BILL ANALYSIS
AB 1383
Page 1
Date of Hearing: May 5, 2009
ASSEMBLY COMMITTEE ON HEALTH
Dave Jones, Chair
AB 1383 (Jones) - As Amended: April 30, 2009
SUBJECT: Medi-Cal: hospitals: supplemental payments:
coverage dividend fee.
SUMMARY : Imposes a coverage dividend fee on hospitals, except
for designated public hospitals, beginning on the effective date
of this bill until December 31, 2010. Requires the Department
of Health Care Services (DHCS) to calculate the amount of the
fee for each hospital; requires revenue from the fee to be
placed in a fund and used only to make specified increased
Medi-Cal supplemental payments to hospitals pursuant to this
bill and to pay for the expansion of health care coverage for
children beyond existing levels. Sunsets the provisions of this
bill January 1, 2011. This bill contains an urgency clause that
will make this bill effective upon enactment. Specifically,
this bill :
1)Imposes a coverage dividend fee on hospitals, except for
designated public hospitals (the 20 county and University of
California (UC) hospitals), that is consistent with the
principle of shared benefit and shared responsibility.
Imposes the fee beginning on the effective date of this bill
until December 31, 2010. Requires DHCS to calculate the
amount of the fee for each hospital within ten days of the
bill taking effect when DHCS receives notice of federal
approval.
2)Requires revenue from the coverage dividend fee to be placed
in the Coverage Dividend Revenue Fund (Fund) created by this
bill, requires all revenue, interest, and penalties from late
payments of the fee to be placed in the Fund, requires revenue
in the Fund to be continuously appropriated, and requires
revenue in the Fund to be used only for the following purposes
in the following order of priority:
a) To make increased payments to hospitals pursuant to this
bill (described below); and,
b) To pay for the expansion of health care coverage for
children beyond existing levels.
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3)Requires private hospitals to be paid supplement amounts for
Medi-Cal hospital outpatient services that are in addition to
any other payments payable to the hospital, and prohibits the
payments from affecting any other payments to hospitals.
Requires Medi-Cal rates for hospital outpatient services to
result in aggregate payments equal to the federal upper
payment limit (UPL). (The federal UPL is a reasonable
estimate of the amount that would be paid for Medicaid
services under Medicare payment principles.)
4)Requires hospitals to be paid supplemental amounts for
Medi-Cal hospital inpatient services that are in addition to
any other amounts payable to hospitals with respect to
hospital inpatient services, and prohibits these payments from
affecting any other payments to hospitals. Requires Medi-Cal
rates for inpatient services to result in aggregate payments
equal to the federal UPL.
5)Requires private hospitals, non-designated public hospitals,
and designated public hospitals to be paid supplemental
amounts for Medi-Cal hospital services furnished to Medi-Cal
managed care enrollees, requires the supplemental amounts to
be paid directly by DHCS to the hospitals, in addition to any
other amount payable to hospitals with respect to hospital
services furnished to managed care enrollees, and prohibits
these payments from affecting any other payments made to
hospitals.
6)Prohibits the amount of any payments made under this bill to
private hospitals from being included for purposes of
calculating disproportionate share (DSH) hospital fund
replacement payments to private hospitals.
7)Establishes requirements for the timing of payments made to
hospitals for the federal 2008-09, 2009-10 and 2010-11 fiscal
years.
8)Prohibits payment rates for hospital outpatient services and
non-contract inpatient services furnished by private hospitals
and nondesignated public hospitals before October 1, 2011,
exclusive of amounts payable under this bill, from being
reduced below the rates or the payment methodology in effect
on June 30, 2008.
9)Prohibits Medi-Cal hospital inpatient rates for services
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before October 1, 2011 under the Medi-Cal Selective Provider
Contracting Program (SPCP) from being reduced below the
contract rates in effect on June 1, 2009.
10)Prohibits Medi-Cal payments to private and non-designated
public hospitals for hospital inpatient services furnished
before October 1, 2011 that are not reimbursed under the SPCP
from being less than the amount of payments that would have
been made pursuant to the payment methodology in effect on
June 30, 2008.
11)Prohibits Medi-Cal payments made to hospitals under specified
provisions of existing law implementing the state's Medi-Cal
Hospital/Uninsured waiver from being less than the payments
due under the methodology set forth in those provisions in
effect for the 2007-08 fiscal year.
12)Prohibits Medi-Cal managed care plans from taking into
account payments made under this bill in negotiating the
amount of Medi-Cal payments to hospitals that are not made to
hospitals under this bill.
13)Requires DHCS to promptly seek federal approval or waivers to
implement this bill and to obtain federal financial
participation (FFP) to the maximum extent possible for
payments made under this bill.
14)Requires DHCS to offer to enter into a contract with each
hospital subject to the coverage dividend fee, or to amend
existing contracts with the hospital, that obligates DHCS to
use the proceeds of the coverage dividend fee solely for the
purposes set forth in the fee-related provisions of this bill,
and to comply with all of its obligations set forth in
rate-related provisions of this bill, including, but not
limited to, its obligation to continue prior reimbursement
levels. Requires each contract to also provide that the
hospital's obligation to pay the coverage dividend fee is
contingent on DHCS performing its obligations under the
contract, and requires each contract to be binding on DHCS and
enforceable by the hospitals, regardless of whether the
hospitals have given adequate consideration in return for
DHCS' obligations.
15)Prohibits money in the Fund from being used to support DHCS
administration.
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16)Implements this bill only if the following conditions are
met:
a) The fee is established consistent with this bill;
b) The fee is deposited in a segregated fund apart from the
General Fund (GF); and,
c) The proceeds of the fee are only used for the purposes
set forth in this bill.
17)Prohibits a hospital from being required to pay the fee to
DHCS unless and until the state receives and maintains federal
approval of the fee and the Medi-Cal supplemental payment
provisions of this bill from the federal Centers for Medicare
and Medicaid Services (CMS):
a) CMS allows the use of the fee as set forth in this bill;
b) Hospitals are reimbursed the increased Medi-Cal rates
beginning on the implementation date; and,
c) The full amount of the coverage dividend fee assessed
and collected remains available only for the purposes in
this bill.
18)Requires DHCS to seek federal approval of each element of the
fee-related provisions of this bill, and if federal approval
is not obtained, requires the fee-related provisions to become
inoperative, and specifies conditions that would make the bill
inoperative.
19)Prohibits the aggregate fees collected on an annual basis
from exceeding the maximum percentage of the annual aggregate
net patient revenue for hospitals subject to the fee that is
prescribed pursuant to federal law and regulations to preclude
a finding that an indirect guarantee has been created.
20)Requires interest to be paid on coverage dividend fees not
paid on the due date at the same rate at which DHCS assesses
interest on Medi-Cal Program overpayments to hospitals that
are not repaid when due. Permits DHCS to deduct unpaid fees
and interest owed from nonpaying hospitals from any Medi-Cal
payments to the hospital.
21)Requires the amount of the fee to be considered an allowable
cost for Medi-Cal cost reporting and reimbursement purposes.
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22)Requires DHCS to request CMS approval for implementation of
this bill, and to seek specific approval from CMS to exempt
providers identified in this bill from the fee, including, as
necessary, a request for a waiver.
23)Permits any methodology contained in this bill to be modified
by DHCS in consultation with the hospital community, to the
extent necessary to meet the requirements of federal law or
regulations or to obtain federal approval, provided the
modifications do not violate the intent of this bill and are
consistent with the conditions for implementation.
24)Requires DHCS to make retrospective adjustment, as necessary,
to the amount of the fee calculated in order to ensure
compliance with federal limits set forth in a specified
federal regulation or federal law.
25)Requires, in the event of a court challenge over the Medi-Cal
rate provisions of this bill, no payments to be made to a
hospital until the case is finally resolved, including the
final disposition of all appeals, and any amount payable to a
hospital to be withheld by DHCS and to be paid to the hospital
only after the case or proceeding is finally resolved,
including the final disposition of all appeals.
26)Establishes requirements for hospitals to set aside funds to
pay the fee, depending upon the effective date of this bill.
EXISTING LAW :
1)Establishes the Medi-Cal Program, administered by DHCS, which
provides comprehensive health benefits to low-income children,
their parents or caretaker relatives, pregnant women, elderly,
blind or disabled persons, nursing home residents, and
refugees who meet specified eligibility criteria.
2)Establishes a schedule of benefits under the Medi-Cal Program,
which includes hospital inpatient and outpatient services,
subject to utilization controls, and establishes Medi-Cal
hospital reimbursement requirements under the Medi-Cal
Hospital/Uninsured Care Demonstration Project Act.
3)Requires the governor to designate a person in his or her
office to act as a special negotiator (in practice, the
California Medical Assistance Commission or CMAC) to negotiate
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rates, terms, and conditions for contracts with hospitals for
inpatient services to be rendered to Medi-Cal Program
beneficiaries.
4)Imposes a quality improvement fee on Medi-Cal managed care
plans and a quality assurance fee (QAF) on skilled nursing
facilities (SNFs) and intermediate care facilities for the
developmentally disabled (ICF-DD). Hospitals currently pay a
licensing fee to support the regulatory activities of the
Department of Public Health but do not currently pay a QAF or
coverage dividend contribution.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, this bill
would levy a provider fee on specified hospitals that would be
used to draw down additional federal funds to increase
Medi-Cal payments to hospitals and to pay for an expansion of
children's health care coverage. Federal law authorizes
states to levy fees on health care providers if the fees meet
federal requirements. Many states (including California) fund
a portion of their share of Medicaid program costs through a
fee on health care providers. Forty-five states have Medicaid
provider fees, including twenty-two states with hospital
provider fees. This bill would enable the state to use the
fee paid by hospitals to match federal funds, which would then
be used to boost Medi-Cal payments to hospitals and to fund a
children's health coverage expansion. The author argues that
providing a rate increase and a coverage expansion using state
GF dollars alone is not otherwise possible given the state's
dire fiscal situation. This bill is an urgency measure, and
the author states that immediate enactment would allow
California to take advantage of the 27-month increase in the
Federal Medicaid Assistance Percentage made available by to
California through the federal stimulus legislation, which
will enable the state to drawn down additional federal funds
with a lower provider fee.
2)CONTRACT AND NONCONTRACT MEDI-CAL PAYMENTS TO HOSPITALS .
Hospitals are reimbursed by Medi-Cal in a variety of ways
depending upon whether they contract with the state through
the California Medical Assistance Commission (CMAC), whether
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they qualify as a disproportionate share hospital (DSH) based
on their patient census, and whether they are a designated
public hospital, a private hospital, or a non-designated
public hospital (district hospital).
Fee-for-service Medi-Cal outpatient hospital rates are
established by DHCS through a fee schedule. The Legislature
reduced Medi-Cal outpatient rates as part of the mid-year
budget reductions last year by 10%, effective July 1, 2008
which was then reduced to a 1% reduction effective March 1,
2009 before the 1% reduction was blocked by court action.
Designated public hospitals are also reimbursed through the
fee schedule, but they have the ability to certify their
expenditures and draw down federal funds for the difference
between the outpatient fee schedule and their cost.
For Medi-Cal inpatient services, CMAC is the state agency
established for negotiating contracts with hospitals on behalf
of the state under the Medi-Cal program through what is known
as SPCP. Through CMAC, the state selectively contracts on a
competitive basis with hospitals for inpatient services
provided to Medi-Cal beneficiaries in the fee-for-service
Medi-Cal Program. The CMAC competitive contracting model has
resulted in savings to the state General Fund. According to
its 2008 Annual Report, based on a fiscal year 2007-08 average
statewide Medi-Cal SPCP contract rate of $1,290 per day, the
average contract rate has increased 151.5%, or approximately
3.8% per year on a compounded basis, since the inception of
the SPCP program. For non-SPCP hospitals remaining under the
cost-based reimbursement system, the average Medi-Cal interim
payment rate was $2,195 per day, and the average cost-based
rate has increased 307%, or approximately 6.3% per year on a
compounded basis since the inception of SPCP. The average
SPCP contract rate is based on the negotiated rates of the 182
hospitals with which CMAC maintained rate contracts as of
December 1, 2007.
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 DHCS reviews each
hospital's cost report and prepares a tentative settlement,
which is a determination of the allowable reimbursable
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reported costs for a hospital's fiscal period. DHCS 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.
Last session, two budget measures affected non-contract hospital
reimbursement: the mid-year reduction bill in February 2008
(AB 5 X3 (Committee on Budget) Chapter 3, Statutes of the 2008
Third Extraordinary Session) and the health budget trailer
bill of 2008 (AB 1183 (Committee on Budget), Chapter 758,
Statutes of 2008) passed in September 2008. AB 5 X3 reduced,
for services provided on and after July 1, 2008, Medi-Cal
interim payments and cost report settlements by 10% for
amounts paid for inpatient hospital services provided by
hospitals that are not under contract with the state, for
services provided on and after July 1, 2008. AB 1183,
effective October 1, 2008 reduced non-contract rates to the
lesser of the 10% reduction enacted by AB 5 X3 or the regional
average CMAC per diem contract rate, reduced by 5% and
multiplied by the number of Medi-Cal covered inpatient days.
On April 6, 2009, the U.S. Court of Appeals for the Ninth
Circuit granted a motion made by hospital plaintiffs (which
included the California Hospital Association and some
individual hospitals) and ordered a stay of the rate cuts
enacted in AB 1183 with respect to the specified hospital
services, including inpatient services for non-contract
hospitals, pending their appeal to the U.S. Court of Appeals
for the Ninth Circuit of the district court's order denying
the motion for a preliminary injunction.
3)Medi-Cal Hospital/Uninsured Care Waiver . In 2005, the
Schwarzenegger Administration reached agreement with the
federal government on a five-year Medi-Cal Hospital/Uninsured
Care Waiver that restructured Medi-Cal payments to hospitals.
The federal waiver runs from September 1, 2005 through August
31, 2010. The Legislature passed state implementing
legislation on an urgency basis in 2005 (SB 1100 (Perata),
Chapter 560, Statutes of 2005). According to two publications
by the California HealthCare Foundation on the hospital
waiver, the five-year Section 1115 waiver replaced the
two-year SPCP waiver. The prior SPCP waiver allowed the
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state, through CMAC, to limit hospitals' participation in
Medi-Cal through selective contracting and to make
supplemental payments to a subset of participating hospitals
to help them cover uncompensated Medi-Cal costs and address
unique, unexpected, and temporary needs of individual
hospitals.
Under the 2005 federal waiver, the state maintained its hospital
contracting program and addressed CMS' concerns about
California's method of financing the state share of its
Medicaid payments to hospitals by modifying the mechanisms
that can be used to finance Medi-Cal payments to hospitals
through intergovernmental transfers (IGTs) where local
government and UC put up the state share and the state uses
those funds to draw down federal funds. The waiver now only
permits IGTs to be used for certain DSH payments to designated
public hospitals (20 county and UC hospitals) and to provide
supplemental payments to private hospitals.
Under the waiver, Medi-Cal reimbursement for the state's 20
designated public hospitals (county and UC hospitals) is
determined using a cost-driven approach based on each
hospital's certified public expenditures (CPE). The
non-federal share of hospital inpatient per diem payments is
no longer generated by IGTs or the state GF and is no longer
negotiated by CMAC. Instead, the state match used to draw
down federal funds is put up by the county or UC. In general,
CPEs are expenditures certified by counties and UC as having
been spent on covered services to Medicaid beneficiaries and
the uninsured.
Eligible designated and nondesignated public hospitals receive
payments from the DSH allotment (a disproportionate hospital
meets specified Medi-Cal or low-income inpatient utilization
requirements), with designated public hospitals using CPEs and
IGTs as the match and non-designated public hospitals having
the GF fund the state match. Qualifying private hospitals
receive DSH-like payments funded from the GF and federal
funds.
For private and non-designated public hospitals (district
hospitals), CMAC continues to negotiate payments, with the GF
as the match for federal funds.
The waiver also establishes a Safety Net Care Pool (SNCP) that
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has a fixed annual amount of federal funds available to help
reimburse public hospitals that care for the uninsured and
that pays for the certain state health programs. Federal
Medicaid reimbursement for public hospital spending for the
uninsured is capped under the waiver.
4)PROVIDER FEES . Federal law authorizes states to levy fees on
health care providers if the fees meet federal requirements.
Many states (including California) fund a portion of their
share of Medicaid Program costs through a fee on health care
providers. Under these funding methods, states collect funds
(through fees, taxes, or other means) from providers, which
can then be matched with federal funds to increase Medicaid
reimbursement to providers. To prevent states from only
levying an assessment on certain providers, federal law
requires provider fees to be "broad based" and uniformly
imposed throughout a jurisdiction, and states are prohibited
from having a provision that would ensure providers are "held
harmless" from the impact of the fee. Forty-five states have
Medicaid provider fees. The health reform proposal from last
session by Governor Schwarzenegger and then-Assembly Speaker
Fabian N??ez would have levied a provider fee on hospitals
through a separate ballot initiative to be submitted to the
voters. That proposal would have increased Medi-Cal
reimbursements to hospitals as a way of reducing the "hidden
tax" where below-market Medi-Cal reimbursement rates shift
costs on to insured individuals, families, and employers.
California currently has provider fees on ICF-DDs, Medi-Cal
managed care plans, and SNFs as follows:
a) A quality improvement fee (QIF) is assessed on Medi-Cal
managed care plans at a rate of 5.5% of revenues. The net
increase in revenue is deposited into the state GF, and is
estimated to be $238.8 million (total funds) in 2008-09.
Half of the fee is used to draw down federal funds and is
returned to the Medi-Cal managed care plans through
increased rates. The fee sunsets on October 1, 2009 and is
projected to raise $89.9 million in 2009-10. The QIF is
currently assessed on Medi-Cal managed care revenue, but
changes in federal law will likely result in this fee
sunsetting under state law;
b) A QAF on skilled nursing facilities at a rate of 6% of
net revenues (which excludes Medicare revenue). The QAF is
projected to generate $289 million in 2008-09 and $293
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million in 2009-10. The QAF sunsets on July 31, 2011. The
legislation that established the QAF (AB 1629, Chapter 875,
Statutes of 2004) also restructured the payment system for
SNFs from a flat rate system to one that reimbursed based
on costs, and that provides an incentive for facilities to
spend more in certain areas, such as labor. The QAF has
been covering the additional costs generated by AB 1629,
but beginning in 2010-11, the GF is expected to have to
fund the growth in AB 1629 costs; and,
c) As a condition of participation in Medi-Cal, a QAF is
assessed on the gross receipts of ICF-DDs at a rate of 5.5%
with the amount paid in licensing fees reduced from the
total amount of revenue generated. The QAF on ICF-DD
facilities does not sunset under existing law, and is
projected to raise, on a net basis, $18.6 million in the
current fiscal year and $19.2 million in the 2009-10 fiscal
year. Revenue from the QAF is placed in the GF. DHCS
performs a rate study to determine the rates of ICF-DDs,
and the QAF augments the rates above the amounts in the
rate study by $39 million (total funds) or 8.99%. DHCS
indicates ICF-DDs receive $13.1 million above the amount
facilities paid in fees.
5)HOW DOES A PROVIDER FEE WORK ? In its analysis of the
Governor's 2004-05 budget plan, the Legislative Analyst's
Office (LAO) discussed provider fees and provided a simplified
explanation of how such fees can be structured to draw down
additional federal funds, reduce state costs, and provide
additional resources to medical providers to improve the
quality of health care. In the LAO example, a state imposes a
6%QIF on the gross revenues of certain health care providers
who currently are reimbursed at a rate of $100 per day (Step
1). As a result, the state collects about $6 in revenues for
each $100 of revenues received from the providers subject to
the fee. These fee revenues would then be deposited in the
state's GF. The state, in turn, agrees to increase its
Medicaid reimbursements to $106 per day. Under this scenario,
a Medicaid provider would receive a new, higher reimbursement
rate for its services that equals the cost of the fee (Step
2).
According to the LAO, the state benefits from this transaction
because the federal government shares in the cost of the
Medicaid Program. The split between California and the
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federal government for Medi-Cal Program costs is usually
50-50. Thus, in the LAO's example, the state would pay only
half the additional cost of the reimbursements for providers
($3 per day of health care services) and the federal
government would pay the other half of these costs (also $3
per day). This leaves the state with $3 of the $6 that it
collected originally.
States have generally chosen to use part of their financial gain
from such transactions - $3 in the LAO example - to invest in
improvements in the quality of health care provided under
their Medicaid programs. In the LAO example (Step 3), the
state does so by increasing rates for providers subject to the
fee by the equivalent of $2 per day, bringing their total
reimbursement rate to $108. The state uses $1 of its $3
revenue gain, plus a $1 match in federal Medicaid funds-to pay
the $2 rate increase. This leaves the state with a net revenue
gain of $2.
The LAO summarizes that, in its example: a) Additional federal
funding is drawn down that was not previously available; b)
The state experiences a net financial gain by receiving new
quality improvement fee revenues that exceed the state cost of
the rate increases it authorizes for Medicaid providers; and,
c) The providers experience a net financial gain due to rate
increases that exceed their new fees. The LAO noted that this
explanation of how the fee mechanism works in this analysis
has been slightly simplified and slightly understates the
potential gain to a state and slightly overstates the gain to
providers.
6)SUPPORT . The Daughters of Charity Health System (Daughters)
writes this bill is critical to its six hospitals and is
essential to the viability of the Medi-Cal program over the
next two years. Daughters states California now ranks 50th
among all states in Medi-Cal reimbursement levels, and the fee
in this bill will be used to provide the desperately needed
funding increases for services to Medi-Cal patients that
California cannot provide because of the state's fiscal
situation. Daughters argues this bill will allow the state to
obtain over $3.5 billion federal dollars over the next
eighteen months, and these funds are vitally necessary to
California hospitals' ability to continue providing access to
Medi-Cal patients. It will also allow the state to expand
coverage to children as soon as it is approved by the federal
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government. Daughters argues that, given current economic
conditions, it would be fiscally and morally irresponsible to
forgo this opportunity to strengthen California's safety net,
and Daughters looks forward to working with the Legislature,
the Administration and other stakeholders in refining and
enacting this bill.
The California Children's Hospital Association (CCHA) writes
this bill will result in essential improvements in Medi-Cal
reimbursement for all hospitals and is critically important to
the state's children's hospitals, which treat a high volume of
Medi-Cal beneficiaries and provide resource-intensive services
to the state's sickest and most vulnerable patients. CCHA
states its eight private, not-for-profit, children's hospitals
lose more than $200 million each year providing services to
Medi-Cal beneficiaries. Despite the fact that hospital costs
are escalating and utilization in children's hospitals is
increasing, increases in Medi-Cal payments have been minimal.
Inadequate Medi-Cal reimbursement affects all hospitals, but
has a disproportionate impact on children's hospitals. CCHA
states, due to the volume of Medi-Cal patients in children's
hospitals, there is little opportunity for cost shifting and
children's hospitals are falling further behind in
reimbursement of costs. CCHA states inadequate Medi-Cal
reimbursement currently is compromising access to non-urgent
care for Medi-Cal beneficiaries.
The California Hospital Association (CHA) indicates it supports
allowing this bill to move forward in order to be used as a
vehicle to eventually increase Medi-Cal payments to hospitals.
CHA states it realizes this bill is a work in progress and is
continuing to work on evaluating options to meet the needs of
the state and federal government as well as hospitals. CHA
feels the final product should be carried out in the context
of the federal 1115 waiver for this year and next, that timing
is critical and there is a very short period in which work
must be completed.
Integrated Healthcare Holdings, Inc. and its four hospitals
(Chapman Medical Center, Coastal Communities Hospital, Western
Medical Center Anaheim and Western Medical Center Santa Ana)
believe the enactment of the fee is crucial to the long-term
viability of the Medi-Cal program, stating they are
high-volume Medi-Cal hospitals in Orange County suffering over
$28 million in losses caring for Medi-Cal beneficiaries.
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7)RELATED LEGISLATION . AB 511 (De La Torre), would, as a
condition of participation in the Medi-Cal program, impose a
QAF on ambulance transportation services providers. The
proceeds from the QAF would be required to be deposited into
the Medi-Cal Ambulance Transportation Services Providers Fund,
which AB 511 would create. Moneys in the fund would be
required to be available exclusively to enhance FFP for
ambulance transportation services under the Medi-Cal program
or to provide additional reimbursement to, and to support
quality improvement efforts of, ambulance transportation
services providers, including increased reimbursement for and
improvement of the quality of the provision of advanced life
support services. AB 511 would have its provisions be
implemented only if and as long as the state receives federal
approval for the fee, and legislation is enacted during the
2009-10 legislative sessions that makes an appropriation from
the Fund and from the Federal Trust Fund to fund a Medi-Cal
rate increase for ambulance transportation services providers.
AB 511 was heard in the Assembly Health Committee on April
28, 2009 and passed as amended on a 19-0 vote. AB 511 is
currently awaiting hearing in the Assembly Appropriations
Committee.
8)PREVIOUS LEGISLATION .
a) AB 1629 (Frommer) Chapter 875, Statutes of 2004
establishes the SNF QAF, establishes the Medi-Cal Long-Term
Care Reimbursement Act; and contained an appropriation to
fund an increase in the 2004-05 SNF Medi-Cal reimbursement
rates.
b) AB 1183 (Committee on Budget), Chapter 758, Statutes of
2008 extends the AB 1629 QAF by an additional two years, to
July 31, 2011.
9)POLICY COMMENTS . According to the author and sponsors, this
bill represents a starting point for discussion leading to the
framework of a hospital fee that will draw down maximum
federal Medicaid funds, allow for increased Medi-Cal payments
to hospitals, and expand health coverage for low-income
children. As discussions continue, there are a number of
policy issues and considerations that the Legislature will
need to consider in designing and enacting a hospital provider
fee. Some of these considerations are discussed below.
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a) Timing of bill . This bill is an urgency measure to try
to draw down the maximum amount of federal funds with a
lower hospital fee than might otherwise be needed to pay
for provisions of this bill while the state is receiving an
enhanced Medicaid matching rate. The federal American
Recovery and Reinvestment Act of 2009 provides an enhanced
Federal Medicaid Matching Assistance Percentage from
October 1, 2008 through December 31, 2010.
b) Duration of bill and ballot initiative . This bill
sunsets January 1, 2011. Discussions surrounding the
hospital fee over the past several months have been based
on a legislative bill enacted quickly to draw down federal
funds in the short term to provide immediate funds to
hospitals and to take advantage of the enhanced FMAP made
available by the federal stimulus bill. A subsequent
ballot initiative for the November 2010 ballot would follow
that would establish protections for hospitals paying the
fee that would limit the Legislature's ability to reduce
rates or redirect funds from the fee for other purposes.
c) Modeling the fee . A hospital fee can be modeled in a
number of different ways, such as a fee based on inpatient
days that varies by type of day (e.g., a different fee for
fee-for-service inpatient days vs. managed care inpatient
days), provided the fee is approved by the federal
government. Generally, modeling involves a number of
tradeoffs that seek to minimize the number of hospitals
that will be "contributors" under the fee, to minimize the
amount the contributors must contribute, to maximize the
number of hospitals that gain from the fee, and to maximize
the amount of federal funds. This bill does not currently
propose a specific fee calculation, but instead requires
DHCS to calculate the amount of the aggregate coverage
dividend fee for each hospital within ten days after the
date when this bill becomes effective. The specific
provisions of this bill have not been modeled.
d) Contractual obligation . This bill requires DHCS to
offer to enter into a contract with each hospital subject
to the coverage dividend fee that obligates DHCS to use the
proceeds of the coverage dividend fee solely for the
purposes set forth in the fee-related provisions of this
bill, and to comply with all of its obligations set forth
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in rate-related provisions of this bill, including, but not
limited to, its obligation to continue prior reimbursement
levels. The contract would also make the hospital's
obligation to pay the coverage dividend fee contingent on
DHCS performing its obligations under the contract. This
provision is intended to prevent, through a state
contractual obligation, the Legislature from reducing the
hospitals' share of proceeds from the fee or reducing
hospital payment rates.
e) Payment floor under bill . This bill prohibits payments
to non-contract private hospitals and nondesignated public
hospitals for hospital inpatient services furnished before
October 1, 2011, that are not reimbursed under a CMAC
contract from being less than the amount of payments that
would have been made pursuant to the payment methodology in
effect on June 30, 2008 . Because Medi-Cal non-contract
payments were reduced on July 1, 2008 , this bill would
establish a higher floor for rates than under current law.
However, a recent court action has blocked the rate
reduction from taking effect.
f) Fee-for-service rate increase . This bill requires
private hospitals to be paid supplemental amounts for
hospital outpatient services that are in addition to any
other amounts payable to hospitals with respect to hospital
outpatient services , and requires Medi-Cal rates for
hospital outpatient services to result in aggregate
payments equal to the federal UPL. Additionally, this bill
requires hospitals to be paid supplemental amounts for
hospital inpatient services that are in addition to any
other amounts payable to hospitals with respect to hospital
inpatient services. Additionally, Medi-Cal rates for
hospital inpatient services must result in aggregate
payments equal to the federal UPL. The federal UPL is a
reasonable estimate of the amount that would be paid for
Medicaid services under Medicare payment principles. The
federal UPL require states to calculate a separate UPL for
each of the following categories of providers: private
facilities; state facilities; and, non-state government
facilities. Federal matching funds are not available for
state expenditures that exceed these limits.
g) Coverage expansion . The health care reform initiative
proposed by then-Speaker N??ez and Governor Schwarzenegger
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last year contained a coverage dividend fee assessed on
hospitals to increase fee-for-service Medi-Cal inpatient
and outpatient rates to hospitals and rates paid to
hospitals by Medi-Cal managed care plans. Additionally,
the coverage dividend fee paid by hospitals was also used
to help fund the hospital component of the cost of a
coverage expansion for low-income parents and adults
contained in the health reform bill, AB 1 X1 (N??ez), after
the rate increases were provided to hospitals. The fee was
capped at 4% of aggregate hospital net patient revenue and
was projected to generate $2.3 billion in revenue. After
the failure of AB 1 X1, the initiative was withdrawn. This
bill would pay, after the increased payments to hospitals,
for the expansion of health care coverage for children
beyond existing levels. Funds for this expansion are not
limited to the hospital component of the coverage
expansion.
h) Current federal waiver . The existing state Medi-Cal
Hospital/Uninsured Care Waiver restructured the way the
state pays hospitals under Medi-Cal. As part of the terms
and conditions of the federal waiver, the state is
prohibited during the term of the demonstration project
from imposing a provider tax, fee or assessment on
inpatient hospitals, outpatient or physician services that
will be used as the non-federal portion of any Medicaid
payment. The waiver is a five-year waiver that began
September 1, 2005 and extends through until August 31,
2010. In order for this bill to take effect prior to
August 31, 2010, the Secretary of the Department of Health
and Human Services would need to indicate that he or she
will not enforce the provision in the current waiver
prohibiting a hospital provider fee.
i) Exemptions from fee . Federal law permits states to
exempt government providers from a provider fee, and this
bill would exempt the 20 designated public hospitals from
paying the fee. In the health care reform initiative,
rural hospitals with less than 50 licensed acute care beds
and hospitals certified for participation in Medicare as a
long-term acute care hospital were exempt from the fee, so
long as the exemption was acceptable to the federal
government in conjunction with its approval of the coverage
dividend contribution.
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j) Role of CMAC . CMAC negotiates Medi-Cal inpatient
contracts with hospitals on behalf of the state under the
Medi-Cal program through the SPCP. Through CMAC, the state
selectively contracts on a competitive basis with hospitals
for inpatient services provided to Medi-Cal beneficiaries
in the fee-for-service Medi-Cal program. Because the
supplemental amounts paid to hospitals under this bill are
in addition to any other amounts payable to the hospital
for inpatient services, and because this bill requires
Medi-Cal rates for inpatient services to result in
aggregate payments to the federal UPL, the role of CMAC
would be diminished while this bill is in effect.
REGISTERED SUPPORT / OPPOSITION :
Support
California Children's Hospital Association (cosponsor)
California Hospital Association (cosponsor)
Daughters of Charity Health System (cosponsor)
Adventist Health
Citrus Valley Health Partners
Integrated Healthcare Holdings, Inc.
Loma Linda University Medical Center
Pacific Alliance Medical Center
Private Essential Access Community Hospitals
Opposition
None on file.
Analysis Prepared by : Scott Bain / HEALTH / (916) 319-2097