BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: AB 1383
A
AUTHOR: Jones
B
AMENDED: June 17, 2009
HEARING DATE: June 25, 2009
1
CONSULTANT:
3
Dunstan/cjt
8
3
SUBJECT
Medi-Cal: hospitals: supplemental payments: coverage
dividend fee
SUMMARY
Imposes a coverage dividend fee on hospitals, except for
designated public hospitals, for a period ending 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, and to pay for the
expansion of health care coverage for children. This bill
contains an urgency clause that will make this bill
effective upon enactment.
CHANGES TO EXISTING LAW
Existing federal law:
Establishes the Medicaid program to provide comprehensive
health benefits to low-income persons. Establishes the
federal Medicaid Disproportionate Share Hospital (DSH)
program to provide financial assistance to hospitals that
serve large numbers of Medicaid and uninsured patients.
Allows states to request waivers of federal law under
Continued---
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Section 1115 of the Social Security Act for research and
demonstration projects. Requires that provider fees levied
by states must conform to specified standards and criteria.
Existing state law:
Establishes the Medi-Cal program as California's Medicaid
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.
Creates a hospital demonstration project to implement a
five-year federal Medicaid Section 1115 waiver for support
of public hospitals that serve uninsured patients and
patients whose health care services are covered by Medi-Cal
(California's Medicaid program).
Establishes the Safety Net Care Pool (SNCP) as the federal
funds available under the hospital demonstration project,
to ensure continued government support for the provision of
health care services to uninsured populations.
Defines a designated public hospital to be one of the
county or University of California hospitals specifically
named in the statute implementing the federal waiver.
Defines a nondesignated public hospital as any other public
hospital.
Imposes provider fees for the state's Medi-Cal program,
specifically a quality improvement fee on Medi-Cal managed
care plans and a quality assurance fee on skilled nursing
facilities (SNFs) and intermediate care facilities for the
developmentally disabled (ICF-DD).
Establishes a selective provider contract program (SPCP)
for hospitals in the Medi-Cal program. Requires the
governor to designate a person in his or her office to act
as a special negotiator to negotiate rates, terms, and
conditions for contracts with hospitals for inpatient
services to be rendered to Medi-Cal Program beneficiaries.
Requires the California Medical Assistance Commission
(CMAC) to assume the duties and powers of the special
negotiator.
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This bill:
General provisions
Establishes that the bill will be implemented in two
phases, "phase 1" being defined as the 2009 federal fiscal
year (October 1, 2008 through September 30, 2009), and
"phase 2" being defined as the 2010 federal fiscal year
(October 1, 2009 through September 30, 2010).
Provides that it is an urgency statute to allow increased
Medi-Cal payments to hospitals and improved access to occur
at the earliest possible time.
Hospital payments
Requires private hospitals to be paid supplemental amounts
for Medi-Cal hospital outpatient and inpatient 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 that these payments
be made in both phase 1 and phase 2.
Requires Medi-Cal rates for private hospital inpatient and
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.)
Requires that these payments equal the UPL in both phase 1
and phase 2.
Requires nondesignated public hospitals to be paid
supplemental amounts for Medi-Cal hospital outpatient and
inpatient 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 that these payments be made in both phase 1 and
phase 2.
Requires designated public hospitals to be paid
supplemental amounts for services they provide during phase
1 and phase 2 and clarifies that the payments direct grants
and shall not constitute Medi-Cal payments.
Requires DHCS to increase payments in aggregate to Medi-Cal
managed care plans for the provision of Medi-Cal hospital
services. Requires each Medi-Cal managed care plan to
expend 100 percent of the increased payments in the form of
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payments for hospital managed care inpatient days.
Requires that these payments be made in both phase 1 and
phase 2.
Requires Medi-Cal managed care plans to submit the
documentation that DHCS may require. Directs that the
documentation will be available to hospitals for inspection
and copying under the Public Records Act (PRA) and that no
exemption under PRA shall apply to hospitals. Requires
that these payments be made in both phase 1 and phase 2.
Prohibits 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.
Establishes requirements for the timing of payments made to
hospitals for the federal 2009-10 and 2010-11 fiscal years.
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 in effect on June 30, 2008.
Prohibits Medi-Cal hospital inpatient rates for services
before October 1, 2011 under the Medi-Cal SPCP, from being
reduced below the contract rates in effect on June 30,
2009.
Prohibits Medi-Cal payments made to hospitals under
specified provisions of existing law that implements 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.
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.
Administration
Requires DHCS to promptly seek federal approval or waivers
to implement phase 1 and to obtain federal financial
participation (FFP) to the maximum extent possible for
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payments made under this bill. Requires DHCS to submit a
Medicaid state plan amendment to implement phase 1 on or
before June 30, 2009.
Directs DHCS to obtain written assurances from the
Secretary of the United States Department of Health and
Human Services in connection with obtaining approval for
phase 1. These written assurances that DHCS must obtain
are:
a) Approval of phase 1 will not result in funding
reductions to hospitals under the current Section 1115
waiver.
b) The federal Center for Medicare and Medicaid
Services will explore with the state the need for
growth in the safety net care pool.
c) That additional federal funding for the 2008-2009
federal fiscal year as a result of phase 1 will not be
taken into account in the determination of the amount
of federal funds that will be available under a new
hospital financing waiver.
d) The implementation of phase 1 is conditioned upon
DHCS obtaining these written assurances from the
federal government.
Requires DHCS to submit a Medicaid state plan amendment to
implement phase 2 on or before September 30, 2009.
Prohibits phase 2 from being implemented unless the federal
government approved a new Section 1115 waiver. Requires
DHCS to negotiate the federal approvals required for phase
2 concurrently with the negotiation of a federal waiver.
Allows DHCS to use a fiscal intermediary to administer this
program and exempts any contract entered into with a fiscal
intermediary from specified portions of the public contract
code.
Provides that phase 2 shall not be implemented unless and
until the federal government approves a federal Section
1115 waiver for a hospital demonstration project to replace
the current Section 1115 waiver.
Require DHCS to explore opportunities for reform of the
Medi-Cal program, which may include payment system reforms,
improvement managed care delivery systems and improvements
in the coordination of care for beneficiaries with multiple
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chronic and complex medical conditions.
Effective dates and conditions of payment provisions
States legislative intent to enact additional legislation
that will specify more precisely the calculation of the
supplemental payment to individual hospitals. Prohibits
any supplemental payments from being made until the
subsequent legislation has been enacted.
Establishes that the portion of the bill establishing
supplemental payments to hospitals shall become inoperative
in the event of a final judicial determination by an
appellate court or a final federal decision that any
elements of this article cannot be implemented. Provides
that the provider rate provisions are repealed on the
earlier of January 1, 2013, or when the director of DHCS
executes a declaration stating that such a final judicial
or administrative determination has been made.
Provides that no payments shall be made to a hospital
litigant until the case or proceeding is finally resolved.
Coverage dividend fee
Imposes a provider fee, termed a coverage dividend fee on
hospitals, except for the 20 county and University of
California hospitals which are designated public hospitals.
Requires that the coverage dividend fee be consistent with
the principle of shared benefit and shared responsibility.
Requires the coverage dividend be assessed on hospitals as
specified. Requires DHCS to calculate the amount of the
fee for each hospital within ten days of when the relevant
sections of the bill take effect.
Establishes procedures and timetables that apply to DHCS
and hospitals for the administration and collection of the
fee for phase 1 and phase 2. Specifies that the fee will
end December 31, 2010.
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. Provides that these
contracts would obligate 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 regarding payments set forth in this
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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.
Requires revenue from the coverage dividend fee to be
placed in the Coverage Dividend Revenue Fund created by
this bill, requires all revenue, interest and penalties
from late payments of the fee to be placed in the fund, and
requires revenue in the fund to be continuously
appropriated. Limits use of the revenues to making
increased payments to hospitals pursuant to this bill and
to paying for the expansion of health care coverage for
children, with hospital payments having the highest
priority. Provides that $80 million will be available
quarterly to provide for health care coverage for children.
Prohibits money in the fund from being used to support
DHCS' administration of the provider fee program.
Effective dates and conditions of provider fee provisions
Establishes that the portion of the bill establishing the
coverage dividend shall become inoperative in the event of
a final judicial determination by an appellate court or a
final federal decision that any elements of this article
cannot be implemented. Provides that the provider rate
provisions are repealed on the earlier of January 1, 2013,
or when the director of DHCS executes a declaration stating
that such a final judicial or administrative determination
has been made.
States legislative intent to enact additional legislation
that will specify more precisely the calculation of the
supplemental payment to individual hospitals. Prohibits
any coverage dividend fee to be due or payable until the
subsequent legislation has been enacted.
Establishes that this is an urgency statute, and the facts
are that this bill should be operative at the earliest
possible time so that increased Medi-Cal payments to
hospitals and improved access can occur.
FISCAL IMPACT
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According to the Assembly Appropriations Committee
analysis, this bill would lead to a one-time increase of
approximately $4 to $5 billion in the amount paid to
hospitals. This increased amount is composed of 38 percent
hospital provider fee and 62 percent federal funds or FFP.
The American Recovery and Reinvestment Act increased FFP
from what is generally a 50 percent federal share to 62
percent for 9 quarters, ending December 31, 2010, at which
point it reverts to 50 percent for most expenditures.
BACKGROUND AND DISCUSSION
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. The author notes that federal law
authorizes states to levy fees on health care providers if
the fees meet federal requirements. According to the
author, 45 states, including California, have Medicaid
provider fees, including 22 states with hospital provider
fees. The author argues that 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 the state's general fund is
not possible given the state's dire fiscal situation. This
bill is an urgency measure, and the author states this is
important because immediate enactment would allow
California to take advantage of the 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.
Hospital payments
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 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).
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Designated public hospitals certify their own expenditures,
which becomes the state match for drawing down federal
funds.
Another factor affecting reimbursement is whether the
Medi-Cal patient they are serving is covered through
managed care or fee-for-service Medi-Cal. Fee-for-service
Medi-Cal outpatient hospital rates are established by DHCS
through a fee schedule.
For Medi-Cal inpatient services, CMAC negotiates 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. 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 a rate on behalf of the
state with 179 hospitals as of December 1, 2008. 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
reported costs for a hospital's fiscal period.
Last session, two budget measures affected non-contract
hospital reimbursement: the mid-year reduction bill in
February 2008 (AB 5, (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 percent 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 percent
reduction enacted by AB 5 X3 or the regional average CMAC
per diem contract rate, reduced by 5 percent and multiplied
by the number of Medi-Cal covered inpatient days.
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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.
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. The
resulting combination of state and federal funds is then
used to increase Medicaid reimbursement to providers.
Federal law has specific requirements governing provider
fees. 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, meaning that they cannot be levied on a
subgroup of providers, such as only those who are enrolled
in Medicaid programs. States are prohibited from having a
provision that would ensure providers are "held harmless"
from the impact of the fee, meaning that all of the funds
that an individual provider is paid are returned to that
provider. As a practical matter, the federal requirements
result in provider fee programs where some providers
receive a net benefit and others do not.
California currently has the following provider fees on
intermediate care facilities for the developmentally
disabled, Medi-Cal managed care plans, and SNFs:
a) A quality improvement fee (QIF) is assessed on
Medi-Cal managed care plans at a rate of 5.5 percent
of revenues. The net increase in revenue is deposited
into the state general fund, 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
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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 quality assurance fee (QAF) on skilled nursing
facilities at a rate of six percent of net revenues
(which excludes Medicare revenue). The QAF is
projected to generate $293 million in 2009-10 and
sunsets on July 31, 2011. The legislation that
established the QAF also restructured the payment
system for SNFs from a flat rate system to one that
reimburses 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 intermediate care
facilities for the developmentally disabled at a rate
of 5.5 percent with the amount paid in licensing fees
reduced from the total amount of revenue generated.
The QAF revenues are projected to raise, on a net
basis, to $19.2 million in the 2009-10 fiscal year.
DHCS indicates these facilities receive $13.1 million
above the amount facilities paid in fees.
The health reform proposal from last session by Governor
Schwarzenegger and authored by Assembly Speaker Fabian
Nunez 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 subsidy where
below-market Medi-Cal reimbursement rates results in those
costs being shifted to insured individuals, families, and
employers.
Hospital waiver
In 2010, California will be negotiating a new waiver to
replace the current 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
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federal government restructured the way Medi-Cal funding is
used to fund in-patient hospital services.
California's hospital waiver is a Section 1115 waiver,
which is authorized under the Social Security Act. Under
law, the Secretary of Health and Human Services is granted
broad authority to waive provisions of the Medicaid statute
to allow states to institute demonstration projects and
provide federal funding that would not normally be eligible
under federal law. To avoid Congressional approval, these
waivers must be budget neutral over the life of the waiver,
meaning that they cannot cost the federal government more
than it would normally pay through Medicaid in the absence
of the waiver. Waivers allow states some measure of
flexibility to, for example, institute new systems of care
delivery, eligibility for non-Medicaid eligible
populations, or provide services that may not be a covered
benefit under Medicaid. All waivers are subject to
approval by the Centers for Medicare and Medicaid Services,
the Office of Management and Budget, and the Department of
Health and Human Services.
The state's hospital waiver was implemented through SB
1100, authored by Senators Ducheny and Perata, (Chapter
560, Statutes of 2005), which provides the statutory
framework for implementing the current hospital waiver. SB
1100 also established a new mechanism for funding all
safety-net hospitals. Under the waiver, federal funds
match "certified public expenditures" (CPEs) for health
care services provided in public hospitals and county
clinics. CPEs are expenditures for providing healthcare to
Medi-Cal recipients and the uninsured. Twenty selected
public hospitals, including the five UC hospitals,
currently use CPEs to claim federal funds under Medi-Cal,
including DSH payments.
Under the current waiver, for uncompensated care provided
to Medi-Cal and uninsured patients, public hospitals have
access to over $1 billion in federal DSH funds. DSH
funding is a capped allocation of federal funds and is
accessible to public hospitals as a reimbursement of CPEs
and intergovernmental transfers. Public hospitals are also
able to access SNCP funding, which is a federal allotment
of over $700 million. The waiver establishes the SNCP.
For safety-net hospitals, the waiver is critical for their
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financing, and the subject of much interest and
negotiation. There are two identical vehicles, SB 208
(Steinberg) and AB 342 (Bass) that will likely constitute
the statutory provisions necessary to enact the waiver.
Timelines for completing a waiver vary, but generally, it
takes a year to negotiate and gain approval for a
substantial waiver with the Secretary of HHS and CMS.
States, such as Indiana, Massachusetts and Vermont have
reformed their health care systems using federal Medicaid
waivers. A common element in these state programs has been
expansion of each state's Medicaid program. However,
states have gone beyond this and have combined expansions
with additional programs such as investments in prevention,
care coordination and management, and quality improvements.
Another option that states have pursued is to include
costs of health care programs that go beyond just hospital
costs.
Related bills
SB 208 (Steinberg and Alquist) directs DHCS to develop a
new Medicaid hospital financing waiver, under Section 1115
of the federal Social Security Act to replace hospital
financing provisions established by SB 1100 (Perata),
Chapter 560, Statutes of 2005. SB 208 is in Assembly
Health Committee.
AB 511 (De La Torre), establishes a quality assurance fee
on ambulance transportation services providers to increase
transportation rates paid on behalf of Medi-Cal patients.
AB 511 is in Senate Health Committee.
AB 342 (Bass), has identical provisions to SB 208. This
bill is in Senate Health Committee.
Prior legislation
AB 1183 (Committee on Budget), Chapter 758, Statutes of
2008 extends the AB 1629 QAF by an additional two years, to
July 31, 2011.
SB 1100 (Perata and Ducheny), Chapter 560 statutes of 2005,
provides the framework for implementing the new federal
hospital finance waiver, including establishing a new
mechanism for funding of safety-net hospitals.
AB 1629 (Frommer) Chapter 875, Statutes of 2004 establishes
the SNF QAF and the Medi-Cal Long-Term Care Reimbursement
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Act.
Arguments in support
The Daughters of Charity Health System (Daughters) writes
that 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 needed federal dollars over the next 18
months, and these funds are vitally necessary to California
hospitals' ability to continue providing access to Medi-Cal
patients. They point out that it will also allow the state
to expand or maintain coverage to children. 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 that inadequate Medi-Cal reimbursement currently is
compromising access to non-urgent care for Medi-Cal
beneficiaries.
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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.
The Private Essential Access Community Hospitals (PEACH)
supports this bill because it provides a method for taking
advantage of a short term increase in federal financial
participation and will result in increased Medi-Cal
payments to hospitals and coverage for children in
California. Adventists Health and Loma Linda University
Medical Center states that California's low Medi-Cal rates
are having negative effects on private safety-net
hospitals. In addition they note that the recession has
been devastating to the investment portfolios of many
private hospitals, including their own.
Health Access California supports the bill if it were
amended. The specific amendments that they request is that
the bill restore funding for Healthy Families, reinstate
important Medi-Cal benefits such as adult dental and assure
funding for California's share of comprehensive health
reform. They acknowledge that Medi-Cal funding is in
adequate to provide decent provider compensation, but also
note that the current level of Medi-Cal funding fails to
provide adequate benefits for Medi-Cal beneficiaries.
PRIOR ACTIONS
Assembly Floor: 71-3
Assembly Appropriations:12-4
Assembly Health: 15-0
COMMENTS
1. Many details are left to the second bill.
The plan of the sponsors includes a second bill and,
possibly, an initiative in 2010. According to the
author and sponsors, this bill represents a starting
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point for discussion leading to the framework for a
hospital fee. A second bill is envisioned within a
short period that would provide the necessary details
for implementing a provider fee. The second bill is
envisioned to be operative for a limited duration,
with an initiative being considered as a longer term
financing measure.
Because the second bill will reflect the important
decisions that are in the process of being negotiated,
the current bill, AB 1383, does not propose a specific
fee structure, leaving the decisions about the fee
rate, the base the rate is applied to, and possible
exemptions are left to DHCS. The sponsor's intend for
the second bill to provide specific guidance on the
details that the first bill leaves to DHCS.
2. Urgency clause and urgency of issue.
The author and sponsors argue that this bill must be
enacted by June 30, the last day of the third quarter
of the federal fiscal year. They argue that making
this deadline increases the state's chances of
gaining federal approval for the provider fee to
apply sooner, which would maximize the amount of
federal funds that can be drawn down. Others,
including DHCS, do not agree that enactment by June
30 is necessary.
Part of the reason for the urgency for the bill is
that it would allow the state and hospitals to take
advantage of the increased federal funds that are
available because of the federal stimulus act. The
American Recovery and Reinvestment Act of 2009
provides an enhanced Federal Medicaid Matching
Assistance Percentage from October 1, 2008 through
December 31, 2010.
3. We do not know which hospitals will benefit or lose
from this proposal.
A hospital fee can be established in many 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).
Since these details have not been decided and are not
in the bill, it is impossible to know the impact on
specific hospitals.
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17
Generally, hospitals that have a relatively larger
proportion of Medi-Cal will benefit. Inevitably there
is a great variation in results for hospitals within
larger systems. So even though an individual hospital
may do poorly, others in the system may do well,
evening out the impact. Also, it is likely that no
matter how a fee is structured, there will be hospital
systems in California that will be net donors, meaning
they pay more in the hospital fee than they get back
in higher rates for Medi-Cal.
This question of impact is usually answered by
modeling the net impact of the fee. However, the
specific provisions of this bill have not been decided
and have not, at this point, been modeled. The model
results can be important in gaining federal approval.
4. There is concern that this bill could have a
harmful impact on the negotiations for the state's
hospital waiver.
The current Medi-Cal Hospital/Uninsured Care Waiver
expires in 2010. The state is beginning the process
of developing a new waiver proposal which will be
submitted to the federal government later this year.
This waiver is very important to public hospitals
because it is the means by which they access federal
funding. The waiver will also be an opportunity for
the state to reform or redesign portions of the
Medi-Cal program and obtain additional federal funds.
A provider fee has been mentioned as a possible source
of funding for the new waiver.
Because there are concerns that this proposal could
hurt the state's negotiating position for the new
waiver, this bill requires DHCS to ask the federal
government to grant specific assurance about the next
waiver before approving the provider fee. The bill
also requires phase 2 to proceed in concert with the
waiver, and its approval is conditioned upon waiver
approval. It is not clear that either of these two
amendments would provide the state protection, if the
federal government wanted to link the provider fee and
the waiver and offset the funds generated by the
hospital fee against other funds that might be
STAFF ANALYSIS OF ASSEMBLY BILL 1383 (Jones) Page
18
available under a new waiver.
5. This bill could put pressure on the state's General
Fund.
If adopted, the provider fee would result in new
money for hospitals. If the program sunsets, there
would be pressure on the General Fund to continue the
Medi-Cal increases and to continue coverage
expansions for children initially funded by the
provider fee. The bill would obligate the state to
meet maintenance of effort levels based on hospital
rates as of June 30, 2008. Hospital rates have been
reduced since then, so the bill could lead to a rate
increase to meet the maintenance of effort
requirement. The bill also limits the administrative
costs paid to DHCS from the fee proceeds to the costs
of collecting the fee. Other administrative costs,
such as entering into contracts and negotiating with
the federal government, among others are not eligible
to be paid out of the provider fee and would
presumably have to be paid out of the General Fund.
6. DHCS required to offer a contract with each
hospital.
The contract would require DHCS to guarantee that the
funds raised shall be used solely for the purposes set
forth in this bill. The contract provision would
provide that a hospital's obligation to pay the
coverage dividend fee contingent on DHCS performing
its obligations under the contract, which would be the
obligations under the bill. This provision is
intended to prevent, by entering the state into a
contractual obligation, the Legislature and Governor
from reducing the hospitals' share of proceeds from
the fee or reducing other hospital payment rates.
However, the contract provisions could reduce the
state's budget flexibility in future years.
7. Current federal hospital waiver.
As part of the terms and conditions of the existing
Medi-Cal Hospital/Uninsured Care 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,
STAFF ANALYSIS OF ASSEMBLY BILL 1383 (Jones) Page
19
2005 and extends through until August 31, 2010. In
order for this bill to take effect prior to August 31,
2010, the federal government would need to indicate
the provision in the current waiver prohibiting a
hospital provider fee won't be enforced or the waiver
would need to be renegotiated. According to the
sponsors, California is the only state that has a
waiver condition prohibiting a provider fee.
8. The bill directs the funds to go for children's
coverage.
The bill directs the funds be used for expanded
coverage of children. The author will be proposing
amendments to not limit the funding to expansions of
coverage. These funds, if matched with federal
Children's Health Insurance Program funds, would
result in almost $1 billion in total funds (2/3
federal, 1/3 state).
When the provider fee was considered during health
care reform debates, it was seen as a way to expand
coverage to low-income parents and adults and a higher
level of funding was directed to coverage expansion.
A number of cuts have been proposed or made to health
programs during the current budget deliberations.
While providing coverage for children is worthy, there
are many other worthy health programs the Legislature
could choose to fund. The bill would limit the
flexibility of the Legislature to make those choices
by earmarking the funds for children's coverage.
9. The role of CMAC would be diminished while this
bill is in effect.
CMAC currently negotiates Medi-Cal inpatient
contracts with hospitals on behalf of the state
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.
STAFF ANALYSIS OF ASSEMBLY BILL 1383 (Jones) Page
20
POSITIONS
Support: California Children's Hospital Association
(cosponsor)
California Hospital Association (cosponsor)
Daughters of Charity Health System (cosponsor)
Adventist Health
Citrus Valley Health Partners (prior version of
bill)
Health Access California (if amended)
Integrated Healthcare Holdings, Inc. (prior version
of bill)
Loma Linda University Medical Center
Pacific Alliance Medical Center (prior version of
bill)
Private Essential Access Community Hospitals (PEACH)
Oppose: None received
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