BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: SB 208
S
AUTHOR: Steinberg
B
AMENDED: As introduced
HEARING DATE: April 22, 2009
2
CONSULTANT:
0
Dunstan/cjt
8
SUBJECT
Medi-Cal: demonstration project waiver
SUMMARY
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.
CHANGES TO EXISTING LAW
Existing federal law:
Existing federal law establishes the Medicaid program to
provide comprehensive health benefits to low-income
persons. Existing law establishes the federal Medicaid
Disproportionate Share Hospital (DSH) program to provide
financial assistance to hospitals that serve large numbers
of Medicaid and uninsured patients. Existing law also
provides that states may be granted waivers of federal law
to implement their Medicaid programs.
Existing state law:
Existing state law establishes the Medi-Cal program, the
state's Medicaid program, administered by DHCS, which
provides comprehensive health benefits to low-income
Continued---
STAFF ANALYSIS OF SENATE BILL SB 208 (Steinberg)Page 2
children; their parents or caretaker relatives; pregnant
women; elderly, blind or disabled persons; nursing home
residents and refugees. Existing law creates a hospital
demonstration project to implement a five-year federal
Medicaid 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).
Existing law also creates the Safety Net Care Pool (SNCP)
as the federal funds available under the demonstration
project to ensure continued government support for the
provision of health care services to uninsured populations.
Existing law defines a designated public hospital to be
one of twenty-two hospitals specifically named in the
statute implementing the federal waiver.
Existing law requires counties to provide medical services
for the medically indigent.
This bill:
This bill requires DHCS to submit an application to the
federal Centers for Medicare and Medicaid Services (CMS)
for a waiver to implement a demonstration project that does
the following: strengthen California's health care safety
net, maximize opportunities to expand coverage to the
eligible but uninsured populations, optimize opportunities
to increase federal financial participation, promotes
effective use of state and local funds and improves health
outcomes.
The bill requires DHCS to consult with interested
stakeholders and the Legislature in developing the waiver
application. The bill also requires DHCS to submit the
waiver application to CMS by a date that ensures its
approval by September 1, 2010. The bill states that the
demonstration project be implemented only upon enactment of
subsequent authorizing legislation after CMS approval is
obtained.
This bill would take effect immediately as an urgency
measure.
FISCAL IMPACT
Unknown.
STAFF ANALYSIS OF SENATE BILL SB 208 (Steinberg)Page 3
BACKGROUND AND DISCUSSION
Given that the current waiver is expiring, the author notes
that a new waiver must be negotiated and established by
next year, and will probably require authorizing a statute
in order to implement its provisions. According to the
author, a new waiver offers opportunities that could
strengthen the Medi-Cal program while making the best use
of scarce state General Fund resources. New federal
Medicaid flexibility offers the potential to both expand
coverage to traditionally ineligible groups and offer that
coverage in innovative ways to improve care coordination,
promote quality and ensure cost effectiveness. However,
the author adds that such expansions must be coordinated
with program investments in prevention, care coordination
and management, and quality improvement to ensure that
coverage dollars are wisely spent.
According to the author, SB 208 and its companion measure,
AB 342 (Bass), are the legislative vehicles for
facilitating the policy process for developing the waiver
and for making the statutory changes necessary to implement
the waiver. Legislative leadership is working together
with Governor Schwarzenegger and stakeholders to fashion a
new Section 1115 waiver. Because a hospital waiver renewal
is a once-in-a-five-year opportunity to ask the federal
government to provide the state flexibility and to seek
federal funding for demonstration projects that achieve
federal budget neutrality, the state will embark upon a
fairly comprehensive waiver proposal that seeks the
following goals:
a. Strengthens California's frayed and overburdened
safety net that provides most of the services to the
uninsured and low-income;
b. Maximizes federal financial participation and
federal resources for uncompensated care;
c. Promotes stability and more efficiency in state and
local health care funding;
d. Promotes quality and value in health care services
and outcomes.
Given the complexity involved in negotiating the hospital
waiver, a comprehensive stakeholder process is beginning.
The Blue Shield Foundation of CA is funding technical
assistance and undertaking a stakeholder process for the
STAFF ANALYSIS OF SENATE BILL SB 208 (Steinberg)Page 4
Legislature and the Administration for purposes of meeting
these goals and ultimately developing a waiver that will
obtain federal approval.
Background--selective provider contracting program
Since 1982, California has had a federal waiver to
establish a selective provider contracting program (SPCP).
Under this program, the California Medical Assistance
Commission (CMAC) negotiates daily rates for general acute
care hospital inpatient services on behalf of Medi-Cal. By
choosing the hospitals that serves 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.
SB 1100 of 2005
SB 1100 authored by Senators Ducheny and Perata, (Chapter
560, Statutes of 2005), provides the statutory framework
for implementing the current 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 healthcare 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 payments.
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 SNCP funding, which is a federal allotment
of over $700 million. The waiver establishes the SNCP.
The current waiver earmarks a portion of the SNCP, $180
million annually, for specific purposes under the current
waiver. During the first two years of the waiver, this
STAFF ANALYSIS OF SENATE BILL SB 208 (Steinberg)Page 5
funding was contingent upon the state accomplishing a
variety of milestones leading to the mandatory enrollment
of seniors and persons with disabilities into managed care.
The state did not make sufficient progress to receive any
of these funds in the first two years.
In the last three years of the waiver, that run from
September 2007 through August 2010, the annual allotment of
$180 million is available if the state enacts a "healthcare
coverage initiative," which is defined as a program to
expand care for those who are currently uninsured. DHCS
has made 10 grants to counties for these programs.
The other key elements in SB 1100 that apply to both public
and private safety-net hospitals are:
Baseline "hold harmless" funding : Both public and
private safety-net hospitals are assured of receiving
minimum, baseline funding, adjusted for the level of
services provided. To maximize stability, SB 1100
maintains this allocation for the five-year term of the
waiver.
Stabilization funding : In addition to baseline funds,
the state estimates the demonstration project provides
an additional $207 million in new funding to help
safety-net hospitals: including $140 million for public
hospitals (including University of California hospitals)
and $66 million for private hospitals (including
children's and district hospitals).
Distressed hospitals : At least $16 million annually is
available to help safety-net hospitals that are
experiencing severe financial hardship.
Medicaid waivers
Section 1115 waivers are generally authorized under the
Social Security Act and provide the Secretary of Health and
Human Services (HHS) with 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.
STAFF ANALYSIS OF SENATE BILL SB 208 (Steinberg)Page 6
Waivers allow states some measure of flexibility to, for
example, institute new systems of care delivery, service
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.
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 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.
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
AB 342 (Bass) is identical to SB 208. This bill is in the
Assembly Health Committee.
AB 598 (De La Torre) would require DHCS to submit to CMS
any proposed amendments to the state plan that are
necessary to continue the hospital waiver. This bill is in
the Assembly Health Committee.
Prior legislation
SB 1448 (Kuehl), Chapter 76, Statutes of 2006, established
the Health Care Coverage Act, which establishes a health
care coverage initiative as required in the waiver Special
Terms and Conditions.
STAFF ANALYSIS OF SENATE BILL SB 208 (Steinberg)Page 7
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.
COMMENTS
1. Urgency clause and urgency of issue. The bill contains
an urgency clause in order that an approved waiver can be
implemented as soon as possible. For instance the approval
of the last waiver had come after several extensions had
been granted by the federal government. There was real
urgency to begin using the new approved rules as soon as
possible and avoid the expiration of the previous waiver.
2. This bill is a vehicle for implementing the final
negotiated waiver. The state is likely to be negotiating
with stakeholders and the federal government for a new
waiver through this year and into the next. This bill is
likely to be significantly amended to reflect the results
of the new approved waiver and any other changes that would
need to be made as a result of the waiver. The authors
expect that this bill will return to the Senate Health
Committee to be heard again once the provisions of the
waiver are negotiated and approved.
POSITIONS
Support: None received
Oppose: None received
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