BILL ANALYSIS
SENATE COMMITTEE ON PUBLIC SAFETY
Senator Mark Leno, Chair S
2009-2010 Regular Session B
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SB 724 (Cogdill)
As Amended April 13, 2009
Hearing date: April 28, 2009
Penal Code
AA:br
DEPARTMENT OF CORRECTIONS AND REHABILITATION :
PAYMENT FOR HOSPITAL SERVICES
HISTORY
Source: California Hospital Association
Prior Legislation: None
Support: Taxpayers for Improving Public Safety
Opposition:None known
KEY ISSUE
SHOULD THE Controller BE REQUIRED to transfer a third of the
Department of Corrections and Rehabilitation's ("CDCR") annual
payments to hospitals into a newly-created "Hospital Interim Payment
Fund" created in the state treasury, from which hospitals that have
provided services to CDCR would be paid when the annual state budget
is late, with payments thereafter required where 1) an invoice has
been submitted for the services; and 2) payment for the services is
due and payable and the Department of Corrections and
Rehabilitation, including the Division of Juvenile Facilities,
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determines that payment would be valid, AS SPECIFIED?
PURPOSE
The purpose of this bill is to require the Controller to
transfer a third of the Department of Corrections and
Rehabilitation's ("CDCR") annual payments to hospitals into a
newly-created "Hospital Interim Payment Fund" created in the
state treasury, from which hospitals that have provided services
to CDCR would be paid when the annual state budget is late, with
payments thereafter required where 1) an invoice has been
submitted for the services; and 2) payment for the services is
due and payable and the Department of Corrections and
Rehabilitation, including the Division of Juvenile Facilities,
determines that payment would be valid.
Current law creates in state government the Department of
Corrections and Rehabilitation (CDCR), headed by a secretary who
is appointed by the Governor, subject to Senate confirmation,
and serves at the pleasure of the Governor. CDCR consists of
Adult Operations, Adult Programs, Juvenile Justice, the
Corrections Standards Authority, the Board of Parole Hearings,
the State Commission on Juvenile Justice, the Prison Industry
Authority, and the Prison Industry Board. (Government Code
12838 (a).)
Current law provides that it "is the intent of the Legislature
that (CDCR) operate in the most cost-effective and efficient
manner possible when purchasing health care services for
inmates. To achieve this goal, it is desirable that the
department have the benefit and experience of the California
Medical Assistance Commission in planning and negotiating for
the purchase of health care services." (Penal Code 5023 (a).)
Current law requires CDCR to "consult with the commission to
assist the department in planning and negotiating contracts for
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the purchase of health care services. The commission shall
advise the department, and may negotiate directly with providers
on behalf of the department, as mutually agreed upon by the
commission and the department." (Penal Code 5023 (b).)
Current law authorizes CDCR to "contract with providers of
emergency health care services. Hospitals that do not contract
with (CDCR) for emergency health care services shall provide
these services to these departments on the same basis as they
are required to provide these services (under federal law, as
specified). (CDCR shall not) reimburse a hospital that provides
these services, and that the department has not contracted with,
at a rate that exceeds the hospital's reasonable and allowable
costs, regardless of whether the hospital is located within or
outside of California." (Penal Code 5023.5 (a).)
Current law provides that an entity that provides ambulance or
any other emergency or nonemergency response service to CDCR,
and that does not contract with the department for that service,
shall be reimbursed for the service at the rate established by
Medicare. CDCR is prohibited from reimbursing a provider of any
of these services that the department has not contracted with at
a rate that exceeds the provider's reasonable and allowable
costs, regardless of whether the provider is located within or
outside of California. (Penal Code 5023.5 (b).)
Current law requires CDCR to "work with the State Department of
Health Services in obtaining hospital cost information in order
to establish the costs allowable under this section. The State
Department of Health Services may provide (CDCR) with hospital
cost information that the State Department of Health Services
obtains, as specified." (Penal Code 5023.5 (c).)
Under current law pursuant to an order of the United States
District Court for the Northern District of California issued
on June 30, 2005, a Receivership has been appointed to take
control of the delivery of medical services to all California
state prisoners confined by the California Department of
Corrections and Rehabilitation. (See Findings of Fact and
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Conclusions of Law Re: Appointment of Receiver, Oct. 3, 2005,
Marciano Plata v. Schwarzenegger, No. C01-1351 TEH (U.S. Dist.
Court for the Northern District of California.); See also
Comment #3 of this analysis.) As of the writing of this
analysis, the receivership remains empowered by the federal
courts to control medical services in CDCR.
This bill would provide that, "(n)otwithstanding any other
provision of law and without regard to fiscal year, if the
annual Budget Act is not enacted by June 30 of any fiscal year
preceding the fiscal year to which the budget would apply or
there is a deficiency in the budget during any fiscal year, the
Controller shall annually transfer from the General Fund, in the
form of one or more loans, an amount equal to a cumulative total
of 33 percent of the Department of Corrections and
Rehabilitation's annual payments to all hospitals in the
immediately preceding fiscal year, to the Hospital Interim
Payment Fund, which is hereby created in the State Treasury."
This bill further would provide that, ". . . the Hospital
Interim Payment Fund is hereby continuously appropriated for the
purpose of making payments to hospitals, on or after July 1 of a
fiscal year for which no budget has been enacted and before
November 1 of that year for the purpose of making payments to
hospitals during the period in which the program has a
deficiency. Payments shall be made pursuant to this section if
both of the following conditions have been met:
(a)An invoice has been submitted for the services.
(b)Payment for the services is due and payable and the
Department of Corrections and Rehabilitation, including the
Division of Juvenile Facilities, determines that payment would
be valid."
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RECEIVERSHIP/OVERCROWDING CRISIS AGGRAVATION IMPLICATIONS
California continues to face a severe prison overcrowding
crisis. The Department of Corrections and Rehabilitation (CDCR)
currently has about 170,000 inmates under its jurisdiction. Due
to a lack of traditional housing space available, the department
houses roughly 15,000 inmates in gyms and dayrooms.
California's prison population has increased by 125% (an average
of 4% annually) over the past 20 years, growing from 76,000
inmates to 171,000 inmates, far outpacing the state's population
growth rate for the age cohort with the highest risk of
incarceration.<1>
In December of 2006 plaintiffs in two federal lawsuits against
CDCR sought a court-ordered limit on the prison population
pursuant to the federal Prison Litigation Reform Act. On
February 9, 2009, the three-judge federal court panel issued a
tentative ruling that included the following conclusions with
respect to overcrowding:
No party contests that California's prisons are
overcrowded, however measured, and whether considered
in comparison to prisons in other states or jails
within this state. There are simply too many
prisoners for the existing capacity. The Governor,
the principal defendant, declared a state of emergency
in 2006 because of the "severe overcrowding" in
California's prisons, which has caused "substantial
risk to the health and safety of the men and women who
work inside these prisons and the inmates housed in
them." . . . A state appellate court upheld the
Governor's proclamation, holding that the evidence
supported the existence of conditions of "extreme
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<1> "Between 1987 and 2007, California's population of ages 15
through 44 - the age cohort with the highest risk for
incarceration - grew by an average of less than 1% annually,
which is a pace much slower than the growth in prison
admissions." (2009-2010 Budget Analysis Series, Judicial and
Criminal Justice, Legislative Analyst's Office (January 30,
2009).)
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peril to the safety of persons and property."
(citation omitted) The Governor's declaration of the
state of emergency remains in effect to this day.
. . . the evidence is compelling that there is no
relief other than a prisoner release order that will
remedy the unconstitutional prison conditions.
. . .
Although the evidence may be less than perfectly
clear, it appears to the Court that in order to
alleviate the constitutional violations California's
inmate population must be reduced to at most 120% to
145% of design capacity, with some institutions or
clinical programs at or below 100%. We caution the
parties, however, that these are not firm figures and
that the Court reserves the right - until its final
ruling - to determine that a higher or lower figure is
appropriate in general or in particular types of
facilities.
. . .
Under the PLRA, any prisoner release order that we
issue will be narrowly drawn, extend no further than
necessary to correct the violation of constitutional
rights, and be the least intrusive means necessary to
correct the violation of those rights. For this
reason, it is our present intention to adopt an order
requiring the State to develop a plan to reduce the
prison population to 120% or 145% of the prison's
design capacity (or somewhere in between) within a
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period of two or three years.<2>
The final outcome of the panel's tentative decision, as well as
any appeal that may be in response to the panel's final
decision, is unknown at the time of this writing.
This bill does not aggravate the prison overcrowding crisis
outlined above.
COMMENTS
1. Stated Need for This Bill
The author states:
Under existing law there is no mechanism in place to
allow the Department of Corrections and
Rehabilitation to continue making payments to
hospitals when a budget has not been passed by June
30th of the year preceding a new fiscal year. As a
result, during protracted budget delays, hospitals
that provide emergency care to prison inmates do not
receive payments for their services. The financial
strain that is placed on these hospitals threatens
their financial viability thereby endangering the
health and safety of the communities that depend on
them.
2. What This Bill Would Do
As explained in detail above, this bill essentially would
establish a mechanism, including a set-aside of funding, to
ensure hospitals that provide services for CDCR inmates are paid
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<2> Three Judge Court Tentative Ruling, Coleman v.
Schwarzenegger, Plata v. Schwarzenegger, in the United States
District Courts for the Eastern District of California and the
Northern District of California United States District Court
composed of three judges pursuant to Section 2284, Title 28
United States Code (Feb. 9, 2009).
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during a state budget delay. The bill would require the
Controller to transfer a third of CDCR's annual payments to
hospitals into a "Hospital Interim Payment Fund" created in the
state treasury, from which hospitals that have provided services
to CDCR would be paid when the annual state budget is late.
Payments would be required where 1) an invoice has been
submitted for the services; and 2) payment for the services is
due and payable and the Department of Corrections and
Rehabilitation, including the Division of Juvenile Facilities,
determines that payment would be valid.
3. Background: Plata v. Schwarzenegger: the Establishment of a
Federal Receiver for the Delivery of Medical Services to
California Prison Inmates
On June 30, 2005, in a class action lawsuit filed four years
earlier, the United States District Court for the Northern
District of California ruled from the bench that it would
establish a Receivership to take control of the delivery of
medical services to all California state prisoners confined by
the California Department of Corrections and Rehabilitation. In
the Findings of Fact and Conclusions of Law Re: Appointment of
Receiver, United States District Judge Thelton E. Henderson
stated in part:
By all accounts, the California prison medical
care system is broken beyond repair. The harm
already done in this case to California's prison
inmate population could not be more grave and the
threat of future injury and death is virtually
guaranteed in the absence of drastic action. . .
. (I)t is an uncontested fact that, on average,
an inmate in one of California's prisons
needlessly dies every six to seven days due to
constitutional deficiencies in the CDCR's medical
delivery system. . . .
It is clear to the Court that this unconscionable
degree of suffering and death is sure to continue
if the system is not dramatically overhauled.
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Decades of neglecting medical care while vastly
expanding the size of the prison system has led
to a state of institutional paralysis. The
prison system is unable to function effectively
and suffers a lack of will with respect to
prisoner medical care.<3>
On February 14, 2006, Judge Henderson appointed Robert Sillen to
serve as Receiver in this case. In its order, the Court set
forth comprehensive duties for the Receiver, including
leadership and executive management of the California prison
medical health care delivery system. The Court stated in part:
(T)he Receiver shall have the duty to control,
oversee, supervise, and direct all
administrative, personnel, financial, accounting,
contractual, legal, and other operational
functions of the medical delivery component of
the CDCR.<4>
The Court additionally ordered the Receiver to develop a
detailed plan of action to effectuate the restructuring and
development of a constitutionally adequate medical health care
delivery system, as specified; to determine the annual CDCR
medical health care budgets and implement an accounting system
that meets professional standards; and to provide the Court with
bimonthly progress reports, as specified.<5>
The Court expressly ordered the Receiver to "exercise all powers
vested by law in the Secretary of the CDCR as they relate to the
administration, control, management, operation, and financing of
the California Medical Health Care System." The Court suspended
the Secretary's exercise of these powers for the duration of the
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<3> Findings of Fact and Conclusions of Law Re: Appointment of
Receiver, Oct. 3, 2005, Marciano Plata v. Schwarzenegger, No.
C01-1351 TEH (U.S. Dist. Court for the Northern District of
California). Hereafter all references to the Court pertain to
this case.
<4> Order Appointing Receiver, Feb. 14, 2006.
<5> Id.
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Receivership.
The Receiver has the power to:
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hire, fire, suspend, supervise, promote,
transfer, discipline, and take all other personnel
actions regarding CDCR employees or contract
employees who perform services related to medical
health care;
establish personnel policies and to create,
abolish, or transfer positions, as specified;
negotiate new contracts and renegotiate existing
contracts; and
acquire, dispose of, modernize, repair, and lease
property, equipment, and other tangible goods to
carry out his duties.<6>
The Court's order expressly provides that, "(a)ll costs incurred
in the implementation of the policies, plans, and decisions of
the Receiver relating to the fulfillment of his duties under
this Order shall be borne by (the state). (The state) shall
also bear all costs of establishing and maintaining the Office
of Receiver, including the compensation of the Receiver and his
staff."<7>
In an order dated January 23, 2008, the Court terminated its
appointment of Robert Sillen and appointed J. Clark Kelso as the
new Receiver.<8> In its order the Court made clear its intent
to transact the implementation of long-term and sustainable
reform:
The Receivership has reached a critical juncture at
which it must now move from a primarily investigative
and evaluative phase, during which the Receivership
analyzed the current system to determine what reforms
were necessary and worked to create the
infrastructure required to effectuate such reforms,
into an implementation phase, during which the
Receivership must translate the conceptualized
reforms into reality. . . . (T)he Receivership's
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<6> Id.
<7> Id.
<8> Order Appointing New Receiver, January 23, 2008.
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focus can and must now shift towards long-term reform
that will achieve the implementation of a
sustainable, constitutionally adequate system of
delivering medical care to Plaintiffs - and, not
inconsequentially, a system that must ultimately be
transitioned back to the State of California's
control. Put another way, the Receivership's
overarching goal should be working itself out of
existence once delivery of medical care to
California's inmates has been brought up to
constitutional standards.
. . . The Receivership must continue to maintain its
independence as an arm of the federal courts
established to take over state operations, but it
also must work more closely at this stage with all
stakeholders, including State officials, to ensure
that the system developed and implemented by the
Receivership can be transferred back to the State in
a reasonable time frame. Such collaboration appears
to be more important now than ever, given the current
budget crisis faced by the State of California.<9>
In 2008, the state challenged the receivership ordered by the
federal court. The final outcome of that challenge is pending
at the time of this writing.
HOW DOES THE FACT OF THE RECEIVERSHIP IMPACT THE FUNCTION OF
THIS BILL?
4. Other Vendors
The purpose of this bill is to assure hospitals are paid for
CDCR-related services during a delay in the state budget. Many
vendors that provide services to the state, including CDCR, are
negatively and sometimes severely impacted when the state budget
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<9> Id.
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is late.<10> The author and sponsor submit that the proposed
fund and payment provisions are analogous to the Medical
Providers Interim Fund, relating to Medi-Cal payments. This
existing system provides funding for the state to continue to
reimburse hospitals for the care provided to Medi-Cal
beneficiaries.<11>
Members of the Committee may wish to discuss why hospitals
should be treated differently than other vendors with respect to
ensuring payment for CDCR-related services during a delayed
state budget.
SHOULD HOSPITALS BE TREATED DIFFERENTLY THAN OTHER VENDORS WHO
ARE NOT PAID BY CDCR DURING A BUDGET DELAY?
IS THE MEDICAL PROVIDERS' INTERIM FUND, RELATING TO MEDI-CAL
PAYMENTS CONTINUING TO HOSPITALS FOR MEDI-CAL BENEFICIARIES
DURING A BUDGET CRISIS, SUFFICIENTLY ANALOGOUS TO APPLY IN THIS
INSTANCE, WHERE HOSPITAL PROVIDERS WOULD BE DISTINGUISHED FROM
OTHER CDCR VENDORS PROVIDING GOODS OR SERVICES FOR PRISONS?
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<10> See, for example, State's Vendors Stiffed As Bills Go
Unpaid Amid Crisis, Sacramento Bee , published Jul. 30, 2008.
(". . . 'Right now, they owe us about $360,000 for July,' said
Mulhern, who with her husband, Michael, owns Superior Produce,
which operates from a warehouse off 16th Street, less than two
miles from the Capitol. 'And we're still paying all our bills .
. . we've got one more week left before we're out of money.' . .
. The Mulherns' Superior Produce has had state contracts almost
since the company's inception in 1988, providing produce to
Northern California prisons. . . Most of the time, Cyndy
Mulhern said, the relationship is very good, and the company's
invoices get paid promptly. 'But when this budget thing
happens,' she said, 'it goes right out the window.' . . . The
Mulherns recently sold the part of their business that catered
to restaurants, and 90 percent of Superior's income now comes
from contracts with state prisons."
<11> This information is provided by the author's office, on
file with the Committee.