BILL ANALYSIS �
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 646
AUTHOR: Nielsen
AMENDED: April 15, 2013
HEARING DATE: April 24, 2013
CONSULTANT: Bain
SUBJECT : Medi-Cal reimbursement: distinct part nursing
facilities. (URGENCY)
SUMMARY : Requires Medi-Cal reimbursement for 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. Limits the
provisions of this bill to rural or sole community provider
DP-SNFs that meet specified criteria. Takes effect immediately
as an urgency statute.
Existing law:
1.Existing law establishes the Medi-Cal program, administered by
the Department of Health Care Services (DHCS), under which
qualified low-income individuals receive health care services.
Establishes a schedule of benefits for Medi-Cal beneficiaries,
which includes hospital services and nursing facility
services. Defines, in the Medi-Cal state plan, a DP-SNF as any
nursing facility which is licensed together with an acute care
hospital.
2.Requires Medi-Cal fee-for-service (FFS) provider payments to
DP-SNFs to be reduced by 5 percent 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 percent payment reduction.
3.Requires Medi-Cal FFS provider payments to DP-SNFs to not
exceed the reimbursement rates to DP-SNFs in the 2008-09 rate
year, reduced by 10 percent for dates of service on and after
June 1, 2011. Requires payments to be reduced by 10 percent
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
percent payment reduction.
Continued---
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4.Requires the payment reductions in 2) 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 3) above. Requires the payment reductions in 3)
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:
1.Exempts from the Medi-Cal 10 percent rate reduction and rate
roll-back set forth in existing law for services provided by
DP-SNFs that meet the following criteria:
a. Have 10 percent or more of the facility's patients
enrolled in Medi-Cal at a facility located outside a 15
mile radius of any county or University of California;
b. Applies to a SNF that is any of the
following:
i. A rural community hospital in a health care personnel
shortage area;
ii. A rural community hospital that serves a
medically underserved area or a
medically underserved population;
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iii. A designated sole community provider.
2.Requires the director of DHCS to do all of the following in
the event that he or she is prevented from implementing 1)
above for any dates of service on or after June 1, 2011:
a. Implement this bill to the maximum extent permitted by
law and for the maximum time period for which the director
obtains necessary federal approval;
b. Increase payments to DP-SNFs for services provided on or
after June 1, 2011, or on or after the first date of
service permitted by law and for which federal financial
participation (FFP) is available, until the date the total
amount of Medi-Cal payments to those facilities for
services provided on or after June 1, 2011, is not less
than the payments the facilities would have received if the
5 and 10 percent payment reductions had not been imposed
for dates of service on or after June 1, 2011.
3.Requires the director to increase payments under this
provision for the shortest period of time possible.
4.Requires the director of DHCS to promptly seek all necessary
federal approvals to implement this bill.
5.Permits DHCS to implement this bill by means of provider
bulletins or notices, policy letters, or other similar
instructions, without taking regulatory action.
6.Takes effect immediately as an urgency statute.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1.Author's statement. Rural hospitals are severely disadvantaged
when it comes to cuts to Medi-Cal reimbursement rates. Some of
the most rural hospitals who provide a wide array of inpatient
and outpatient services are the only Medi-Cal provider in the
county, or even the region. Medi-Cal cuts of this magnitude
will have a devastating impact on the access of Medi-Cal
beneficiaries to medically necessary skilled-nursing services,
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and could force many facilities to close their doors. I have
introduced SB 646 in an attempt to protect the most rural of
hospitals in our state. For these hospitals, and the people
who live in the vicinity, this is literally a "life or death"
situation.
2.Federal Medicaid law, the Medi-Cal budget and Medi-Cal rate
litigation. To achieve budget savings in Medi-Cal during the
state's recent fiscal crisis, the state has three principle
policy and fiscal choices: (a) to reduce or restrict who is
eligible for Medi-Cal benefits; (b) to reduce the scope of
benefits provided in the program; (c) to reduce the payments
to health care providers and managed care plans for Medi-Cal
services. Federal law has prevented or limited the state's
ability to reduce eligibility, but the state has eliminated
benefits in Medi-Cal, most notably adult dental services. In
addition, the state has attempted several times to reduce
Medi-Cal payments to health plans, health facilities and
health care providers.
However, some of these rate reductions did not, and have not
taken effect because of court injunctions, while other
reductions have expired by their own terms and been replaced
by different rate reductions. DP-SNFs were subject to some of
these reductions for certain periods of time before court
injunctions were issued. The multiple cases challenging the
Medi-Cal 5 percent and 10 percent rate reductions enacted by
the state in 2008 and 2009 were heard by the United States
Supreme Court, and in February 2012, the Supreme Court vacated
the prior Ninth Circuit decisions preventing the reductions
from being implemented and sent the case back to the Ninth
Circuit Court of Appeals to reassess in light of the federal
government's approval of DHCS' State Plan Amendment.
In December 2012, the Ninth Circuit issued a decision that
reversed the injunction concerning the 10 percent Medi-Cal
rate reductions enacted in 2011 in AB 97 (Committee on
Budget), Chapter 3, Statutes of 2011. In January 2012, the
plaintiffs in those cases asked the entire Ninth Circuit to
re-hear the three judge Ninth Circuit court decision in the
case. That petition is currently before the Ninth Circuit.
DHCS has not imposed the AB 97 rate reduction until the
petition for re-hearing has been resolved by the Ninth
Circuit.
DHCS indicates it obtained federal approval to implement the
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DP-SNF payment reduction and rate freeze, which is currently
under a court-ordered injunction. Litigation is currently
ongoing, but DHCS anticipates a decision by the end of the
fiscal year. Assuming the state prevails, DHCS indicates the
DP/NF-B Medi-Cal rates will be reduced from $416.95 to $316.13
(2008-09 rates, minus 10 percent), effective June 1, 2011, and
$318.23 (2008-09 rates minus 10 percent plus applicable
add-ons for the 2011-12 rate year), effective August 1, 2011.
DHCS has indicated that, once it has authority to implement
the payment reductions, it will do so retroactive to June 1,
2011.
3.DHCS' position on retroactive recoupment of Medi-Cal rates.
DHCS indicates it has conducted a legal analysis of whether
the state would be required to retroactively recoup payments
in order to repay the federal share of the payments made
during the period of the injunction, if that injunction is
overturned. DHCS indicates rate reductions which were set
forth in a State Plan Amendment (SPA) that was approved by CMS
were delayed by a federal district court injunction. During
the period that the injunction was in effect, DHCS has been
paying Medi-Cal providers at pre-existing higher rates and
received federal matching funds for those payments. DHCS
indicates the basic federal rule is that a state is entitled
to federal Medicaid funds (FFP) only to the extent authorized
by the state's approved Medicaid plan. DHCS indicates that
when a state pays a provider more than what is authorized by
the approved state plan, it is obligated to return to the
federal government the FFP associated with the overpayment.
DHCS notes that there is a federal regulation that allows FFP
for payments "for services provided within the scope of the
Federal Medicaid program and made under a court order."
However, DHCS states the federal Department of Health and
Human Services Appeals Board has addressed that regulation in
the context of payments made to providers that were greater
than provided in the state plan pursuant to a court injunction
that was later reversed. The question was whether the
regulation protected the FFP received by the state during the
period the injunction was in effect, and DHCS indicates the
answer was no. DHCS states that it is also not possible to
retroactively amend the state's Medicaid state plan to
increase the payment rates to the levels paid during the
period the injunction was in effect as it has long been a
federal rule that the effective date of a SPA that increases
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payment amounts for services covered by a state plan can be no
earlier than the first day of the quarter in which an
approvable plan is submitted to the federal agency. DHCS
indicates CMS and its predecessor agencies have zealously
applied that limitation despite many efforts of states over
the years to avoid its effect, and this rule would preclude
reinstating now the former Medi-Cal reimbursement rates for
the period during which the injunction was in effect.
4.Legislative Analyst's Office (LAO) fiscal. At the request of
committee staff, the LAO obtained data from DHCS as to the
fiscal effect of two scenarios: (a) repealing the Medi-Cal
provider rate reduction and rate freeze for all DP-SNFs back
to June 1, 2011 and (b) if the rate reduction were only
repealed prospectively. However, these two scenarios in the
chart below should be considered an order of magnitude fiscal
estimate as the language in SB 646 requires a prospective rate
increase in the event the rate reduction dating back to June
2011 cannot be implemented, which is not shown in the chart.
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5.Related legislation. AB 900 (Alejo), an urgency bill, would
exempt all DP-SNFs from the Medi-Cal rate reduction. AB 800 is
scheduled to be heard in the Assembly Health Committee on
April 30, 2013.
SB 640 (Lara) would exempt from the Medi-Cal payment reduction
Medi-Cal FSS 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. SB 640 would take
effect immediately as an urgency statute.
6.Previous legislation:
a. AB X3 5 (Committee on Budget), Chapter 3, Statutes of
2008 reduced Medi-Cal provider payments by 10 percent for
fee-for-service benefits for dates of service on and after
July 1, 2008 and for specified non-Medi-Cal programs. AB X3
5 reduced payments to Medi-Cal managed care plans by the
actuarial equivalent amount of 10 percent, effective July
1, 2008. Exempts specified providers from the payment
reductions. Reduced non-contract hospital payments in
Medi-Cal, as specified.
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b. AB 1183 (Committee on Budget), Chapter 758, Statutes of
2008 sunset the AB X3 5 rate reduction February 28, 2009
and applied the payment reductions to small and rural
hospitals only from July 1, 2008 through October 31, 2008.
Instead, AB 1183 reduced Medi-Cal provider payments for
most classes of services by 1 percent for Medi-Cal FFS
benefits for dates of service on and after March 1, 2009,
and reduced Medi-Cal provider payments by 5 percent for
dates of service on and after March 1, 2009 for the
following types of providers: DP-SNFs, intermediate care
facilities (except for ICF-DD), rural swing-bed facilities
and subacute care units that are a distinct part of a
general acute care hospital, pediatric subacute care units
that are a distinct part of a general acute care hospital,
adult day health care centers, and pharmacies. AB 1183
reduced payments to Medi-Cal managed care plans and PACE
plans by the actuarial equivalent amount of 5 percent,
effective July 1, 2008 or thereafter.
c. AB X4 5 (Evans), Chapter 5, Statutes of 2009 froze
Medi-Cal rates for services beginning in the 2009-10 rate
year and each rate year thereafter, by prohibiting the
reimbursement rates from exceeding the rates that were
applicable in the 2008-09 rate year for the following
providers after the 5 percent reduction made by AB 1183:
DP-SNFs, ICF-DD or facilities providing continuous SNF care
to DD individuals under a pilot program (previously exempt
from the AB 1183 reduction), freestanding pediatric
subacute care units.
d. AB 97 (Committee on Budget), Chapter 3, Statutes of 2011
makes the rate reductions enacted by AB 1183 and AB X4 5
inoperative for dates of service on and after June 1, 2011,
with specified exceptions. Reduces Medi-Cal provider
payments by 10 percent for fee-for-service benefits for
dates of service and after June 1, 2011. Requires, for
DP-SNFs and certain other providers, the 10 percent rate
reduction to apply to the rates in effect for those
providers during the 2008-09 Medi-Cal rate year. Requires
Medi-Cal managed care plan rates by the actuarial
equivalent amount, effective July 1, 2011. Reduces payments
for non-Medi-Cal programs for services on and after June 1,
2011, with exceptions. Implements the payment reductions
only if the reductions comply with federal Medicaid
requirements, and prohibits implementation until federal
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approval is obtained. Applies the payment reduction
retroactively to June 1, 2011 or on such other date as may
be applicable when federal approval is obtained. Federal
approval of the AB 97 rate reductions were obtained in
October 2011 and thereby made the Medi-Cal reductions
called for in AB 1183 and AB X4 5 inoperative.
e. AB 102 (Committee on Budget), Chapter 29, Statutes of
2011 continues the 1 percent and 5 percent Medi-Cal
reductions that were due to expire for dates of service on
and after June 1, 2011 until a Medi-Cal rate reduction of
up to 10 percent and the AB 97 reduction and adjustment
receive federal approval. Requires, when federal approval
is obtained, the payments to be implemented retroactively
to June 1, 2011 or on any other date or dates as may be
applicable. Exempts pharmacy drug product payments from the
rate reduction when DHCS determines the average acquisition
cost methodology has been fully implemented and DHCS budget
reduction targets have been met.
7.Support. This bill is sponsored by Eastern Plumas Health Care
(EPHC) to exempt the most vulnerable, rural and frontier
hospitals from the pending Medi-Cal cuts to DP-SNFs. EPHC
states the Medi-Cal cuts, which are based on 2008 rates minus
ten percent, amount to a 23 percent cut for its Medi-Cal SNF
patients, and that 91 percent of its DP-SNF patients are on
Medi-Cal. EPHC states that, along with $2.6 million in
retroactive payments it will owe the state, EPHC will lose
$1.3 million on an ongoing basis. EPHC states that over the
past five years, its net income has been $435,000, and it
simply does not have sufficient savings to weather a hit this
extreme. EPHC states that, if nothing is done to alter this
course, the outcome will be devastating to it and other SNFs
and the communities they serve. EPHC states that if it should
be forced to close its doors, the loss of jobs coupled with
the loss of health care services, could lead to a mass exodus
from these communities. Further, EPHC states it offers the
only Medi-Cal service for children and adults within a forty
mile radius, and the DP-SNF Medi-Cal cuts could close not only
its SNF, but also its emergency department, ambulance service,
four medical clinics, one dental clinic, lab and imaging
services that are the only services in the area for its
residents.
8.Policy issues:
1. Should Medi-Cal rate reductions be prevented from taking
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effect?
This bill addresses an important issue in that provider
payment rates in Medi-Cal are a key factor in
beneficiaries' ability to access program services and the
ability of providers to continue to provide services.
However, has the state's fiscal condition improved enough
to prevent previously enacted Medi-Cal rate reductions from
taking effect?
2. Scope of exemption from Medi-Cal rate reduction.
According to information provided by the sponsor, this bill
exempts approximately 22-27 facilities of the state's 50
DP-SNFs from the Medi-Cal reduction. The sponsor argues
this bill protects the most vulnerable DP- SNFs whose
potential closure would cause severe economic damage to
rural communities. The sponsor indicates they are
supporting the broader bill (AB 900 (Alejo), but given the
potential state fiscal impact of that measure, it believes
it is essential for it to sponsor its own narrower bill to
safeguard rural DP-SNFs and the communities they serve from
economic collapse. Should this exemption from the Medi-Cal
rate reduction only apply to the DP-SNFs defined by this
bill?
3. Retroactive application of this bill. The bill is
drafted to apply to payments services provided on and after
June 1, 2011. DHCS' legal analysis indicates the state
cannot receive federal Medicaid matching funds if this
approach was taken, and it is required to recoup the
overpayment from providers to reimburse the federal
government. The approach taken in this bill is if the state
is unable to halt the retroactive rate reduction back to
June 1, 2011, DHCS is to increase payments to DP-SNFs for
services going forward until the total amount of Medi-Cal
payments to those facilities for services provided on or
after June 1, 2011, is not less than the payments the
facilities would have received if the payment reductions
had not been imposed for dates of service on or after June
1, 2011. This would affect providers differently depending
upon their Medi-Cal utilization after the effective date of
this bill. A DP-SNF that had discontinued seeing Medi-Cal
patients as a result of the rate reduction would not
benefit from this approach, while a facility that elected
to see additional Medi-Cal patients because of the enhanced
rates (or because additional individuals are made Medi-Cal
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eligible as a result of the Medi-Cal expansion) may receive
funding above what it would have received under current law
unless the state can alter that facility's Medi-Cal payment
rate when the "break even" point for each facility is
reached.
SUPPORT AND OPPOSITION :
Support: Eastern Plumas Health Care (sponsor)
Association of California Healthcare Districts
Californians for Patient Care
California Hospital Association
Catalina Island Medical Center
City and County of San Francisco
Coalinga Regional Medical Center
District Hospital Leadership Forum
John C. Fremont Healthcare District and Hospital
Mountains Community Hospital
Rural County Representatives of California
Trinity Hospital
6 individuals
Oppose: None received.
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