BILL ANALYSIS                                                                                                                                                                                                    Ó




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          |SENATE RULES COMMITTEE            |                        AB 658|
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                                      CONSENT 


          Bill No:  AB 658
          Author:   Wilk (R)
          Amended:  6/19/15 in Senate
          Vote:     21  

           SENATE HEALTH COMMITTEE:  9-0, 6/17/15
           AYES:  Hernandez, Nguyen, Hall, Mitchell, Monning, Nielsen,  
            Pan, Roth, Wolk

           ASSEMBLY FLOOR:  74-0, 5/22/15 (Consent) - See last page for  
            vote

           SUBJECT:   County jails: inmate health care services: rates


          SOURCE:    California Hospital Association


          DIGEST:  This bill 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.


          ANALYSIS:   


          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.  









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          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.

          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 recently 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 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,  








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            or other public agency within 60 days of the request, the  
            OSHPD cost-to-charge ratio to be used to calculate the  
            payment.

          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 approval from the Centers for Medicare and Medicaid  
            Services.  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  








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            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. 
           
          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 10 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 1980s.  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 50 hospitals with the highest  
            charge-to-cost ratios are in California.  More hospitals, like  
            Henry Mayo, may pursue exercises to reduce their charges in  








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            response to attention to hospitals charges relative to costs  
            brought about by articles similar to the one published in  
            Health Affairs.

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:NoLocal:    No


          SUPPORT:   (Verified 6/18/15)


          California Hospital Association (source)


          OPPOSITION:   (Verified6/18/15)


          None received


          ARGUMENTS IN 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 cost-to-charge  
          ratio or to provide the agency with a current approved  
          cost-to-charge ratio from the Medicare program.  This 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  








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          charges. This fix will be revenue/cost neutral for hospitals and  
          local law enforcement agencies.

          ASSEMBLY FLOOR:  74-0, 5/22/15
          AYES:  Achadjian, Travis Allen, Baker, Bigelow, Bloom, Bonilla,  
            Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau,  
            Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly,  
            Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina  
            Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,  
            Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,  
            Irwin, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,  
            Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,  
            Nazarian, Obernolte, Patterson, Perea, Quirk, Rendon,  
            Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark  
            Stone, Thurmond, Ting, Wagner, Wilk, Williams, Wood, Atkins
          NO VOTE RECORDED:  Alejo, Jones, O'Donnell, Olsen, Waldron,  
            Weber


          Prepared by:Teri Boughton / HEALTH / 
          6/19/15 14:28:49


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