BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1383 (Jones)
Hearing Date: 7/23/2009 Amended: 7/15/2009
Consultant: Katie Johnson Policy Vote: Health 7-3
_________________________________________________________________
____
BILL SUMMARY: AB 1383, an urgency measure, would impose a
coverage dividend fee on hospitals, except on designated public
hospitals, in order to generate revenue with which to supplement
current Medi-Cal reimbursements under the existing Medi-Cal
Hospital/Uninsured Care Section 1115 Waiver Demonstration. The
imposition of the coverage dividend fee, and thus the complete
implementation of this bill, would be contingent on the
enactment of subsequent legislation, as specified.
_________________________________________________________________
____
Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
Establishment of total potential fee revenue
ofGeneral*
coverage dividend fee about $2 billion
Federal funds matched approximately $2 billion Federal*
by fee revenues
Supplemental payments unknown, but potential cost
pressureGeneral/*
made to hospitals of about $5 billion to the
extent revenueFederal
does not cover the total cost of the
supplemental payments detailed in
the subsequent legislation
DHCS administration unknown, but likely more than $50
General/*
of the fee in General Fund start-up costs;
start-Federal
up and ongoing costs could be covered
by coverage dividend fee revenues
*Contingent on the enactment of subsequent legislation prior to
October 1, 2009, and other requirements. See staff comments.
_________________________________________________________________
____
STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
Existing federal law establishes Medicaid, also known as
Medi-Cal in California, which provides comprehensive health
benefits to eligible low-income individuals including the aged,
blind, disabled, pregnant women, and children. The State
Department of Health Care Services (DHCS) administers Medi-Cal.
Existing federal law requires that health-care related taxes
levied by states must conform to specified standards: 1) be
broad-based; 2) not exceed 25% of the state share of Medicaid
expenditures; 3) payers of the tax cannot be explicitly held
harmless.
Page 2
AB 1383 (Jones)
Many states, including California, utilize health-care related
taxes to fund a portion of the state share of health care costs.
These revenues are available to draw down matching federal funds
and enable states to increase provider reimbursement rates.
California currently imposes three provider fees for Medi-Cal,
specifically, a quality improvement fee on Medi-Cal managed care
plans, a quality assurance fee on skilled nursing facilities
(SNFs), and a quality assurance fee on intermediate care
facilities for the developmentally disabled (ICF-DD).
Existing federal law allows states to request waivers of federal
law under Section 1115 of the Social Security Act for research
and demonstration projects.
Existing state law, SB 1100 (Perata), Chapter 560, Statutes of
2005, establishes the five-year Medi-Cal Hospital/Uninsured Care
Section 1115 Waiver Demonstration (current 1115 waiver), which
prescribes the reimbursement method for public, private, and
district hospitals that provide services to Medi-Cal and
uninsured patients. Existing law names specific county and
University of California hospitals as designated public
hospitals and provides for reimbursement for services rendered
to Medi-Cal patients through a certified public expenditure
(CPE) process. Existing state law establishes a selective
provider contract program (SPCP) for hospitals that provide
services to individuals in the Medi-Cal program. Under the SPCP,
the California Medical Assistance Commission (CMAC) negotiates
reimbursement rates with hospitals serving Medi-Cal patients
that are not one of the designated public hospitals specifically
defined in SB 1100. As of December 1, 2008, CMAC has negotiated
rates with 179 hospitals.
The current 1115 waiver governs hospital funding through the end
of federal fiscal year (FFY) 2010, or October 1, 2010. The state
will be negotiating a waiver to replace the current 1115 waiver
in 2010.
This bill would impose a health-care related tax, termed a
coverage dividend fee in this bill, on all general acute care
hospitals, as a condition to receive state funds, commencing on
the effective date of this bill through December 31, 2010. This
bill would specify that additional urgency legislation would
further define the details of the fee. This bill would also
exempt designated public hospitals and specialty hospitals.
This bill would state Legislative intent to enact additional
urgency legislation that would specify the calculation of the
amount of the coverage dividend fee due from individual
hospitals in a manner in accordance with a fee assessment and
would prohibit a coverage dividend fee from being made due or
payable until that additional legislation was enacted. If the
additional legislation is not enacted and is not effective by
October 1, 2009, these provisions would then be repealed.
Alternatively, if the additional legislation is enacted and
effective by October 1, 2009, this bill's provisions would
remain in effect until January 1, 2013, and would then be
repealed.
This bill would require hospitals to pay their shares of the
coverage dividend fee prior to receiving any state funds, which
would include Medi-Cal payments.
Page 3
AB 1383 (Jones)
To implement this coverage dividend fee, the state would need to
apply to the Centers for Medicare and Medicaid Services (CMS)
for an amendment to the current 1115 waiver and would also need
to enact legislation that would establish a provider fee. This
bill would provide a mechanism to do that.
This bill would require the Director of DHCS to:
1) submit any Medicaid state plan amendment that may be
necessary to implement this bill;
2) seek any and all federal approvals necessary for the
implementation of this bill for the use of the entire
federal upper payment limit;
3) seek all federal approvals, waivers, waiver
modifications, and any other federal action that may be
necessary to maximize federal financial participation in
this fee.
4) negotiate the necessary federal approvals required to
implement this bill in for the 2009-2010 and 2010-2011 FFYs
in conjunction with the federal waiver that will replace
the current 1115 waiver.
This bill would provide that no hospital would be required to
pay the coverage dividend fee to DHCS until the state receives
and maintains federal approval of the fee.
This bill would provide that the funds collected from the
coverage dividend fee would be available for the following
specified uses:
1) Provide supplemental payments and grants to hospitals as
specified;
2) Provide supplemental payments to Medi-Cal managed care
health plans;
3) Pay for health care coverage for children in the amount
of $80 million for each quarter after federal approval has
been granted, or $320 million annually;
4) Pay for DHCS's staffing costs related to implementing
this bill.
This bill would require that Medi-Cal payments to hospitals
under the current 1115 waiver when combined with the
supplemental payments, as provided by this bill, to private
hospitals for inpatient and outpatient services and to
non-designated public hospitals for inpatient services equal to
the federal upper payment limit (UPL) for that portion of FFYs
2008-2009, 2009-2010, and 2010-2011 for which CMS approves the
coverage dividend fee. The federal UPL is an estimate of the
amount that would be paid for Medicaid services under Medicare
payment principles. The gap that these supplemental payments
would fill between what private and non-designated hospitals are
paid under the current 1115 waiver and the federal UPL is known
as federal UPL room. This room amounts to approximately $2
billion for California hospitals and, as such, the revenue
collected from the coverage dividend fees would likely
approximate that amount.
This bill would provide that Medi-Cal managed care health plans
would receive supplemental payments to the extent available and
would require the plans to pay all of the supplemental payments
to hospitals in the form of increased payments for hospital
services.
Page 4
AB 1383 (Jones)
This bill would require that designated public hospitals, as
specified in the current 1115 waiver, would be paid direct
grants in support of health care expenditures from the fee
revenues. These grants would equal a designated public
hospital's state share of components of payments up to its
federal UPL plus the payments received from Medi-Cal managed
care plans minus the amount of fees the hospitals would have
paid if they were subject to the fees in this bill. These funds
cannot be matched by federal moneys since designated public
hospitals already draw down the maximum amount of federal funds
available to them. The designated public hospitals could pay the
fee, but they are already reimbursed at cost-the CPE process
provides that for every $1 a designated public hospital spends
on Medi-Cal, the federal government would pay 50 cents. The
public hospitals' payments from managed care plans, however, may
be matched by federal funds.
The total revenues generated by the coverage dividend fee,
except those dedicated to the grants to the designated public
hospitals, would be eligible to serve as a non-state match for
federal moneys and could draw down approximately $2 billion in
federal funds over the lifetime of this bill.
For reimbursements to private and non-designated state
hospitals, Medi-Cal costs are generally shared 50 percent
General Fund and 50 percent federal funds. However, in February
of 2009, President Obama signed the American Reinvestment and
Recovery Act (ARRA) into law. As a result, the Federal Medical
Assistance Percentage (FMAP) increased from 50 percent to 61.59
percent. Thus, retroactively from October 1, 2008, through
December 31, 2010, the federal government would pay for
approximately 62 percent and the state General Fund would pay
for 38 percent of benefit-related Medi-Cal expenditures.
Assuming that the children's $320 million per year could be
matched separately, as described below, and that approximately
$300 million was granted to the designated public hospitals that
could not be federally matched, the approximately $1.4 billion
in fees could draw down about $2 billion in federal funds.
The revenue earmarked for children's health coverage could
potentially draw down Children's Health Insurance Program
(CHIP), or Title XXI, funds, which have a matching ratio of
approximately 35 percent state funds and 65 percent federal
funds, generating approximately $640 million in federal funds
annually for the time period approved by CMS. This matching
ratio would only be applicable if the funds were used to
supplement California's CHIP program, the Healthy Families
Program. If the revenue did not go the Healthy Families Program
or other allowable CHIP expenses, it would likely be matched by
the general FMAP rates described above or not matched at all.
This bill would prohibit the implementation of these provisions
until CMS approves a federal waiver for a demonstration project
that would replace the current 1115 waiver.
This bill would provide that these provisions would become
inoperative if CMS denies approval for, or does not approve,
these provisions before January 1, 2012.
Page 5
AB 1383 (Jones)
In addition to this bill being contingent on a second bill, this
bill would prohibit DHCS from disbursing some or all of the
2008-2009 federal fiscal year payments until the Director
submits a declaration to the Legislature that:
1) based on assurances from the Secretary of the United
States Department of Health and Human Services, the maximum
federal funds available in the current 1115 waiver as of
October 5, 2007, would not be reduced.
2) There would be no reasonable basis to conclude that the
implementation of this bill would adversely affect funding
that would otherwise be available under the 1115 waiver
that would replace the current 1115 waiver.
This bill, AB 1383, does not propose a detailed description of
the fee and payment schedules because this bill states that it
is the Legislature's intent to provide that information in a
subsequent bill. The second bill is intended to specify the
amount each hospital would be required to pay as the coverage
dividend fee as well as the formula for paying hospitals the
required supplemental payments. This bill would require that the
additional legislation construct the coverage dividend fee in a
manner that would make it a fee assessment. However, since the
second bill and its provisions are unknown, it is impossible to
know how the Legislative Counsel of California will interpret
the bill-as a fee or a tax.
Additionally, given that CMS requires that the coverage dividend
fee be "broad-based" and that there be no relationship between
the amount of payment and the amount of moneys received by an
entity, it appears that it would be difficult to craft a funding
mechanism that would meet both CMS requirements and the
California case law criteria for a fee, as required in this
bill.
Depending on the structure of the second bill, DHCS could need
additional staff support to implement this program. Although
this bill would allow revenues to be used to pay for DHCS's
administrative expenses related to implementing this bill, it is
likely that, depending on the structure of the required
subsequent legislation, that there would be General Fund
start-up costs potentially in the hundreds of thousands of
dollars that would not be recouped until after the coverage
dividend fee was collected.
Staff notes that there would be General Fund pressure to
continue to pay supplemental payments to hospitals after the
coverage dividend fee provisions of this bill, and those of the
second bill, sunset December 31, 2010. In light of California's
budget problems and its already low Medi-Cal provider rates, it
is unlikely that the state would realistically be able to fund
provider rate increases in the absence of a new funding source,
such as the coverage dividend fee.
Additionally, although to take effect this bill would require a
commitment from CMS that the supplemental payments would not
affect the negotiation of the 2010 hospital finance
Page 6
AB 1383 (Jones)
1115 waiver, it is unknown whether or not this policy would
affect the outcome of those future negotiations.
This bill would require the department to make payments to
hospitals which would be funded by coverage dividend fee
revenues. However, it appears that coverage dividend fee
revenues would be placed into the General Fund. Staff notes
concerns that once the revenues entered the General Fund, they
would no longer explicitly be available to fund the supplemental
payments required by this bill. There would be General Fund
pressure in the billions of dollars to provide supplemental
payments to hospitals as required by this bill. Staff recommends
that this bill be amended to establish an account into which
coverage dividend fees would be placed for appropriation by the
Legislature in the annual Budget Act or another piece of
legislation for the purposes outlined by this bill.
Additionally, this bill would not specify that in the event that
DHCS would be required to pay hospitals more in supplemental
payments to meet their federal UPLs than there were existing fee
revenues and matching federal funds available, there would be
considerable pressure on the General Fund to ensure that DHCS
pay hospitals up to the levels required by this bill. Since the
fee methodology is intended to be included in the subsequent
legislation required by this bill and would set the coverage
dividend fees and amounts payable in statute, it is unknown
whether or not DHCS would have the necessary flexibility within
the fee methodology to alleviate this General Fund pressure.
Staff notes that adding language to the second bill that would
stipulate that the fee revenues should be an amount sufficient
to meet the levels of supplemental payments and the DHCS
administrative costs required by this bill would help alleviate
this General Fund pressure.