BILL ANALYSIS �
SB 239
Page 1
Date of Hearing: August 30, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
SB 239 (Hernandez and Steinberg) - As Amended: August 27, 2013
Policy Committee: HealthVote:19-0
Urgency: Yes State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill, subject to federal approval, modifies and extends a
hospital quality assurance fee (QAF) program for two additional
calendar years, through the end of 2015. Specifically, key
provisions of this bill:
1)Establish, for the period from January 1, 2014 to December 31,
2015, a framework for collection of fees from private
hospitals and distribution of an estimated $13.9 billion in
supplemental Medi-Cal payments to private hospitals (directly
and via managed care plans), as well as grant funding to
public hospitals. Specifies that monies are deposited into the
Hospital Quality Assurance Revenue Fund for purposes of this
program.
2)Provide funding to the state for children's health care
coverage and for administrative costs.
3)Provide grant funding to designated and non-designated public
hospitals, of which a portion is retained by the state in
order to maximize federal funding. Specifies that the
distribution methodology for grant funding shall be determined
by the director in consultation with the hospitals.
4)Prohibit 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.
5)Authorize DHCS to implement this bill by means of policy
letters, provider bulletins, or all plan letters in lieu of
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regulatory action under the Administrative Procedures Act, and
requires notice to the appropriate committees of the
Legislature.
6)Authorize DHCS to continue to administer and distribute
payments for the Construction Renovation Reimbursement
Program, which was previously administered by the California
Medical Assistance Commission, and makes conforming changes.
7)Contain numerous provisions that further specify mechanics of
the program, including calculations and timing of fee
collection and supplemental payments, as well as requirements,
flexibility, and contingencies with respect to federal
approval, legal action, or specified court rulings.
FISCAL EFFECT
1)An increase of $13.9 billion total (hospital QAF/ federal
funds) paid to private hospitals through December 2015 in the
form of supplemental Medi-Cal payments for hospital services.
This estimate assumes hospitals subject to the QAF will
contribute $7.6 billion; that this funding is matched with FFP
at the rate of 50% and paid as supplemental payments, except
for those funds set aside to the state and for other purposes
as explained below; and that the portion related to the
Medi-Cal expansion population is paid at 100% FFP.
2)Estimated administrative costs to the Department of Health
Care Services (DHCS) of approximately $2 million annually
(offset by hospital QAF revenue in this amount) for calendar
years 2014 and 2015.
3)Total estimated net GF savings of $1.24 billion over two
years, associated with $155 million in QAF revenue per quarter
allocated to the state for children's coverage. QAF revenue
to the state for children's coverage can directly offset GF
for this purpose.
The 2013-14 Budget assumes $310 million in savings associated
with the QAF extension, as the funds are to be used in lieu of
General Fund for children's health coverage. This bill
provides $310 million for the 2013-14 fiscal year, consistent
with the budget assumption. Failure to extend the QAF program
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would result in $310 million in additional General Fund costs
in the current fiscal year.
4)Direct grants to designated public hospitals in the aggregate
net amount of $24.5 million in 2013-14, $50.5 million in
2014-15, and $26 million in 2015-16.
5)Direct grants to non-designated public hospitals in the
aggregate net amount of $2.5 million in 2013-14, $5 million in
2014-15, and $2.5 million in 2015-16.
6)Upon the expiration of this program in 2014, GF cost pressure
is created to maintain the higher level of payments to
hospitals and the children's health care coverage programs
funded by the QAF.
COMMENTS
1)Rationale . The California Hospital Association (CHA), the
sponsor of SB 239, states that the hospital provider fee
program remains crucial to the preservation of Medi-Cal
services provided by California's hospitals. CHA notes that
this program will provide an estimated net benefit of $6.3
billion to California's hospitals over two years. In addition,
CHA points out the program will provide significant fiscal
benefit to the state.
2)Background . Federal law authorizes states to fund a portion of
Medicaid programs through provider fees that meet federal
requirements and are matched with FFP to pay providers without
state funds. State QAF must be broad-based, uniform, and
cannot hold a group of providers harmless with respect to fees
paid and payments received. In California, three prior
hospital QAF programs have been enacted (see Prior
Legislation, below). QAF have also been used to generate
revenues for Medi-Cal managed care plans, skilled nursing
facilities (SNF, nursing homes), and intermediate care
facilities for the developmentally disabled (ICF-DD).
Federal law establishes a provider class-specific Upper
Payment Limit (UPL), which is the maximum amount a state
Medicaid program may pay to certain classes of providers in
the aggregate, statewide, based on what Medicare would have
paid for the same services. State Medicaid programs cannot
claim federal matching dollars for provider payments in excess
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of the applicable UPL. This program is designed to maximize
payments to hospitals while staying within the
hospital-specific UPL.
3)Hospital QAF Program . This program provides a mechanism for
increasing payments to hospitals that serve Medi-Cal patients,
with no impact on the state's General Fund. Some of these
payments will be made directly by the state, while others will
be made by Medi-Cal managed care plans that will receive
increased capitation rates from the state in amounts equal to
the supplemental payments.
a) Fees . Fees are collected from hospitals based on their
total number of inpatient days, and range from $78 to $542
per inpatient day, depending on the payer for each patient
day. The fee revenue is allocated to certain activities as
explained above, and remaining fee revenue is matched with
federal funds and paid to hospitals (directly by the state,
or through managed care plans) pursuant to the supplemental
payment provisions of this bill.
b) Payments . The program makes supplemental inpatient and
outpatient Medi-Cal payments to private hospitals. On a
fee-for-service basis, supplemental payments to private
hospitals are calculated based on the number of inpatient
days, with higher payment rates for high-acuity days such
as transplant services, acute psychiatric care, and other
high-acuity care. Outpatient payments are calculated based
on the hospital's percentage of all Medi-Cal
fee-for-service outpatient visits. Increased capitation
rates to managed care plans are calculated in a similar
manner, but paid to managed care plans instead of directly
to hospitals.
c) Grants . Designated public hospitals (DPHs; county and
University of California hospitals) and non-designated
public hospitals (NDPHs; hospitals owned by hospital
districts or municipal entities) do not receive
supplemental payments because they are currently already at
the UPL under the terms of the current federal hospital
waiver. These entities receive grant funds as outlined
above.
1)Changes from Prior QAF Program . The structure of the fee and
the supplemental payment methodologies are largely similar to
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that of the prior three QAF programs. This bill includes the
following key changes:
a) Managed care plans will allocate funds to hospitals
based on a mix of inpatient (70%) and outpatient (30%)
services, in order to reward hospitals who reduce inpatient
days by providing appropriate outpatient care. The prior
scheme awarded funds based on inpatient days only.
b) A new supplemental payment is created for transplant
days, in order to offset low Medi-Cal reimbursement to the
few transplant centers in the state for these costly and
complex procedures.
c) This QAF program continues direct grants to DPHs and
NDPHs. In this program, however, some of this grant money
will be used to match federal funding to the extent
hospitals have "rate range room" (meaning the rate paid to
hospitals has not exceeded the maximum rate for which
federal financial participation is available, and thus some
grant funding can be used to draw down additional federal
funds, creating additional funding for the program). In
the prior program, grant funding to public hospitals was
not matched with federal dollars.
4)Recent Amendments . Substantive amendments to the bill on
August 27 retain the structure of the program while clarifying
and cleaning up numerous sections. In addition, amendments:
a) Allow DHCS flexibility to correct egregious errors
(defined as over $1,000,000) in payments or fees.
b) Specify the amounts of grant funding to DPHs and NDPHs,
and a methodology by which the department withholds a
portion of those grants to make "rate range room" payments
to managed care plans.
c) Clarify how payments are to be calculated if a change in
hospital ownership occurs.
d) Provide an opt-in mechanism, subject to federal
approval, for out-of-state hospitals that wish to
participate in the fee program.
e) Recast the methodology for calculating the fees owed.
f) Allow the Hospital Quality Assurance Revenue Fund to be
continuously appropriated.
1)Construction Renovation Reimbursement Program . This program
provides supplemental reimbursement for the debt service
incurred on the revenue bonds for construction, renovation, or
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replacement of facilities or fixed equipment for hospitals
meeting specified criteria. The program was administered by
the California Medical Assistance Commission (CMAC), whose
functions and staff were absorbed by DHCS. The provision
related to this program is clean-up from the dissolution of
CMAC and the transition to a DRG payment methodology (as
explained below). The provision allows DHCS to administer the
program and removes a reference to a soon-to-be-defunct
payment methodology as a condition of participation in the
program.
2)Medi-Cal Hospital Financing . Supplemental payments from the
QAF provide a large proportion of Medi-Cal spending on
hospital services. Federal funding generated by the QAF
itself comprises more than 20% of total Medi-Cal hospital
spending.
Outside of the QAF payments, Medi-Cal payments to hospitals
differ based on whether a hospital is reimbursed by a managed
care plan or directly by the state, whether they qualify as a
disproportionate share hospital (DSH), and whether they are a
private hospital, a designated public hospital, or a
non-designated public hospital. Most hospitals that contract
with a Medi-Cal managed care plan are paid by the plan on a
negotiated rate basis or a set rate if out-of-network. DSH
payments are additional payments made to hospitals that
provide a certain amount of Medi-Cal services or uncompensated
care.
Effective July 1, 2013, FFS Medi-Cal implemented a "diagnosis
related groups" (DRGs) payment methodology for private
hospital inpatient services. The DRG methodology is based on
resource intensity associated with a particular diagnosis, and
replaces the previous payment scheme of negotiated per-day
rates for contract hospitals and cost-based reimbursement for
non-contract hospitals. A 2012 health trailer bill proposed
to move the NDPHs to a state to a CPE-based payment
methodology, but as this proposal is not likely to gain
federal approval, AB 498 (Chavez) repeals that proposal.
Instead, DRG payments will be implemented for NDPHs effective
January 1, 2014.
Designated public hospitals use Certified Public Expenditures
(CPEs; local funds), rather than GF, to draw down FFP for
hospital services, so they are not subject to a DRG payment.
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In addition, the 2010 hospital waiver provides additional
funding sources, with their own criteria, for DPHs.
3)Prior Legislation .
a) AB 1467 (Budget Committee), Chapter 23, Statutes of 2012
proposed to change the reimbursement methodology and fund
source for reimbursement to NDPHs, as described above.
b) SB 335 (Hern�ndez and Steinberg), Chapter 286, Statutes
of 2011, extended the QAF program for an additional 30
months, to December 31, 2013.
c) SB 90 (Steinberg), Chapter 19, Statutes of 2011
established a 6-month QAF program that ended June 30, 2011.
d) AB 113 (Monning), Chapter 20, Statutes of 2011
established a Medi-Cal intergovernmental transfer program
for NDPHs.
e) AB 1653 (Jones), Chapter 218, Statutes of 2010 made
necessary changes to the methodology, timing, and frequency
of the supplemental payments made with QAF revenue in order
to gain federal approval of the QAF.
f) AB 188 (Jones), Chapter 645, Statutes of 2009
appropriated funds to DHCS to implement the QAF.
g) AB 1383 (Jones), Chapter 627, Statutes of 2009
established a QAF program that ended December 31, 2010 and
provided funding to the state for children's health care
coverage.
1)Related Legislation . AB 498 (Chavez) repeals modifies
provisions of AB 1467 related to NDPHs, striking the
conversion to CPEs and allowing NDPHs to access certain
hospital waiver funds.
Analysis Prepared by : Lisa Murawski / APPR. / (916) 319-2081