BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1236 (Alquist)
Hearing Date: 5/3/2010 Amended: 4/21/2010
Consultant: Katie Johnson Policy Vote: Health 9-0
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BILL SUMMARY: SB 1236 would create a program where treatment
authorization requests (TARs) shall not be required for
inpatient hospitalization of Medi-Cal beneficiaries at
designated public hospitals.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Potential increased federal unknown, but likely in
theFederal*
fund expenditure millions of dollars annually
Potential increase in unknown, but likely in the
hundredsGeneral/*
public hospital interim rate of thousands to millions of
dollars Federal
Repayment to the General unknown, but likely in the
hundreds General*
Fund from federal funds for of thousands to millions of
dollars; likely
increase in interim rate 3 years after the increase in
the interim rate
SS Waiver update hundreds of thousands, depending
General/**
on amount of increased workload Federal
*See staff comments
**Funding shared approximately 50 percent General Fund, 50
percent Federal Funds
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
This bill would provide that the 22 designated public hospitals,
as defined in statute, of which 21 are operational, are not
required to submit a treatment authorization request (TAR) to
the Department of Health Care Services (DHCS) for reimbursement
for an inpatient hospitalization. Two designated public
hospitals, Alameda County Medical Center and San Joaquin General
Hospital, currently approve their own TARs as part of a pilot
project under the Superior Systems (SS) Waiver, the waiver of
federal Medicaid utilization review law that permits DHCS to
review 100 percent of the TARs.
SS Waiver Renewal and Pilot Project Expansion and DHCS Oversight
Thus, this bill would alter the utilization control methods at
19 of the 22 designated public hospitals. The SS waiver is up
for its biennial renewal in December 2010 at which time DHCS
would renew the waiver as per usual and would also, pursuant to
this bill, apply to the federal government to add 19 more
designated public hospitals to the pilot project. This would
change the way that DHCS would renegotiate the waiver and could
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SB 1236 (Alquist)
result in additional workload to the department up to hundreds
of thousands of dollars to fund additional staff.
If this bill were signed into law, DHCS no longer would review
100 percent of the TARs submitted by public hospitals. Pursuant
to federal law, the public hospitals would need to implement
another form of utilization control to ensure that Medi-Cal
funds are expended only on medically necessary services. The
department would regularly survey a sample of hospital-approved
TARs to ensure that they were consistent with DHCS's medically
necessary standards. It is unclear whether or not this bill
would result in DHCS ongoing administrative savings due to the
elimination of staff positions that had reviewed TARs at the
public hospitals. Instead, existing staff would likely be
redistributed to adjudicate other currently pending TARs and
would also be needed to conduct DHCS oversight of the public
hospitals' new internal utilization control systems. The staff
nurses that approve DHCS TARs are funded 25 percent General Fund
and 75 percent federal funds.
Additionally, it would be important that the internal public
hospital utilization reviews would be able to ensure that
inpatient services for Medi-Cal enrollees who are also enrolled
in other publicly-funded programs, such as the California
Children Services (CCS) program and the Genetically Handicapped
Person's Program (GHPP), are billed to the appropriate program
and that double billing does not ensue.
Impact on Federal Funds
Even though DHCS would monitor the hospital's utilization
control system, it would not guarantee that all of the TARs that
DHCS would have denied would continue to be denied. To the
extent that a public hospital approves TARs that DHCS would have
denied, this bill would result in increased federal expenditures
to reimburse more inpatient hospital claims. The percent of TARs
denied for inpatient hospitalizations at public hospitals was 7
percent in Calendar Year 2009.
Staff notes, that these federal funds are part of the Medi-Cal
entitlement program and while there would be an increased
expenditure of federal funds, there is no limit on the amount of
federal funds public hospitals may draw down, provided they are
matched appropriately by non-federal funds.
According to a 2003 report presented by the California Health
Care Foundation, these TARs are generally approved or denied
after the service has been delivered and then matched with
federal funds. Thus, there would be no additional non-federal
funds expenditures because those local funds would have been
spent regardless of whether the TAR was approved or denied. The
approval or denial determines whether or not the provider is
reimbursed with federal funds.
There could be a growth in Medi-Cal expenditures to the extent
that services are reimbursed that would have been denied.
Designated public hospitals receive an interim growth rate from
DHCS to account for annual increases in Medi-Cal expenditures.
The payments are funded 50 percent General Fund and 50 percent
federal funds. When the
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department adjusts the interim rate to account for actual costs,
the payments become 100 percent fully federally funded. Thus, if
this bill were to result in an increase in hospital costs, there
could be a cost to the General Fund to increase interim
payments. Once the department adjusts the interim rates for
actual costs, within about three years of the original interim
payment, the General Fund would be reimbursed with federal
funds. It is unknown when this increase in the interim rate and
the General Fund/federal funds impact might occur or if it would
occur in the same year for all 19 hospitals.
Designated Public Hospital Financing Background
Pursuant to the current Section 1115 hospital financing waiver,
implemented by SB 1100 (Perata and Ducheny), Chapter 560,
Statutes of 2005, no General Fund monies are currently used to
reimburse public hospitals for services rendered to Medi-Cal
enrollees on a fee-for-service basis. The designated public
hospitals use certified public expenditures (CPEs), which are
made up of local funds, to match federal funds. Public hospitals
that treat Medi-Cal enrollees enrolled in Medi-Cal Managed Care
are reimbursed through a separate process that involves
contracts with managed care plans, which are in turn contracted
with the state.
Medi-Cal fee-for-service CPEs are generally matched by federal
funds at 50 cents on the dollar. However, as a result of the
passage of the American Reinvestment and Recovery Act (ARRA) in
February of 2009, California's Federal Medical Assistance
Percentage (FMAP) increased from 50 percent to 61.59 percent.
Thus, retroactively from October 1, 2008, through December 31,
2010, the federal government would pay for approximately 62
cents for every CPE dollar spent. After December 31, 2010, the
FMAP reduces back to 50 cents on the dollar, unless Congress
approves and the President signs an extension.
SB 1100 also created the Safety Net Care Pool and reconfigured
the way in which hospitals that serve a disproportionate share
of the uninsured and Medi-Cal beneficiaries may receive
Disproportionate Share Hospital (DSH) funding. Designated public
hospitals use CPEs to draw down SNCP funds and CPEs and
intergovernmental transfers (IGTs) to access DSH funds for
services rendered to the uninsured. California has access to
specified allotments of both SNCP and DSH funds. It is unclear
whether or not this bill would reduce cost pressure on SNCP and
DSH funds. If uncompensated costs due to a denied TAR are then
counted as uninsured CPEs and used to draw down SNCP and DSH
funds, then this bill would range from being cost pressure
neutral to a cost pressure savings to the extent that there is
less uncompensated care overall.
Finally, the Section 1115 waiver expires August 31, 2010. Since
the department has yet to determine the contents of the new
waiver, including the public hospital financing piece, it is
unknown whether or not the current CPE process will continue in
the same way in which it currently functions. This bill
addresses this concern by stating that it would become
inoperative upon a declaration by the Director of DHCS that the
non-federal share of expenditures for inpatient hospitalization
at designated public hospitals used to claim federal
reimbursement is no longer comprised of CPEs.