BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: AB 1653
A
AUTHOR: Jones
B
AMENDED: As Introduced
HEARING DATE: June 30, 2010
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CONSULTANT:
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Dunstan/jl
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SUBJECT
Medi-Cal: hospitals: quality assurance fee
SUMMARY
Establishes a quality assurance fee (QAF) on specified
private general acute care hospitals, as a condition of a
hospital participating in state funded health insurance
programs other than the Medi-Cal Program.
CHANGES TO EXISTING LAW
Existing federal law:
Establishes the Medicaid program to provide comprehensive
health benefits to specified groups of low-income persons.
Requires that provider fees levied by states must conform
to specified standards and criteria. Requires that rates
that states pay to providers must comply with specified
federal law and standards.
Establishes that the federal government will provide a
match for the Medicaid program, termed the federal medical
assistance percentage (FMAP), which varies by state and
territory according to a specified formula. Under the
Continued---
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American Reinvestment and Recovery Act (ARRA), provides a
temporary enhanced FMAP for states, retroactively from
October 1, 2008 through December 31, 2010. Establishes a
base rate of 6.2 percent, plus an added amount calculated
by a specified formula for determining the temporarily
increased FMAP.
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.
Imposes a provider fee, termed a quality assurance fee, on
hospitals, except for designated public hospitals, for a
period that would end on December 31, 2010. Requires acute
care hospitals to pay the fee as a condition of
participation in state-funded health insurance programs,
other than the Medi-Cal Program.
Requires revenue from the fee to be used only for the
following specified purposes:
Administrative costs incurred by DHCS for
implementation;
Health coverage for children up to $80 million per
quarter;
Grants to specified public hospitals and
supplemental payments to private acute care hospitals,
as specified;
Increased payments to Medi-Cal managed care (MCMC)
plans to be passed through to hospitals;
Increased payments to Medi-Cal mental health plans
to be passed through to hospitals.
Makes the fee effective upon federal approval for all or a
portion of the 2009, 2010 and 2011 federal fiscal years,
and sunsets the fee on January 1, 2011. Requires 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.
Provides, effective January 1, 2011, that there shall be a
specified fee assessed on hospital managed care days and
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provides that it will take effect only if a subsequent
statute, as described, is enacted to take effect on or
after January 1, 2011. Directs managed care plans to pass
through to hospitals designated payments from the state
made out of revenues from the provider fee.
Under the Local Health Care District Law, provides for the
formation of local health care districts.
This bill:
Establishes a fee, termed a "quality assurance fee" (QAF)
on specified private general acute care hospitals, as a
condition of participation in state funded health insurance
programs other than the Medi-Cal program. Requires private
general acute care hospitals to pay the QAF from January 1,
2011 until June 30, 2011. Exempts specified district
hospitals, county and University of California hospitals,
specialty hospitals, small and rural hospitals and certain
long-term care hospitals.
Requires the fee and all federal funds to be deposited in
the Hospital Quality Assurance Revenue Fund and to be
continuously appropriated.
Provides for an unspecified method of calculating the
amount of the fee and an unspecified method of collecting
the fee. Requires the fee proceeds plus federal Medicaid
funds, to be used exclusively for purposes stated in
existing law:
Administrative costs incurred by the DHCS for
implementation;
Health coverage for children up to $80 million per
quarter;
Grants to specified public hospitals and
supplemental payments to private acute care hospitals,
as specified;
Increased payments to Medi-Cal managed care (MCMC)
plans to be passed through to hospitals.
Increased payments to Medi-Cal mental health plans
to be passed through to hospitals;
Requires the director of DHCS to seek federal approvals or
waivers as necessary and obtain federal financial
participation.
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FISCAL IMPACT
According to the Assembly Appropriations Committee
analysis, AB 1653 would have the following fiscal impacts:
A one-time increase of $1 billion in federal
funding for the six-month period, January 1, 2011
through June 30, 2011. This estimate is based on AB
1383, which is expected to generate an annual $2
billion in federal funding, if approved by the federal
Centers for Medicare and Medicaid (CMS).
Unknown costs in the range of $200,000 (50 percent
General Fund) to the California Department of Health
Care Services to administer the QAF until June 30,
2011.
Major General Fund pressure is created when the QAF
expires. General Fund pressure is created to continue
increased Medi-Cal payments for inpatient and
outpatient rates paid to hospitals. The increased
rates under AB 1383 range from 50 percent to 100
percent of baseline rates.
The bill contains blanks for calculation of the fee
charged to hospitals as well as the distribution
method of the continuous appropriation. The author
and sponsor indicate that specific information is
pending until additional direction from the federal
government about AB 1383 is provided. For example,
dates in AB 1383 may need to be modified because of
delays in implementation.
BACKGROUND AND DISCUSSION
According to the author, AB 1653 would extend the Medi-Cal
hospital provider fee to draw down federal funds for
supplemental payments to help hospitals that provide
services to Medi-Cal beneficiaries. The author argues that
AB 1653 would allow the state to take maximum advantage of
an extension of the enhanced Medi-Cal federal match rate
for an additional six months, if the extension is enacted
by Congress. The author notes that the enhanced rate was
increased from 50 to 62 percent when the formula contained
in ARRA was signed into law by President Obama last year.
The author states that the hospital fee program enacted by
AB 1383 (Jones), Chapter 627, and Statutes of 2009, takes
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advantage of this increased federal funding to supplement
Medi-Cal payments to hospitals and provides the state with
$320 million annually for children's health care coverage.
The author argues that the current fiscal crisis is
stressing those hospitals which serve the most vulnerable
populations. Hospitals report that Medi-Cal funding is more
than $4.2 billion short of covering costs. California's
Medi-Cal program spends less per enrollee that any other
state and the hospital reimbursement rate is among the
lowest in the country. The author maintains that years of
low Medi-Cal reimbursement rates, combined with the effects
of the recession and an increase in the number of uninsured
is threatening the stability of the hospital safety-net.
According to the sponsors, the current rate of 1.9 hospital
beds per 1,000 population ranks California 49th nationally.
Background
Federal law authorizes states to levy fees on health care
providers if the fees meet federal requirements. Many
states (including California) fund a portion of their share
of Medicaid Program costs through a fee on health care
providers. Under these funding methods, states collect
funds (through fees, taxes, or other means) from providers,
which can then be matched with federal funds. The
resulting combination of state and federal funds is then
used to increase Medicaid reimbursement to providers.
Federal law has specific requirements governing provider
fees. To prevent states from only levying an assessment on
certain providers, federal law requires provider fees to be
"broad based" and uniformly imposed throughout a
jurisdiction, meaning that they cannot be levied on a
subgroup of providers, such as only those who are enrolled
in Medicaid programs. States are prohibited from having a
provision that would "hold harmless" providers from the
impact of the fee, meaning 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.
AB 1383 Chapter 627, Statutes of 2009 requires hospitals
that elect to participate in state-funded health insurance
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programs other than Medi-Cal to pay a hospital QAF.
Certain hospitals are exempt from paying the fee, including
all designated public hospitals, long-term care hospitals,
small and rural hospitals, most special district hospitals
and certain specialty hospitals. DHCS is authorized to
alter the fee amount within limitations if necessary to
achieve federal approval.
AB 1383 is estimated to generate $2 billion in annual fee
revenue, a portion of which is provided to public hospitals
as grants. Of the funds to be raised, $320 million
annually is directed for health coverage to children and
funds for DHCS to administer the program. The remainder is
to be matched with federal Medicaid funds at an enhanced
rate and will be distributed as supplemental payments to
private hospitals based on the degree to which they serve
Medi-Cal and uninsured patients. AB 188 (Jones), Chapter
645, Statutes of 2009, appropriates up to $15 billion for
these payments and provided the administrative funds to
DHCS immediately upon enactment in October of 2009.
The Governor's 2010-11 budget assumes receipt of the AB
1383 funds before the end of the 2009-10 fiscal year. DHCS
filed a state plan amendment in June of 2009 to preserve
retroactive application and to take maximum advantage of
the enhanced FMAP.
Federal actions
The federal government must approve any specific provider
fee. DHCS has submitted information regarding the existing
hospital provider fee to the appropriate federal agency,
the Centers for Medicare and Medicaid Services (CMS).
As a first step, CMS has agreed to amend the existing
Section 1115 Hospital and Uninsured Waiver terms that
prohibited California from imposing a hospital fee. In
addition, CMS has sent a reply to the state requesting
additional information. CMS did note that, based on the
information they had received, they did not believe that
the state proposal met federal hold harmless requirements.
CMS requested additional information and/or expressed
concern about a number of other issues. CMS also provided
suggestions on how the state proposal could be modified to
meet federal requirements and gain approval. The letter
did not address the issue of how many, if any, retroactive
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quarters would be approved.
Currently, under ARRA, the FMAP for California is 61.59
percent, a significant increase over the base FMAP of 50
percent. This increased FMAP expires on December 31, 2010.
Congress is actively considering extending the enhanced
FMAP provisions that were in ARRA. The House dropped
provisions extending the FMAP before sending the
legislation to the Senate. The Senate has restored
provisions increasing the FMAP, but at a reduced rate. The
base increase authorized by ARRA is a 6.2 percent enhanced
match. The Senate amendments extend the enhanced match for
two additional quarters, but they reduce it 3.2 percent for
one quarter and 1.2 percent for the following quarter.
Related bills
AB 511 (De La Torre) establishes a provider fee on
ambulance transportation services providers to increase
transportation rates paid on behalf of Medi-Cal patients.
AB 511 is in Senate Health Committee.
Prior legislation
AB 188 (Jones), Chapter 645, Statutes of 2009, appropriates
funding to administer requirements established by AB 1383.
AB 1383 (Jones), Chapter 627, Statutes of 2009, 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, funds health coverage for children, and
provides funds for DHCS for the direct costs of
administering the program.
Arguments in support
According to the sponsors, the California Hospital
Association, California Children's Hospital Association 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. The sponsors, in support, state that
this bill would extend the Medi-Cal hospital provider fee
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to take maximum advantage of an extension for the enhanced
federal match for an additional six months, if passed by
Congress. The supporters note that this bill could provide
an additional $160 million to the state as well.
Arguments in opposition
The Howard Jarvis Taxpayers Association opposes this bill
because they argue it is a tax increase as there is no
nexus between this fee and providing children's health
services. They state, for that reason, the bill should
require a two-thirds vote of each house of the Legislature.
They argue that this tax should not be directed toward the
general fund and that taxes should not be raised on
California's beleaguered hospitals.
Letter requesting amendment
The Marin and El Camino Healthcare Districts have both
requested an amendment that would expand the current
exemption for hospitals owned by special districts from
paying the hospital provider fee. Under existing law,
district hospitals are generally exempt from paying the
fee. However, it appears that not all district hospitals
qualify for the exemption. In the case of these two
districts, they are public entities that own the hospital,
but the license is held by an affiliated non-profit
corporation, which is entirely controlled by the respective
districts. Although the particulars of the two cases vary,
both districts decided to maintain the affiliated
non-profit corporation who holds the license. In both
cases, the districts made the decision to avoid having to
rewrite all contracts and collective bargaining agreements
and applying for a new license. Also in both cases, the
district is the sole corporate member of the non-profit
corporation.
PRIOR ACTIONS
Assembly Health: 16- 1
Assembly Appropriations: 12- 5
Assembly Floor: 63-14
COMMENTS
1. CMS has not approved the existing hospital fee and
reimbursement proposal. Since AB 1383 and its companion
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measure AB 188 were approved, there have been significant
discussions between the administration and CMS. These
culminated in CMS sending DHCS a letter on June 16, 2010
stating that they do not believe that the fee and payments
proposed in AB 1383 meet federal requirements. CMS made
extensive comments and has requested additional information
and clarification and suggested to the state some possible
modifications that meet the specific concerns they have
raised, as well as suggestions as to how to develop a fee
that does meet federal law.
2. The author has proposed amendments for this bill. The
author will offer additional amendments in committee to
respond, in a general fashion, to some of the concerns of
CMS. In order to gain CMS approval, there are likely to be
additional amendments to this bill as the administration
and sponsor, along with their respective consultants,
continue to work with CMS to gain approval of the provider
fee. The amendments proposed by the author then are a
preliminary attempt to respond to CMS, but should not be
regarded as the final state response.
The proposed amendments address the concerns by CMS
regarding the payments to managed care plans. Existing law
requires Medi-Cal managed care plans to receive
supplemental payments for the provision of Medi-Cal
hospital services, and then requires each Medi-Cal managed
care plan to pay all of the supplemental payments for
hospital services. CMS expressed concerns that the state's
provider fee violated the federal hold harmless
requirements which stipulate that provider fees may not
have arrangements in which funds are returned to the payers
directly or indirectly. The amendments contain a new
methodology for making payments to the Medi-Cal managed
care plans and for the plans to make payments to hospitals.
The amendments attempt to ensure that any payments made to
plans have an actuarial basis and do not violate the
federal requirement that plans are paid an actuarially
sound rate and are actuarially certified.
3. Bill will remain a work in progress even with the
author's proposed amendments. The bill does not specify a
methodology for assessing the amount of the fee that each
hospital would pay. The bill also does not specify how the
fee would be paid and collected. The author and sponsors
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argue that these important elements will not be known until
there is federal approval of the existing fee. Should this
bill pass out of committee, the committee may want to
rehear it when these details are finalized.
4. Reduction of FMAP could threaten agreement on hospital
provider fee and reimbursement proposal. This bill was
introduced when most observers thought that the current
enhanced FMAP would be extended for two quarters. Although
the extension still seems likely, the enhanced rate is
likely to be reduced significantly, resulting in less
federal funds for the state. The reduction in federal
funds would mean that more hospitals could lose funds under
the proposal, especially if the amount the state obtains
remains unchanged. The committee may want to hear from the
sponsors and supporters whether this will affect any
positions on the bill.
POSITIONS
Support: California Children's Hospital Association
(co-sponsor)
California Hospital Association (co-sponsor)
Daughters of Charity Health System (co-sponsor)
Adventist Health
Alliance of Catholic Health Care
American Federation of State, County and Municipal
Employees (AFSCME)
County of Los Angeles Board of Supervisors
County of San Bernardino Board of Supervisors
Health Access
Loma Linda University
Private Essential Access Community Hospitals, Inc.
(PEACH)
Service Employees International Union
Oppose: Howard Jarvis Taxpayers Association
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