BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: AB 75
A
AUTHOR: Huffman
B
AMENDED: March 26, 2009
HEARING DATE: July 8, 2009
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CONSULTANT:
5
Dunstan/
SUBJECT
Medi-Cal
SUMMARY
Revises, or purposes of Medi-Cal hospital payments, the
methodology for determining which non-contract hospitals in
an open health facility planning area (HFPA) are subject to
a specified reduction in payments by excluding state-owned
or -operated hospitals from the calculations used to
determine if other hospitals are subject to the reduction.
CHANGES TO EXISTING LAW
Existing law:
Establishes the Medi-Cal program, administered by the
Department of Health Care Services (DHCS), which provides
comprehensive health care coverage for low-income
individuals and their families; pregnant women; elderly,
blind, or disabled persons; nursing home residents; and
refugees who meet specified eligibility criteria.
Requires the California Medical Assistance Commission to
negotiate rates, terms and conditions for contracts with
hospitals for inpatient services to be rendered to Medi-Cal
program beneficiaries.
Continued---
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Reduces Medi-Cal interim payments and cost report
settlements by 10 percent for amounts paid for inpatient
hospital services on and after July 1, 2008, that are
provided by hospitals that are not under contract with the
state. Further reduces, effective October 1, 2008,
non-contract hospital Medi-Cal interim payments and cost
report settlements, pursuant to a specified formula.
Exempts from the October 1 rate reduction, hospitals in an
"open" HFPA, except in open HFPAs with three or more
hospitals. (Open FHPA means areas of the state where the
state does not competitively contract for Medi-Cal
inpatient services). Exempts hospitals in an open HFPA
from the cost report settlement reduction unless they are
located in an open HFPA with more than three hospitals.
This bill:
Excludes state-owned or state-operated hospitals from being
included in the determination of whether an open HFPA has
three or more hospitals and is therefore subject to a
Medi-Cal interim payment rate reduction.
Excludes state-owned or state-operated hospitals from being
used to determine whether an open HFPA has three hospitals
or more and is thereby subject to a hospital cost report
settlement Medi-Cal payment rate reduction. Revises the
cost report settlement criteria by requiring that the
Medi-Cal hospital cost settlement report reduction applies
in an open HFPA with three or more hospitals, instead of
more than three hospitals.
Makes legislative findings and declarations that the
Legislature did not intend that a state-owned or
state-operated hospital be included in determining the
number of hospitals with licensed general acute care beds
in an open HFPA and did not mean for them to be counted in
the methodology for calculating exemptions to the rate and
cost report settlement provisions. States that the
Legislature's intent in enacting this bill is to construe
and clarify the meaning and effect of existing law.
FISCAL IMPACT
According to the Assembly Appropriations Committee
analysis, there would be increased annual Medi-Cal
STAFF ANALYSIS OF ASSEMBLY BILL 75 (Huffman) Page
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inpatient hospital revenues in the range of $10 million (50
percent General Fund) to return the six hospitals to
cost-based reimbursement rather than subjecting the
hospitals to the rate reductions.
BACKGROUND AND DISCUSSION
According to the author, this bill would clarify provisions
of the 2008-09 health budget trailer bill that were
intended to protect certain hospitals from a Medi-Cal
budget reduction by excluding state-run and state-operated
hospitals from the count used to determine whether
hospitals in open HFPAs are subject to a budget reduction.
Background
Since 1983, through what is known as the Selective Provider
Contracting Program (SPCP), CMAC has been the state agency
responsible for negotiating contracts with hospitals on
behalf of the state for inpatient services under the
fee-for-service Medi-Cal Program. Through CMAC, the state
selectively contracts on a competitive basis with hospitals
for fee-for-service inpatient services provided to Medi-Cal
beneficiaries. According to CMAC, the competitive
contracting model has resulted in savings to the state
General Fund of over $600 million this fiscal year. CMAC
has negotiated rates on behalf of the state with 179
hospitals as of December 1, 2008, in "closed areas" of the
state. "Closed areas" are those HFPAs where SPCP contracts
have been signed and Medi-Cal beneficiaries must generally
receive inpatient care at a contract hospital. "Open
areas" are those HFPAs where the SPCP is generally not in
effect and are primarily rural areas with a limited number
of hospitals, where competitive contracting is not
feasible.
Hospitals that do not contract with the state in the
fee-for-service Medi-Cal program are known as non-contract
hospitals. When non-contract hospitals bill Medi-Cal for
services, they are initially paid an interim rate.
Hospitals are then required to submit a cost report within
five months of the close of their fiscal period, and the
Department of Health Care Services (DHCS) reviews each
hospital's cost report and prepares a tentative settlement,
which is a determination of the allowable reimbursable
reported costs for a hospital's fiscal period. DHCS
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compares what a hospital was paid in interim payments for
the hospital's fiscal period, to the hospital's allowable
reimbursable reported costs for that fiscal period. The
difference may result in either an underpayment that is
paid to the hospital or an overpayment that is recouped
from the hospital.
2008-2009 budget trailer bill
When AB 1183 was drafted, state-owned or -operated acute
care hospitals were not excluded in the calculation
determining which HFPAs include three or more hospitals and
would then be affected by the cuts. This means that
state-owned hospitals are included even though they clearly
do not provide services equivalent to a community hospital.
DHCS states that they have been forced by the statute to
interpret the language to include state-owned hospitals,
therefore affecting community hospitals in open HFPAs that
were not intended to be affected by the budget cut and they
cannot correct this problem administratively. There are 10
state-owned or operated hospitals with general acute care
beds in the state operated by the Department of Mental
Health, California Department of Developmental Services,
California Department of Corrections and Rehabilitation,
and California Department of Veterans Affairs. Including
these state hospitals in the three-or-more count makes more
hospitals subject to the required rate reduction.
DHCS indicates six hospitals have had an unintended rate
reduction from the inclusion of state-owned facilities in
this count. The affected hospitals are Sonoma Valley
Hospital, Petaluma Valley Hospital, St. Helena Hospital,
Queen of the Valley Hospital, Hoag Memorial Hospital
Presbyterian and College Hospital, Costa Mesa. According
to DHCS, if the situation is not corrected, some of these
hospitals could lose up $3 million in Medi-Cal payments.
Preliminary injunction protects hospitals from rate
decrease
Following recently enacted Medi-Cal budget reductions,
several lawsuits by providers and stakeholders have been
filed. In early April 2009, the California Hospital
Association's request to be added to a current preliminary
injunction was granted by the Ninth Circuit Court of
Appeal. Among other issues, the injunction applies to the
rate reductions for inpatient services for non-contract
STAFF ANALYSIS OF ASSEMBLY BILL 75 (Huffman) Page
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hospitals which are addressed in AB 75.
Related bills
AB 728 (Neilson), also revises the methodology for
determining which non-contract hospitals in an open HFPA
are subject to an interim payment rate reduction and a cost
settlement report reduction reversing Medi-Cal rate
reductions that were recently enacted. This bill is in the
Assembly Health Committee.
Prior legislation
AB 1183 (Committee on Budget), Chapter 758, Statutes of
2008, was the health budget trailer bill for the 2008-2009
budget. Among its other provisions, it reduces
fee-for-service Medi-Cal payments for inpatient care at
hospitals that do not contract with Medi-Cal through the
California Medical Assistance Commission (CMAC), effective
October 1, 2008 until January 1, 2013.
Arguments in support
According to DHCS, the bill's sponsor, AB 75 would enable
DHCS to restore Medi-Cal payments for inpatient hospital
services provided from October 1, 2008 through the
enactment of this bill to those non-contract hospitals that
were unintentionally impacted by the rate reduction. When
AB 1183 was drafted, DHCS states, it was not their
intention to include state-owned or -operated acute care
hospitals in the calculation determining which HFPAs
includes three or more hospitals and would then be affected
by the cuts. They state that they have been forced by the
statute to interpret the language to include state-owned
hospitals, therefore affecting community hospitals in open
HFPAs. Finally, DHCS states this bill corrects an
inconsistency in statute to ensure that hospitals which
received an intended interim rate reduction do not have
funds restored during the DHCS audit and cost settlement
process.
The California Hospital Association (CHA) writes in support
that this bill corrects an unintended consequence from the
2008-09 budget regarding Medi-Cal cuts to hospitals. Others
writing in support agree that it was never the intent of
the Legislature to include state-owned hospitals in the
calculations for rate reductions and that this bill will
help these facilities avoid devastating budget cuts.
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PRIOR ACTIONS
Assembly Floor: 79-0
Assembly Appropriations:17-0
Assembly Health: 18-0
POSITIONS
Support: Department of Health Care Services (sponsor)
American Federation of State, County and Municipal
Employees
Association of California HealthCare Districts
California Alliance for Retired Americans
California Hospital Association
Congress of California Seniors
Queen of the Valley Medical Center
St. Helena Hospital
St. Joseph Health System-Sonoma County
Sonoma Valley Hospital
Oppose: None received
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