BILL ANALYSIS
AB 1383
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Date of Hearing: May 20, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 1383 (Jones) - As Amended: May 14, 2009
Policy Committee: Health Vote:15-0
Urgency: Yes State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill establishes a coverage dividend (quality assurance
fee, QAF) on California hospitals through December 31, 2010 to
leverage federal financial participation (FFP) and to increase
Medi-Cal payments to hospitals while enhanced FFP (62% instead
of 50% of total Medi-Cal costs) is available under the American
Recovery and Reinvestment Act (ARRA). Specifically, this bill:
1)Establishes a general framework for the QAF and increased
Medi-Cal payments to hospitals, but does not establish the
specific methodologies of collection or allocation. When
specifics are established, this bill will require the
Department of Health Care Services (DHCS) to calculate the
amount of the fee for each hospital, place revenue from the
fee in a special fund, and only allow the funding to be used
only to increase Medi-Cal payments and to expand coverage to
uninsured children.
2)Establishes a QAF on hospitals statewide (except UC medical
centers and county hospitals) to increase payments pursuant to
this bill.
3)Requires DHCS to seek federal approval or waivers to maximize
FFP pursuant to this bill.
4)Requires implementation only if these conditions are met:
a) The fee established is consistent with this bill.
b) The fee is deposited in a segregated fund, apart from
the General Fund (GF).
c) The proceeds of the fee are only used for the purposes
set forth in this bill.
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5)Contains additional requirements, authorizations,
prohibitions, and poison pills to provide uniform
implementation, flexibility, and maximum funding effect.
FISCAL EFFECT
1)A one-time increase of $4 billion (38% hospital QAF/62%
federal) to $5 billion (38% hospital QAF/62% federal) paid to
hospitals through December 2010 in the form of increased
Medi-Cal payments for in-patient and outpatient services. This
estimate assumes hospitals subject to the QAF will contribute
$1.8 billion (100% hospital QAF) to be matched with FFP at the
enhanced ARRA rate of 62%, for a total Medi-Cal payment
increase of $4.7 billion (50% QAF/50% federal) through
December 2010.
2)A drafting error contained in this bill mismatches the
timeline for assessing the QAF on hospitals and the increased
payment of Medi-Cal FFP. The QAF is established through
December 2010, but several provisions of the bill could remain
in effect until the end of 2012. Therefore major GF pressures
of up to $10 billion, combined, are created for calendar years
2011 and 2012.
3)In addition to GF pressures created by mismatched timelines
between QAF and Medi-Cal payment increases in this bill, the
creation of a major new funding mechanism to draw down
billions in FFP creates major GF pressure when the QAF
sunsets. GF pressure is created to continue Medi-Cal increases
and to continue coverage expansions for children initially
funded by the QAF.
4)One-time increase of $300 million (38% hospital QAF/62%
federal) to expand coverage to 300,000 uninsured children.
5)One-time staffing costs of $200,000 (50% GF) to DHCS for the
duration of the QAF established by this bill.
COMMENTS
1)Rationale . This bill is co-sponsored by the California
Hospital Association (CHA), the California Children's Hospital
Association (CCHA) and the Daughters of Charity health system.
This bill establishes a framework for providing several
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billion dollars in increased Medi-Cal payments to hospitals
until the end of 2010. Payments to hospitals account for 20%
of total Medi-Cal spending under current law. According to the
author, this bill maximizes funding opportunities generally
available via federal Medicaid QAF and while funding
enhancement is available under the American Recovery and
Reinvestment Act (ARRA). Under the ARRA, California receives
62% FFP through 2010 instead of the typical 50% FFP. This
bill, by establishing a QAF during the enhanced FMAP period,
increases Medi-Cal payments to hospitals and provides
additional coverage to uninsured children.
2)Medi-Cal Quality Assurance Fees . Federal law authorizes states
to fund a portion of Medicaid through provider fees that meet
federal requirements and are matched with FFP to pay providers
without state funds. State QAF must be broad-based, uniform,
and cannot hold a group of providers harmless with respect to
fees levied. California currently has several QAF established
via budget committee action and legislation. These QAF
generate revenues for Medi-Cal managed care plans, skilled
nursing facilities (SNF, nursing homes), and intermediate care
facilities for the developmentally disabled (ICF-DD).
Combined, these current law QAF generate an additional $450
million per year.
3)Court Injunction Holds Hospitals Harmless . Following recently
enacted Medi-Cal budget reductions in 2008 and 2009, 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 Appeals. The injunction
applies to four rate reductions: (a) inpatient services for
non-contract hospitals, (b) outpatient services, (c) distinct
part nursing facilities, and (d) subacute facilities. The
injunction on rate issues to which hospitals have now been
added has been in place for several months. The injunction is
likely to remain in place for several more months.
4)Hospital Finance Landscape . Medi-Cal payment to hospitals
depends on whether a hospital contracts with DHCS through the
California Medical Assistance Commission (CMAC), if they
qualify as a disproportionate share hospital (DSH), and
whether they are a designated public hospital, a private
hospital, or a district hospital. Fee-for-service Medi-Cal
outpatient hospital rates are established in a DHCS fee
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schedule. The CMAC negotiates contracts with hospitals on
behalf of DHCS for in-patient services under the Medi-Cal
program. The CMAC selectively contracts on a competitive basis
with hospitals for inpatient services provided to
beneficiaries in the fee-for-service Medi-Cal program via the
Selective Provider Contracting Program (SPCP). CMAC contracts
with about 200 general acute care hospitals. Those hospitals
that do not contract with CMAC, are non-contract hospitals.
5)Waiver Renewal in 2010 . California is approaching renewal of a
five-year waiver with the federal government with respect to
how Medi-Cal hospital payments are made. In 2005, a California
waiver agreement with the federal government restructured the
way Medi-Cal funding is used to fund in-patient hospital
services. SB 1100 (Perata), Chapter 560, Statutes of 2005
implemented the related state law changes to increase overall
funding levels while ensuring that no hospital lost funding as
a result of the waiver. The waiver also sought to greatly
reduce the use of intergovernmental transfers (IGTs), which
resulted in "recycling", or establishing IGTs for the purposes
of reducing or eliminating state or local contributions used
to draw down federal funding. Annual funding to approximately
100 private not-for-profit hospitals participating in the
waiver and caring for low-income and indigent patients is
approximately $2 billion. Annual funding to 22 public
hospitals statewide under the waiver totals $2.3 billion.
6)Details of Fee and Payouts Pending . This bill establishes a
general framework for establishing the QAF, increasing
Medi-Cal payments to hospitals, and expanding coverage for
uninsured children. However, numerous details are to be
determined on how the fee would be imposed (e.g.: per day, per
visit, capped, aggregate revenues, by payer type) and the
payment allocation methodology (e.g., facility level, patient
level, aggregate payment, capped, donors, contributors).
In addition, there are numerous and complex interactions
possible with respect to recent budget actions, judicial
determinations about current litigation, and the pending
waiver negotiations for 2010-2015 federal payments. Also the
May Revision proposes to reduce the Healthy Families Program
(HFP) family income eligibility from 250% federal poverty
level (FPL) to 200% FPL, eliminating coverage for 225,000
children currently covered. Therefore, AB 1383, if enacted,
may simply backfill HFP coverage for recently uninsured
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children, rather than actually expanding coverage.
7)Related Legislation . AB 511 (De La Torre), also being heard in
this committee today, establishes a 5.5% quality assurance fee
(QAF) on ambulance transportation services providers until
2015-16 to increase transportation rates paid on behalf of
Medi-Cal patients.
AB 342 (Bass), pending on the Assembly Floor, requires DHCS to
establish a new Medi-Cal hospital financing waiver, under
Section 1115 of the federal Social Security Act replace
hospital financing provisions established by SB 1100
(Perata), Chapter 560, Statutes of 2005.
Analysis Prepared by : Mary Ader / APPR. / (916) 319-2081