BILL ANALYSIS Ó AB 658 Page 1 Date of Hearing: May 12, 2015 ASSEMBLY COMMITTEE ON HEALTH Rob Bonta, Chair AB 658 (Wilk) - As Amended May 5, 2015 SUBJECT: County jails: inmate health care services: rates. SUMMARY: Allows providers of health care services to local law enforcement patients to calculate costs for care according to the most recent approved cost-to-charge ratio (CCR) from the Medicare Program, with the approval of the local law enforcement agency responsible for the inmate patient, and makes technical changes, as specified. EXISTING LAW: 1)Permits a county sheriff, police chief, or other public agency that contracts for health care services, to contract with providers of health care services for care to local law enforcement patients. 2)Requires hospitals that do not contract with the county sheriff, police chief, or other public agency that contracts for health care services to provide health care services to local law enforcement patients at a rate equal to 110% of the hospital's actual costs according to the most recent Hospital Annual Financial Data report issued by the Office of Statewide Health Planning and Development (OSHPD), as calculated using a AB 658 Page 2 cost-to-charge ratio. 3)Prohibits a county sheriff or police chief from requesting the release of an inmate from custody for the purpose of allowing the inmate to seek medical care at a hospital, and then immediately rearrests the same individual upon discharge from the hospital, unless the hospital determines this action would enable it to bill and collect from a third-party payment source. 4)Requires the California Hospital Association, the University of California, the California State Sheriffs' Association and the California Police Chiefs' Association to convene the Inmate Health Care and Medical Provider Fair Pricing Working Group to identify and resolve industry issues that create fiscal barriers to timely and affordable inmate health care. 5)Specifies that nothing require or encourage a hospital or public agency to replace any existing arrangements that any city police chief, county sheriff, or other public agency maintains for health care services. 6)Requires an entity that provides ambulance or any other emergency or nonemergency response service to a sheriff or police chief that does not contract with their departments for that service, to be reimbursed for the service at the rate established by Medicare. 7)Specifies that in those counties in which the sheriff does not administer a jail facility, a director or administrator of a local department of corrections is the person who may contract for services provided to jail inmates in the facilities he or she administers in those counties. FISCAL EFFECT: None. COMMENTS: 1)PURPOSE OF THIS BILL. According to the author, this bill is AB 658 Page 3 necessary to fix a local issue that arose at a hospital in his district, Henry Mayo Newhall Hospital (Henry Mayo) located in Valencia. Henry Mayo treats hundreds of inmates in their emergency department, but they do not have a contract with local law enforcement. Consequently, the payment they receive for these services is a default rate calculated pursuant to current law. The calculation of this payment requires the use of the hospital's CCR as determined by OSHPD. The author states that a few years ago Henry Mayo decided to go through an extensive process of lowering all of their charges, a process which requires approval from the Centers for Medicare and Medicaid Services (CMS). In the fall of 2013, Henry Mayo received approval from CMS to move forward with their proposal, and at that time received an alternative CCR. However, the publically available OSHPD CCR was different than the Medicare CCR, and the payments they were receiving for care provided to local inmates was less than they had received historically. The author states that this bill solves this problem by giving hospitals the option to have the local law enforcement agency use the OSHPD CCR or to provide the agency with a current approved CCR from the Medicare program. The author concludes that this bill is a technical fix to current law that will allow hospitals to receive adequate payments for services provided to inmates and gives local law enforcement the ability to approve, or not approve, a hospital's request to use the CMS CCR when calculating a payment. 2)BACKGROUND. Current law establishes a default rate for non-contracted hospitals equal to 110% of the actual costs, using the most recent CCR from the Hospital Annual Financial Disclosure report as reported to the OSHPD. This rate is to be paid to hospitals for emergency health care services if a contract does not otherwise exist. The cost to charge ratio is determined by OSHPD by dividing the total hospital charges by the total hospital expenses. This is a common approach in AB 658 Page 4 the hospital industry for determining or estimating costs for procedures or types of care. The default rate has been in place since 2008. a) Cost to Charge Ratios. CCRs are often used to describe a hospital's finances. A low CCR can be caused by excessive charges or lower costs. The lower the CCR, the larger the profit margin on the charges. Similar to the manufacturer's suggested retail price for a car, this information is useful in creating a common baseline of costs and charges for various hospital services and provides information for negotiating the price that a patient will be charged. The charge in the ratio is the list price or asking price. Discounts may be given to patients and insurance companies depending upon the healthcare facility's policy. The CCR may vary to a large degree within the same institution for different services. CCRs are used to examine a variety of topics, including use and cost of hospital services, health care cost inflation, and how the costs of a given hospital or health plan compare with national or state trends. b) Medicare review of CCRs. In 2000, CMS established the outpatient prospective payment system (OPPS), where hospitals are paid a set amount of money to provide certain outpatient services to people with Medicare. When the OPPS was implemented, hospital-specific CCRs for hospitals and community mental health centers were calculated. Since that time, a provider could request a recalculation of its CCR only under limited circumstances. CCRs are subject to review by Medicare when hospitals submit their annual financial cost care reports. c) OSHPD Data. OSHPD is not statutorily required to publish a CCR, but it is offered as a data extract when hospitals submit financial information. This data is typically updated once a year, primarily with information submitted by the hospitals as well as updated information from OSHPD audits. Once OSHPD receives the annual AB 658 Page 5 financial reports from the hospitals they are audited over the next three years. OSHPD posts the unaudited hospitals' annual financial reports (with revisions) on February 1 each year. The most recent CCR can be derived from these reports. d) Cost Calculation Example. If a hospital was charging $3,000 and their costs were $1,000, the hospital had a cost to charge ratio of 33.3%. If the charge to the jail was $3,000, the default payment rate would be $3,000 x 110% (per statute) x 33.3% totaling $1,100 that the local law enforcement agency would pay the hospital. But if that same hospital completely redesigned their charge structure so that they were now charging $1,500 and their costs were still $1,000, the hospital would have a revised cost to charge ratio of 67%. So if that hospital now charged the jail $1,500 for services, the default payment rate would be $1,500 x 110% x 67% totaling the same $1,100. OSHPD has not updated their CCRs since 2008, so in this example the most current CCR available for the calculation would be the 33.3%. Therefore, the hospital would charge the jail (the new lower revised charges) $1,500 x 110% x 33.3% (the most recent publicly available CCR) for a total payment to the hospital of $550. 3)SUPPORT. The California Hospital Association (CHA), the sponsor of the bill, states current statute creates a default payment rate to be paid to hospitals for emergency health care services if a contract does not otherwise exist. This applies to county sheriffs, chiefs of police, and directors or administrators of local detention facilities. The default rate has been in place since 2008. Hospitals often make changes to their charges, including adding new services, lowering charges on items, or removing services or items, which have little impact on the resulting cost to charge ratio. However, from time to time, hospitals make sweeping changes to their charge structure, resulting in a major swing in their CCR, which is based on data provided by OSHPD. The AB 658 Page 6 OSHPD report is not up-to-date and it will take over a year for the correct CCR to be published by OSHPD. CHA further states that this bill solves this problem by giving hospitals the option to have the local law enforcement agency use the OSHPD CCR or to provide the agency with a CMS approved CCR. When hospitals make sweeping changes to their charges, Medicare must approve those major changes and approve a revised cost to charge ratio. The fix as proposed in this bill will be revenue and cost neutral for hospitals and local law enforcement. 4)PREVIOUS LEGISLATION. a) AB 117 (Committee on Budget), Chapter 39, Statutes of 2011, made statutory changes necessary to implement the Public Safety Realignment portions of the 2011-12 budget by making additional substantive and technical changes relevant to AB 109 (Budget Committee), Chapter 15, Statutes of 2011, pertaining to the realignment of certain low level felony offenders, and adult parolees from state to local jurisdiction. b) SB 1169 (George Runner), Chapter 142, Statutes of 2008, extended for five years the January 1, 2009 sunset on the statute that provides specified mechanisms and requirements concerning the payment of emergency health care services for local law enforcement patients. REGISTERED SUPPORT / OPPOSITION: Support California Hospital Association (sponsor) AB 658 Page 7 Opposition None on file. Analysis Prepared by:Paula Villescaz / HEALTH / (916) 319-2097