BILL ANALYSIS Ó SB 239 Page 1 Date of Hearing: September 11, 2013 ASSEMBLY COMMITTEE ON HEALTH Richard Pan, Chair SB 239 (Ed Hernandez and Steinberg) - As Amended: September 6, 2013 As Proposed to be Amended by RN:1326636 SENATE VOTE : 36-0 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. Requires private acute care hospitals to pay a quality assurance fee (QAF), as specified, until December 31, 2016, in order to provide funding for federal matching funds for supplemental payments, children's coverage, and direct grants. Establishes Intergovernmental Transfer (IGT) programs. Eliminates a Medi-Cal rate reduction that applies to distinct part nursing facilities (DP-NFs). Specifically, this bill : 1)Imposes a requirement on all private general acute care hospitals to pay a QAF for the first program period of from January 1, 2014 to December 31, 2016. Exempts DPHs, NDPHs, long-term care hospitals, specified specialty hospitals, and small and rural hospitals. Exempts any hospital that has been converted from a private hospital to a public hospital after January 1, 2014, for the period the hospital is a public hospital or qualifies as a new hospital. 2)Specifies the first program period as from January 1, 2014 to December 31, 2016, the second program period as January 1, 2017 to June 30, 2019 and each subsequent program period as beginning on the last day of the prior program period and ending on the last day of the state fiscal year, as determined by the Department of Health Care Services (DHCS). SB 239 Page 2 3)Requires DHCS within 10 business days of receipt of federal approval to compute the quarterly QAF amount for each program period, are to notify each hospital. Requires the hospitals to pay the QAF, quarterly if possible, based on a schedule established by DHCS and requires all fees to be paid no later than the end of each program period. 4)Provides that the QAF is inoperative for the first program period if the federal Centers for Medicare and Medicaid Services (CMS) does not approve the program before December 1, 2016. 5)Creates a contractually enforceable promise on behalf of the state to use the proceeds of the fee and the Hospital Quality Assurance Revenue Fund (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, to continue reimbursement levels that are not less than the aggregate fee-for-service (FFS) amounts paid under rates and methodologies in effect on December 31, 2013, and to comply with all obligations imposed pursuant to this bill. 6)For the first program period, requires private hospitals to be paid supplemental payments for hospital outpatient services that are based on the amount of Medi-Cal outpatient services provided by that hospital up to the amount allowed under the upper payment limit (UPL), except for the period of time a hospital qualifies as new or has converted from a private to a public hospital. 7)Requires DHCS to make the necessary determinations to calculate and collect fees and 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 that is a sum of a rate that is based on the following: a) The amount of general acute care Medi-Cal days; b) The amount of acute psychiatric Medi-Cal days; c) The amount of high acuity Medi-Cal days if the hospital's Medi-Cal inpatient utilization rate is between 5% and rate needed to qualify for DSH replacement funds; SB 239 Page 3 d) The amount of high acuity Medi-Cal trauma days, if the hospital qualifies under 7) c) above, and has specified designated trauma centers; e) The amount of transplant Medi-Cal days if the hospital's Medi-Cal inpatient utilization rate is between 5% and rate needed to qualify for DSH replacement funds; and, f) The amount of Medi-Cal sub-acute services provided in the base calendar year. 8)For the program period beginning January 1, 2014, and ending December 31, 2016, specifies: a) The quarterly dollar amount of the acute psychiatric per diem supplemental Medi-Cal payments and the data source; b) The specific dollar rate and data source for the FFS inpatient per diem fee that on 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; c) The quarterly dollar amount of the general acute care per diem supplemental Medi-Cal payments and the data source; d) The specific dollar amount for the per diem supplemental Medi-Cal payment rate for high acuity days and high acuity trauma days for qualifying hospitals and the data source; e) The specific dollar rate and data source of the managed care per diem fee on inpatient 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; f) The specific dollar rate and data source for the Medi-Cal per diem fee; g) The specific percentage of the outpatient supplemental Medi-Cal payment rate and the data source; h) The specific dollar rate of the prepaid health plan hospital managed care per diem fee rate and the MCMC per diem fee rate; i) The sub-acute supplemental Medi-Cal payment percentage based on payments to the hospital in 2010; and, j) The specific dollar amount of the per diem supplemental Medi-Cal payment rate for transplant inpatient days and the data source. 9)Establishes timelines and a methodology for rebasing each base year and the data, updating the data sources, recalculating the net benefit and other dollar amounts necessary to SB 239 Page 4 subsequent program years. Provides that these calculations for subsequent program periods are to be specified in the annual Budget Act. 10)After the first program period, requires DHCS to determine, based on the rebased calculations, the new specific dollar amounts for each supplemental payment and fee rate, in consultation with the hospital community, as close as possible to the UPL and in relative values as close to the first program period as possible. Requires these rates to be specified in the annual Budget Act. Requires, commencing January 1, 2016, for the second program period and all subsequent program periods that all calculations made by DHCS in implementing fees, supplemental payments, net benefits, and grants, if any, to be submitted to the Legislature in January and May along with the Medi-Cal program fiscal detail. 11)Authorizes the Director of DHCS, upon federal approval or conditional federal approval, to have the discretion to revise the FFS per diem QAF rate, the managed care per diem QAF rate, the Medi-Cal per diem QAF rate, the prepaid health plan hospital managed care and MCMC per diem QAF based on the funds required to make the payments specified, in consultation with the hospital community. 12)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. 13)Requires QAF payments, including payments from prior QAF programs, remittances, interest and dividends, but not penalties, or the amount allocated to DHCS, to be for deposit in the HQARF. Provides for excess funds to be refunded pro rata. Provides for excess funds remitted after the final date to be refunded to hospitals on a pro rata basis, unless federal rules allow the funds to be applied to the next program period.
14)Establishes a timeline for disbursements, continuously appropriates the HQARF for the first program period and requires all proceeds of the fee to be used, exclusively to enhance federal financial participation (FFP) for hospital services under the Medi-Cal program, to provide additional SB 239 Page 5 reimbursement to, and to support quality improvement efforts of, hospitals and 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) Staffing and administrative costs of DHCS in administering the QAF and payments, up to $250 million per quarter; b) Health care coverage for children in the amount of $155 million per quarter for the last two quarters of fiscal year 2013-14 and in the amount of 24% of the net benefit thereafter; c) Increased capitation payments to Medi-Cal MCPs, including up to 10% the nonfederal share of payments to hospitals for Medi-Cal enrollees considered newly eligible under the federal Patient Protection and Affordable Care Act (ACA); and, d) Increased payments to hospitals for Medi-Cal services, including up to 10% of the nonfederal share of payments to hospitals for Medi-Cal enrollees considered newly eligible under the ACA and for direct grants to hospitals. 15)Requires DHCS to establish a preliminary and actual net benefit based on the aggregate payments minus the aggregate fees and establishes a process to reconcile upon a final determination. Provides that the amount of funding provided to children's health coverage shall be equal to 24% of the net benefit after July 1, 2014. 16)Provides methodologies for proportionate reductions or recalculations of all fees, hospital payments, and increased capitation payments in the event of the following: a) If FFP is different than estimated under this bill; or, b) If amounts allowable as payments for specified categories must be adjusted due to the application of the UPL under federal law. 17)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 SB 239 Page 6 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. Limits the amount of payments if FFP falls below 90% for the newly eligible childless adult category. Authorizes DHCS to set aside fee revenue, as specified, in order to accumulate the required amounts. 18)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 payments made to Medi-Cal MCPs in the absence of these payments are not to be reduced as a consequences of these payments. Authorizes DHCS to issue change orders to amend contracts and provides that the increase shall not be subject to negotiation. 19)Requires 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. 20)Provides direct grants in support of health care expenditures to DPHs in the amount of $45 million in fiscal year (FY) 2013-14, $93 million in FY 2014-15, $110.5 million in FY 2015-16; and, $62.5 million in FY 2016-17. Requires the Director of DHCS to allocate a portion of the funds on a quarterly basis in equal amounts among the DPHs pursuant to a methodology developed in consultation with the DPHs in the following amounts: a) For FY 2013-14, $24.5 million; b) For FY 2014-15, $50.5 million; c) For FY 2015-16, $60.5 million; and, d) For FY 2016-17, $34.5 million. 21)Provides that a portion of the grants are to be withheld and used for the nonfederal share of rate range increases for Medi-Cal MCPs that service counties with DPHs, further provides that half of the portion that is distributed is to be SB 239 Page 7 conditioned on the distribution of the rate range increase (the amount of increase in rate that is within the actuarially sound rate range), in counties with a DPH and pursuant to a methodology developed in consultation with the hospital community. Provides that the withheld funds are not to be considered revenue for purposes of specified realignment determinations. Provides that the capitated rate range increase is to be for enrollees other than those considered "newly eligible" under the ACA for the purpose of enabling plans to compensate hospitals for Medi-Cal services. Requires each plan to expend 100% on hospital services within 30 days. 22)Provides direct grants in support of health care expenditures to NDPHs in the amount of $12.5 million for two quarters in FY 2013-14; $25 million in FY 2014-15; $30 million in FY 2015-16; and, $17.5 million for two quarters in FY 2016-17. Requires the Director of DHCS to allocate a portion of the funds among the NDPHs pursuant to a methodology developed in consultation with the NDPHs. Requires the remainder to be withheld and used as matching funds to increase MCMC capitated rates. Provides that if the funds are not used for increase managed care capitated rates that are within the actuarially sound rate range, the funds shall be returned to the HQARF. 23)For subsequent program periods, requires the Director of DHCS to determine the amounts, and if any, allocations methods of direct grants and any withholds of direct grants to DPHs and NDPHs. Requires the amounts and allocations to be specified in the annual Budget Act. 24)Authorizes DHCS to modify any methodology or other provision, in consultation with the hospital community, to the extent necessary to meet federal requirements, provided the modifications are consistent with the provisions and do not violate the spirit, intent, and purpose, and allows adjustments as necessary to comply with federal law. 25)Provides that supplemental payments under this bill are in addition to DSH replacement supplemental payments, do not impact eligibility for DSH payments, DSH replacement payments made under the 2010 Medi-Cal Bridge to Reform Section 1115 waiver, and are not to be considered in the determination of adequacy of any rate under federal law. 26)Prohibits the QAF from exceeding the maximum aggregate net SB 239 Page 8 patient revenue percentage that is allowed under federal law, as necessary, to preclude a finding of an indirect guarantee. 27)Prohibits the QAF from being considered as an allowable cost for Medi-Cal cost reporting. 28)Provides that supplemental payments made pursuant to this bill are not to affect a determination of rate adequacy under federal law. 29)Prohibits payments for the period of time a hospital qualifies as new or has converted from a private to a public hospital depending on the date of conversion, whether there is a days data source, as defined, for the hospital, and whether the new ownership assumes financial obligations to the Medi-Cal program, as specified. Allows the hospital that will be opening on the site of the former Los Angeles County Martin Luther King Jr.-Harbor Hospital to participate, notwithstanding this exclusion and requires the use of the best available data for this hospital. Provides for payments to converted hospitals, proportionate to the period in which it was a qualifying private hospital. Establishes a process by which a hospital with a day's data source may assume financial responsibility of outstanding obligations in the Medi-Cal program and not be classified as a new hospital. 30)Provides for data adjustments and supplemental payment adjustments in the event of hospital consolidations, license consolidations, or changes in ownership. Provides that no payments shall be made if a hospital is closed. 31)Authorizes the Director of DHCS to correct identified egregious errors in data sources, as specified; to modify timelines, upon consultation with the hospital community and with notice to the Legislature, upon a determination of operational impossibility. 32)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, approval for supplemental payments for hospital services to all Medi-Cal populations including optional expansion populations, to seek to amend contracts with Medi-Cal MCPs without waiting for federal approval, and requires the amendments to set forth an SB 239 Page 9 agreement to increase capitation payments and payments to hospitals relating back to the beginning of each program period. 33)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 refunds if final approval is denied. 34)Authorizes the Director of DHCS to recoup and refund fees or funds from hospitals 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 of denial by CMS, and to withhold payment to any hospital that sues to enjoin implementation. Requires notice to the Legislature of this occurrence. 35)Provides that payments shall be made only to the extent the QAF is established, collected, and available to cover the nonfederal share of payments and provides that payments shall only be made from the QAF proceeds, interest, and federal reimbursements. 36)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 the last day of a program period, and the provisions cannot be modified to meet the requirements of federal law, or a lawsuit or other order related to the QAF and payments is determined to result in financial disadvantage to the state, except for a case brought by a hospital located outside of the state. Authorizes the Director of DHCS not to implement or discontinue implementation of supplemental payments in the event of inoperability. Requires the DHCS Director to execute a declaration, as specified, if a determination of inoperability is made and implement a plan to wind down the program. 37)Authorizes DHCS to implement the QAF and payment program by means of policy letters, provider bulletins, or all plan letters in lieu of regulatory action under the Administrative SB 239 Page 10 Procedures Act, and requires notice to the appropriate committees of the Legislature. 38)Deletes the January 1, 2015 sunset on the existing HQARF and extends the HQARF, as modified by this bill, to January 1, 2018. 39)Requires DHCS to make available all public documentation used to administer and audit the QAF and supplemental payment program, and upon request, requires Medi-Cal MCPs to furnish hospitals the amount the plan intends to pay to the hospital. 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, model updates, and information on managed care rate approvals. 40)Defines hospital community as including, but not limited to, the statewide hospital industry organization and systems representing general acute care hospitals. 41)Establishes legislative findings, declarations, and intent: recognizing the role hospitals play in serving Medi-Cal enrollees; that the intent is to impose a QAF to be paid by hospitals to be used to increase FFP in order to make supplemental Medi-Cal payments to hospitals with the goal of increasing access to care and improving hospital reimbursement and to help pay for health care coverage for low-income children; to recognize the fundamental structure of the components used to develop a successful QAF program; that the QAF is to be 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; that no hospital be required to pay the QAF unless federal approval is received and that the full amount remains available only for the purposes specified by the Legislature in these provisions. 42)Provides that beginning with the proposed budget for 2014-15, and each year thereafter, the Department of Finance shall report in the Governor's proposed budget and the May Revision the difference in GF benefit for the upcoming fiscal year resulting from the QAF program and what was anticipated at the time the Budget Act of 2013 was enacted. It is the intent of the Legislature that additional GF benefit be appropriated to SB 239 Page 11 supplement, and not supplant, funding for health and human service programs, which may include the cost of medical interpreters. 43)Sunsets the provisions of the QAF and supplemental payment provisions on January 1, 2017. 44)Revises an IGT program authority to allow DHCS to authorize the funds for use by hospitals that are not reimbursed by means of certified public expenditures. 45)Requires DHCS to design and implement an IGT program to increase capitation payments to MCMC plans for the purpose of increasing reimbursement to NDPHs. Requires implementation no later than January 1, 2014, or when all federal approvals have been received. 46)Requires DHCS to develop a proposed modification to the QAF as established by this bill to collect additional fees to be used for IGTs from NDPHs to be used for increased payments for Medi-Cal MCPs for increased payment within the capitated rate range for the purpose of increased payments to private hospitals and NDPHs in counties that do not have a DPH. 47)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 Selective Provider Contracting Program, and eliminates the requirement that a hospital have a selective provider contract or a contract with a county organized health system (COHS) in order to participate. 48)Effective October 1, 2013, requires Medi-Cal payments to skilled nursing facilities that are a distinct part of a general acute care hospital (DP-SNFs) to be determined without the Medi-Cal rate reductions and rate roll-back required under existing law. 49)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 SB 239 Page 12 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 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 COHS, 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 : This bill, as amended, has not been analyzed by a fiscal committee. COMMENTS : 1)PURPOSE OF THIS BILL . As proposed to be amended, this bill enacts the Medi-Cal Hospital Reimbursement Improvement Act of 2013. It represents an agreement between the sponsors, the California Hospital Association (CHA) and the Brown Administration and (if passed by the Legislature), the Legislature to enact a three-year continuation of the hospital QAF that would expire on January 1, 2014, and to establish the SB 239 Page 13 framework for an ongoing and permanent fee. The fee could be made permanent by means of initiative that deletes the sunset clause or by further act of the Legislature to delete the sunset clause. This is a significant departure from previous bills in that it would not require reauthorization by the Legislature, if accomplished by initiative. This framework also simplifies legislative reauthorization as specific dollar amounts would not be specified for each period. Instead, the bill gives authority to DHCS to calculate the rates, payments and other calculations necessary to operate an ongoing fee program. However, this bill does require that, in the event there are subsequent program periods, the allocations, calculations, and planned distributions are to be made through the annual Budget Act. With regard to the three year extension, from January 1, 2014 to December 31, 2016, the fee provisions and payments are similar to prior QAF periods. 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, 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. This bill, as in prior bills, there is 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. The current estimate is that this bill will raise nearly $13 billion in Medi-Cal fee dollars over a three year period. Of that, it is estimated that $2.4 billion will be allocated to children's coverage, $170 million will be paid as grants to DPHs, and $17 million will be paid in grants to NDPHs. Of the remainder, $10.6 billion is matched with federal funds at a 50% matching rate and distributed as supplemental payments. This yields an estimated $10 billion in supplemental Medi-Cal payments to private hospitals for FFS inpatient services, $3.6 billion for FFS outpatient services, $9.2 billion for private hospital MCMC services, and $274 million for public hospital managed care services. The net benefit to the hospital SB 239 Page 14 industry is calculated as $10 billion. The net benefit is based on the amount of proceeds of the fee revenue plus federal matching funds, plus direct grants are paid to hospitals minus the allocations to the state Another significant difference is the concept of "net benefit" instead of a fixed dollar amount for children's health care coverage. The first QAF set the amount as $80 million per quarter which was equal to 21% of the net benefit to the hospitals. The second QAF provided a total of $372 million or 23% of the net benefit. The current fee authorized $85 million per quarter in 2011-12 ($340 million or 19%) and $96.8 million per quarter for 2012-13 and 2013-14 (approximately $390 million). However the amount was increased to $538 million or (31%) for 2012-13 and 2013-14 in the 2012 budget. This bill provides $155 million per quarter for the last two quarters of FY 2013-14 and limits the amount to 24% of the net benefit going forward. This bill also requires that the difference in GF benefit for the upcoming fiscal year resulting from the QAF program and what was anticipated be reported at the time the Budget Act of 2013 was enacted. This bill also eliminates a Medi-Cal reimbursement rate freeze as of October 1, 2013, as it applies to DP-NFs that was contained in AB 97 (Budget Committee), Chapter 3, Statutes of 2011, the health services trailer bill to the 2011-12 State Budget. It does not prevent the retroactive recoupment of payments in order to repay the federal share of the payments made during the period of that an injunction was in effect. 2)BACKGROUND . The costs of the Medicaid (Medi-Cal in California) program are generally shared between states and the federal government based on a set formula. The federal government's contribution toward reimbursement for Medicaid expenditures is known as FFP or federal matching funds. The specified percentage of Medicaid costs paid by the federal government is known as the federal medical assistance percentage (FMAP). In general, the FMAP for Medi-Cal has been set at 50%. However, for certain populations and certain administrative activities the state receives a higher FMAP. Federal Medicaid law permits states to finance the nonfederal share of Medicaid costs through the following sources: a) State GF. State GFs are revenues collected primarily through personal income, sales, and corporate income taxes. SB 239 Page 15 b) Certified public expenditures (CPEs). The CPEs are a funding mechanism in which public agencies (in California, primarily counties and the UC system) certify that they have made expenditures eligible for FFP, and then are reimbursed by the federal government for part of these expenditures, generally at the state's FMAP rate. c) IGTs. The IGTs are transfers of public funds between government entities, such as from counties to states. d) Charges on Health Care Providers. Certain charges levied on health care providers generate revenue. Federal Medicaid law permits states to levy various types of charges-including taxes, fees, or assessments-on health care providers and use the proceeds to draw down federal matching funds to support their Medicaid programs and/or offset some state costs. These charges must meet certain requirements and be approved by CMS for revenues from these charges to be eligible for FFP. A number of different types of providers can be subject to these charges, including hospitals, certain skilled nursing facilities, and certain intermediate care facilities for the developmentally disabled. 3)QAF PROVISIONS . 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 SB 239 Page 16 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. 4)Medi-Cal reimbursement for DP-NFs . This bill repeals the rate freeze and 10% rate reductions that apply to DP-NFs for dates of service on and after October 1, 2013. Existing law requires Medi-Cal fee-FFS provider payments to DP-NFs to not exceed the reimbursement rates to DP-NFs in the 2008-09 rate year, reduced by 10% for dates of service on and after June 1, 2011. Effectively, this means rates are frozen at the 2008-09 levels and then further reduced by 10% for dates of service on and after June 1, 2011. These rate reductions were blocked by court action until recently. These Medi-Cal rate reductions are retroactive, meaning the amounts DP-NFs have been paid since June 1, 2011 above the rates contained in the SPA (which contains the 10% reduction) are going to have be returned to the state (because they have been "overpaid" during the time the rate reduction was blocked by court action). The state will recoup the overpayment by reducing providers' Medi-Cal payments in the future to offset the overpayment amounts. On August 14, 2013, DHCS announced its implementation plan for the Medi-Cal provider payment reductions. DHCS also announced that, in order to preserve and protect access to care for Medi-Cal members, Medi-Cal provider payment reduction exemptions, subject to federal approval of SPAs for DP-NF facilities classified as rural or frontier, based upon the California Medical Service Study Area's definitions, would be exempted prospectively from the 10% payment reductions and would not be subject to the rate freeze at the 2008-09 levels on a prospective basis. DHCS had previously announced that it exempted from the AB 97 reductions and rate freeze any DP-NF which has a census of at least 90% pediatric patients, effective February 18, 2012. The recently announced DHCS exemption applies to 27 DP-NFs, but leaves 53 DP-NFs subject to the rate reduction, and disproportionately affects DP-NFs located in urban areas of the state, such as Los Angeles, San Diego, Sacramento, San Francisco, and Alameda Counties. 5)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, SB 239 Page 17 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. 6)RELATED LEGISLATION . a) AB 900 (Alejo), would have required Medi-Cal reimbursement for DP-NFs to be determined without the Medi-Cal rate reduction and rate roll-back required under existing law, and would have taken effect immediately as an urgency statute. AB 900 was held on the Senate suspense file. b) SB 640 (Lara) would have exempted from the Medi-Cal payment reduction Medi-Cal FFS providers, pharmacy providers, DP-NFs and subacute care units that are a distinct part of a general acute care hospital for dates of service on or after June 1, 2011, and MCMC plans. SB 640 would have taken effect immediately as an urgency statute. SB 640 was held on the Senate Appropriations suspense file. c) SB 646 (Nielsen) would have exempted all DP-SNFs from the Medi-Cal rate reduction. SB 646 was held on the Senate Appropriations suspense file. 7)PREVIOUS LEGISLATION . a) 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 SB 239 Page 18 approval and become inoperative on January 1, 2011. b) AB 1653 (Jones), Chapter 218, Statutes of 2010, revised the fee enacted in AB 1383 to reflect CMS requested modifications necessary to obtain federal approval. c) SB 90 (Steinberg), Chapter 19, Statutes of 2011 and AB 113 (Monning), Chapter 20, Statutes of 2011, enacted a QAF and supplemental Medi-Cal payments for private hospitals for the April to June 2011 period and 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 and for supplemental payments. d) SB 335 (Ed Hernandez and Steinberg), 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). REGISTERED SUPPORT / OPPOSITION : Support California Hospital Association (sponsor) Adventist Health Alliance of Catholic Health Care Dignity Health District Hospital Leadership Forum Private Essential Access Community Hospitals Providence Health & Services Southern California Tenet Healthcare Corporation Opposition None on file. Analysis Prepared by : Marjorie Swartz / HEALTH / (916) 319-2097