that
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payments made to Medi-Cal MCPs in the absence of these
payments are not to be reduced as a consequences of these
payments.
22)Requires the Medi-Cal MCPs receiving the increased capitation
payments under this bill to make payments to hospitals
consistent with actuarial certification, enrollment and
hospital utilization within 30 days of receipt in a total
amount that equals the increased capitation amount, to
document the payments, and specifies that these provisions are
not intended to create a private right of action by a
hospital.
23)Authorizes direct grants in support of health care
expenditures to DPHs and NDPHS, and specifies that these
payments are not to constitute Medi-Cal payments.
24)Ensures that payments made to hospitals or reimbursement
rates set pursuant to other provisions of existing law are not
affected or reduced as a result of the supplemental payments
established by this bill.
25)Provides that supplemental payments under this bill are in
addition to Disproportionate Share Hospital (DSH) replacement
supplemental payments, do not impact eligibility for DSH
payments, DSH replacement payments, or stabilization payments
under the 2005 hospital waiver or the 2010 Medi-Cal Bridge to
Reform waiver, and are not to be considered in the
determination of adequacy of any rate under federal law.
26)Prohibits payment rates for hospital outpatient services
furnished before December 31, 2015, by private, NDPH, or DPH
hospitals from being reduced below those in effect on January
1, 2014.
27)Prohibits payment rates for hospital inpatient services
furnished before December 31, 2015, under contracts negotiated
under the Selective Provider Contracting Program (SPCP) from
being reduced below those in effect on January 1, 2014, allows
changes to supplemental payments, as long as the aggregate is
not reduced, as specified, and establishes a methodology to
measure this requirement if new diagnosis-related groups (DRG)
hospital reimbursement methodology is implemented.
28)Prohibits payments to private hospitals for inpatient
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services furnished before January 1, 2014, that are not under
contracts negotiated under the SPCP from being reduced below
the amount that would have been made under the methodology in
effect on the effective date of this bill, and establishes a
methodology to measure this requirement if new DRG hospital
reimbursement methodology is implemented.
29)Provides that no payments are to be made until all necessary
federal approvals have been obtained and the fee has been
imposed and collected. Provides that payments are to be made
only to the extent the fee is collected and available to cover
the nonfederal share. Requires that all payments to
hospitals, Medi-Cal MCPs, and mental health plans be solely
from the QAF authorized by this bill and the federal matching
reimbursement.
30)Conditions a hospital's receipt of payments on continued
participation in the Medi-Cal program.
31)Upon receipt of federal approval or a letter indicating
likely federal approval, as specified, requires DHCs to make
all payments, with the exception of increased capitation
payments until federal approval is received.
32)Provides for a process in the event there are insufficient
funds after December 15, 2015, and requires DHCS to develop a
plan for making additional payments if FFP is available.
33)Provides that no hospital is to be required to pay the QAF
unless, and until the state receives and maintains federal
approval, and only as long as all of the following conditions
are met:
a) CMS allows the use of the QAF as set forth in this bill;
b) The payment provisions are enacted and remain in effect,
and hospitals are reimbursed the increased rates for
services during the program period; and,
c) The full amount of the QAF assessed and collected
remains available only for the purposes specified in this
bill.
MISCELLANEOUS AND GENERAL PROVISIONS
34)Provides methodologies for proportionate reductions or
recalculations of all fees, hospital payments, and increased
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capitation payments: if FFP is different than estimated under
this bill; if amounts allowable as payments for specified
categories must be adjusted due to the application of the UPL
under federal law; if a hospital is closed for part of a year;
or, if any supplemental payment would result in the reduction
of other amounts payable to a hospital or MCP.
35)Provides that effective January 1, 2016, rates payable to
hospitals and MCPs are to be the rates payable without the
supplemental and increased capitation payments under this
bill.
36)Provides that supplemental payments made pursuant to this
bill are not to affect a determination of rate adequacy under
federal law.
37)Authorizes DHCS to make modifications to the QAF, payment
methodologies, and other adjustments as necessary, in
consultation with the hospital community, to the extent
necessary to obtain federal approval.
38)Requires DHCS to make available all public documentation used
to administer and audit the QAF and supplemental payment
program, and upon request assist hospitals in reconciling
payments due and received from MCPs. Requires DHCS to post on
its Website, within 10 days of federal approval, the QAF model
and the UPL calculations, quarterly updates on payments, fee
schedules and model updates, and information on managed care
rate approvals.
39)Requires the Director of DHCS to promptly submit any state
plan amendment (SPA) or waiver request and seek any other
federal approval for implementation as necessary, including
approval to exempt specific providers, to seek to amend
contracts with Medi-Cal MCPs without waiting for federal
approval, and requires the amendments to set forth an
agreement to increase capitation payments and payments to
hospitals relating back to January 1, 2014.
40)Allows for implementation based on receipt of a letter from
CMS indicating likely federal approval, if it is determined to
be sufficient, as specified; authorizes the Director of DHCS,
to the extent FFP is not jeopardized, to have broad collection
authority pending final approval, specifies that payments made
prior to final approval are conditional, and provides for
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refunds if final approval is denied. Authorizes the DHCS
Director to modify timelines if a letter of approval or likely
approval is not secured by December 15, 2015.
41)Makes this bill inoperative if a court of appellate
jurisdiction or CMS determines that any element cannot be
implemented and the provisions cannot be modified consistent
with the terms of this bill, or if it is not approved by CMS
before January 1, 2016, and the provisions cannot be modified
to meet the requirements of federal law.
42)Authorizes the Director of DHCS to recoup funds in the event
of inoperability, pursuant to court order, unavailability of
FFP, or as necessary to prevent General Fund (GF) cost; to
refund fees in the event of recoupment; and to withhold
payment to any hospital that sues to enjoin implementation.
Requires notice to the Legislature of this occurrence.
43)Make this bill inoperative and retroactively invalidated, on
the first day of the month of the calendar quarter following
notification to the Joint Legislative Budget Committee by the
Department of Finance that one of the following conditions has
occurred:
a) A final determination of a court that the fee proceeds
are GF revenue or local proceeds of taxes;
b) Federal financial approval has been sought, but not
received;
c) A lawsuit related to this bill has been filed and a
court order has been issued that results in financial
disadvantage to the state; or,
d) The Director of DHCS determines that implementation
would result in a financial disadvantage to the state, as
specified.
44)Authorizes the Director of DHCS not to implement or
discontinue implementation of supplemental payments pursuant
to 42) above. Requires the DHCS Director to execute a
declaration, as specified, if a determination of inoperability
is made.
45)Deletes the January 1, 2015 sunset on the existing HQARF and
extends the HQARF, as modified by this bill, to January 1,
2017.
46)Sunsets all provisions on January 1, 2017, or the date of the
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last payment, whichever is later.
.
47)Authorizes DHCS to implement this bill by means of policy
letters, provider bulletins, or all plan letters in lieu of
regulatory action under the Administrative Procedures Act, and
requires notice to the appropriate committees of the
Legislature.
48)Specifies legislative intent to consider legislation
requiring the Director of DHCS to seek approval for an
increase in the fees and increased payments if there is a
determination that additional FFP is available within the UPL
or the limits on managed care payments and specifies that
these increases have priority over any other purposes, and
requires consultation with the hospital community.
49)Authorizes DHCS to maximize FFP in order to provide access to
services provided by hospitals that are not reimbursed by
certified public expenditures (CPEs) by means of
Intergovernmental transfers (IGTs).
50)Authorizes DHCS to continue to administer and distribute
payments for the Construction Renovation Reimbursement
Program, which was previously administered by the California
Medical Assistance Commission under the SPCP, and eliminates
the requirement that a hospital have a selective provider
contract in order to participate.
51)Establishes legislative findings, declarations, and intent
recognizing the role hospitals play in serving Medi-Cal
enrollees, that funding provided to hospitals through a
hospital QAF be explored with the goal of increasing access to
care and improving hospital reimbursement through supplemental
Medi-Cal payments to hospitals; that it is the intent to
impose a QAF to be paid by hospitals, which would be used to
increase FFP in order to make supplemental Medi-Cal payments
to hospitals for the period of January 1, 2014 through
December 31, 2015, and to help pay for health care coverage
for low-income children; that the QAF is deposited into
segregated funds apart from the GF and used exclusively for
supplemental Medi-Cal payments to hospitals, direct grants to
public hospitals, health care coverage for low-income
children, and for the direct costs of administering the
program by DHCS.
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52)Contains an urgency clause so as to become effective
immediately upon enactment.
EXISTING LAW :
1)Establishes, under federal law, the Medicaid program (Medi-Cal
in California, administered by DHCS) to provide comprehensive
health care services and long-term care to low-income
populations such as pregnant women, children, and seniors and
people with disabilities (SPDs).
2)Effective January 1, 2014, adopts the Patient Protections and
Affordable Care Act (ACA) state option to expand Medi-Cal to
provide coverage to childless adults, between ages 19 and 65
who are not otherwise eligible for Medi-Cal; conforms to the
ACA by expanding coverage for parents and caretaker relatives
with family income up to 138% of the federal poverty level and
eliminates assets and resources limits.
3)Establishes a schedule of benefits under the Medi-Cal program,
which includes hospital inpatient and outpatient services,
subject to utilization controls, and establishes Medi-Cal
hospital reimbursement requirements.
4)Defines, under federal law, the UPL for hospital reimbursement
as the reasonable estimate of what Medicare would pay to all
hospitals within a class.
5)Authorizes DHCS to contract with qualified individuals,
entities, or organizations to provide services to, arrange
for, or case manage, the care of Medi-Cal beneficiaries,
including hospital inpatient services.
6)Defines a Medi-Cal MCP as any entity that enters into one of
several types of contracts with DHCS including county
organized health systems, geographic managed care plans, and
local initiatives.
7)Requires, under federal law, payments to Medi-Cal MCPs to be
set at a capitation rate that is actuarially sound.
FISCAL EFFECT : According to the Senate Appropriations
Committee, based on a prior version, the fiscal effect is not
fully known. DHCS is working with the California Hospital
Association (CHA) to determine the maximum amount of federal
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funding that can be drawn down with QAF revenues. The following
fiscal estimates are based on the current hospital QAF (set to
sunset on December 31, 2013):
1)Annual QAF revenue of $2.8 billion per year for two years
(HQARF).
2)Annual payments to private hospitals of $3.1 billion per year
for two years. (HQARF and federal funds).
3)Annual payments to Medi-Cal MCPs of $1.4 billion per year for
two years. (HQARF and federal funds).
4)Annual expenditures of $475 million per year for two years to
support children's health care coverage (HQARF and federal
funds). By using QAF revenues, this bill would allow the
state to reduce GF expenditure by a similar amount.
5)Annual administrative costs of $2 million for two years for
oversight by DHCS (HQARF and federal funds).
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, this bill is
needed to enact the Private Hospital Quality Assurance Fee Act
of 2013, to continue to impose, subject to federal approval, a
QAF, on certain general acute care hospitals from January 1,
2014, through December 30, 2015, with the resulting revenue to
be deposited into the HQARF. The current QAF sunsets. The
author states, that in addition, this bill enacts the Medi-Cal
Hospital Reimbursement Improvement Act of 2013, which
requires, subject to federal approval, supplemental payments
to be made to private hospitals and increased capitation
payments to be made to Medi-Cal MCPs for hospital services.
The author further points out that this bill would enact a
hospital QAF for the two additional years to draw down
increased federal funds for hospital services, and to provide
millions of dollars in additional revenue for children's
health coverage. It also provides grants to public county and
district hospitals. Federal law authorizes states to levy
fees on health care providers if the fees meet federal
requirements. This bill provides increased federal funding to
hospitals without using state 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 . 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. To prevent states from levying an
assessment on only Medicaid providers, federal law requires
provider fees to be "broad based" and uniformly applied to all
providers within specified classes of provider, and states are
prohibited from having a provision that would ensure providers
are "held harmless" from the impact of the fee. Health care
related provider fees may only be imposed on 19 particular
classes of health care items or services. Federal approval
through CMS is required. First enacted in 2009, this bill is
the third extension of a hospital-specific QAF.
This bill and the predecessors enact a methodology to increase
funding for hospitals serving Medi-Cal patients through
supplemental payments. The payments are calculated based on
hospital outpatient, inpatient days, sub-acute, high-acute,
and acute psychiatric days. Hospitals that provide a moderate
level of Medi-Cal services receive a supplement for Medi-Cal
high acuity days, sub-acute services, and trauma care days.
This bill adds a supplemental payment for hospitals for
transplant patient days. There is also an increase in the
capitation rate that is paid to Medi-Cal MCPs that is to be
passed on to hospitals for hospital services to Medi-Cal
enrollees. It is anticipated that hospitals will receive
increased payments from Medi-Cal MCPs for both inpatient and
outpatient services from this bill.
Details of the QAF and the payment distribution are still being
negotiated between the sponsor and DHCS; however the current
estimate is that this bill will raise nearly $8 billion in
Medi-Cal fee dollars over a two year period. Of that, it is
estimated that $1.3 billion will be allocated to children's
coverage, $101 million will be paid as grants to DPHs, and $10
million will be paid in grants to NDPHs. Of the remainder,
$6.5 billion is matched with federal funds at a 50% matching
rate and distributed as supplemental payments. This yields an
estimated $5.8 billion in supplemental Medi-Cal payments to
private hospitals for FFS inpatient services, $2.3 for FFS
outpatient services, $5.3 billion for private hospital
Medi-Cal managed care services, and $170 million for public
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hospital managed care services. The net benefit to the
hospital industry is calculated as $5.7 billion.
Under federal law, there are various limits on the payment rate
to Medi-Cal providers. The supplemental payments and the
formulas specified in this bill are consistent with those
limits. For instance, the federal UPL for private hospitals is
based on the rate paid by Medicare for similar services. The
total supplemental payments in this bill are calculated to
stay within these limits. This bill includes authority for
DHCS to make adjustments within hospital categories in order
to assure compliance with federal requirements. DPHs and
NDPHs are currently at the federal UPL under the terms of the
current federal hospital waiver and not eligible for federally
matched supplemental payments, except through managed care.
For this reason, the payments to DPHs and NDPHs are in the
form of direct grants or managed care payments.
The distribution methodology also provides for supplemental
payments to hospitals that contract with Medi-Cal MCPs.
Payments made to hospitals through a MCMC contract are not
subject to the UPL, but the payment to the plan must be
actuarially sound. An actuarially sound rate is established
as a rate range. If DHCS reimburses at the lower level of the
rate range, supplemental payments are permissible as long as
the total does not exceed the upper level of the rate range.
This is referred to as room in the rate range. Payments to
MCPs from the fee must be within this rate range.
3)PRIOR LEGISLATION . AB 1383 (Jones), Chapter 627, Statutes of
2009, and AB 188 (Jones), Chapter 645, Statutes of 2009,
enacted the original framework for a Medi-Cal hospital
provider fee; established fee payment amounts; a methodology
for calculating and paying supplemental payments to private
and district hospitals; supplemental payments to Medi-Cal MCPs
for hospital services; allocated funds for children's health
care coverage; DHCS administrative costs; and grants to public
hospitals from the funds collected by the fee. AB 1383 was to
become effective upon receipt of CMS approval and become
inoperative on January 1, 2011. This was timed to take
advantage of the increase in federal matching funds available
under the American Recovery and Reinvestment Act of 2009
(ARRA). ARRA increased California's Federal Medicare
Assistance Percentages (FMAP) by 11.59% from a base of 50% to
61.59% from October 1, 2008 thru December 31, 2010. In other
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words, the revenue derived from a hospital provider fee could
be matched by federal funds at a two to one ratio for this
limited period of time. Implementation of AB 1383 was
dependent on CMS approval through a SPA. After significant
discussions between the Administration and CMS, CMS sent DHCS
a letter on June 16, 2010, stating that CMS did not believe
the fee and payments proposed in AB 1383 met federal
requirements. CMS made extensive comments, requested
additional information, and suggested modifications to address
the specific concerns raised, as well as suggestions as to how
to develop a fee that met federal law. AB 1653 (Jones),
Chapter 218, Statutes of 2010, reflected the CMS requested
modifications necessary to obtain federal approval. The delay
in obtaining federal approval necessitated a revision of the
collection and payment timeframes. Additional modifications
were enacted in SB 208 (Steinberg), Chapter 714, Statutes of
2010. This first fee generated $3.1 billion in revenue from
hospitals paying the QAF. The QAF drew down an additional
$3.2 billion in federal funds, and provided an overall benefit
to the hospital industry of $2.6 billion. In addition, over
the 21 month period in which AB 1383, AB 188, and AB 1653
applied, the QAF provided $560 million for children's health
coverage and $513 million in unmatched direct grants to DPHs.
The Federal Education, Jobs, and Medicaid Assistance Act
extended the availability of increased FMAP but phased it out
over the additional six months by providing an increased FMAP
of 8.77% for January thru April 2011 and an increased FMAP of
5.66% for April thru June 2011. In order to benefit from the
increase in federal matching funds, payments had to actually
be made during the specified period, regardless of when the
services were provided. The hospital industry was not able to
agree on a fee mechanism in time to take advantage of the
January to April 2011 increase. However, agreement was
reached within the industry and with DHCS in time to enact
legislation to benefit from the increase for the April to June
2011 period [SB 90 (Steinberg), Chapter 19, Statutes of 2011,
and AB 113 (Monning), Chapter 20, Statutes of 2011]. AB 113
was a companion bill that enacted an IGT program for NDPHs.
The QAF enacted by SB 90 and the hospital supplemental payment
program, for the period between January 1, 2011 and June 30,
2011, was similar to the previous fee and supplemental payment
program. The most significant changes made to the funding
distribution in SB 90 as compared to the funding distribution
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in previous legislation was the elimination of supplemental
payments to the 48 NDPHs, grants to the 21 DPHs, and an
increase in the amount for children's coverage (from $80
million per quarter to $110 million per quarter). In
addition, SB 90 established an IGT program that allows the 48
NDPHs and 21 DPHs to use IGTs to increase the Medi-Cal
capitation rate to Medi-Cal MCPs with which they contract.
According to the CHA, of the 357 licensed general acute care
hospitals in the state, 237 paid the QAF under SB 90. Of the
237 hospitals paying the QAF, 15 independent hospitals and
four hospital systems pay more in QAF than they receive back
in supplemental payments. Across all private hospitals, SB 90
was estimated to provide $858 million in payments to private
hospitals above the amounts paid in QAF by these hospitals.
SB 335, Chapter 286, Statutes of 2011, extended a fee similar in
structure to that enacted by SB 90 and AB 1383 (as revised by
AB 1653). Modifications and additions were made due to
changed circumstances, such as the elimination of the enhanced
FMAP and implementation of the 2010 Medicaid Section 1115
waiver. This new fee was effective retroactively, to coincide
with the expiration of the SB 90 six-month fee on July 1,
2011. SB 335 is estimated to raise almost $7 billion in fee
revenue with a net benefit to hospitals of $4.6 billion and 17
independent hospitals and two hospital systems paid more in
QAF than they received back in supplemental payments,
amounting to approximately $100 million. SB 335 continued the
exclusion of DPHs and NDPHs from the category of hospitals
eligible for per diem supplemental payments; however funding
was restored for supplemental payments to DPHs and NDPHs that
contract with Medi-Cal MCPs. The original fee had provided
$513 million in unmatched grants to DPHs; however this was
eliminated in SB 90. SB 335 again provided unmatched grants
to DPHs and added NDPHs. However, the agreement to reinstate
these grants was not reached in time to develop a distribution
formula.
This bill also excludes DPHs and NDPHs from supplemental
payments, because as a group they have reached their UPL and
no additional matched FFS payments are allowed under federal
law. They are eligible for increased payments financed by the
QAF through this bill as Medi-Cal MCP payments, plus this bill
authorizes direct grants to both categories. This bill also
provides for the public entities that own or operate these
hospitals, such as counties or hospital districts to transfer
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funds by means of IGTs that will be used to fund supplemental
payments to hospitals that are not funded by means of CPEs.
4)HOSPITAL FINANCING . The Medi-Cal hospital inpatient payment
system in California is a complex amalgamation of mechanisms,
methodologies, funding sources, and rules. Generally payment
varies depending on whether a hospital is a private hospital,
one of the 21-county or UC operated DPHs, or a district owned
or operated NDPH, whether they contract with an MCP, contract
with the state, or receive payments on a FFS basis.
Additional funding is also provided if hospitals are
classified as DSH based on the amount of Medi-Cal and
unreimbursed or indigent care they provide. Most hospitals
that contract with a Medi-Cal MCP are paid by the plan on a
negotiated rate basis or a set rate if out-of-network. As of
July 1, 2013, FFS payments to private hospitals were converted
from a per diem rate to a DRG-based system similar to
Medicare. Further complicating the picture is that since 2005
there have been a number of major changes to the reimbursement
mechanisms for every type of hospital. This bill has a number
of provisions that are necessary because of this ever-altering
landscape. For instance, some of the data that are used to
assess fees or make payments may be three or four years old.
There are also a number of contingency sections that provide
for adjustments if necessary to account for payment system
changes. A description of the primary payment sources is as
follows:
a) Private Medi-Cal Inpatient Hospital Payments . Until
July 1, 2013, private Medi-Cal inpatient hospital services
that were not covered by an MCP were reimbursed on a per
diem basis. If the hospital participated in the SPCP, the
rate was a negotiated contract rate. Otherwise the rates
were based on actual costs. SB 853 (Committee on Budget
and Fiscal Review), Chapter 717, Statutes of 2010, the 2010
health budget trailer bill required DHCS to implement a new
payment methodology for inpatient hospital care in the
Medi-Cal program based upon DRGs. The DRG method assigns a
numeric value to an acute care inpatient hospital episode
of care, which serves as a relative weighting factor
intended to represent the resource intensity of hospital
care of the clinical group that is classified to that
specific DRG. As a reimbursement system the DRG assignment
determines the payment level the hospital will receive.
According to DHCS, payment by DRGs will simplify the
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payment process; encourage administrative efficiency, and
base payments on patient acuity and hospital resource needs
rather than length of stay. Effective July 1, 2013, this
new DRG payment methodology will replace the previous
payment methods of negotiated rates for private contracted
hospitals and also replaces the cost-based reimbursement
methodology of non-contract hospitals; both of which
utilize a per diem type of payment methodology. In the
interim, contract negotiations are handled by the Office of
the SPCP housed within DHCS [previously negotiated by the
California Medical Assistance Commission (CMAC)].
b) Public Hospitals . In 2005, California received federal
approval for a five year Section 1115(a) Medi-Cal Hospital
Financing/Uninsured Waiver. One of the most significant
revisions under the 2005 hospital waiver was to make
fundamental changes in Medi-Cal hospital financing for
public hospitals. Reimbursement for Medi-Cal per diem for
DPHs was based on CPEs, rather than GF. The inpatient
reimbursement rate was no longer negotiated by CMAC and is
instead cost-based. In November 2010, California received
federal approval for a new five year Section 1115(a)
Medi-Cal Demonstration/Pilot Project Waiver, entitled "A
Bridge to Reform" which, among other provisions, continued
the use of CPEs. This waiver includes a continuation of
the hospital financing provisions from the 2005 waiver but
with modifications to the allocation of DSH funds and
Safety Net Care Pool (SNCP) funds. The 2010 waiver also
included a new Delivery System Reform Incentive Pool
(DSRIP) fund that is tied to achievement of specific
milestones.
NDPHs continued to be reimbursed in the same fashion as
private hospitals and were also part of the SPCP program
under the 2005 waiver and the new 2010 Bridge to Reform
waiver. The 2005 waiver also created the SNCP which
provides a fixed amount of federal funds to cover
uncompensated care, matched by CPEs. The distribution
criteria were revised in the 2010 Section 1115 waiver and
are based on unreimbursed expenses.
Just over $1 billion in federal funding is available to DPHs
in the DSH Fund during each year of the waiver to provide
care to Medi-Cal and uninsured patients. DSH is a federal
designation and funding mechanism available in the Medicaid
program to provide supplemental funding to hospitals caring
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for a significant proportion of indigent patients. The
waiver DSH Fund is at a fixed level in a specific year, but
may change over time and contains no state GF. Hospitals
submit CPEs and IGTs to draw down federal funds. IGTs may
only be used to fund the nonfederal share of DSH payments
between 100-175% of the uncompensated costs.
AB 1467 (Budget Committee), Chapter 23, Statutes of 2012, the
Health Omnibus Budget Trailer Bill, revised the
reimbursement methodology for NDPHs, effective July 1,
2012, by converting their Medi-Cal inpatient reimbursement
methodology to the CPE system used by DPHs. The
reimbursement changes are contingent upon DHCS receiving
federal approval via an amendment to the "Bridge to Reform"
waiver which requests an increase in the SNCP and the DSRIP
for the supplemental funding, as well as approval of a SPA.
Approval of the waiver amendment and SPA has not been
obtained. The additional funds were to be made available
to NDPHs to offset their uncompensated care costs and to
support their efforts to enhance the quality of care and
the health of the patients and families they serve. NDPHs
are not otherwise eligible for these funds. However, in
the absence of federal approval, NDPHs will be transitioned
to DRGs on January 1, 2014.
c) IGTs . The 2005 hospital waiver was also a response to
the increasing federal scrutiny by CMS of IGTs. IGTs are
transfers of public funds from one level of government to
another. California relied on IGTs as the nonfederal share
for various supplemental payment programs such as the
Private Supplemental Payment Program and DSH payments and
to backfill GF in the Medi-Cal program. Under the terms of
the 2005 hospital waiver, the use of IGTs as the
non-federal share for these payments was severely
restricted. However SB 208, SB 90, AB 113, and the 2010
Medi-Cal Bridge to Reform waiver expanded use of IGTs. For
instance, SB 90 authorized the use of IGTs for supplemental
payments through MCMC plans for both NDPH and DPH. AB 113
implemented an IGT program for NDPHs regardless of whether
they contracted through the SPCP program. IGTs are also
used as the nonfederal share of payments made to DPHs for
SPDs who are enrolled into Medi-Cal MCPs. The agreement
among the hospital industry reflected in this bill includes
use of QAF revenues for IGTs that will be used to increase
payments to MCPs for private and NDPH hospital services to
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Medi-Cal enrollees.
5)CMAC. The SPCP was established by the Legislature in 1982 (AB
3480 (Robinson), Chapter 329, Statutes of 1982) under a
1915(b) waiver and allowed CMAC to selectively contract as
long as there was adequate access to hospital beds to serve
the Medi-Cal population in a Health Facility Planning Area.
Except for emergencies, most FFS Medi-Cal beneficiaries in a
closed area were required to receive in-patient care at a
contracting hospital. Selective contracting allowed CMAC to
negotiate a competitive rate in place of the traditional
"cost-based" reimbursement system used by most states. Since
its inception CMAC has saved the state $12.7 billion in state
GF savings. Non-contract hospitals continued to be reimbursed
on a cost-based system. As stated above, reimbursement for
DPHs was transitioned back to cost-based in the 2005 waiver.
On July 1, 2012, CMAC was eliminated and the SPCP was
transferred to DHCS for negotiation and administration until
the SPCP was replaced by the implementation of the new DRG
hospital inpatient payment methodology scheduled for July 1,
2013. NDPHs are scheduled to transition to DRGs on January 1,
2014, and until then will continue to be reimbursed as
contracting or non-contracting hospitals. This bill includes
clean-up provisions to transfer remaining authority to DHCS in
order to allow it to administer an IGT and supplemental
payment program previously administered by CMAC.
6)SUPPORT . CHA, sponsor of this bill, writes in support that
the creation and implementation of the hospital fee program in
California has been extremely successful. According to CHA,
the program has been critical for hospitals to bolster their
ability to preserve health care services for the state's most
vulnerable patients. CHA reports that 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. In addition, the first two programs fulfilled a
commitment to provide the state with $770 million in funding
for children's health care coverage. CHA states that this
bill reflects a work-in-progress for a final proposal that
will be completed soon. According to CHA, they are working
with DHCS to resolve these open issues. Due to 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 UPL
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and determining the actuarially certified rate room in the
managed care program.
Other supporters such as Adventist Health, Loma Linda University
Medical Center, the Alliance of Catholic Health Care, and
Private Essential Access Community Hospitals write that the
hospital fee program is crucial to the preservation of
California's entire safety net and that it has been the only
way for community safety net hospitals to survive billions of
dollars in Medi-Cal payment shortfalls; ongoing multi-million
dollar Medi-Cal DSH cuts to safety net hospitals; and
compensate for the current Medi-Cal waiver that provides no
support to help transform their hospital delivery systems.
These supporters further state that as California prepares for
1.4 million new Medi-Cal enrollees in 2014 under the ACA,
Medi-Cal rates to hospitals must continue to be
stabilized-especially for community safety net hospitals which
will have an integral role in serving the 3 to 4 million
remaining uninsured in 2014.
7)OPPOSITION . Michelle Steel, Vice Chair of the State Board of
Equalization, writes in opposition that the cost of healthcare
is continually rising year after year, and there is
considerable concern that costs are going to get even higher
with the new federal rules coming into place. According to
this opposition, adding more fees and taxes on healthcare
providers has the end effect of raising these rates even more,
as these additional costs will be passed on to the consumers.
Ms. Steel also asserts in opposition that this bill opens the
door to insolvency of the fund for which it is intended by
allowing the State Controller to divert money away to the
General Fund.
8)PREVIOUS LEGISLATION . SB 208 implements provisions of the
2010 "Bridge to Reform" waiver including establishing the
DSRIP, authorizes DHCS to require the mandatory enrollment of
SPDs in an MCPs commencing the later of either June 1, 2011,
or upon obtaining federal approval.
9)POLICY COMMENTS . As previously stated, DHCS and the sponsors
of this bill are still negotiating final details. For this
reason, this bill may need additional amendments. Among the
outstanding issues are:
a) Direct Grants . The current language authorizes direct
grants but does not specify amounts or a methodology for
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providing direct grants to DPHs and NDPHs. The current
estimate is that DPHs will receive direct grants of $90
million in 2014 and $96 million in 2015. The DPHs are
proposing to transfer a total of $85 million as IGTs which
will be matched with federal funds and paid to private
hospitals as supplemental payments. NDPHs will receive a
total of $50 million in direct grants and will retain $10
million. The remaining $40 million will be transferred as
IGTs and matched with federal funds for a total of $80
million which will also be paid to private hospitals.
Additional amendments may be needed for a portion of this
transaction.
b) Data Sources . This bill specifies that the data source
for all hospitals except one named hospital is to be from
the fiscal year ending 2010, as filed with the Office of
Statewide Health Planning and Development on June 6, 2013.
According to the sponsor, the data from 2010 is not
accurate for that hospital. This provision may be revised
to be a more general description and therefore could apply
to more than one single named hospital.
c) Unspecified Amounts . This bill does not yet include an
appropriation. It also includes a formula that authorizes
DHCS to make adjustments by calculating a fee percentage;
however the definition currently includes a blank amount.
Amendments may also be required to fill in these omissions.
d) Dollar Amounts . According to the sponsors additional
revisions may also need to be made to the fee and payment
amounts after a final approval from DHCS which also may
include a change in the amount allocated for children's
health coverage.
REGISTERED SUPPORT / OPPOSITION :
Support
California Hospital Association (sponsor)
Adventist Health
Alliance of Catholic Health Care
California Black Health Network
California Children's Hospital Association
California Coverage & Health Initiatives
Children Now
Children's Defense Fund-California
Children's Partnership
Loma Linda University Medical Center
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PICO California
Private Essential Access Community Hospitals
Tenet Healthcare Corporation
Opposition
Michelle Steel, Vice Chair of the State Board of Equalization
Analysis Prepared by : Marjorie Swartz / HEALTH / (916)
319-2097