BILL ANALYSIS �
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 113
A
AUTHOR: Monning
B
AMENDED: March 31, 2011
HEARING DATE: April 6, 2011
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CONSULTANT:
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Bain & Hansel
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PURSUANT TO S.R. 29.10
SUBJECT
Medi-Cal intergovernmental transfer program for
non-designated public hospitals
SUMMARY
This bill establishes the Non-Designated Public Hospital
Inter-governmental Transfer Program, administered by the
Department of Health Care Services (DHCS), for
non-designated public hospitals (hospitals owned by health
care districts), under which public entities would
voluntarily elect to transfer funds to the state for the
purpose of drawing down federal Medicaid funds to make
supplemental payments to these hospitals. This bill
establishes an allocation formula for the provision of the
supplemental payments made available by this bill to these
hospitals. The enactment of this bill is contingent upon
the enactment of SB 90 (Steinberg). This bill would
appropriate $1.5 billion from the Hospital Quality
Assurance Revenue Fund and $1.5 billion from the Federal
Trust Fund to DHCS to make supplemental payments to private
hospitals under SB 90 (Steinberg). This bill would take
effect immediately as an urgency statute.
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 113 (Monning) Page
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CHANGES TO EXISTING LAW
Existing law:
Existing law establishes the Medi-Cal program, administered
by DHCS, under which health care services are provided to
qualified low-income persons. Inpatient and outpatient
hospital services are a covered benefit under the Medi-Cal
program, subject to utilization controls. Existing law
provides for Medi-Cal payments to hospitals, including
non-designated public hospitals (NDPHs). The method of
payment in fee-for-service Medi-Cal NDPHs depends upon
whether the hospital contracts with the state through the
California Medical Assistance Commission (CMAC) or receives
reimbursement as a non-contract hospital. CMAC rates are
negotiated between the hospital and CMAC, while
non-contract hospitals are reimbursed, through regulation,
at the lessor of the following:
� Customary charges;
� Allowable costs determined by DHCS, in accordance with
applicable Medicare standards and principles of cost
based reimbursement, as specified in federal regulations
and publication;
� All-inclusive rate per discharge limitation; or,
� The peer grouping rate per discharge limitation
Contains various Medi-Cal rate hospital reductions and
rates freezes enacted through health budget trailer bills
from 2011, 2010 and 2008.
Establishes the continuously appropriated Medi-Cal
Inpatient Payment Adjustment Fund in the State Treasury.
Funds in the account are IGTs from public entities, which
are the nonfederal share of payments which are used to
match federal funds to make payments to disproportionate
share hospitals.
Existing law also permits any county, other political
subdivision of the state, or governmental entity in the
state to elect to transfer funds to DHCS in support of the
Medi-Cal program. DHSC has discretion to accept or not
accept any elective transfer from a county, political
subdivision, or other governmental entity, as well as the
discretion of whether to deposit the transfer in the
STAFF ANALYSIS OF ASSEMBLY BILL 113 (Monning) Page
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Medi-Cal Inpatient Payment Adjustment Fund, but if DHCS
accepts a transfer, it must obtain federal matching funds
to the full extent permitted by federal law.
This bill:
Enacts the "Non-Designated Public Hospital Medi-Cal Rate
Stabilization Act" to provide supplemental federal Medicaid
payments for hospital inpatient services provided in
fee-for-service Medi-Cal to NDPHs in a manner that
maximizes federal financial participation (FFP) through
intergovernmental transfers (IGTs) from public entities
(city, county, special purpose district, or other
governmental unit in the state) to the state through a
newly-created Non-designated Public Hospital
Inter-governmental Transfer Program (NPHIGT). The NPHIGT
would be administered by DHCS. Upon federal approval, DHCS
would be required to implement the IGT program in the
2010-11 fiscal year.
Makes participation in the IGT program voluntary for public
entities. The state would retain nine percent of each IGT
amount to reimburse DHCS for its administrative costs, and
for the benefit of Medi-Cal children's health care
programs.
Establishes an allocation formula for making the
supplemental Medicaid payments to NDPHs. DHCS would
determine the maximum amount these hospitals could be paid
under federal Medicaid law (known as the Upper Payment
Limit or UPL). From this total UPL amount, DHCS would then
determine the funds these hospitals would be allocated
based upon the ratio of Medi-Cal fee-for-service acute
patient days provided by hospitals that contract (contract
hospitals) with the state through the California Medical
Assistance Commission (CMAC) as compared to hospitals that
do not contract with CMAC (non-contract hospitals). The
allocation for each group (contract hospitals versus
non-contract hospitals) would be determined by the ratio of
the total Medi-Cal fee-for-service acute patient days
provided by all NDPHs. For example, if the contract NDPH
as a group provided 70 percent of the Medi-Cal inpatient
care days, 70 percent of the allocation in this bill would
be set aside for these hospitals.
After the dollar allocation for contract and non-contract
hospitals is established, this bill would establish a point
scoring method for determining funding for each individual
STAFF ANALYSIS OF ASSEMBLY BILL 113 (Monning) Page
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NDPH in the contract and non-contract hospital groups. The
scoring method is based on the location of the NDPH (such
as whether it is located in a designated medically
underserved area or population, or health professional
shortage area) and type of hospital (such as whether the
hospital is a critical access hospital or a sole community
provider), the NDPH's charity care charges, the NDPH's bad
debt charges, and the NDPH's Medi-Cal charges. Each NDPH
would receive a score of one to nine under the scoring
system, and would be grouped in one of three groups based
on their contract and non-contract status: hospitals with
one to three points, hospitals with four to six points and
hospitals with seven to nine points. NDPHs with seven to
nine points would receive three times the amount of funding
as NDPHs in the one to three group, and NDPHs in the four
to six group would receive an allocation two times the
amount of a NDPH in the one to three group.
After the point system establishes a preliminary funding
allocation for each hospital within each group (e.g.,
contract NDPHs with one to three points, four to six
points, and seven to nine points and non-contract NDPHs
with one to three points, four to six points, and seven to
nine points), funding would be reallocated among the NDPHs
within each point group based on the ratio of each NDPH's
staffed acute care beds to the total staffed acute beds of
all NDPHs in that particular group.
DHCS would be required to provide notice to NDPHs by
September 1st of each year of its estimated IGT allocation,
with the calculations and data source used by DHCS. NDPH
would have 30 days of the IGT allocation notice to notify
DHCS of any data or calculation errors. By December 1st of
each year, DHCS would be required to provide each NDPH of
its estimated allocation, and the NDPH would have twenty
business days to determine to either accept or decline the
offer. IGTs must be transferred to the state by February
5th of each fiscal year, and funds received from entities
transferring to DHCS for purposes of the IGT must be placed
in the existing Medi-Cal Inpatient Payment Adjustment Fund,
which is continuously appropriated. DHCS must make
supplemental payments to NDPHs by March 31st of each fiscal
year.
Requires DHCS to report annually for four years to the
STAFF ANALYSIS OF ASSEMBLY BILL 113 (Monning) Page
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Legislature on the NPHIGT.
This bill would appropriate $1.5 billion from the Hospital
Quality Assurance Revenue Fund and $1.5 billion from the
Federal Trust Fund to DHCS to make supplemental payments to
private hospitals under SB 90 (Steinberg).
Makes this bill operative only if SB 90 (Steinberg) is
enacted and becomes operative.
FISCAL IMPACT
This bill has not been analyzed by a fiscal committee.
BACKGROUND AND DISCUSSION
NDPHs are hospitals owned by hospital districts. NDPHs are
reimbursed differently by Medi-Cal than designated public
hospitals (county and University of California hospitals),
which are paid cost-based reimbursement with federal funds
and their own funds (instead of state General Fund) as the
required match. NDPHs are paid by Medi-Cal with federal
funds and state GF, and the amounts vary by hospital.
NDPHs choosing to contract with the state through CMAC are
paid by Medi-Cal a per diem rate (a daily rate) for each
day a Medi-Cal beneficiary is in the hospital that is
negotiated between CMAC and the hospital. Under the
state's Medicaid 1115 waiver (called "California Bridge to
Reform Implementation"), CMAC payments can include
supplemental payments using GF and federal funds, provided
these payments do not exceed the federal upper payment
limit (UPL) under federal regulations.
NDPHs that do not contract with the state in the
fee-for-service Medi-Cal program are known as non-contract
hospitals, and they are initially paid an interim rate.
Noncontract hospitals are then required to submit a cost
report before the close of their fiscal period. DHCS
reviews each hospital's cost report and prepares a
tentative settlement, which is a determination of the
Medi-Cal allowable reimbursable reported costs for the
noncontract hospital's fiscal period. DHCS compares what a
noncontract hospital was paid in interim payments for the
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hospital's fiscal period, to the hospital's allowable
reimbursable reported costs for that fiscal period.
In addition, NDPHs are eligible for Medicaid
disproportionate share (DSH) payments if they meet the
criteria to be a DSH hospital. Under the state's Medicaid
1115 waiver, the nonfederal share of DSH payments to NDPHs
is the state General Fund.
There are 48 NDPHs in California. Federal law establishes
a maximum payment that categories of hospitals can receive
under Medicaid, known as the UPL. NDPHs are estimated to
have "room" under their UPL under Medicaid law that will
allow them to receive $64 million in supplemental Medi-Cal
payments in 2010-11. Under this bill, public entities
would transfer (through an IGT) $30.7 million to the state,
which would then be matched by $33.2 million in federal
funds. The resulting $64 million in total revenue would be
returned to these facilities under the allocation formula
contained in this measure. The IGT program established
under this bill would be an on-going program.
Under the hospital Quality Assurance Fee (QAF) enacted by
legislation last session, NDPHs were exempt from paying the
QAF, but received supplemental payments resulting from
revenue generated by the QAF. Under the six-month
extension of the hospital QAF contained in SB 90
(Steinberg), NDPHs do not receive supplemental payments
from the new QAF. Instead, this bill establishes an IGT
program for these NDPHs whereby public entities would
transfer funds to the state, and these funds would be
matched by federal funds to provide additional funds up to
the federal UPL. The advantage of an IGT program is that,
unlike the fee program, all transferring hospitals benefit
from additional federal funds above amounts they
contribute.
Related bills
This bill is joined to SB 90 (Steinberg), which would
repeal specified Medi-Cal hospital rate freezes and rate
reductions enacted in the just enacted and previous year
health budget trailer bills. SB 90 would also impose a
quality assurance fee (QAF) on specified hospitals for six
months (January 1, 2011 until June 30, 2011), and use the
resulting revenue to do several things: to draw down
federal funds to provide supplemental payments to private
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hospitals in fee-for-service Medi-Cal, Medi-Cal managed
care, and for acute psychiatric days; to provide $210
million in funding for children's health coverage in the
current year; and to reduce by $30 million in the current
year and $75 million in the budget year (BY) funds used to
pay private hospitals.
SB 90 also requires DHCS to design and implement an IGT
program for Medi-Cal managed care services provided by
designated and non-designated public hospitals in order to
increase capitation payments for the purpose of increasing
reimbursement to these hospitals.
In addition, SB 90 would also allow hospitals that have
received extensions to 2013 of the seismic deadlines for
their SPC-1 buildings to request an additional extension of
up to seven years, and would allow the Office of Statewide
Health Planning and Development (OSHPD) to grant the
extension if the hospital meets several interim deadlines.
In deciding whether to grant the extension, as well as the
length of the extension, OSHPD would be required to
consider several criteria, including the structural
integrity of the building(s), community access to the
hospital services, and the hospital owner's financial
capacity. The length of any extension could not exceed the
amount of time that the owner reasonably needs to complete
construction; however, a hospital would be able to adjust
the length of the extension by up to six months under
certain circumstances. OSHPD would be authorized to
revoke an extension if a hospital falsifies information,
fails to meet any interim deadlines, or if construction is
abandoned or suspended, as specified. Hospital owners who
apply for extensions under this bill would be required to
pay additional fees to cover OSHPD's costs of reviewing the
requests for extensions. OSHPD would be allowed to use
emergency regulations to implement the bill's seismic
extension provisions. The bill provides that the seismic
extension provisions would become operative on the date
that DHCS receives federal approvals for a 2011-12 hospital
quality assurance fee program that includes $320 million in
fee revenue to pay for health coverage for children, as
specified.
SB 90 will be amended to also take effect immediately as an
urgency statute.
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The General Fund (GF) savings from all of the provisions of
SB 90 are estimated to be $50 million in the current year
and $305 million in the BY. If the state is assumed to
continue to be unable to fully implement a Medi-Cal rate
freeze due to a court injunction, the savings resulting
from this bill are estimated to be greater, resulting in a
net gain to the state of $88 million in the current year
and $412 million in the BY, for a total of $500 million.
Prior legislation
AB 1383(Jones), Chapter 627, Statutes of 2009 and AB 188
(Jones), Chapter 645, Statutes of 2009, enacted a Medi-Cal
hospital provider fee and a methodology for making
supplemental payments to hospitals, and provided funds for
children's health care coverage and grants to public
hospitals. In response to the state's request for federal
approval, the Centers for Medicare and Medicaid Services
(CMS) in June of 2010 sent a letter raising objections and
concerns to the methodology which concluded that the fee
enacted by AB 1383 did not meet federal standards. CMS
also suggested modifications, which were made by AB 1653
(Jones), Chapter 218, Statutes of 2010. AB 1653 also
established an alternative mechanism for funding
supplemental grants to public hospitals and allowed the
state to retain the funds that were previously allocated to
these hospitals.
Arguments in support
The California Hospital Association (CHA) writes in support
that the IGT program is crucial to the preservation of
California's non-designated public hospital safety net.
CHA states the IGT program, once implemented, will be an
ongoing program that does not require subsequent approval
or additional legislation, and provides a permanent
mechanism to improve Medi-Cal payments to non-designated
public hospitals. CHA argues that without this program,
the number of hospitals forced to restrict or end services
to Medi-Cal patients will continue to increase. CHA states
the IGT program is formula driven, with a focus on the
hospitals' contracting status with Medi-Cal, Medi-Cal
inpatient volume, hospitals in underserved areas, and the
level of charity care provided. The IGT program is
voluntary, and all that participate in it receive a net
benefit, unlike the hospital quality assurance fee program,
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which requires ''winners'' and "losers." CHA states that,
in an IGT program, all participants are "winners," and
while the IGT program will not solve the Medi-Cal shortfall
to non-designated public hospitals, it will mitigate the
lack of sufficient funding. CHA concludes that this bill
is vital to California's non-designated public hospitals
and that the IGT program be supported by the Legislature as
it will increase Medi-Cal payments at a time when there is
simply no alternative way to do so.
POSITIONS
Support: California Hospital Association (sponsor)
Adventist Health
Alameda Hospital
California Children's Hospital Association
Catholic Healthcare West
Citrus Valley Health Partners
College Health Enterprises
Community Hospital of San Bernardino
Desert Regional Medical Center
District Hospital Leadership Forum
Doctors Hospital of Manteca
Feather River Hospital/Adventist Health
Garden Grove Hospital Medical Center
Henry Mayo Newhall Memorial Hospital
Hi-Desert Medical Center
Hoag Memorial Hospital Presbyterian
JFK Memorial Hospital
Kaweah Delta Health Care District
Lodi Memorial Hospital
Loma Linda University Medical Center
Lompoc Valley Medical Center
Los Alamitos
Lucile Packard Children's Hospital
Marshall Medical Center
Mee Memorial Hospital
Mercy
Mercy Medical Center Mt. Shasta
Pioneers Memorial Healthcare District
Pomona Valley Hospital Medical Center
Private Essential Access Community Hospitals
Saint Louise Regional Hospital
Salinas Valley Memorial Healthcare System
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San Dimas Community Hospital
San Gorgonio Memorial Hospital
Sharp
Sierra View District Hospital
Sierra Vista Regional Medical Center
St. Elizabeth Community Hospital
St. John's Regional Medical Center/St. John's
Pleasant Valley Hospital
St. Joseph's Behavioral Health Center
St. Joseph's Medical Center
Tehachapi Valley Healthcare District
Tri-City Healthcare District
Twin Cities Community Hospital
Watsonville Community Hospital
Oppose: None received.
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