BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: AB 2599
A
AUTHOR: Bass
B
AMENDED: June 1, 2010
HEARING DATE: August 4, 2010
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CONSULTANT:
5
Dunstan
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SUBJECT
Medi-Cal: South Los Angeles
SUMMARY
Requires the Department of Health Care Services (DHCS) and
the California Medical Assistance Commission (CMAC) to
ensure Medi-Cal funding, as specified, for a new private
nonprofit hospital that will serve the population formerly
served by the Los Angeles County Martin Luther King,
Jr.-Harbor Hospital (MLK-Harbor).
CHANGES TO EXISTING LAW
Existing federal law:
Existing federal law establishes the Medicaid program to
provide comprehensive health benefits to specified groups
of low-income persons. Existing law also provides that
states may be granted waivers of federal law to implement
their Medicaid programs.
Existing state law:
Establishes the Medi-Cal program, the state's Medicaid
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.
Creates a hospital demonstration project to implement a
five-year federal Medicaid waiver for support of public
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hospitals that serve uninsured patients and patients whose
health care services are covered by Medi-Cal. Creates the
safety net care pool consisting of the federal funds
available under the demonstration project to ensure
continued government support for the provision of health
care services to uninsured populations. Defines a
designated public hospital as the 22 county and UC
hospitals named in the federal waiver.
Establishes the South Los Angeles Medical Services
Preservation Fund, to which a maximum amount of $100
million of safety net care pool funds is deposited per
year, for the purpose of funding health services for the
uninsured population of South Los Angeles. Directs DHCS to
allocate these funds for services provided by the County of
Los Angeles facilities operating at the MLK-Harbor site, by
other designated public hospitals operated by Los Angeles
County and other providers who contract with Los Angeles
County. Requires the County of Los Angeles to make
intergovernmental transfers to the state to provide the
nonfederal share of increased Medi-Cal payments to those
private hospitals that serve the population formerly served
by the MLK-Harbor.
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. Permits the special negotiator to call for
bids, in lieu of negotiations, and requires the special
negotiator to consider, when contracting, the total funds
appropriated for inpatient hospital services. Requires the
negotiator to take into account specified factors in
negotiating contracts or in drawing specifications for
competitive bidding.
Requires CMAC to assume the duties and powers of the
special negotiator.
This bill:
Requires DHCS and CMAC to ensure Medi-Cal funding for the
new private nonprofit hospital that will serve the
population formerly served by the Los Angeles County Martin
Luther King, Jr.-Harbor Hospital (MLK-Harbor). Requires
specific stream of funding to be paid for the following:
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Payment for inpatient rates, negotiated by CMAC, at
no less than 60 percent of the hospital's costs;
Continued Medi-Cal supplemental payments for debt
service incurred by Los Angeles County for capital
projects under provisions of SB 1732 (Presley),
Chapter 1635, Statutes of 1988;
Payment for 100 percent cost-based reimbursement
for outpatient services, as was required for
county-owned or operated facilities under the original
Los Angeles waiver and continued under the current
hospital demonstration project waiver; and,
Funding from the South Los Angeles Medical Services
Preservation Fund.
Makes specified legislative findings and declarations
related to a new hospital to be located in the seismically
compliant patient tower on the campus of the former Los
Angeles County MLK-Harbor Hospital and states the
Legislature's intent to facilitate the success of the new
hospital. States that the University of California and Los
Angeles County have been working together to assist in the
opening of the new hospital.
FISCAL IMPACT
According to the Assembly Appropriations Committee, the
following funding mechanisms would provide a minimum of
tens of millions of dollars to be allocated pursuant to the
bill:
California Medical Assistance Commission inpatient
contracts (50 percent federal/50 percent General Fund
(GF));
SB 1732 supplemental seismic safety debt service
payments (50 percent federal/50 percent GF);
100 percent cost-based outpatient reimbursement (50
percent federal/50 percent GF); and,
South Los Angeles Medical Services Preservation
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fund (50 percent federal/50 percent local funds as the
match).
The precise fiscal impact of this bill is unknown because
the agreement has been executed, facility seismic safety
efforts are ongoing, and the facility may not open until
some time in 2012. In addition, since the closure of
MLK-Harbor, other hospitals in the area have provided care
and additional funding has been provided to support the
safety net in this medically underserved area of Los
Angeles County. Some of this funding will shift back
towards the new hospital once the facility is re-opened.
BACKGROUND AND DISCUSSION
This bill is necessary, according to the author, to assure
the critical fiscal elements necessary for the ongoing
financial viability of the new hospital. The author
asserts that existing law, particularly with regard to
eligibility for state and federal funding either relates to
the former hospital or does not exist. According to the
author, funding stability would be accomplished by AB 2599
by requiring that funding streams previously available to
the former MLK-Harbor Hospital would become available to
the newly opened hospital.
MLK Harbor Hospital
MLK Harbor is located on South Wilmington Avenue in Los
Angeles in an area known as Willowbrook. The hospital and
the Charles R. Drew University of Medicine and Science
(Drew University) were created in the aftermath of the 1965
Watts riots. In December 1965, the McCone Commission,
established in the wake of the riots, issued a report
citing the lack of adequate health care facilities as a
contributing factor to the civil unrest. This prompted
city and state officials to put in motion plans to build a
medical school and teaching hospital in the Watts
community. On March 27, 1972, the hospital opened its
doors to the community as a full-service medical center.
The hospital expanded in 1998, by opening a
state-of-the-art trauma and diagnostic center that was
dedicated to treating patients who have sustained
accidental and intentional trauma injuries. At its peak,
the hospital had a licensed bed capacity of 537 beds, and
through its partnership with Drew University, had become a
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teaching hospital.
The hospital encountered a series of problems that
eventually led to the 2007 vote by the Los Angeles County
Board of Supervisors to close MLK-Harbor because various
challenges were threatening the hospital's ability to
continue operating, including the loss of Medicaid and
Medicare funds and the possible loss of its license over
allegations of substandard care. Since the closure of
MLK-Harbor in August 2007, the county has been developing
options to provide hospital services at that site. In the
spring of 2008, at the direction of the Board of
Supervisors, the county approached the University of
California to assist in this effort. Representatives from
the University of California, Los Angeles County and the
Schwarzenegger administration have been discussing an
arrangement that would allow MLK-Harbor to re-open as a
viable health care facility.
The county has established a partnership with the
University of California system to re-open the hospital.
The hospital would be a private nonprofit entity, governed
by a seven-member board of directors; the hospital would no
longer be run by the county. The board of directors would
consist of two appointees made by the University of
California, two made by county officials and three
appointments that would be jointly made by UC and the
county. The county will contribute $50 million annually to
cover expenses and operating costs and $13.3 million toward
the care of uninsured patients. The county will continue
to staff and operate the hospital's outpatient services
center, which has remained open after the hospital closed.
The facility is scheduled to re-open as early as 2013. The
new nonprofit entity would handle all management and
administration, including hiring, for the hospital.
Current Medi-Cal hospital waiver
SB 1100 of 2005 authored by Senators Ducheny and Perata,
(Chapter 560, Statutes of 2005), provides the statutory
framework for implementing the current Medi-Cal hospital
waiver. SB 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
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care to Medi-Cal recipients and the uninsured. Twenty-two
selected public hospitals, including the five UC hospitals,
use CPEs to claim federal funds under Medi-Cal, including
DSH funds and money from the safety net care pool. Public
entities are also allowed to use intergovernmental
transfers, a mechanism which counties transfer funds to the
state and the state uses these funds as the nonfederal
share to match federal Medicaid funds.
Under the current waiver, for uncompensated care provided
to Medi-Cal and uninsured patients, public hospitals have
access to over $1 billion in federal DSH funds. DSH
funding is a capped allocation of federal funds and is
accessible to public hospitals as a reimbursement of CPEs
and intergovernmental transfers. Public hospitals are also
able to access Safety Net Care Pool funding established by
the waiver, which is a federal allotment of over $700
million.
DHCS is currently involved in a process to negotiate a new
waiver which is expected to be much broader in scope, but
will still address elements of hospital funding. The
current waiver expires August 31, 2010.
Selective provider contracting program
Since 1982, California has had a federal waiver to
establish a selective provider contracting program (SPCP).
Under this program, CMAC negotiates daily rates for general
acute care hospital inpatient services on behalf of
Medi-Cal. By choosing hospitals that serve large numbers
of Medi-Cal patients, and bargaining with them for the best
rates, the state has been generally able to negotiate lower
rates for hospital services than if it simply allowed all
hospitals to serve Medi-Cal patients and bill the state for
services. Prior to the inception of the program,
California hospitals served the Medi-Cal population under a
cost-based reimbursement system.
SPCP continues in a modified fashion under the 2005
hospital demonstration project waiver. CMAC continues to
maintain contracts with a number of general acute care
hospitals. The biggest change to SPCP under the current
waiver is that designated public hospitals receive Medi-Cal
payments based on their costs that can be certified as
public expenditures rather than receiving a negotiated CMAC
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rate. In order to provide CMAC with negotiating leverage,
the rates paid to contracting hospitals are not publicly
available. Based on the CMAC estimate of savings, the
average ratio of reimbursement to cost is 65 percent.
South Los Angeles demonstration project
This demonstration project was created in the wake of the
2007 closure of MLK Harbor to assure that the community of
south Los Angeles continued to have access to needed
medical care. Under the project, the County of Los Angeles
is required to make intergovernmental transfers, in the
amount of $5 million per fiscal year, to the state. The
state, in turn, uses the funds for the nonfederal share of
increased Medi-Cal payments to those private and public
hospitals that serve the south Los Angeles population
formerly served by MLK-Harbor Hospital. The demonstration
project was established for the 2007-08, 2008-09, and
2009-10 project years and is likely to be extended through
the 2010-11 budget. The demonstration project was
established because of the express intent of Los Angeles
County to restore hospital services on the MLK-Harbor
Hospital campus to be operated by either a private or
public entity.
Construction Renovation Reimbursement Program
The Construction Renovation Reimbursement Program (CRRP)
was established by SB 1732 (Presley), Chapter 1635,
Statutes of 1988. The SB 1732 program provides
supplemental reimbursement for debt service costs from
revenue bonds used for financing the construction,
renovation, or replacement of hospital facilities,
buildings and equipment. The program is administered by
DHCS, but the payment s are incorporated into SPCP hospital
contracts. During fiscal year 2008-09, approximately $100
million in additional payments were made to hospitals.
Related bills
SB 208 (Steinberg and Alquist) directs the Department of
Health Care Services (DHCS) to develop a Medicaid waiver
for the state's Medi-Cal program and submit the waiver for
federal approval by September 1, 2010. This bill is in the
Assembly Appropriations Committee
SB 1409 (Price) extends the period for which specified
sources of funding are available for paying health care
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providers who provide services to the south Los Angeles
population formerly served byMLK-Harbor. This bill was
held on the Senate Appropriations suspense file.
AB 342 (P?rez) is identical to SB 208. This bill is in the
Senate Appropriations Committee.
Prior legislation
SB 474 (Kuehl), Chapter 518, Statutes of 2007, among its
other provisions, established the South Los Angeles
Demonstration Project.
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.
Arguments in support
The sponsors, the University of California and the County
of Los Angeles, argues that this bill will provide adequate
and predictable Medi-Cal funding to ensure the new
hospital's viability while providing services to a high
volume of uninsured and Medi-Cal patients. The sponsors
also state that they are sponsoring this bill because it is
compatible with their mission to provide quality health
care services to the patients they serve. The Service
Employees International Union (SEIU) also states that it
supports this bill which would facilitate the re-opening of
a vital hospital in South Los Angeles. SEIU states that
the closure of MLK-Harbor was an incalculable loss to the
community, to the workers who were employed there and the
members who relied on it. They also note that with the
enactment of federal health reform, the planned re-opening
of the hospitals is even more essential as hundreds of
thousands of county residents gain health care coverage.
PRIOR ACTIONS
Assembly Health: 17- 0
Assembly Appropriations: 12- 5
Assembly Floor: 57-15
COMMENTS
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1. This bill establishes a unique financing arrangement
for a private nonprofit hospital. Several features of this
bill would provide funding streams that are not typically
available to nonprofit hospitals, such as guaranteeing a
specified CMAC funding level or authorizing the entity to
be eligible to receive SB 1732 payments that MLK-Harbor
would have received. The funding streams proposed in this
bill are typically available to public, not nonprofit
facilities. However, the author argues that this is a
unique situation and this is the only way to re-open a
hospital in this densely populated underserved area.
2. Bill should be clarified that this unique funding
arrangement would be available only to the entity created
by the County of Los Angeles and UC. The intent language
discusses the arrangement between UC and the county, but
the funding statute makes no reference to any specific
facility. The committee should ask the author to accept
the following amendment:
Suggested amendment
Page 4, after line 6, insert:
(b) The new hospital receiving the funds provided for in
this section shall be a private, nonprofit hospital
established pursuant to the agreement between the County of
Los Angeles and the University of California.
3. This bill is drafted to be consistent with the current
Medi-Cal hospital waiver. The current waiver is scheduled
to end on August 31, 2010. As mentioned, DHCS is in the
process of developing a new waiver that will address, among
other issues, hospital funding mechanisms, including the
safety net care pool. When the new waiver is negotiated,
the provisions of this bill may need to be revised to
ensure they are consistent with the new waiver. The
committee may wish to rehear this bill if significant
additional provisions are added to the bill.
POSITIONS
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Support: Los Angeles County Board of Supervisors
(co-sponsor)
University of California (co-sponsor)
California Medical Association
Community Clinic Association of LA County
Planned Parenthood Advocacy Project Los Angeles
County
Saban Free Clinic
Service Employees International Union
T.H.E. Clinic, Inc.
Oppose: None received
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