BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1383 (Jones)
Hearing Date: 9/11/2009 Amended: 9/4/2009
Consultant: Katie Johnson Policy Vote: Health 9-1
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BILL SUMMARY: AB 1383, an urgency measure, would impose a
quality assurance fee on all eligible general acute care
hospitals for as a condition of participation in state-funded
health insurance programs, other than the Medi-Cal program. The
bill would subsequently make payments to hospitals, as
specified, using the fee revenues and available matching federal
funds. The bill would sunset January 1, 2013.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
QAF revenue (about $2 billion annually) Special*
Matching federal funds (about $2.3 billion annually) Federal
Payments to hospitals, about $3.7 billion annually Special/*
including by managed care and Federal
mental health plans
Grants to designated $310 million annually Special*
public hospitals (DPHs)
(unmatched by federal funds)
Payments for children's health $320 million annually Special*
coverage (matching federal funds
likely, but unknown at this time)
DHCS administration of $2,000 ongoing
unknownSpecial/**
the QAF likely hundreds of thousands of dollars
annually,Federal
fully offset in outyears by loan from the Private
Hospital
Supplemental Fund and QAF monies and in 09-10 if
federal
approval is granted
*Hospital Quality Assurance Revenue Fund
**Private Hospital Supplemental Fund-start-up costs covered by a
$1 million loan from this fund. Matched equally by federal
funds.
***Revenue and payments are based on a model provided by the
California Hospital Association on which the methodology in the
bill is based.
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
*However, since this bill was referred to the Senate
Appropriations Committee pursuant to Senate Rule 29.10(b), the
committee cannot choose to move the bill to its Suspense File.
The committee may only pass the bill back to the floor or hold
it in committee.
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AB 1383 (Jones)
Quality Assurance Fee
Existing federal law establishes Medicaid, 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.
Many states, including California, utilize provider fees to fund
a portion of the state share of health care costs. Providers of
health care services pool funds that then draw down matching
federal funds and enable states to increase provider
reimbursement rates for services provided to Medicaid
beneficiaries. 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 SNFs,
and a quality assurance fee on intermediate care facilities for
the developmentally disabled (ICF-DD).
Existing federal law requires that provider fees levied by
states must conform to specified standards: 1) be broad-based;
2) be imposed uniformly on an industry; and 3) not violate
specific hold harmless provisions, meaning that there cannot be
a correlation between the amount that an entity pays and the
amount that it receives back in increased rates. As a result of
these standards, there are some providers who benefit and some
who do not. According to a model provided by the California
Hospital Association on which the fee and payments in this bill
are based, a majority of hospitals would benefit from this bill,
meaning that they would receive more in supplemental payments
than they would pay in the fee. One system and 17 independent
hospitals would be net contributors, meaning that they would pay
more in the fee than they would receive in supplemental
payments.
This bill would impose a quality assurance fee (QAF) on each
general acute care hospital, except for those that are exempt,
as a condition of participation in state-funded health insurance
programs, other than the Medi-Cal program. This bill would
require that Medi-Cal payments to hospitals under the current
1115 hospital 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 federal fiscal years
2008-2009, 2009-2010, and 2010-2011 for which CMS approves the
QAF. 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, as estimated by the model provided by the California
Hospital Association, and, as such, the revenue collected from
the QAF would likely approximate that amount.
For example, if a hospital that treats children in the
California Children Services (CCS) program, a public program
that provides treatment and case management for children with
specified diseases and conditions, and does not pay its QAF, it
would be ineligible
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AB 1383 (Jones)
to participate in CCS. As staff notes below, this bill would
become inoperative if the QAF revenues were used for purposes
other than those permitted by these provisions.
QAF Assessment and Revenues
For purposes of this analysis, it is estimated that total QAF
revenue would equal approximately $2 billion, based on the model
provided by the California Hospital Association. The
supplemental payment rates discussed below are also based on
this model.
The QAF would be calculated beginning on the effective date of
this bill and would continue through and include December 31,
2010. This bill would provide timelines for the certification of
intent of payment by a hospital and remittance of the fee to
DHCS. The fee would be paid to DHCS within 30 days after the
date of federal approval. Since this bill is an urgency measure,
it would take effect immediately. This bill would provide that
effective January 1, 2011, the QAF would be assessed only if a
subsequent statute establishes a methodology for the revenues
would be apportioned. Also, commencing January 1, 2011, the
rates payable to hospitals and managed health care plans under
Medi-Cal would be the rates then payable without the
supplemental and enhanced payments set forth in this bill.
Hospitals would be required to pay an aggregate QAF amounts to
DHCS, which would deposit them into the Hospital Quality
Assurance Revenue Fund along with any matching federal funds,
and would include the following:
1) $233.66 per fee-for-service day;
2) $27.25 per managed care day;
3) $293 per Medi-Cal day.
The days would be based on 2007 utilization data as reported to
the Office of Statewide Health Planning and Development (OSHPD),
unless otherwise specified.
This bill would state that if the federal government denies
approval or does not approve the QAF before January 1, 2012, the
provisions that would require hospitals to pay the QAF would
become inoperative.
This bill would permit DHCS to assess penalties on hospitals
with overdue payments, including deduct the unpaid assessment
and interest from any Medi-Cal payments or other state payments
until the full amount is recovered.
Supplemental Payments to Hospitals
Medi-Cal costs are generally shared equally between the federal
government and state General Fund. However, as a result of the
passage of the American Reinvestment and Recovery Act (ARRA) in
February of 2009, the Federal Medical Assistance Percentage
(FMAP) increased from 50 percent to approximately 62 percent.
Thus, retroactively from
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AB 1383 (Jones)
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. After December 31, 2010, the FMAP reduces
to 50 percent federal funds, 50 percent General Fund.
This bill would appropriate $13.5 billion from the Hospital
Quality Assurance Revenue Fund, which would be available for
expenditure until January 1, 2013, when these provisions would
become inoperative, to enhance federal financial participation
for hospital services under Medi-Cal and to make subsequent
payments for specified purposes in following order of priority:
1) to pay for DHCS's staffing and administrative costs
directly related to implementing this bill and to repay the
$1 million loan made to DHCS from the Private Hospital
Supplemental Fund;
2) to pay necessary administrative fees to mental health
plans;
3) to pay for health care coverage for children in the
amount of $80 million each quarter during a federal fiscal
year that begins on or after this bill's implementation
date and ends on or before December 31, 2010;
4) to make increased payments to hospitals, as specified by
the methodologies in this bill;
5) to make increased payments to managed health care plans,
as specified by the methodologies in this bill;
6) to make increased payments to mental health plans, as
specified by the methodologies in this bill.
The $13.5 billion appropriation would function in an "up to"
manner, meaning that hospital payments, until January 1, 2013,
could total up to $13.5 billion if the QAF was approved for
federal fiscal years 2008-2009, 2009-2010, and 2010-2011. The
appropriation would not mean that the state would be obligated
to pay $13.5 billion in supplemental payments over the life of
the bill.
Additionally, this bill would appropriate $1 million from the
Private Hospital Supplemental Fund to DHCS to pay for its
up-front administrative costs. These funds would be matched by
$1 million federal funds. Together, these funds would meet the
estimated staffing needs of DHCS. If the QAF receives federal
approval, these funds would be repaid by the QAF revenues.
This bill would make several types of supplemental payments to
hospitals during the federal fiscal years 2008-2009, 2009-2010,
and 2010-2011, contingent upon federal approval, as follows.
A) $310 million annually for designated public hospitals (DPHs)
in direct grants. Each hospital's share would be based on the
data submitted by DPHs in the Interim Hospital Payment Rate
Workbooks on or around June 2009, for the state FY 2007-2008. 80
percent of a hospital's share of the annual amount would be
determined by the certified public expenditures (CPEs) reported
as allowable Medi-Cal expenditures in the
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AB 1383 (Jones)
Workbooks for that hospital divided by the total CPEs of all
DPHs. The remaining 2 percent of a hospital's share of the
payment would be determined by the number of the uninsured days
of inpatient hospital services it reported in the Workbooks
divided by the total number of uninsured days reported by all
DPHs. The DPHs would also receive $485 for each acute
psychiatric day that was paid by DHCS and was not the
responsibility of a mental health plan.
B) $80 million each quarter the QAF is in effect to fund
children's health care coverage. These funds would be available
to be matched by federal funds, such as those provided under the
Children's Health Insurance Program (CHIP). The Healthy Families
Program (HFP) is California's version of CHIP. Cost sharing for
HFP is 35 percent state funds and 65 percent federal funds. The
QAF revenue could constitute the state fund share.
C) Unknown amounts in the millions of dollars to private
hospitals for outpatient services, based on its percentage of
outpatient services provided when compared to other private
hospitals.
D) Unknown amounts in the millions of dollars to private
hospitals for inpatient and subacute services based on the
following methodology:
1) $647.70 for each general acute care day;
2) $485 for each acute psychiatric day that was
paid by DHCS and was not the responsibility of a
mental health plan;
3) $1,350 for each high acuity day if the Medi-Cal
inpatient utilization, as specified;
4) an amount equal to 50 percent of subacute
payments made to a hospital in the 2008 calendar
year, pursuant to specified conditions.
(E) Unknown amounts in the millions of dollars to nondesignated
public hospitals for inpatient services based on the following
methodology:
1) $218.82 for each general acute care day;
2) $485 for each acute psychiatric day that was
paid by DHCS and was not the responsibility of a
mental health plan.
(F) Unknown amounts in the millions of dollars to managed care
plans that cover Medi-Cal beneficiaries which would be directly
passed through to hospitals. The last enhanced payments would be
made during December 2010, and would include payments for the
2010-2011 federal fiscal year to the extent that federal
financial participation is available.
(G) Unknown amounts in the millions of dollars to mental health
plans in the form of enhanced payments which would be passed
through to hospitals for payment for acute psychiatric days. The
last enhanced payments would be made during November 2010 and
would include any payments for the 2010-2011 federal fiscal year
to the extent that federal financial participation is available.
DHCS would be permitted to allocate money from the Hospital
Quality Assurance Revenue Fund to the Department of Mental
Health (DMH) for the purposes of making these enhanced payments.
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AB 1383 (Jones)
Staff notes that this bill would provide that the amount of
supplemental payments would be adjusted to reflect the amount of
federal financial participation available.
This bill would create a contractually enforceable promise on
behalf of the state to use the proceeds of the QAF, including
any federal matching funds, solely and exclusively for the
prescribed purposes.
This bill would provide that any QAF revenues in excess of the
amount necessary to implement this bill would be refunded to the
general acute care hospitals that originally paid the QAF or to
the Distressed Hospital Fund if returning funds to hospitals is
not permissible.
This bill would permit the department to modify this bill's
payment methodologies, in consultation with the hospital
community, to the minimum extent necessary to meet the
requirements of federal law or regulations or to obtain federal
approval and would require the department, commencing January 1,
2010, and quarterly thereafter, to update the appropriate fiscal
and policy committees of the Legislature and the Joint
Legislative Budget Committee of the status of the implementation
of these provisions. This bill would permit DHCS to implement
these provisions by means of provider bulletins, all plan
letters, or similar instructions, without the promulgation of
regulations.
A change in the methodology would be permitted so long as:
1) the change does not reduce or increase the supplemental
payments more than 2 percent of the amount that would be
determined by the methodology set forth in its current form,
and;
2) reduces or increases the amount of the fee payable by a
hospital in total by more than 2 percent when compared to the
amount that it would have paid under the methodology currently
in the bill.
Implementation
This bill would require DHCS to submit any state plan amendment
or waiver request that may be necessary to implement these
provisions and to seek federal approval for the use of the
entire federal UPL applicable to hospital services and for
federal financial participation for payments for the 2008-2009,
2009-2010, and 2010-2011 federal fiscal years. It would require
DHCS to negotiate federal approval for the federal fiscal years
2009-2010 and 2010-2011 in conjunction with the negotiation of
the federal hospital payment waiver that will replace the
current section 1115 waiver.
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 designated public,
private, and nondesignated public 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
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AB 1383 (Jones)
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 2009-2010, or October 1, 2010. The state
will be negotiating a waiver to replace the current 1115 waiver
in 2010 and this bill would require DHCS to negotiate the waiver
renewal concurrently with federal approval for these provisions.
This bill would permit DHCS to use the services of the Medi-Cal
fiscal intermediary to implement this article and would provide
that such contracts would not be subject to the Public Contract
code.
This bill would provide that these provisions would be
implemented only if all of the following conditions were met:
1) the QAF is established in a manner that is consistent
with these provisions;
2) the QAF is deposited in a fund apart from the General
Fund;
3) the QAF proceeds may only be used for the purposes of
these provisions.
This bill would provide that hospitals would not be required to
pay the QAF to DHCS until the state receives and maintains
federal approval and the fee has been imposed and collected. It
would require hospitals to pay the fee only as long as all of
the following conditions are met:
1) CMS permits the use of the QAF;
2) Hospitals are reimbursed the increased rates beginning
on the specified implementation dates;
3) The full amount of the QAF is collected and remains
available only for the purposes specified in this article;
4) On and after January 1, 2011, a subsequent statute is
effective that establishes how the revenue from the QAF due
and payable would be apportioned.
This bill would provide that the provisions of this bill would
become inoperative if there were a judicial determination that
this bill cannot be implemented, or if CMS denies approval for
or does not approve the QAF prior to January 1, 2012, or if the
model cannot be modified by DHCS to meet the requirements to
obtain federal approval. DHCS would be permitted to recoup all
payments made to hospitals under these provisions.
This bill would prohibit the implementation of these provisions
with respect to the 2009-2010 and 2010-2011 federal fiscal years
until the earlier date of April 30, 2010, or the approval of a
federal waiver that would replace the current section 1115
waiver.
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This bill would provide that payments would be made to hospitals
only in those quarters for which a fee payment obligation
exists.
This bill would permit DHCS to decide to not implement this bill
in the event that a lawsuit related to these provisions would
result in a financial disadvantage to the state or significant
costs to the General Fund, as defined.