BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 658
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|AUTHOR: |Wilk |
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|VERSION: |May 5, 2015 |
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|HEARING DATE: |June 17, 2015 | | |
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|CONSULTANT: |Teri Boughton |
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SUBJECT : County jails: inmate health care services: rates
SUMMARY : Permits a hospital without a contract with a local law
enforcement agency to request the most appropriate
cost-to-charge ratio for determining reimbursement of services
provided to law enforcement patients.
Existing law:
1)Establishes, under federal law, the Medicare program, to help
pay for health care costs for qualified Americans over the age
of 65 years of age, and qualified individuals under 65 with
disabilities.
2)Establishes the Office of Statewide Health Planning and
Development (OSHPD), and requires hospitals to make specified
reports to OSHPD, including quarterly summary financial and
utilization data that includes the number of discharges, the
number of inpatient days, the number of outpatient visits,
total operating expenses, and inpatient and outpatient gross
revenue by payer.
3)Requires county sheriffs, chiefs of police, and directors or
administrators of local detention facilities to pay for the
treatment or examination of persons lawfully in their custody.
4)Requires hospitals that do not contract with the county
sheriff, police chief, or other public agency to provide
health care services to law enforcement patients at a rate
equal to 110 percent of the hospital's actual cost according
to the most recent Hospital Annual Financial Data report
issued by OSHPD, as calculated using a cost-to-charge ratio.
AB 658 (Wilk) Page 2 of ?
5)Requires an entity that provides ambulance or any other
emergency or non-emergency response service to a sheriff or
police chief, and that does not contract with their
departments for that service, to be reimbursed for the service
at a rate established by Medicare. Limits reimbursement for
these non-contracted services to no more than the provider's
reasonable and allowable costs.
6)Defines "reasonable and allowable costs" as defined in
accordance with federal Medicare regulations.
This bill:
1)Permits claims to be paid that have not previously been paid
or otherwise determined by local law enforcement according to
the most recent approved cost-to-charge ratio from the
Medicare program.
2)Permits the hospital, with the approval of the county sheriff,
police chief, or other public agency that contracts or is
responsible for providing health care services to the local
law enforcement patients, to choose the most appropriate
cost-to-charge ratio. Requires the hospital to provide notice
to the county sheriff, police chief, or other public agency,
as applicable, of any change.
3)Requires the hospital to attach supporting Medicare
documentation and an expected calculation to the claim if the
hospital uses the cost-to-charge ratio from the Medicare
Program.
4)Requires, if the Medicare supporting documentation and
expected payment calculation is not included, or if the
request is not approved by the county sheriff, policy chief or
other public agency within 60 days of the request, the OSHPD
cost-to-charge ratio to be used to calculate the payment.
FISCAL
EFFECT : This bill is keyed non fiscal.
PRIOR
VOTES :
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|Assembly Floor: |74 - 0 |
AB 658 (Wilk) Page 3 of ?
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|Assembly Health Committee: |19 - 0 |
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COMMENTS :
1)Author's statement. According to the author, Assembly Bill
658 is needed because of an issue that arose at a hospital in
my district, Henry Mayo Newhall Hospital, located in Valencia.
This is a hospital that treats hundreds of inmates in their
emergency department. They do not have a contract with local
law enforcement, so 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 cost-to-charge ratio as determined by OSHPD. A few
years ago this hospital decided to go through an extensive
process of lowering all their charges, a process which
requires Center for Medicare and Medicaid Services approval.
One of the problems the hospital discovered in 2014 was that
the publically available OSHPD cost-to-charge ratio was
different than their current Medicare cost-to-charge ratio,
and that the payments they were receiving for care provided to
local inmates was less than they had received historically.
This was because the ratio reflected on the OSHPD report was
about a year out of date. AB 658 fixes what we consider to be
a glitch in the law, so that hospitals, when they choose to go
through a process similar to what my local hospital undertook,
will receive the same payment for services provided to
inmates.
2)Medicare Payment Principles. According to federal
regulations, in formulating methods for making fair and
equitable reimbursement for services rendered to beneficiaries
of the Medicare program, payment is to be made on the basis of
current costs of the individual provider, rather than costs of
a past period or a fixed negotiated rate. All necessary and
proper expenses of an institution in the production of
services are recognized. Furthermore, the share of the total
institutional cost that is borne by Medicare is related to the
care furnished to beneficiaries so that no part of their cost
would need to be borne by other patients. Conversely, costs
attributable to other patients of the institution are not to
be borne by the Medicare program. This approach results in
meeting actual costs of services to beneficiaries, as such,
costs vary from institution to institution. Medicare defines
AB 658 (Wilk) Page 4 of ?
"customary charges" to means the regular rates that providers
charge both beneficiaries and other paying patients for the
services furnished to them. "Fair compensation" means the
reasonable cost of covered services. "Reasonable cost" means
cost actually incurred, to the extent that cost is necessary
for the efficient delivery of the service, and subject to
certain exclusions such as bad debt and depreciation.
3)OSHPD data. Within four months of the fiscal year end,
California hospitals must submit an annual financial report to
OSHPD that includes a detailed income statement, balance
sheet, statements of revenue and expense, and supporting
schedules. These financial reports are based on a uniform
accounting and reporting system developed and maintained by
OSHPD and undergoes a thorough desk audit. Several products
are created from these audited financial reports, including
Annual Financial Disclosure Reports. The most current data
available are from the January to December 2013 reporting
period. The data were extracted on April 29, 2015. In the
2013 Annual Financial Disclosure Reports for Henry Mayo
Newhall Memorial the cost-to-charge ratio is 17.77 percent.
This means for $100 in charges, the costs are $17. According
to the California Hospital Association (CHA), this hospital's
charges have been reduced by 50 percent from 2013 to 2014 but
costs have remained constant. The 2014 cost-to-charge ratio
is not publically available until 2015.
4)Hospital mark-ups. A recent Health Affairs article, Extreme
Markup: The Fifty US Hospitals With the Highest
Charge-to-Cost Ratios, examined the fifty US hospitals with
the highest charge-to-cost ratios in 2012, that have mark-ups
of approximately ten times their Medicare-allowable costs
compared to a national average of 3.4 (which means for every
$100 of Medicare-allowable costs, there are $340 in charges).
The article explains that these charges have increased
overtime beginning in the late 1980's. The focus of the
article is on the implications for uninsured patients, who are
more likely to be asked to pay charges, and out-of-network
patients and casualty and workers' compensation insurers who
are asked to pay a large portion of the full charges.
However, the article points out that most public and private
insurers do not use hospital charges to set payment rates. In
addition, the article points out that California's Hospital
Fair Pricing Act provides some protections for the uninsured
in California. Three of the top fifty hospitals with the
AB 658 (Wilk) Page 5 of ?
highest charge-to-cost ratios are in California. More
hospitals, like Henry Mayo, may pursue exercises to reduce
their charges in response to attention to hospitals charges
relative to costs brought about by articles similar to the one
published in Health Affairs.
5)Prior legislation. SB 159 (Runner, Chapter 481, Statutes of
2005) permits county sheriffs, chiefs of police, and directors
or administrators of local departments of correction to
contract with providers of health care services, and
establishes reimbursement rates if no contract exists of equal
to 110 percent of the hospital's actual costs according to the
most recent Hospital Annual Financial Data report issued by
OSHPD, as calculated using a cost-to-charge ratio.
SB 896 (Runner, Chapter 303, Statutes of 2006) clarifies that
public agencies, as well as local sheriffs and police chiefs,
can contract with hospitals for emergency health care for
inmates.
SB 1169 (Runner, Chapter 142, Statutes of 2008) extends for five
years the current 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.
AB 117 (Budget, Chapter 39, Statutes of 2011) eliminates the
sunset on existing law related to payment of emergency health
care services for local law enforcement patients and expands
the statute to include non-emergency health care services.
6)Support. CHA writes that hospitals often make changes to
their charges (adding new services, lowering charges on items,
removing services or items, etc.) which have little impact on
the resulting cost-to-charge ratio. However, from time to
time, hospitals make sweeping changes to their charge
structure and this can result in a major swing in their
cost-to-charge ratio. A problem arises because the OSHPD
report is lagged, so the most current cost-to-charge ratio is
an old ratio. Current law requires the hospital to charge the
new lower revised charge but then multiply by the publicly
available cost-to-charge ratio, which will mean the hospital
will suffer significant financial losses during the transition
period. AB 658 solves this problem by giving hospitals the
option to have the local law enforcement agency use the OSHPD
AB 658 (Wilk) Page 6 of ?
cost-to-charge ratio or to provide the agency with a current
approved cost-to-charge ratio from the Medicare program. The
bill also gives local law enforcement the ability to approve,
or not approve, a hospital's request to use the CMS
cost-to-charge ratio when calculating a payment. When
hospitals make sweeping changes to their charges, Medicare
must approve those major changes and approve a revised
cost-to-charge ratio. The updated cost-to-charge ratio can be
applied to the current level of charges. This fix will be
revenue/cost neutral for hospitals and local law enforcement
agencies.
7)Clarifying amendments. Committee staff recommends the
following amendments to clarify the provisions of the statute
and the bill.
(b) Notwithstanding any other law, a county sheriff, police
chief, or other public agency that contracts for health care
services, may contract with providers of health care services
for care to local law enforcement patients. Hospitals that do
not contract for health care services with the county sheriff,
police chief, or other public agency that contracts for health
care services shall provide health care services to local law
enforcement patients at a rate equal to 110 percent 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, as calculated using a
cost-to-charge ratio, or, for claims that have not previously
been paid or otherwise determined by local law enforcement,
according to the most recent ly approved cost-to-charge ratio
from the Medicare Program. The hospital, with the approval of
the county sheriff, police chief, or other public agency that
contracts or is responsible for providing health care services
to local law enforcement patients, may choose the most
appropriate cost-to-charge ratio and shall provide notice to
the county sheriff, police chief, or other public agency, as
applicable, of any change. If the hospital uses the
cost-to-charge ratio from the Medicare Program, the hospital
shall attach supporting Medicare documentation and an expected
payment calculation to the claim. If a claim does not contain
the supporting Medicare documentation and expected payment
calculation, or if, within 60 days of the hospital's request
for approval to use the cost-to-charge ratio from the Medicare
Program, approval is not granted by the county sheriff, police
chief, or other public agency that contracts or is responsible
AB 658 (Wilk) Page 7 of ?
for providing health care services to local law enforcement
patients, the Office of Statewide Health Planning and
Development cost-to-charge ratio shall be used to calculate
the payment.
SUPPORT AND OPPOSITION :
Support: California Hospital Association (sponsor)
Oppose: None received
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