BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                 UNFINISHED BUSINESS


          Bill No:  SB 239
          Author:   Hernandez (D) and Steinberg (D)
          Amended:  9/11/13
          Vote:     27 - Urgency

           
           SENATE HEALTH COMMITTEE  :  8-0, 5/8/13
          AYES:  Hernandez, Anderson, Beall, De León, DeSaulnier, Monning,  
            Nielsen, Pavley
          NO VOTE RECORDED:  Wolk

           SENATE APPROPRIATIONS COMMITTEE  :  7-0, 5/23/13
          AYES:  De León, Walters, Gaines, Hill, Lara, Padilla, Steinberg

           SENATE FLOOR  :  36-0, 5/28/13
          AYES:  Anderson, Beall, Berryhill, Block, Calderon, Cannella,  
            Corbett, Correa, De León, DeSaulnier, Emmerson, Evans, Fuller,  
            Gaines, Galgiani, Hernandez, Hill, Hueso, Huff, Jackson, Lara,  
            Leno, Lieu, Liu, Monning, Nielsen, Padilla, Pavley, Price,  
            Roth, Torres, Walters, Wolk, Wright, Wyland, Yee
          NO VOTE RECORDED:  Hancock, Knight, Steinberg, Vacancy

           ASSEMBLY FLOOR  :  Not available


            SUBJECT  :    Medi-Cal:  hospital quality assurance fee:   
                      distinct part skilled nursing facilities

           SOURCE  :     California Hospital Association


           DIGEST  :    This bill enacts the Medi-Cal Hospital Reimbursement  
          Improvement Act of 2013 (Act), which imposes a hospital quality  
                                                                CONTINUED





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          assurance fee (QAF), as specified, on certain general acute care  
          hospitals from January 1, 2014, through December 30, 2016, and  
          which requires supplemental payments to be made to private  
          hospitals for certain services, direct grants to public  
          hospitals, increased capitation payments to Medi-Cal managed  
          care plans for hospital services, and for children's health  
          coverage and Department of Health Care Services (DHCS)  
          administration.  This bill sunsets the Act on January 1, 2017.   
          This bill requires Medi-Cal reimbursement for nursing facilities  
          that are a distinct part of a general acute care hospital to be  
          determined without the Medi-Cal rate reduction and rate  
          roll-back required under existing law for dates of services on  
          and after October 1, 2013.  This bill establishes  
          Intergovernmental Transfer (IGT) programs, and takes effect  
          immediately as an urgency statute.

           Assembly Amendments  (1) extend the duration of the fee and  
          related provisions by an additional year (from two to three  
          years) and sunset the fee January 1, 2017; (2) require, instead  
          of authorize, direct grants to the designated public hospitals  
          (DPH)  and non-designated public hospitals (NDPHs) and specify  
          the amounts of the grants; (3) require children's health  
          coverage to receive 24% of the net benefit to the hospital  
          industry of the fee, beginning July 1, 2014; (4) establish new  
          IGT provisions to fund hospital services; (5) allow DHCS to  
          administer and distribute payments for the Construction  
          Renovation Reimbursement Program (known as the SB 1732 program  
          or CRRP), and eliminate the requirement that a hospital maintain  
          or negotiate a selective provider contract or a contract with a  
          county organized health system in order for the hospital to  
          participate in the CRRP; (6) establish a new structure for the  
          fee and payments by placing these provisions in one article of  
          law (rather than two as in prior fee bills); and (7) require  
          subsequent fee amounts be determined by DHCS, in consultation  
          with the hospital community, and included in provisional  
          language in the annual Budget Act (this provision would apply if  
          the sunset date in the bill is extended).

           ANALYSIS  :    

          Existing law:

           1. Establishes the Medi-Cal program, administered by DHCS,  
             under which health care services are provided to qualified  







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             low-income persons.  Establishes a schedule of benefits for  
             Medi-Cal beneficiaries, which includes inpatient and  
             outpatient hospital services and nursing facility services.   
             Defines, in the Medi-Cal state plan, a distinct part nursing  
             facility (DP-NF) as any nursing facility which is licensed  
             together with an acute care hospital.

           2. Enacts the Medi-Cal Hospital Provider Rate Improvement Act  
             of 2011 (Prior Rate Act) to provide supplemental payments  
             from July 1, 2011, to 
           December 31, 2013 to private hospitals for inpatient and  
             outpatient services in Medi-Cal fee-for-service (FFS),  
             managed care and acute psychiatric days, and to make direct  
             grants to DPHs in support of health care expenditures.

           3. Establishes the Private Hospital Quality Assurance Fee Act  
             of 2011 (Prior Fee Act), which levies a hospital QAF, from  
             July 1, 2011 to January 1, 2014, on each hospital that is not  
             an exempt hospital, with varying fee amounts by payor source  
             and type of payment.

           4. Requires all funds from the QAF to be used exclusively to  
             enhance federal financial participation (FFP) for hospital  
             services under Medi-Cal, to provide additional reimbursement  
             to hospitals, to pay DHCS staffing and administrative costs,  
             to make increased payments to managed care health plans, and  
             to fund children's health coverage, in a specified order of  
             priority.

           5. Requires Medi-Cal FFS provider payments to DP-NFs to be  
             reduced by 5% for dates of service on and after March 1,  
             2009.  Requires payments to Medi-Cal managed care plans to be  
             reduced by the actuarially equivalent amount of the 5%  
             payment reduction.

           6. Requires Medi-Cal 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.  Requires payments to be reduced by 10% for Medi-Cal  
             FFS benefits for dates of service on and after June 1, 2011.   
             Requires payments to Medi-Cal managed care plans to be  
             reduced by the actuarial equivalent amount of the 10% payment  
             reduction.








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           7. Requires the payment reductions in #5 above to cease to be  
             implemented for the same services provided by the same class  
             of providers when federal approval is obtained for the  
             payment reductions in #6 above.  Requires the payment  
             reductions in #6 to be implemented retroactively to June 1,  
             2011, or on any other date or dates as may be applicable when  
             federal approval is obtained.

          This bill:

           Medi-Cal Hospital Reimbursement Improvement Act of 2013

            1. Enacts the Medi-Cal Hospital Reimbursement Improvement Act  
             of 2013, which imposes a QAF on each general acute care  
             hospital that is not an exempt facility or a converted  
             hospital, computed starting on January 1, 2014, and  
             continuing through and including December 31, 2016, for  
             deposit in the Hospital Quality Assurance Revenue Fund  
             (Fund).

           2. Imposes on hospitals that are not exempt a QAF.  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.

           3. Establishes an order of priority for funds from the proceeds  
             of the QAF of paying for DHCS' staffing and administrative  
             costs, to pay for health coverage of children, to make  
             increased capitation payments to managed health plans, and to  
             make increased payments to and direct grants to hospitals.

           4. Continuously appropriates money in the Fund for the purposes  
             of this bill for the first program period (for the first  
             three years, until December 31, 2016).

           5. Establishes under this bill a contractually enforceable  
             promise on behalf of the state to use the proceeds of the  
             QAF, including any federal matching funds, solely and  
             exclusively for the purposes in this bill, to limit the  
             amount of the proceeds of the QAF to be used to pay for the  
             health care coverage of children as provided in this bill, to  
             limit any payments for DHCS' costs of administration to the  







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             amounts set forth in this bill on the effective date of this  
             bill, to maintain and continue prior reimbursement levels,  
             and to otherwise comply with all its obligations set forth in  
             this bill, except that amendments that arise from, or have as  
             a basis for, a decision, advice, or determination by the  
             federal Centers for Medicare and Medicaid Services (CMS)  
             relating to federal approval of the QAF or the payments set  
             forth in this bill are required to control.

           6. Permits DHCS to modify any methodology or other provision in  
             the hospital fee related provisions of this bill to meet the  
             requirements of federal law or regulations, to obtain federal  
             approval, or to enhance the probability of federal approval,  
             provided the modifications do not violate the spirit,  
             purposes, and intent of this bill and are not inconsistent  
             with the conditions of implementation.

           7. Requires, after July 1, 2014, the amount of funding for  
             children's health coverage to equal 24% of the net benefit to  
             hospitals from the fee (aggregate payments for a net benefit  
             period minus aggregate fees for that period).

           8. Requires private hospitals to be paid supplemental amounts  
             from the QAF that result in payments equal to the statewide  
             aggregate upper payment limit (UPL) for private hospitals for  
             each year of the fee.

           9. Requires private hospitals to be paid supplemental amounts  
             for inpatient services that result in payments to hospitals  
             that equal the applicable federal UPL.  Requires hospitals to  
             be paid additional amounts for general acute care days, acute  
             psychiatric days, high acuity days, high acuity trauma days,  
             transplant days, and for subacute supplemental services.

           10.Requires DHCS to increase capitation payments to Medi-Cal  
             managed care plans, requires the aggregate amount of  
             increased capitation payments to be the maximum amount for  
             which FFP is available on an aggregate basis.  Requires DHCS  
             to determine the amount of the increased capitation payments  
             for each plan for each year, taking into account specified  
             factors, and requires the increased capitation payment under  
             this bill to be paid by the plans to hospitals for hospital  
             services to Medi-Cal enrollees of the plan, and requires  
             plans to expend 100% of any increased capitation payments it  







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             receives on hospital services.

           11.Requires DPHs and NDPHs to be paid direct grants of  
             specified amounts for the first three years, sets aside a  
             portion of the direct grant is set aside to draw down FFP to  
             make increased payments to managed care plans for rate range  
             room increases for managed care payments.  Authorizes, for  
             subsequent programs, DPH and NDPHs to be paid direct grants  
             upon appropriation in the annual Budget Act.  Requires the  
             director to determine the direct grant amounts, if any, and  
             allocation methodology after the first three years, and  
             requires these amounts to be specified in provisional  
             language in the Budget Act.

           12.Requires, for the first program period (January 1, 2014 to  
             December 31, 2016), specific QAF rates, payment amounts and  
             data sources.  Requires, for program years after January 1,  
             2017, provisions for rebasing the fee, including requiring  
             DHCS to retrieve data, determine rate amounts, requires the  
             rates to meet the requirements of federal law, to require  
             DHCS to consult with the hospital community in determining  
             the rates, and to require payment rates to equal as close as  
             possible the applicable federal UPL, and to require payment  
             to Medi-Cal managed care plans to result in the maximum  
             payments to plans permitted by federal law.  Requires rates  
             to be specified in provisional language in the Budget Act.

           13.Requires DHCS to provide a clear narrative description along  
             with fiscal detail in the Medi-Cal estimate package of all  
             the calculations made by DHS for the second and subsequent  
             program periods.

           14.Grants the Director of DHCS the discretion to revise  
             specified fee rates, upon federal approval, based on the  
             funds required to make payments, in consultation with the  
             hospital community.  Permits the Director of DHCS to correct  
             any identified material and egregious errors in data.   
             Permits the Director to modify and timeline related to the  
             assessment of the QAF or Medi-Cal payments if it is  
             impossible to implement a timeline.

           15.Prohibits payments for the period of time a hospital  
             qualifies as a new hospital or has converted from a private  
             to a public hospital depending on the date of conversion,  







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             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.  Makes,  
             notwithstanding the aforementioned exclusion, the private  
             non-profit replacement hospital for Los Angeles County Martin  
             Luther King, Jr.-Harbor Hospital eligible for funding from  
             the QAF, and requires DHCS to use the best available and  
             reasonable data in determining supplemental payments and the  
             QAF for this facility.

           16.Establishes a funding maintenance of effort in order to  
             ensure that the proceeds of the QAF and federal matching  
             funds are used to supplement existing funding for hospital  
             services provided to Medi-Cal patients, and not supplant such  
             funding.

           17.Requires the Director of DHCS to take specified actions to  
             obtain federal approval for and implement the QAF-related  
             provisions.  Makes the QAF-related provisions inoperative if  
             specified actions occur, such as specified court actions,  
             failure to receive federal approval, and FFP not being  
             available, among other requirements.

           18.Requires the Department of Finance, in the Governor's Budget  
             and May Revision, to report the difference in General Fund  
             (GF) benefit for the upcoming fiscal year resulting from this  
             bill and what was anticipated at the time the Budget Act of  
             2013 was enacted.  States legislative intent that additional  
             GF benefit be appropriated to supplement and not supplant  
             funding for health and human services programs, which may  
             include the cost of medical interpreters.

           19.Requires DHCS to make available all public documentation it  
             uses to administer and audit the fee program, and requires  
             DHCS to require Medi-Cal managed care plans to furnish  
             hospitals with the amounts the plan intends to pay to the  
             hospital, upon request of a hospital.  Requires DHCS to post  
             specified QAF related information on DHCS' Web site,  
             including the fee model, payments, fee schedules and  
             information on managed care rate approvals.

           20.Makes legislative findings and declarations regarding the  
             roles of hospitals, the QAF, and the purpose of the fee.








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           21.Sunsets the Medi-Cal Hospital Reimbursement Improvement Act  
             of 2013 on January 1, 2017.

           Medi-Cal Rates for Distinct Part-Nursing Facilities 
           
           22.Requires Medi-Cal reimbursement for nursing facilities that  
             are a distinct part of a general acute care hospital to be  
             determined without the Medi-Cal rate reduction and rate  
             roll-back required under existing law, for dates of service  
             on and after October 1, 2013.

           IGTs
           
           23.Permits DHCS to maximize available FFP to provide access to  
             services provided by hospitals that are not reimbursed by  
             certified public expenditures by authorizing the use of IGTs  
             to fund the non-federal share of supplemental payments to  
             private hospitals. I GTs are where governmental entities  
             transfer funds to another governmental entity to serve as the  
             state match to draw down additional federal Medicaid matching  
             funds.

           24.Requires DHCS to design and implement, in consultation with  
             NDPH an IGT program for NDPHs related to Medi-Cal managed  
             care services provided by NDPHs in order to increase  
             capitation payments for the purpose of increasing NDPH  
             reimbursement.

           25.Requires DHCS to develop proposed modifications to the QAF  
             established by this bill to collect additional fees to pay  
             Medi-Cal managed care plans rate range increases for the  
             purpose of increasing payments to private hospitals and NDPHs  
             in counties that do not have DPHs.  Requires DHCS to consult  
             with the hospital community to enable IGTs from NDPHs solely  
             for use for this purpose.  Requires NDPH to be given priority  
             relative to accessing rate range funds in counties where a  
             NDPH is the only public hospital.  Conditions payments to  
             Medi-Cal managed care plans on the managed care plan paying  
             all of the rate range increases as additional payments to  
             private hospitals and NDPH for providing and making available  
             services to Medi-Cal enrollees of the plans, and limits the  
             amount of increases to Medi-Cal managed care plans to the  
             total amount of payments possible, including FFP, based on  
             the amount of fees actually collected and IGTs actually  







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             provided.

           Out-of-state hospitals
           
           26.Requires the Director of DHCS to develop and prescribe in  
             provider bulletins and on DHCS' Web site a process by which a  
             private general acute care hospital located outside of the  
             state that services Medi-Cal beneficiaries may opt in to pay  
             the QAF on all applicable categories of patient days, and  
             receive supplemental payments for the Medi-Cal program under  
             this bill in the same manner that the hospital could  
             participate if it were located in the state, to the extent  
             permitted by federal law and federal requirements.  Requires  
             DHCS to rely on reliable data to make reasonable estimates or  
             projections to calculate the fees due and the supplemental  
             payments.

           CRRP
           
           27.Permits DHCS to administer and distribute payments for the  
             CRRP, but eliminates the requirement that a hospital maintain  
             or negotiate a selective provider contract or a contract with  
             a county organized health system in order for the hospital to  
             participate in the CRRP.

           Hospital Quality Assurance Revenue Fund
           
           28.Extends the sunset date of the Fund from January 1, 2015 to  
             January 1, 2018, and extends the authority of the State  
             Controller to use the Fund for cash flow loans to the GF  
             until that date.

           Background
           
          Federal Medicaid law authorizes states to levy fees on health  
          care providers if the fees meet federal requirements.  Many  
          states (including California) fund a portion of their share of  
          Medicaid program costs through a fee on health care providers.   
          Under these funding methods, states collect funds (through fees,  
          taxes, or other means) from providers, which are then matched to  
          allow increased Medicaid reimbursement to providers.  The  
          Legislature enacted a series of bills establishing a  
          time-limited hospital QAF in 2009, and an additional six-month  
          QAF for the first six months of 2011.  The current QAF sunsets  







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          at the end of this calendar year.  In addition to the hospital  
          QAF, California currently has a QAF for intermediate care  
          facilities for the developmentally disabled, and a separate QAF  
          for skilled nursing facilities.

           Benefit to hospital industry from hospital fee  .  As part of the  
          establishment of the fee and related payment provisions, the  
          California Hospital Association (CHA, the bill's sponsor)  
          developed a model that estimates the revenue generated by the  
          fee, payments made to hospitals, payments made to the state for  
          program administration and children's health coverage, and the  
          net benefit to the hospital industry.  CHA's model uses 2010  
          data to determine the payment amounts each hospital will receive  
          under the bill.  CHA estimates that over the three year period  
          the bill is in effect (January 1, 2014 through December 31,  
          2016), $13.1 billion dollars in revenue would be raised from the  
          fee, which would provide total payments to hospitals (after  
          federal matching funds are drawn down) of $23.1 billion.  The  
          state would receive nearly $2.4 billion for children's coverage  
          and administration, and the fee would provide a net benefit to  
          the hospital industry of $9.9 billion (total payments to  
          hospitals minus fees paid). 

          The primary beneficiaries of the fee program are private  
          hospitals (which pay the fee to draw down federal funds) as they  
          receive $22.6 billion from the fee (this is a gross amount and  
          does not deduct the amounts paid in fees by these facilities).  
          Public and district hospitals are exempt from paying the QAF.   
          DPHs are reimbursed at the maximum amount for which federal  
          Medicaid matching funds are available and are thus not able to  
          draw down additional matching funds from the QAF.  However, DPHs  
                                                              and NDPHs do receive direct grants under this bill, and DPHs  
          receive $274 million in payments from Medi-Cal managed care  
          plans that are funded by the hospital fees paid by private  
          hospitals and federal funds.

           Funding for children's health coverage  .  In prior quality  
          assurance fee bills, the state has received a fixed amount per  
          quarter from the fee, which is used to offset GF spending on  
          children's health coverage.  As part of this year's Budget, the  
          state assumed it would $310 million for the first two quarters  
          of 2014.  This bill contains funding for this purpose for the  
          first two fiscal quarters (till June 30, 2014). 








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          Under this bill, beginning July 1, 2014, the state would receive  
          24% of the net benefit received by hospitals from the fee (total  
          payments to hospitals minus fees paid by hospitals).  This  
          results in an increase in funding to the state to offset GF  
          spending on children's health coverage.  The amount of funding  
          for children's health coverage the state is estimated to receive  
          is nearly $2.4 billion over the three years the bill is in  
          effect.  The policy rationale for having the state receive a  
          percentage of the net benefit (rather than a fixed dollar  
          amount) is both the state and the hospitals have an interest in  
          maximizing the net benefit to hospitals.  The hospitals'  
          incentive is to receive more money back above what they pay in  
          fees (through federal matching funds), thus maximizing their net  
          benefit. T he state benefits because additional GF savings are  
          generated when a greater net benefit is provided to hospitals. 

           Medi-Cal reimbursement for DP-NFs  .  This bill repeals the rate  
          freeze and 10% rate reduction that applies to DP-NFs for dates  
          of service on and after October 1, 2013.  Existing law requires  
          Medi-Cal 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 State Plan Amendment (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 State Plan Amendments  
          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  







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          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.

           Framework for future fees  .  The QAF enacted by this bill sunsets  
          January 1, 2017.  However, this bill establishes a framework for  
          an ongoing fee if the sunset date in this bill is extended or  
          repealed.  After January 1, 2017, this bill requires DHCS to  
          determine the rates based on data retrieved by DHCS (rather than  
          having those amount places in policy legislation, as has been  
          past practice with QAF bills).  To ensure legislative oversight  
          and public transparency, this bill requires that future  
          appropriations be made in the annual Budget Act (rather than be  
          continuously appropriated), that the amount of the rates be  
          contained in provisional language in the annual Budget Act, and  
          establishes a new requirement that DHCS provide a clear  
          narrative description along with fiscal detail in the Medi-Cal  
          Estimate submitted to the Legislature twice each year of all the  
          calculations made by DHCS. 

           Out-of-state hospital provisions  .  On August 27, 2010, 15  
          hospitals from outside California (Oregon, Arizona and Nevada)  
          filed a complaint seeking injunctive relief in federal court  
          against DHCS.  The plaintiffs argued that distribution of the  
          fee money to hospitals only located in California would violate  
          the Commerce Clause, the 14th Amendment Equal Protection clause,  
          and the Supremacy Clause of the United States Constitution.  CHA  
          intervened in the case, a confidential settlement was reached,  
          and the plaintiffs dismissed the complaint against DHCS.  This  
          bill establishes a process by which a private general acute care  
          hospital located outside of the state that serves Medi-Cal  
          beneficiaries may opt in to pay the QAF on all applicable  
          categories of patient days, and receive supplemental payments  
          for the Medi-Cal program under this bill in the same manner that  
          the hospital could participate if it were located in the state.   
          This language is intended to address any potential legal  
          challenges to this bill.








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           Ballot initiative filed  .  In July 2013, an attorney for CHA  
          filed a ballot initiative for title and summary with the  
          Attorney General's (AG) office.  The proposed initiative would  
          amend the State Constitution to prohibit the Legislature from  
          imposing a new fee or continuing the imposition of an existing  
          fee on community hospitals for the purpose of obtaining FFP in  
          the Medicaid Program or any other similar program unless a  
          series of requirements are met.  The measure also dictates the  
          use of the proceeds from such a fee. That measure is awaiting  
          title and summary from the AG.  CHA has indicated it will  
          re-file a different ballot initiative if this measure becomes  
          law.

           Comments
           
          According to the author's office, this bill enacts a hospital  
          QAF for three additional years to provide a net benefit to  
          hospitals over of three years of nearly $10 billion in funds for  
          hospital services, and to provide over $2 billion dollars in  
          additional revenue for children's health coverage.  Federal law  
          authorizes states to levy fees on health care providers if the  
          fees meet federal requirements.  The author's office argues this  
          bill provides increased federal funding to hospitals without  
          using state GF dollars, and enables the state to achieve GF  
          savings by using revenue from the QAF to help fund children's  
          health coverage.  In addition, this bill prospectively  
          eliminates the DP-NF rate freeze and rate rollback, which has  
          threatened the financial viability of many of these facilities.

           Prior/Related Legislation
           
          SB 646 (Nielsen), an urgency bill, exempts all DP-SNFs from the  
          Medi-Cal rate reduction.  The bill was held on the Senate  
          Appropriations suspense file.

          SB 640 (Lara) exempts from the Medi-Cal payment reduction  
          Medi-Cal FFS providers, pharmacy providers, DP-SNFs 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  
          Medi-Cal managed care plans.  The bill will take effect  
          immediately as an urgency statute.  The bill was held on the  
          Senate Appropriations suspense file.

          AB 900 (Alejo) requires Medi-Cal reimbursement for DP-NFs to be  







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          determined without the Medi-Cal rate reduction and rate  
          roll-back required under existing law.  The bill takes effect  
          immediately as an urgency statute.  The bill was held on the  
          Senate Appropriations suspense file.

          AB 1383 (Jones, Chapter 627, Statutes of 2009) and AB 188  
          (Jones, Chapter 645, Statutes of 2009) enacted the original  
          Medi-Cal hospital QAF and a methodology for making supplemental  
          payments to hospitals, and provided funds for children's health  
          care coverage and grants to public hospitals.  In response to  
          the state's request for federal approval, the CMS in June of  
          2010 sent a letter raising objections and concerns about the  
          methodology which concluded that the fee enacted by AB 1383 did  
          not meet federal standards.  CMS also suggested modifications,  
          which were made by AB 1653 (Jones, Chapter 218, Statutes of  
          2010).  AB 1653 also established an alternative mechanism for  
          funding supplemental grants to public hospitals and allowed the  
          state to retain the funds that were previously allocated to  
          these hospitals.  

          SB 90 (Steinberg, Chapter 19, Statutes of 2010) repealed  
          specified Medi-Cal hospital rate freezes and rate reductions  
          enacted in health budget trailer bills in 2008, 2010 and 2011.   
          The bill also imposed a QAF on hospitals for six months (January  
          1, 2011, until June 30, 2011), and used the resulting revenue to  
          draw down federal funds to provide supplemental payments to  
          private hospitals in FFS Medi-Cal, Medi-Cal managed care, and  
          for acute psychiatric days, to provide $210 million for  
          children's health coverage, and to pay for DHCS administrative  
          costs in administering the hospital fee and supplemental payment  
          provisions of this bill. The bill also reduced disproportionate  
          share GF payments to private hospitals by $105 million GF over  
          two fiscal years.  The bill also required DHCS to design and  
          implement an inter-governmental transfer program for Medi-Cal  
          managed care services provided by DPH and NDPH for the purpose  
          of increasing reimbursement to NDPHs and DPHs.  

          In addition, The bill allows hospitals that have received  
          extensions to January 1, 2013, of the January 1, 2008, seismic  
          deadline, for their Structural Performance Category 1 buildings,  
          to request an additional extension of up to seven years.  

          Last session, SB 335 (Hernandez, Chapter 286, Statutes 2011)  
          imposed a QAF on hospitals for 30 months (from June 30, 2011,  







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          until December 31, 2013).  The bill uses the resulting revenue  
          to draw down federal funds to provide supplemental payments to  
          private hospitals in FFS Medi-Cal, Medi-Cal managed care, and to  
          provide specified funding amounts from the QAF per quarter for  
          children's health coverage until December 31, 2013.  In  
          addition, the bill requires DPH to be paid direct grants (not  
          Medi-Cal payments), funded from the QAF. SB 335 also reduced  
          disproportionate share hospital replacement payments and  
          supplemental payments from the Private Hospital Supplemental  
          Fund to hospitals by specified amounts in 2012-13 and 2013-14.   
          Finally, the bill appropriates $13.6 billion to DHCS for  
          purposes of that measure.  The bill took effect as an urgency  
          statute upon signature by Governor Brown in September 2011.

           FISCAL EFFECT  :    Appropriation:  Yes   Fiscal Com.:  Yes    
          Local:  No

          According to the Senate Health Committee, modeling done on this  
          bill estimates that the state will receive approximately $2.4  
          billion for children's health coverage and state administration  
          between January 1, 2014 and December 31, 2016.  Statewide,  
          hospitals are projected to receive a net benefit of $9.9 billion  
          in payments above what they paid in QAFs.

           SUPPORT  :   (Verified  9/12/13)

          California Hospital Association (source)
          Alliance of Catholic Health Care
          California Coverage and Health Initiatives 
          Children Now
          Children's Defense Fund-California
          PICO California
          Private Essential Access Community Hospitals
          The Children's Partnership 

           OPPOSITION  :    (Verified  9/12/13)

          Michelle Steele, Member of the Board of Equalization

           ARGUMENTS IN SUPPORT  :    This bill is sponsored by the  
          California Hospital Association (CHA) which argues the creation  
          and implementation of the hospital fee program in California has  
          been extremely successful.  CHA states the program has been  
          critical for hospitals to bolster their ability to preserve  







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          health care services for the state's most vulnerable patients.   
          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.  The hospital  
          provider fee program remains crucial to the preservation of  
          California's entire safety net, and without this program the  
          number of hospitals forced to restrict or end services to  
          Medi-Cal patients will continue to increase.  CHA concludes that  
          the provider fee will not solve the state's Medi-Cal shortfall,  
          but it will continue to be the largest programmatic action taken  
          since the founding of the program to mitigate the lack of  
          sufficient funding, and it is vital to California hospitals that  
          the provider fee be approved and implemented.  


          JL:ek  9/12/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

                                   ****  END  ****