BILL ANALYSIS
AB 1383
Page 1
ASSEMBLY THIRD READING
AB 1383 (Jones)
As Amended June 1, 2009
2/3 vote. Urgency
HEALTH 15-0 APPROPRIATIONS 12-4
-------------------------------------------------------------------
|Ayes:|Jones, Adams, Ammiano, |Ayes:|De Leon, Ammiano, Charles |
| |Block, Carter, De La | |Calderon, Davis, Fuentes, |
| |Torre, De Leon, Emmerson, | |Hall, John A. Perez, Price, |
| |Hall, Hayashi, Hernandez, | |Skinner, Solorio, |
| |Bonnie Lowenthal, | |Torlakson, Krekorian |
| |Nava, V. Manuel Perez, | | |
| |Salas | | |
|-----+--------------------------+-----+----------------------------|
| | |Nays:|Nielsen, Harkey, Miller, |
| | | |Audra Strickland |
| | | | |
-------------------------------------------------------------------
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 at the earlier of January 1, 2013, or if specified
conditions are met. 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 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
AB 1383
Page 2
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.
3)Requires private hospitals to be paid supplement amounts for
Medi-Cal hospital outpatient services provided on or before
December 31, 2010, 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 provided on or before
December 31, 2010, 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 provided on or before
December 31, 2010; 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 provided on or before December 31, 2010; 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 provided on or before
December 31, 2010, that are 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
AB 1383
Page 3
private hospitals from being included for purposes of
calculating disproportionate share hospital (DSH) 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 (FYs).
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
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 FY 2007-08.
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 to the maximum extent possible for payments made
under this bill.
14)Requires DHCS to offer to enter into a contract with each
AB 1383
Page 4
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.
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.
AB 1383
Page 5
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.
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
AB 1383
Page 6
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.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1)A one-time increase of $4 billion (38% fee/62% federal) to $5
billion (38% fee/62% federal) paid to hospitals through
December 2010 in the form of increased Medi-Cal payments for
inpatient and outpatient services. This estimate assumes
hospitals subject to the coverage dividend fee will contribute
$1.8 billion (100% hospital fee) to be matched with federal
financial participation (FFP) at the enhanced ARRA rate of 62%
for a total Medi-Cal payment increase of $4.7 billion (38%
fee/62% federal) through December 2010.
2)The creation of a new funding mechanism to draw down billions
in FFP creates major GF pressure when the fee sunsets. GF
pressure is created to continue Medi-Cal increases and to
continue coverage expansions for children initially funded by
the QAF.
3)One-time increase of $300 million (38% fee/62% federal) to
expand coverage to 300,000 uninsured children.
4)One-time staffing costs of $200,000 (38% GF) to DHCS for the
duration of the fee established by this bill.
COMMENTS : 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
AB 1383
Page 7
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 to California through the federal
stimulus legislation, which will enable the state to drawn down
additional federal funds with a lower provider fee.
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, whether they qualify
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). Current law
does not impose a coverage dividend fee on hospitals that is
used to draw down federal Medicaid funds.
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 intermediate care
facilities for the developmentally disabled, Medi-Cal managed
care plans, and skilled nursing facilities.
This bill is jointly sponsored by the Daughters of Charity
AB 1383
Page 8
Health System, the California Hospital Association and the
California Children's Hospital Association to allow the state to
obtain over $3.5 billion in federal funds over the next eighteen
months. Supporters argue these funds are vitally necessary to
California hospitals' ability to continue providing access to
Medi-Cal patients.
Analysis Prepared by : Scott Bain / HEALTH / (916) 319-2097
FN: 0001218