BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: AB 1383
A
AUTHOR: Jones
B
AMENDED: September 4, 2009
HEARING DATE: September 9, 2009
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CONSULTANT:
3
Dunstan/cjt
8
3
PURSUANT TO S.R. 29.10
SUBJECT
Medi-Cal: hospitals: supplemental payments: quality
assurance fee
SUMMARY
Imposes a fee, termed a quality assurance fee, on
hospitals, except for designated public hospitals, for a
period that would end on December 31, 2010. Requires the
Department of Health Care Services (DHCS) to submit state
plan amendments to the federal government and seek any
necessary approvals to implement a system of supplemental
payments for hospitals, as specified. Requires revenue
from the fee to be used only to make specified increased
Medi-Cal payments to hospitals, the administrative costs of
DHCS and to pay for health care coverage for children.
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)
Continued---
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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
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.
Requires that rates paid to providers by states must be
consistent with specified federal law and standards.
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). Provides that DHCS make
payments under the waiver to public hospitals.
Establishes the Safety Net Care Pool (SNCP) to provide the
federal funds available under the hospital demonstration
project to designated public hospitals to ensure continued
government support for the provision of health care
services to uninsured populations.
Defines a designated public hospital to be a county or
University of California hospital specifically named in the
statute implementing the federal waiver. Defines a
nondesignated public hospital as any other public hospital.
Establishes methods for administering the federal DSH
program payments and a formula that DHCS must use to
allocate payments to designated public hospitals. Provides
replacement DSH funding for private hospitals that would
otherwise qualify for the DSH program.
Imposes several provider fees in the Medi-Cal program,
including a quality improvement fee on Medi-Cal managed
care plans and a quality assurance fee on both skilled
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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.
Requires the Department of Mental Health (DMH) to implement
managed mental health care for Medi-Cal beneficiaries
through fee-for-service or capitated rate contracts with
county mental health plans, as well as other entities.
This bill:
Supplemental payments to hospitals
Requires hospitals to be paid supplemental payments which,
when combined with their other Medi-Cal payments, would be
in an amount equal to the upper payment limit for hospital
outpatient and inpatient services, as specified. (The
federal UPL is a reasonable estimate of the amount that
would be paid for Medicaid services under Medicare payment
principles.)
Requires private hospitals to be paid a new supplemental
payment for their Medi-Cal hospital outpatient days.
Requires private hospitals to be paid a new supplemental
payment for their Medi-Cal hospital inpatient services
and subacute services, which would be determined using a
formula based on the hospitals' general acute care days,
Medi-Cal fee for service acute psychiatric days, high
acuity days and the hospital's designation as a trauma
center, as specified.
Requires nondesignated public hospitals, which are public
hospitals not designated in the hospital waiver and are
typically owned and operated by a special district, to be
paid a new supplemental payment for their Medi-Cal
hospital inpatient services, which would be determined
using a formula based on the hospital's general acute
care days and Medi-Cal fee-for-service acute psychiatric
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days.
Requires designated public hospitals to be paid direct
grants and specifies a formula for calculating the amount
of their grant payments.
Provides that designated public hospitals shall be paid a
supplemental payment based on the number of their
Medi-Cal fee for service acute psychiatric days.
Provides that if adequate federal financial participation
is not available, all supplemental payments shall be made
according to a specified methodology.
Requires that a hospital's receipt of payments is
conditioned on the hospital's continued participation in
Medi-Cal for at least 30 days after the effective date of
this bill.
Defines hospitals that are eligible for receiving payments
under the provisions of the bill.
Provides that hospitals that convert ownership categories
shall not receive payments for the year in which they
convert or any subsequent fiscal years. Provides that no
payments shall be made to new hospitals, defined as
hospitals that were not in operation during the current
federal fiscal year.
Clarifies that the supplemental payments under the bill are
in addition to DSH replacement and supplemental payments,
and do not impact eligibility for DSH payments, DSH
replacement payments or stabilization payments under the
existing hospital waiver.
Provides that the baseline payment rates for hospital
services that are used to calculate the supplemental
payments under the bill shall be not be reduced below the
rates in effect on the effective date of this article.
Managed care plan payments
Requires DHCS to pay Medi-Cal managed care plans enhanced
payments as part of the monthly capitated payment for the
exclusive purpose of making supplemental payments to
hospitals for the provision of Medi-Cal hospital services.
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Requires each Medi-Cal managed care plan to pay the entire
amount of the enhanced payment for hospital services.
Prohibits managed care plans from taking these payments
into consideration when negotiating other payments with
hospitals.
Provides that any interest earned by Medi-Cal managed care
plans on the enhanced payments shall be in lieu of an
administrative fee that DHCS might otherwise pay to the
plans. Allows DHCS to implement the enhanced payments to
managed care plans through a county letter or similar
instructions without adopting regulations.
Requires DHCS to pay enhanced payments to Medi-Cal mental
health plans for the exclusive purpose of making
supplemental payments to hospitals for hospital mental
health services. Requires each mental health managed care
plan to pay the entire amount of the enhanced payment for
hospital services. Allows DHCS, if the director determines
the payments can be lawfully made, to pay the hospitals
directly without transmitting the money through mental
health managed care plans.
Requires DHCS to notify hospitals that would receive
supplemental payments from mental health plans and managed
care plans. Requires DHCS to determine the amount of the
supplemental payment due to each subject hospital.
Administration
Requires DHCS to submit any state plan amendment or waiver
request that is necessary to implement the bill. Directs
DHCS to seek federal approval for the use of the entire
federal upper payment limits applicable to hospitals.
Mandates that DHCS seek federal approvals or waivers and
obtain federal financial participation to the maximum
extent possible for the payments under this article.
Requires DHCS to amend the contracts between the state and
the managed health care plans as necessary to incorporate
the provisions related to the enhanced payments to
hospitals by managed care plans. Authorizes DHCS to use a
fiscal intermediary to administer this program and exempts
any such contract or contract modification from the public
contract code.
Provides a mechanism for reducing or eliminating hospital
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payments if a hospital is closed.
Requires DHCS to provide the Joint Legislative Budget
Committee and the fiscal and appropriate policy committees
of the Legislature a status update of the implementation of
this bill on January 1, 2010 and quarterly thereafter.
Exempts DHCS from the requirement to prepare regulations,
and allows DHCS to implement this bill by means of provider
bulletins, all plan letters or other similar instructions.
Requires DHCS to notify the Joint Legislative Budget
Committee and the fiscal and appropriate policy committees
within five days if such action is taken.
Establishes as the implementation date as the latest
effective date of all federal approvals or waivers
necessary for the implementation of this bill.
Payment of the quality assurance fee
Requires each general acute care hospital, to pay a quality
assurance fee as a condition of participation in
state-funded health insurance programs, other than the
Medi-Cal program. Exempts several categories of hospitals
from paying the fee, including designated public hospitals,
long-term care hospitals, specialty hospitals and small and
rural hospitals.
Provides a timetable for DHCS to calculate the quality
assurance fee that is due and to provide notice to
hospitals that are not exempt, and by which hospitals must
agree to pay and pay the quality assurance fee. Provides
timelines both for during the periods prior to and after
federal approval. Provides that the provisions related to
the fee are inoperable if the federal government does not
approve the implementation of the article by January 1,
2012.
Requires that late payments be subject to interest at the
same rate at which DHCS assesses interest on Medi-Cal
hospital overpayments that are not repaid when due. After
a specified period, allows DHCS to deduct the amount owed
by a hospital from payments that are made under the
Medi-Cal program or from other state payments to a
hospital. Provides that the payment of the quality
assurance fee is not an allowable cost for Medi-Cal cost
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reporting and reimbursement purposes.
Requires DHCS to work with the hospital community to
implement the quality assurance fee.
Provides that the bill creates a contractually enforceable
promise on behalf of the state to use the proceeds of the
quality assurance fee, including any federal matching
funds, solely and exclusively for the purposes set forth in
the bill. Provides that the contractually enforceable
promise extends to maintaining and continuing reimbursement
levels as set forth in the bill and to otherwise comply
with the state's obligation as set forth in the bill.
Establishes that effective January 1, 2011, the rates
payable to hospitals and managed care plans under Medi-Cal
shall be the rates that are payable under existing law,
without the supplemental and enhanced payments created by
this bill. Provides that the supplemental payments shall
be regarded as quality assurance payments, and that
eliminating them does not affect a determination of the
adequacy of any rates under federal law.
Treatment of quality assurance fee revenues
Creates the Hospital Quality Assurance Revenue Fund.
Provides that any interest or dividends shall be retained
and deposited into the fund. Provides that all revenues in
the fund shall be appropriated by the Legislature and used
exclusively to enhance federal financial participation for
hospital services under Medi-Cal and to provide payments to
hospitals.
Limits use of funds derived from the quality assurance fee
to paying for the administrative costs of DHCS, providing
children's coverage in the amount of $80 million per
quarter, making enhanced payments to hospitals and making
enhanced payments to managed care plans, including Medi-Cal
mental health plans. Requires any excess funds collected
from hospital be remitted to hospitals.
Federal approval
Requires DHCS to request approval of the program
established in the bill from the federal government.
Directs DHCS, when seeking approval, to request exemption
of certain providers, as specified in the bill. Allows
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DHCS to modify the methodology in this bill, in
consultation with the hospital community, to the extent
necessary to obtain federal approval.
Allows modifications to be made by DHCS only if the
modifications do not:
a. Reduce or increase the grants or supplemental
payments over the life of the program by more than
two percent from the amount which would be determined
under this bill without the modification.
b. Reduce or increase the amount of the fees
payable by a hospital over the life of the program by
more than two percent from the amount that which
would be determined under this bill without the
modification.
Requires DHCS to provide the Joint Legislative Budget
Committee and the fiscal and appropriate policy committees
of the Legislature information on any modifications
undertaken to gain federal approval.
Payment contingencies
Allows DHCS to decide not to implement, or discontinue
implementation and to retroactively invalidate the
requirements, if any of the following occur:
a. A lawsuit is filed that has a substantial
possibility of financially disadvantaging the state.
b. A lawsuit is filed that to defend against is likely
to result in a significant cost to the General Fund.
c. DHCS determines that the implementation of this
article has resulted or will result in a financial
disadvantage to the state.
Defines what constitutes a financial disadvantage to the
state as either loss of federal financial participation or
a General Fund cost.
Allows DHCS to recoup payments if any of the following
occur.
a. A court orders such recoupment
b. Federal financial participation is not available.
c. Recoupment is necessary to prevent an impact to the
General Fund.
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Requires DHCS to notify the fiscal and appropriate policy
committees of the Legislature of the intended action and
the specific reasons that make the action necessary.
Prohibits DHCS from making payments to any hospital that
initiates a case or proceeding seeking relief based on the
contention that this article is unlawful and may not be
implements, until the case is resolved, including final
disposition of all appeals.
Financing of program costs
Appropriates $1 million from the Private Hospital
Supplemental Fund, the fund for paying DSH replacement
funds to private DSH hospitals, to DHCS for staffing and
administrative costs necessary to implement the provisions
of the bill. Provides that if the federal government
approves the implementation of the fee, the Private
Hospital Supplemental Fund shall be reimbursed $1 million
and provides that if the federal government does not
approve the implementation of the fee, any unexpended
monies shall revert to that fund.
Appropriates $13.5 billion from the Hospital Quality
Assurance Revenue Fund, to be available for expenditure
until January 1, 2013.
Relationship to the hospital waiver
Provides that any payments made during the 2008-2009
federal fiscal year shall not reduce the maximum federal
funds that are available under the current Section 1115
waiver for hospital financing.
Provides that the bill's provisions shall not be
implemented after the date the federal government approves
a federal waiver a demonstration project that will replace
the current waiver.
Requires DHCS to negotiate the federal approval for the
program created by this bill in conjunction with the
negotiations for the new federal hospital waiver. Directs
DHCS to explore Medi-Cal program reforms and pursue
strengthening the safety net during negotiations for the
waiver.
Effective dates and conditions
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Establishes as the implementation date the latest effective
date of all federal approvals or waivers necessary for the
implementation of this bill.
Provides that provisions related to the quality assurance
fee shall only be implemented so long as the following
conditions are met.
a. The quality assurance fee is established in a
manner that is fundamentally consistent with this
article.
b. The proceeds from the quality assurance fee and any
interest are deposited into a segregated fund apart
from the general fund.
c. The proceeds of the fee, including any interest,
penalties and related federal reimbursement are used
only for the purposes set forth in this article.
Establishes that the quality assurance fee shall be
computed by DHCS starting on the effective date of the fee
provisions of the bill. Provides that all of the
provisions of the bill are operative only until January 1,
2013 and as of that time are repealed.
Requires that the provisions of the bill shall become
inoperative if either of the following occur:
a. The federal government or an appellate court
determines that any element of this article cannot be
implemented.
b. The federal government denies approval or does not
approve by January 1, 2012 and DHCS cannot lawfully
modify the provisions of this bill to gain federal
approval.
Establishes that this is an urgency statute and 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
The sponsors estimate that this fee would result in the
state collecting about $2 billion annually from hospitals.
From that amount, $320 million would be used for children's
coverage and could be used as the state match to draw down
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federal funds, consistent with federal law. Of the
remainder, $310 million would be used for grants to
designated public hospitals, leaving approximately $1.4
billion of the funds collected from hospitals which would
be available for supplemental payments to hospitals. These
funds would be matched with federal Medicaid funds,
currently at a sharing ratio of 38 percent state and 62
percent federal. The American Recovery and Reinvestment
Act increased California's matching rate, which although it
varies by program, generally the increase is from 50
percent to 62 percent, for nine quarters, ending December
31, 2010, at which point it reverts to 50 percent for most
expenditures. This match provides approximately $2.3
billion in additional federal funds. Total payments to
hospitals from this bill would exceed $4 billion.
According to modeling conducted by the California Hospital
Association, the great majority of hospitals would benefit,
i.e. they would receive more in payments than they pay in
fee. One system and 17 independent hospitals would be net
contributors, meaning they pay more in the fee than they
receive in supplemental payments.
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
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Federal Medicaid Assistance Percentage made available to
California through the federal stimulus legislation, which
will enable the state to draw 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).
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.
Because the supplemental amounts paid to hospitals under
this bill are in addition to any other amounts payable to
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the hospital for inpatient services, and because this bill
requires Medi-Cal rates for inpatient services to result in
aggregate payments up to the federal UPL, the role of CMAC
would be diminished while this bill is in effect.
Last session, two budget measures affected non-contract
hospital reimbursement: the mid-year reduction bill in
February 2009 (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. ABX3 5 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 ABX3 5 or the regional average CMAC
per diem contract rate, reduced by five percent and
multiplied by the number of Medi-Cal covered inpatient
days.
On April 6, 2009, the U.S. Court of Appeal 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 Appeal
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
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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
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 have resulted 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.
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. The purpose of the QAF is
to provide an incentive for facilities to spend more
in certain areas, such as labor.
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.
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The QAF revenues are projected to rise, 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 proposed 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 addressing the cost
shift to insured individuals, families, and employers
attributable to low Medi-Cal payment rates.
Hospital waiver
In 2005, a California waiver agreement with the federal
government restructured the way Medi-Cal funding is used to
fund in-patient hospital services. 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.
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
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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 health care
to Medi-Cal recipients and the uninsured. Twenty
designated public hospitals, including the five UC
hospitals, currently use CPEs to claim federal funds under
Medi-Cal, including DSH payments.
Under the current waiver, public hospitals have access to
over $1 billion in federal DSH funds to pay for
uncompensated care provided to Medi-Cal and uninsured
patients,. DSH funding is a capped allocation of federal
funds and is accessible to public hospitals, using CPEs and
intergovernmental transfers as the state match. Public
hospitals are also able to access SNCP funding under the
waiver, which is a federal allotment of over $700 million.
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, 2005 and extends 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.
For safety-net hospitals, the waiver is critical for their
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.
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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 Appropriations 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, among its other provisions, 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
Act.
Arguments in support
Supporters write that this proposal will bring in new
federal dollars to the state to improve hospital Medi-Cal
payments and provide significant funding for healthcare
coverage for California's children. They argue that this
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will all occur at no cost to the state, to taxpayers or to
patients. They point out that in 2008, California's
hospitals received $4 billion less in payments than the
actual cost of providing care to California's Medi-Cal
beneficiaries, threatening the ability for many hospitals
to continue to provide vital services including emergency
rooms and trauma centers. The results of this, the
supporters argue impacts all Californians. They argue that
this bill will provide a mechanism to address the
increasing need for Medi-Cal services as more Californians
are left without job-based coverage because of increasing
unemployment rates.
The Daughters of Charity Health System, a co-sponsor,
argues that the essential payments provided for in AB 1383
are essential to hospitals continued ability to provide
quality health care services for Medi-Cal and uninsured
individuals. The Private Essential Access Community
Hospitals (PEACH) supports this bill because it provides a
means for preventing the collapse of the state's vital
private safety net hospitals. 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.
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.
Arguments in opposition
Anthem Blue Cross opposes the bill because it establishes a
highly complex framework that includes a significant amount
of new language that they do not believe is necessary for
drawing down such funds. In general, Anthem Blue Cross is
concerned that the framework included in this bill will
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result in new costs and administrative burdens on Medi-Cal
managed care plans. Specifically, they object to the
language stating that the supplemental payments cannot be
taken into consideration for negotiating contracts. They
also oppose provisions requiring plans must provide
documentation to hospitals as they believe that compliance
should rest with DHCS, not the individual hospitals.
PRIOR ACTIONS
Senate Appropriations: 8-5
Senate Health: 7-3
Assembly Floor: 71-3
Assembly Appropriations:12-4
Assembly Health: 15-0
COMMENTS
1.Process that this bill has followed.
This bill was heard by the Senate Health Committee on
June 25th, 2009. At the time, the authors and sponsors
stated that the bill represented a starting point for
discussion leading to the framework for a hospital fee.
They envisioned a second bill which would reflect the
important decisions that had not been made at that time,
including the decisions about the fee rate, the base the
rate is applied to, and possible exemptions to the second
bill. The two bill strategy was dropped and the original
bill was amended to contain the necessary elements that
were lacking when first heard by this committee.
2.Urgency clause and urgency of issue.
The major reason that the first bill was heard as a
general framework for a hospital fee that lacked details
on the level of the fee and supplemental payment levels
was that the author and sponsors argued that the bill
should be enacted by, or very close to, June 30, the last
day of the third quarter of the federal fiscal year.
They argued this would increase the state's chances of
gaining federal approval sooner, which would maximize the
amount of federal funds that could be drawn down. At the
time, others, including DHCS, vehemently disagreed with
the need to enact a bill by June 30th. Since the bill
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20
was not enacted, the committee may want to hear from DHCS
and the author or sponsor about what federal funding, if
any, was lost and what the outlook is for gaining the
maximum amount of federal funds.
3.Concern has been expressed about the relationship between
the provider fee established by this bill and the
negotiations for the state's next 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.
There are concerns that this proposal could hurt the
state's negotiating position for the new waiver and
perhaps even lead to reduced federal funding. To allay
these concerns, the author has taken amendments that
require the negotiations with the federal government over
this bill to proceed in concert with the negotiations
over the waiver, and to make its full implementation
conditioned upon waiver approval.
4. The bill directs funds for children's coverage.
The bill directs that a portion of the proceeds from the
quality assurance fee be used for coverage of children.
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 debate in the 2007-08 Session, 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 made to health
programs in the last year. While providing coverage for
children is worthy, there are many other worthy health
programs the Legislature could choose to fund. The bill
could limit the flexibility of the Legislature to make
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those choices by earmarking the funds for children's'
coverage.
5. Other provisions of the bill could limit the
Legislature's flexibility.
The bill states that the bill creates a contractually
enforceable promise on behalf of the state to use the
proceeds of the quality assurance fee, including any
federal matching funds, solely and exclusively for the
purposes set forth in the fee provisions of the bill.
If a court was to uphold the bill's provisions as being
an enforceable contract, it could limit the
Legislature's flexibility. The supporters would argue
that this is precisely what is intended and that since
hospitals are willingly and voluntarily entering into
this fee arrangement, they should have some assurance
that the state will comply with the negotiated
agreement. Nevertheless, the ability of the Legislature
to use the funds for other purposes and to otherwise
reduce hospital rates could be limited. For example, if
the Legislature wanted to use some of the funds that are
earmarked for children's coverage to restore cuts that
have been made in the Medi-Cal program, it seems
plausible to argue that violates the contractually
enforceable promise.
6. Hospitals have announced that they plan a ballot
initiative for November 2010.
According to the California Hospital Association, one of
the bill's sponsors, the purpose of the initiative would
be to protect hospitals by establishing a new payment
system for Medi-Cal. They argue that the current system
with CMAC negotiating contracts has led to hospital
rates that have fallen far below the actual cost of
providing care to Medi-Cal beneficiaries.
POSITIONS
Support: California Children's Hospital Association
(cosponsor)
California Hospital Association (cosponsor)
Daughters of Charity Health System (cosponsor)
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Adventist Health
California Association of Public Hospitals and
Healthy Systems
Catholic Healthcare West
Local Health Plans of California
Loma Linda University Medical Center
Private Essential Access Community Hospitals (PEACH)
United Hospital Association
Oppose: Anthem Blue Cross
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