BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 658| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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. AB 658 Page 2 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, AB 658 Page 3 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 AB 658 Page 4 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 AB 658 Page 5 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 AB 658 Page 6 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 **** END ****