BILL ANALYSIS �
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 645
AUTHOR: Nielsen
INTRODUCED: February 22, 2013
HEARING DATE: April 17, 2013
CONSULTANT: Bain
SUBJECT : Diagnosis-related group methodology.
SUMMARY : Prohibits the Medi-Cal hospital payment methodology
based on diagnosis-related groups (DRGs) from being implemented
until the Department of Health Care Services (DHCS) develops a
methodology for hospitals to review base payment rates for
health care services, requires the DRG methodology to include an
appeals process for changes to a hospitals base rate, requires
DHCS to collect codes and establish a database, and requires
DHCS to develop an education and training program for hospital
billing staff. Takes effect immediately as an urgency statute.
Existing law:
1.Establishes the Medi-Cal program, administered by DHCS, under
which qualified low-income individuals receive health care
services. Includes inpatient hospital services as a covered
benefit under the Medi-Cal program.
2.Requires DHCS to develop and implement a Medi-Cal payment
methodology based on DRGs, subject to federal approval, that
reflects the costs and staffing levels associated with quality
of care for patients in all general acute care hospitals in
state and out-of-state.
3.Requires the DRG-based payments to apply to all claims, except
claims for psychiatric inpatient days, rehabilitation
inpatient days, managed care inpatient days, and swing bed
stays for long-term care services.
4.Requires the DRG payment methodology to be implemented on July
1, 2012, or on the date upon which the director executes a
declaration certifying that all necessary federal approvals
have been obtained and the methodology is sufficient for
formal implementation, whichever is later.
This bill:
1.Prohibits DHCS from implementing the Medi-Cal hospital DRG
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payment methodology until DHCS develops a methodology, in
consultation with the hospital community, for hospitals to
review base payment rates for health care services proposed by
DHCS.
2.Requires the methodology to include a process for appealing
for changes to a base rate if discrepancies are identified by
the hospitals.
3.Requires, commencing on July 1, 2013, DHCS to begin to collect
diagnosis codes and procedure codes to establish a database
from which to develop base payment rates.
4.Requires DHCS, by March 1, 2014, to develop an education and
training program for hospital Medi-Cal billing staff, in
consultation with the hospital community, to be conducted
between April 1, 2014, and May 13, 2014.
5.Requires DHCS to work in collaboration with the hospital
community and be responsive to solving discrepancies in data,
data collection, calculations, assumptions, base payment
rates, and other issues related to ensuring an accurate and
responsible implementation of the DRG payment methodology.
6.Takes effect immediately as an urgency statute.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
BACKGROUND AND DISCUSSION
COMMENTS :
1.Author's statement. According to the author, DHCS plans to
implement a new Medi-Cal payment methodology for inpatient
hospital services beginning July 1, 2013. The new acuity-based
payment methodology utilizes All Patient Refined Diagnosis
Related Groups (APR-DRG), as opposed to the cost-based or per
diem reimbursement hospitals have received for the past 30
years. The author states he is carrying this bill at the
request of the California Hospital Association (CHA), which
has concerns with the lack of transparency and the inaccurate
data used throughout the planning process. The arbitrary
implementation date is only a few months away, yet DHCS has
failed to develop and share a responsible transition plan.
Many rural hospitals will suffer financial consequences from
the transition, and this is in addition to the harmful cuts
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imposed by AB 97 (Chapter 3, Statutes of 2011) that take
effect this year. DHCS has not analyzed the potential loss of
access to services this double hit will create.
2.Medi-Cal inpatient fee-for-service hospital reimbursement
methodology changing. The current Medi-Cal fee-for-service
payment methodology reimburses hospitals that contract with
the state through a confidential negotiated per diem (daily)
rate. Non-contract hospitals receive cost-based reimbursement
from Medi-Cal. Non-designated public hospitals, county
hospitals and University of California (UC) hospitals are
reimbursed based on their costs, and use their own funds
(instead of state General Fund) as the state match to draw
down federal Medicaid matching funds. The non-designated
public, public and UC hospitals are exempt from the DRG
payment methodology.
The health budget trailer bill of 2010 (SB 853 (Committee on
Budget and Fiscal Review), Chapter 717, Statutes of 2010)
requires DHCS, subject to federal approval, to develop and
implement a Medi-Cal payment methodology based on DRGs for
private inpatient hospital services. In the health budget
trailer bill of 2011 (AB 102, Chapter 29, Statutes of 2011),
the Legislature required the DRG payment methodology to be
implemented earlier (July 1, 2012) than under SB 853. DHCS
indicates it expects to implement DRGs effective July 1, 2013,
and will affect approximately $2.7 billion in fee-for-service
Medi-Cal expenditures for hospital services.
3.How will the Medi-Cal DRG payment methodology work? Under the
DHCS proposed Medi-Cal DRG reimbursement methodology, every
complete hospital inpatient stay is assigned to a single DRG
using a computerized algorithm that takes into account the
patient's diagnoses, age, procedures performed, and discharge
status. Each DRG has a relative weight that reflects the
typical hospital resources needed to care for a patient in
that DRG relative to the hospital resources needed to take
care of the average patient. For example, if a DRG has a
relative weight of 0.50 then that patient is expected to be
about half as expensive as the average patient. The DRG
relative weight is multiplied by a DRG base price to arrive at
the DRG base payment. For example, if the DRG relative weight
is 0.50 and the DRG base price is $8,000, then the payment
rate for that DRG is $4,000. In addition to the DRG base price
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and the relative weights, payments will be further adjusted
based on policy adjustors (to promote access to care where
Medi-Cal is a large share of the market, such as neonatal
intensive care and pediatrics) and outlier payments (to
address costs for patients with long hospital stays).
DHCS is using a three year transition period to implement DRGs
that limits hospitals' projected change from what they would
have received under the current reimbursement methodology,
with full implementation in year four. The purpose of the
transition period is to allow time for hospitals to make
adjustments to systems of care due to the fundamental change
in the payment system, which would otherwise result in a
redistribution of existing funding.
The DRG payment system is intended to help ensure and improve
access by providing higher DRG-based payments for sicker
patients by setting payments based on acuity, to improve
transparency and fairness compared to the contract-based
system (which has confidential negotiated rates), to reward
hospitals that reduce costs and complete coding of diagnoses
and procedures, and to allow for future implementation of
quality factors in payments.
4.Prior legislation. SB 289 (Hernandez) of 2011 would have
required DHCS, when evaluating alternative DRG algorithms for
its Medi-Cal hospital inpatient reimbursement system, to
evaluate whether outlier payments, policy adjusters or other
special provisions are required to adequately reimburse
specified National Cancer Institute-designated comprehensive
cancer centers. The DRG-related contents of SB 289 were
amended out of the bill, and the bill was used for another
health-related purpose.
5.Support. This bill is sponsored by CHA to require DHCS to
begin collecting current diagnosis codes and procedure codes
from hospitals to establish a database to validate the DRG
base payment rates for each hospital under the new payment
methodology. CHA indicates it has expressed concern regarding
inaccurate data used throughout the DRG planning process as
the dataset being used to model the financial impact of
transitioning to a DRG-based payment methodology is based on
dates of service, hospital costs, and charges from 2009,
trended forward to 2013. CHA indicates hospitals have
repeatedly expressed significant concerns with the integrity
of the data, that hospitals are estimating a greater negative
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first year financial impact from DRG implementation, and there
is no established method to appeal for a corrected base rate.
In addition, CHA expresses concern with the transparency of
the DRG implementation as DHCS has made significant policy
changes that will directly affect the size of the funding pool
and the payment amount for individual hospitals since the last
meeting of the hospital workgroup in May 2012. CHA also states
that hospitals are not currently reimbursed using the APR-DRG
methodology by any other payers, and in order to receive the
accurate payment amount, hospitals will need to update all of
their billing systems, pricing systems, clinical systems and
health information technology systems, including needing to
purchase new software to group the clinical information to the
appropriate APR-DRG.
Finally, CHA states the implementation date of the DRG payment
methodology is only a few months away, yet DHCS has failed to
develop and share a responsible transition plan. To date, DHCS
has not started the testing process with hospitals, and DHCS
does not plan to begin testing until May 2013. CHA states DRG
payment implementation is the most significant change to the
Medi-Cal program in nearly 30 years, and it is irresponsible
to allow only a couple months to test the accuracy of the
changes, and many rural hospitals will suffer financial
consequences from the transition that are in addition to the
harmful cuts imposed by the Medi-Cal rate reduction scheduled
to take effect this year.
6.DHCS comments to federal government in response to CHA letter.
In response to a CHA February 2013 letter to the federal
government about DRG implementation, DHCS indicates
discussions between the CHA consultation group and DHCS began
in April 2011 and it has developed the new payment methodology
through a transparent stakeholder process involving nine
half-day consultations over thirteen months. Regarding the
analytic dataset, DHCS states any change in payment method
must rely on prior period information to model the impact and
make policy decisions. DHCS explains that, because its current
Medicaid Management Information System (MMIS) only collects
two diagnosis and two procedure codes, it needed to build a
dataset to model the financial impact of DRG implementation.
DHCS used its paid claims data in its MMIS system to match
hospital discharge data reported by hospitals to the Office of
Statewide Health Planning and Development to achieve a 91
percent successful data match. DHCS indicates the quality of
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the data used in support of the DRG project is comparable with
the quality of data used by other payers for projects of a
similar scope, and it believes it is much more important to
plan thorough post-implementation analysis (to measure how key
statistics such as average casemix and average payment per
stay compare with expectations) and to make adjustments as
appropriate and in consultation with the hospital industry.
DHCS indicates if it started collecting new data July 1st, a
comprehensive data set would not be ready before the spring of
2015, which would delay DRG implementation to July 2016 at the
earliest.
SUPPORT AND OPPOSITION :
Support: California Hospital Association (sponsor)
Dignity Health
Private Essential Access Community Hospitals
St. Helena Hospital Clear Lake
St. Helena Hospital Napa Valley
Oppose: None received.
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