BILL ANALYSIS
AB 1383
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 1383 (Jones)
As Amended September 12, 2009
Majority vote
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|ASSEMBLY: | |(June 2, 2009) |SENATE: | |(September 12, |
| | | | | |2009) |
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(vote not relevant) (vote not available)
Original Committee Reference: HEALTH
SUMMARY : Establishes a provider fee on hospitals, matches a portion
of revenues collected from the fee with federal funds in the
Medi-Cal program at an enhanced match, provides funding for
supplemental payments to hospitals that serve Medi-Cal and uninsured
patients, provides direct grants to designated public hospitals
(DPH), funds health coverage for children, and provides funds for
the Department of Health Care Services (DHCS) for the direct costs
of administering the program.
The Senate amendments delete the Assembly approved version of this
bill and instead:
1)Establish a quality assurance fee on acute care hospitals as a
condition of participation in state-funded health insurance
programs, other than the Medi-Cal program.
2)Make the fee effective upon federal approval for all or a portion
of the 2009, 2010 and 2011 federal fiscal years (FFY), and sunset
the fee on January 1, 2011, when the temporary enhanced federal
matching ratio (FMAP) of 61.59% is scheduled to sunset.
3)Establish a per diem fee rate to be paid by hospitals of $27.25
per non-Medi-Cal managed care day, $293 per Medi-Cal inpatient
day, and $233.66 per non-Medi-Cal fee-for-service day.
4)Specify timelines for DHCS to calculate the fee for each hospital,
notify the hospitals, and for each hospital to pay the designated
amount.
5)Authorize DHCS to assess interest and penalties on overdue fees
and to deduct amounts owed from other payments to the hospital.
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6)Create the Hospital Quality Assurance Revenue Fund (HQAR) for
deposit of the fee, plus FMAP funds, to be used exclusively as
authorized in this bill in the following priority:
a) Administrative costs incurred by DHCS for implementation of
this bill;
b) Health coverage for children up to $80 million per quarter;
c) Grants and supplemental payments to hospitals, as specified;
d) Increase payments to Medi-Cal managed care (MCMC) plans and
require the funds to be passed through to hospitals; and,
e) Increase payments to Medi-Cal mental health (MCMH) plans and
require the funds to be passed through to hospitals.
7)Create a contractually enforceable promise on behalf of the state
to use the proceeds only for the specified purposes and to comply
with all obligations imposed pursuant to this bill.
8)Direct DHCS to make supplemental payments as follows:
a) For private hospital outpatient services, a pro rata share
using 2007 paid claims data;
b) For private hospital inpatient services and sub-acute
hospital services:
i) Six hundred forty-seven dollars and seventy cents
($647.70) for each general acute day;
ii) Four hundred eighty-five dollars ($485) for each acute
psychiatric day directly reimbursed by DHCS;
iii) An additional one thousand, three hundred fifty dollars
($1,350) for high acuity days, as defined, for hospitals that
qualify as moderate Disproportionate Share Hospitals (DSH);
iv) An additional one thousand, three hundred fifty dollars
($1,350) for high acuity days to hospitals with certain
trauma centers, as specified; and,
v) Fifty percent of the amount of Medi-Cal sub-acute
payments to hospitals for sub-acute services;
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c) For district hospitals:
i) Two hundred eighteen dollars and eighty-two cents
($218.82) for each acute hospital inpatient day; and,
ii) Four hundred eighty-five dollars ($485) for each acute
psychiatric day reimbursed directly by DHCS;
d) For DPHs operated by a county and the University of
California, four hundred eighty-five dollars ($485) for those
acute psychiatric days reimbursed directly by DHCS;
e) For hospital services provided in the MCMC program:
i) For DPH and private hospitals, one thousand, three
hundred forty-one dollars and eighty-nine cents ($1,341.89)
for each managed care day; and,
ii) For district hospitals, three hundred seventy-five
dollars ($375) for each managed care day;
f) For hospital services provided through a MCMH plan, four
hundred eighty-five dollars ($485) for each acute psychiatric
day;
9)Establish direct grants to DPHs. Specify a methodology for
allocating the amount to each hospital as follows:
a) Eighty percent distributed based on each hospital's pro rata
share of certified public expenditures under the Medi-Cal
Hospital/Uninsured Care Section 1115 Waiver Demonstration
Project (federal hospital waiver); and,
b) Twenty percent based on the pro rata share of uninsured days
reported under the federal hospital waiver.
10)Direct DHCS to pay enhanced payments to MCMC plans for
supplemental payments to hospitals as part of the monthly
capitated payment to MCMC plans as follows:
a) Direct DHCS to determine the total amount of supplemental
payments and notify the hospital and the MCMC plan of the
amount for each hospital;
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b) Require each MCMC plan to pay 100% of the amount received by
DHCS to hospitals as supplemental payments within 30 days of
receipt;
c) Provide that interest earned shall be in lieu of any
administrative fee;
d) Prohibit the supplemental payments from affecting rate
negotiations between hospitals and MCMC plans;
e) Require MCMC plans to provide documentation of payment to
hospitals;
f) Authorize DHCS to recover funds and make adjustments if
necessary to ensure that hospitals receive all supplemental
payments required to be paid by MCMC plans; and,
g) Authorize DHCS to amend MCMC plan contracts as necessary.
11)Direct DHCS to increase payments to MCMH plans for supplemental
payments to hospitals for acute psychiatric services that are
reimbursed by a MCMH plan as follows:
a) Direct DHCS to determine the amount, notify the MCMH plan
and the hospital, and direct the MCMH plan to make the
supplemental payments on a quarterly basis;
b) Require each MCMH plan to pay 100% of the amount to
hospitals as supplemental payments within 30 days of receipt;
c) Allow the MCMH plan to retain any interest;
d) Authorize DHCS to pay an administrative fee to the MCMH plan
that is reflective of actual costs; and,
e) Allow DHCS to make supplemental payments to hospitals
directly or to allocate HQAR Funds to the Department of Mental
Health to make payments and prohibit the supplemental payments
from affecting rate negotiations between hospitals and MCMH
plans.
12) Ensure that payments made to hospitals or reimbursement rates
set pursuant to other provisions of existing law are not affected
or reduced as a result of the supplemental payments established by
this bill.
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13) As of the effective date of this bill, prohibit any reduction in
the Medi-Cal rate paid to hospitals for outpatient, inpatient, or
sub-acute hospital services until January 1, 2011.
14)Direct DHCS to take necessary steps to obtain federal approval
or waivers to implement this bill.
15) Direct DHCS to negotiate the required federal approval for
the 2010 and 2011 FFYs concurrently with negotiation of a
waiver to replace the federal hospital waiver and require the
Director, in negotiating the new federal hospital waiver, to:
a) Seek to obtain approvals that do not adversely affect impact
otherwise available funds; and,
b) Explore opportunities for reform of the Medi-Cal program
with regard to payment systems for hospital services.
16)Condition implementation of the fee, all supplemental
payments, grants, and funding for children's health coverage
on:
a) Federal approval; and,
b) Deposit of the fee in the HQAR Fund.
17)Limit any modification by DHCS of the fees, supplemental
payments, or grants to a reduction or increase of 2% or less of
the amount that would otherwise be payable under this bill and
require DHCS to consult with the hospital community and notify
the Legislature of any modifications at the time such
modifications are made.
18) Authorizes DHCS, as an exception to provision 17) above, if
necessary to receive federal approval, to make the following
modifications:
a) Increase or decrease the managed care per diem quality
assurance fee rate by an amount not to exceed five dollars
($5);
b) Decrease the fee-for-service per diem quality assurance fee
rate by an amount not to exceed six dollars ($6); and,
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c) Increase the Medi-Cal per diem quality assurance fee rate by
an amount not to exceed two dollars ($2).
19)Make this bill inoperative if a court of appellate
jurisdiction or the federal Centers for Medicare and Medicaid
Services (CMS) determines that any element cannot be
implemented and the provisions cannot be modified consistent
with the terms of this bill.
20)Make this bill inoperative, on the first day of the month of
the calendar quarter following notification to the Joint
Legislative Budget Committee by the Department of Finance that
one of the following conditions has occurred:
a) A final determination of a court that the fee proceeds are
General Fund revenue;
b) Federal financial approval has been sought, but nor
received;
c) A law suit related to this bill has been filed and a court
has ordered has been issued that results in a significant cost
to the General Fund (GF);
d) The director of DHCS determines that implementation would
result in a significant cost to the GF.
21)Provide for recoupment of funds if necessary to implement a
court order or if necessary to prevent a GF cost.
22)Authorize DHCS to implement this bill by means of policy
letters, provider bulletins, or all plan letters.
23)Provide, effective January 1, 2011, that the quality assurance
fee assessed on a hospital per managed care day shall be the
same rate of twenty-seven dollars and twenty-five cents
($27.25) that was in effect prior to January 1, 2011 and
conditioned upon enactment of a subsequent statute that
establishes how the revenue is apportioned and provides for a
supplemental payment for Medi-Cal managed care inpatient days
that is not less than the payment established by this bill
prior to January 1, 2011.
EXISTING LAW:
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1)Establishes the Medi-Cal program, administered by DHCS, which
provides comprehensive health benefits to low-income children,
their parents or caretaker relatives, pregnant women, elderly,
blind or disabled persons, nursing home residents, and refugees
who meet specified eligibility criteria.
2)Establishes a schedule of benefits under the Medi-Cal program,
which includes hospital inpatient and outpatient services, subject
to utilization controls, and establishes Medi-Cal hospital
reimbursement requirements under the current federal hospital
waiver.
3)Requires the Governor to designate a person in his or her office
to act as a special negotiator, in practice, the California
Medical Assistance Commission (CMAC), to negotiate rates, terms,
and conditions for contracts with hospitals for inpatient services
to be rendered to fee-for-service Medi-Cal beneficiaries.
4)Authorizes DHCS to contract with qualified individuals, entities,
or organizations to provide services to, arrange for, or case
manage, the care of Medi-Cal beneficiaries, including hospital
inpatient services. Defines a MCMC plan as any entity that enters
into one of several types of contracts with DHCS including county
organized health systems, geographic managed care plans, and local
initiatives. Requires DHCS to use actuarial methods in
calculation rates for MCMC plans.
5)Imposes a quality improvement fee on MCMC plans and a quality
assurance fee (QAF) on skilled nursing facilities and intermediate
care facilities for the developmentally disabled. Hospitals
currently pay a licensing fee to support the regulatory activities
of the Department of Public Health but do not currently pay a QAF
or coverage dividend contribution.
6)Under federal law, the American Reinvestment and Recovery Act,
provides a temporary enhanced FMAP of 61.59%, retroactively from
October 1, 2008 through December 31, 2010.
AS PASSED BY THE ASSEMBLY , this bill imposed a coverage dividend fee
on hospitals until December 31, 2010. Specifically, this bill :
1)Required DHCS to calculate the amount of the fee for each
hospital.
2)Prohibited any reduction in hospital Medi-Cal reimbursement rates
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between June 1, 2009 and November 1, 2011.
3)Imposed a coverage dividend fee on all hospitals except DPHs in an
amount to be determined by DHCS.
4)Required DHCS to offer to enter into a contract obligating DHCS to
use the proceeds of the fee solely for the purposes authorized in
this bill and to continue prior rates of reimbursement.
5)Required revenue from the fee to be placed in a Coverage Dividend
Revenue Fund that was continuously appropriated and required the
funds to be used only to make specified increased Medi-Cal
supplemental payments to hospitals and to pay for the expansion of
health care coverage for children beyond existing levels.
6)Sunset the provisions of this bill at the earlier of January 1,
2013, or if specified conditions were met.
FISCAL EFFECT : This bill, as amended, has not been analyzed by a
fiscal committee.
COMMENTS : According to the author, the purpose of the bill is to
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 provide funding for children's health care
coverage. The author further states that the intent of this bill is
to stabilize rates by using this self-assessed fee and the enhanced
FMAP to increase payments that would not otherwise be funded in this
time of fiscal crisis. According to the sponsors, the California
Hospital Association (CHA), California Children's Hospital and
Daughters of Charity, hospitals in California are under serious
financial pressures as a result of the traditional low Medi-Cal
reimbursement rate in California, recent reductions, the increase in
the number of uninsured and the economic downturn. This is
especially the case for hospitals that serve children, the uninsured
and the Medi-Cal population. The sponsors argue that in exchange
for a self-assessed fee there should be protections from any other
Medi-Cal reimbursement rates reductions and that the supplemental
payments should not be viewed as an opportunity for other payers,
such as MCMC plans to reduce hospital rates.
Medi-Cal Provider Fees
Federal law authorizes states to levy fees on health care providers
if the fees are within specific parameters. Many states (including
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California) fund a portion of their share of Medicaid program costs
through a fee on health care providers. Forty-five states have
Medicaid provider fees, including twenty-two states with hospital
provider fees. California currently imposes provider fees on MCMC
plans, skilled nursing facilities, and intermediate care facilities.
AB 1422 (Bass) currently enrolled to the Governor, will enact a
gross premium tax on MCMC plans in place of the provider fee. 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 class of providers.
The broad based and uniformity provisions are applied on an
individual facility basis. According to the sponsors, these
provisions may be waived by CMS if the model used meets a
statistical test (referred to as B1/B2) that measures the degree to
which the Medi-Cal program bears a greater burden than other
providers. The waiver is automatic for values of the statistical
test that are greater than 1.00. The model described in this bill
has a value of 1.00051. This bill allows DHCS to adjust the
methodology as necessary to obtain federal approval, but sets a
limit of 2%.
States are also prohibited from having a provision that would ensure
providers are "held harmless" from the impact of the fee. As it
result, under federal law, there must be "winner" and "loser"
providers. Nothing in this bill or the model assures that a
hospital will receive at least the amount it contributes and there
are 17 so-called "loser" hospitals that contribute a total of $52
million.
This bill also exempts DPHs, rural and specialty hospitals from the
fee, permitted under federal law as long as the other tests are met.
Rate Stabilization
Hospitals are reimbursed by Medi-Cal in a variety of ways depending
upon whether they contract with the state through CMAC, whether they
qualify as DSH based on their patient census, and whether they are a
DPH a private hospital, or district hospital.
Fee-for-service Medi-Cal private hospital outpatient rates are
established by DHCS through a fee schedule. The Legislature reduced
Medi-Cal outpatient rates as part of the mid-year budget reductions
last year by 10%, effective July 1, 2008 and further reduced to a 1%
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reduction effective March 1, 2009. The 1% reduction was blocked by
court action.
For Medi-Cal inpatient services, CMAC is the state agency
established for negotiating contracts with hospitals on behalf of
the state under the Medi-Cal program through what is known as the
Selective Provider Contracting Program. 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. The CMAC competitive contracting
model has resulted in savings to the state GF.
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. DHCS
compares what a hospital was paid in interim payments for the
hospital's fiscal period, to the hospital's allowable reimbursable
reported costs for that fiscal period. The difference may result in
either an underpayment that is paid to the hospital or an
overpayment that is recouped from the hospital.
In the 2007-08 sesession, two budget measures affected non-contract
hospital reimbursement: the mid-year reduction bill in February
2008 (AB 5 X3 (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% for amounts paid for inpatient hospital services
provided by hospitals that are not under contract with the state.
AB 1183 reduced non-contract rates, effective October 1, 2008, to
the lesser of the 10% reduction enacted by AB 5 X3 or the regional
average CMAC per-diem contract rate, reduced by 5% and multiplied by
the number of Medi-Cal covered inpatient days.
On April 6, 2009, the U.S. Court of Appeals for the Ninth Circuit
granted an emergency motion, made by hospital plaintiffs (which
included CHA 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
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hospitals, pending the appeal to the U.S. Court of Appeals for the
Ninth Circuit.
This bill prohibits any further reduction in reimbursement rates by
DHCS for Medi-Cal hospital services while the fee and supplemental
payments are in effect.
Supplemental Payments and Grants in this Bill
This bill creates a methodology to increase funding for hospitals
serving Medi-Cal patients through supplemental payments. The
payments are calculated based on inpatient days and acute
psychiatric days. Hospitals that provide a moderate level of
high-acuity Medi-Cal services will receive a supplement for high
acuity days and for trauma days. In addition, certain hospitals
that provide a moderate level of sub-acute services will receive a
supplemental payment based on utilization. Private hospitals will
receive an additional payment for outpatient services under this
bill.
Under federal law, there are various limits on the payment rate to
Medi-Cal providers. According to the sponsors, the supplemental
payments and the formulas specified in this bill are consistent with
those limits. For instance, the federal upper payment limit (UPL)
for private hospitals is based on the rate paid by Medicare for
similar services. The total supplemental payments in this bill are
calculated to stay within these limits. This bill includes
authority for DHCS to make adjustments within hospital categories in
order to assure compliance with federal requirements. DPHs are
currently at the federal UPL under the terms of the current federal
hospital waiver and not eligible for federally matched supplemental
payments. For this reason, the payments to DPHs are in the form of
direct grants.
This bill provides for supplemental payments to hospitals that
contract with MCMC plans. Payments made to hospitals through a MCMC
contract are not subject to the UPL, but the payment to the plan
must be actuarially sound. This bill requires the MCMC plans to
pass 100% of the supplemental payment through to the hospitals
within 30 days, but allows the plan to retain the interest in lieu
of an administrative fee.
Fee Established in this Bill
This bill requires DHCS to notify each hospital of the amount of the
fee owed pursuant to this bill. Hospitals are required to pay the
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fee within 30 days. This bill allows DHCS to assess 10% interest
for overdue fees. After 60 days the penalty is an additional 10%
for nonpayment. DHCS is also authorized to deduct unpaid fees from
any other payments due to the hospital.
Effective Date and Conditions
The fee, payments, and funds for children's coverage in this bill
are interdependent and any modification has an impact on other
provisions. To maintain the integrity of the model and carry out
the intent, this bill makes each provision contingent on the
implementation of every other provision and no provision can be
implemented independent of any other. Under this bill, if any
provision is held invalid by a court or CMS all provisions become
inoperative. The fee, supplemental payments, grants, and funds for
children's coverage are not effective until federal approval has
been obtained on all aspects.
Poison Pill and General Fund Protection
It is the intent of the author that the fee created by this bill
fully funds all grants, supplemental payments, and any other costs
and that implementation will have no negative effect on the GF. The
Director of DHCS is authorized to not implement, to discontinue
implementation, or to retroactively invalidate the requirements of
this bill if there is a substantial possibility of financial
disadvantage to the state due to a lawsuit related to this bill or
if implementation will result in a loss of federal funds. This bill
also allows for recoupment of funds if necessary to protect the GF
and prohibits the fee from being considered an allowable cost when
Medi-Cal reimbursement rates are calculated for fee-for-service
Medi-Cal.
Federal Hospital Waiver
SB 1100 (Perata), Chapter 560, Statutes of 2005, established the
current federal hospital waiver for a 5-year period. Under the
current federal hospital waiver, per-diem payments to DPHs are no
longer negotiated by CMAC and have been shifted to a cost-driven
reimbursement system based on certified public expenditures. The
waiver also established a Safety Net Care Pool with a fixed amount
of federal funds available to reimburse public hospitals that care
for the uninsured. The federal hospital waiver expires in September
1, 2010 and a new waiver is contemplated. The California
Association of Public Hospitals and Health Systems (CAPH), maintains
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that since the current and next federal hospital waiver contain the
core funding for public hospital systems, it is essential that the
hospital fee and supplemental payments not adversely impact those
funding streams. To address these concerns, this bill contains
language stating that negotiations for the replacement federal
hospital waiver shall be concurrent the approval of implementation
of this bill for 2010 and 2011 FFY and conducted with a goal of
obtaining federal approvals that do not adversely impact federal
funds that would otherwise be available for services to Medi-Cal
beneficiaries and the uninsured.
Related to the replacement federal hospital waiver, DHCS also
requested language that directs DHCS to explore opportunities for
reform of the Medi-Cal program and to strengthen the health care
safety net. This bill further directs, subject to subsequent
legislative approval, exploration of program reforms such as
hospital payment system reform, new payment methodologies, patient
safety protocols, and quality measurements in negotiating the terms
of the new federal hospital waiver.
This bill was substantially amended in the Senate and the Assembly
approved provisions were deleted. The provisions of the bill, as
amended in the Senate, have not been heard by an Assembly policy
committee.
Arguments in Support : Supporters assert that California's low
Medi-Cal reimbursement rates paid to hospitals makes our state
fifty-first of all states in per beneficiary Medicaid expenditures.
Adventist Health points out that the negative effects of these low
rates on private safety-net hospitals are evidenced in the growing
number of hospital closures and negative bottom lines. According to
the Daughters of Charity, the fee that hospitals are proposing to
assess themselves 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 position. The Private
Essential Access Community Hospitals supports this bill because, in
the absence of comprehensive health care reform and in the midst of
growing state budget deficits, this bill is the most viable and
immediate solution to prevent the collapse of our state's vital
private safety net hospitals. The California Children's Hospital
Association argues that this measure 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. CAPH states that a hospital
fee will be an important component in strengthening the state's
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Medi-Cal program.
Oppose Unless Amended
Anthem Blue Cross is opposed as amended, and states that it is not
opposing a hospital fee, but argues that this bill includes a
significant amount of new and unnecessary language. Specifically,
they point to the provision that prohibits MCMC plans from
considering the supplemental payments in negotiating Medi-Cal
hospital rate contracts and language requiring documentation
verifying payment from plans to hospitals.
DHCS states its support for developing a hospital provider fee, but
is opposed to this bill unless it is amended to allow DHCS more
flexibility to adjust the model and asserts that the model will
raise serious questions particularly with regard to federal rules
prohibiting provisions that ensure providers are held harmless.
Governor Schwarzenegger, in a letter to the Assembly and Senate
leadership, states "California has a great opportunity to bring in
additional federal dollars through a hospital provider fee. This
opportunity is embodied in this bill. However, I believe that the
current model is fatally flawed and will be rejected by the federal
government."
Oppose : Howard Jarvis Taxpayers Association argues in opposition
that this bill does not establish an appropriate nexus to allow it
to be called a fee.
Analysis Prepared by : Marjorie Swartz / HEALTH / (916) 319-2097
FN: 0003236