BILL ANALYSIS �
SB 90
Page 1
Date of Hearing: April 5, 2011
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
SB 90 (Steinberg) - As Amended: March 31, 2011
SENATE VOTE : Vote not relevant.
SUBJECT : Health: hospitals: Medi-Cal.
SUMMARY : Enacts standards for an extension of hospital seismic
safety requirements, enacts a Medi-Cal six-month hospital
provider fee, an intergovernmental transfer (IGT) program for
public hospitals related to Medi-Cal managed care (MCMC) and
makes other changes necessary to implement savings related to
the 2010-11 Budget and the 2011-12 Budget Act. Specifically,
this bill :
Seismic Safety Standards
1)Permits all hospitals that have received an extension of the
hospital seismic safety standards requirement to 2013, to also
request an additional extension of up to seven years, for a
hospital building that it owns or operates.
2)Permits the Office of Statewide Health Planning and
Development (OSHPD) to grant the extension subject to the
hospital meeting the following milestones, unless the hospital
building is reclassified to a structural performance category
2 (SPC-2) or higher as a result of its Hazard Loss Estimation
Methodology, Earthquake Module score (known as Hazards US, or
HAZUS) if:
a) The hospital owner submits to OSHPD, no later than March
31, 2012, a letter of intent stating whether it intends to
rebuild, replace, or retrofit the building, or remove all
general acute care beds and services from the building, and
the amount of time necessary to complete the construction;
b) The hospital owner submits to OSHPD, no later than March
31, 2012, a schedule detailing why the requested extension
is necessary, and specifically how the hospital intends to
meet the requested deadline;
c) The hospital owner submits an application ready for
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review to OSHPD seeking structural reassessment of each of
its SPC-1 buildings using current computer modeling based
upon software developed by Federal Emergency Management
Agency (FEMA), referred to as Hazards US, no later than
January 1, 2013;
d) The hospital owner submits to OSHPD plans ready for
review consistent with the letter of intent submitted in
accordance with 2) a) above and the schedule submitted in
accordance with 2) b) above, no later than January 1, 2015;
e) The hospital owner submits a financial report to OSHPD
at the time the plans referenced in 2) d) above are
submitted. Requires the financial report to demonstrate
the hospital owner's financial capacity to implement the
construction plans; and,
f) The hospital owner receives a building permit consistent
with the letter of intent referenced in 2 a) above and the
schedule referenced in 2 b) above no later than July 1,
2018.
3)Requires OSHPD, when evaluating public safety and determining
whether to grant an extension of the deadline or the length of
that extension, to consider the following criteria:
a) The structural integrity of the hospital's SPC-1
buildings based on its HAZUS scores;
b) Community access to essential hospital services; and,
c) The hospital owner's financial capacity to meet the
deadline as determined by either a bond rating of BBB, or
below, or the financial report on the hospital owner's
financial capacity submitted in accordance with 2) e)
above.
4)Prohibits the extension granted by OSHPD from exceeding the
amount of time that is reasonably necessary to complete the
construction.
5)Requires a hospital owner to notify OSHPD, as soon as
practicable, if the circumstances underlying the request for
extension change, but no later than six months after the
hospital owner discovers the change of circumstances. Permits
OSHPD to adjust the length of the extension granted as
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necessary, but no longer than up to 2020.
6)Permits a hospital denied an extension to appeal the denial to
the Hospital Building Safety Board.
7)Permits OSHPD to revoke an extension granted for any hospital
building where it is determined any information submitted was
falsified, or if the hospital failed to meet a milestone set
forth in 2) inclusive above, or where the work of construction
is abandoned or suspended for a period of at least six months,
unless the hospital demonstrates in a publicly available
document that the abandonment or suspension was caused by
factors beyond its control.
8)Requires regulatory submissions made by OSHPD to the
California Building Standards Commission to implement this
seismic extension to be deemed emergency regulations and be
adopted as such.
9)Requires a hospital owner that applies for this extension to
pay to OSHPD an additional fee, to be determined by OSHPD,
sufficient to cover the additional cost incurred by OSHPD for
maintaining the additional reporting requirements as a result
of this extension, including but not limited to, the costs of
reviewing and verifying the extension documentation.
Prohibits the additional fee from including any cost for
review of the plans or other duties related to receiving a
building or occupancy permit.
10)Requires this seismic extension to become operative on the
date that the State Department of Health Care Services (DHCS)
receives all necessary federal approvals for a 2011-12 fiscal
year hospital quality assurance fee program that includes $320
million in fee revenue to pay for health care coverage for
children, which is made available as a result of the
legislative enactment of a 2011-12 fiscal year hospital
quality assurance fee program.
Hospital Financing Provisions
11)Reduces, disproportionate share hospital (DSH) replacement
payments to private hospitals by $30 million Generel Fund, and
matching Federal Financial Participation (FFP) for the current
budget year and by $75 million General Fund for 2011-12.
12)Makes inoperative various rate reductions and rate freezes as
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follows:
a) Makes inoperative the freeze, enacted by SB 853
(Committee on Budget and Fiscal Review), Chapter 717,
Statutes of 2010 (Health Budget Trailer Bill) on any
inpatient rate increases negotiated by private hospitals by
the California Medical Assistance Commission (CMAC),
restores the rate retroactively and adds a requirement that
DHCS explore other avenues for achieving rate stability
needed for transition to a Diagnosis-Related Groups (DRG)
methodology;
b) Makes inoperative, from the effective date of this bill,
the 10% reduction in Medi-Cal fee for service (FFS) interim
payments for inpatient services that was effective as of
July 1, 2008 and the reduction based on the average CMAC
rate minus 5% that was effective on October 1, 2008; and,
c) Exempts hospital in-patient reimbursement rates from the
10% provider reimbursement rate reduction enacted in AB 97
(Committee on Budget), Chapter 3, Statutes of 2011, the
health budget trailer bill that enacted the statutory
changes necessary for the Budget Act of 2011-12.
13)AB 1383 (Jones), Chapter 627, Statutes of 2009 Medi-Cal
Hospital Provider Fee . Clarifies that the Medi-Cal hospital
provider fee enacted by AB 1383 was not intended to create a
private right of action by a hospital against a managed care
plan, provided the managed care plan expends all increased
capitation payments for hospital services.
14)Six-Month Extension of Medi-Cal Hospital Provider Fee .
Enacts a hospital provider fee and Medi-Cal supplemental
payment program for the period from January 1, 2011 through
June 30, 2011 as follows:
a) Establishes a per diem fee rate to be paid by hospitals
at a rate of $27.25 per non-MCMC day, $275 per Medi-Cal
inpatient day, $15.26 per prepaid health plan hospital
managed care day, $154 per prepaid health plan hospital
MCMC day, and up to $253.59 for FFS;
b) Imposes the requirement to pay the fee on all general
acute care hospitals, on a six month basis from January 1,
2011 to July 1, 2011; and exempts public hospitals,
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district hospitals, and small and rural hospitals;
c) Specifies timelines for DHCS to calculate the fee for
each hospital, notify the hospitals, and for each hospital
to pay the designated amount and definitions necessary for
implementation, dependent on federal approval;
d) Provides that the fee shall not exceed the maximum
aggregate net patient revenue percentage that is allowed
under federal law as necessary to preclude a finding of an
indirect guarantee;
e) Authorizes DHCS to deduct amounts owed from other
payments to the hospital, to assess interest and authorizes
the penalties to be waived;
f) Requires private hospitals to be paid a supplemental
payment for Medi-Cal outpatient services based on the
hospital's percentage of all Medi-Cal FFS outpatient
services;
g) Requires supplemental payments to private hospitals for
inpatient services and sub-acute hospital services to be
50% of the following:
i) $911.48 for each general acute day;
ii) $485 for each acute psychiatric day directly
reimbursed by DHCS;
iii) An additional $1,350 for high acuity days, as
defined, for hospitals that qualify as moderate DSH;
iv) An additional $1,350 for high acuity days to
hospitals with certain trauma centers, as specified; and,
v) Twenty percent of the amount of Medi-Cal sub-acute
payments to hospitals that qualify as moderate DSH for
sub-acute services;
h) Requires DHCS to increase monthly capitation payments to
Medi-Cal health managed care plans in the total amount of
$323 million and requires DHCS to determine the amount of
increased capitation for each plan considering the
composition of Medi-Cal enrollees in each plan and based on
federal actuary requirements;
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i) Requires that payments otherwise made to managed care
plans shall not be reduced as a consequence of these
supplemental payments, establishes timelines and a process
to make payments to managed care plans and requires that
100% be expended on hospital services;
j) Requires managed care plans to expend the capitation
rate increases consistent with actuarial certification,
enrollment, and utilization of hospital services and within
specified timelines;
aa) Establishes alternative payment and fee collection
procedures in the event of a new hospital, hospital
closures or conversions, a reduction in FFP or fees that
are paid after specified dates;
bb) Requires disbursements from the Hospital Quality
Assurance Revenue Fund for deposit of the fee, plus Federal
Medical Assistance Percentage (FMAP) funds, to be used
exclusively as appropriated by the Legislature, in this
bill in the following priority:
i) Administrative costs incurred by DHCS for
implementation of this bill up to $500,000;
ii) Health coverage for children up to $105 million per
quarter;
iii) Increased capitation payments to MCMC plans;
iv) Reimburse the General Fund for increase in costs due
to a hospital no longer contracting with CMAC;
v) Increased payments to private hospitals;
vi) Increased payments to Medi-Cal mental health plans.
cc) Creates a contractually enforceable promise on
behalf of the state to use the proceeds only for the
specified purposes and to comply with all obligations
imposed pursuant to this bill;
dd) Authorizes DHCS to make modifications specified, if
necessary to obtain federal approval and requires
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consultation with the hospital community;
ee) Authorizes DHCS to modify timelines as necessary,
requires notice to the Legislature and consultation with
the hospital community and establishes contingencies for
collection and payments that may be made after the FMAP
increase has expired;
ff) Ensures that payments made to hospitals or
reimbursement rates set pursuant to other provisions of
existing law are not affected or reduced as a result of the
supplemental payments established by this bill and that
upon termination, the rates to hospitals and managed care
plans shall revert to the rates prior to the
implementation;
gg) As of the effective date of this bill, prohibits
any reduction in the Medi-Cal rate paid to hospitals for
outpatient, inpatient, or sub-acute hospital services until
July 1, 2011;
hh) Requires DHCS to seek approval from the Centers for
Medicare and Medicaid Services (CMS), as specified and
authorizes implementation upon receipt of conditional
approval, including interim payments and provides for
recoupment if federal approval is denied;
ii) Makes the fee and supplemental payment provisions
inoperative if federal approval is not received by June 1,
2011 or if a judicial determination results in specified
impact to the General Fund;
jj) Authorizes DHCS to implement this program by means of
policy letters or similar instruction;
aaa) Restricts payment to a hospital that sues on the grounds
that the program is unlawful;
bbb) Limits the source of payments to the fees and FFP; and,
ccc) Prohibits payment until federal approval has been
obtained and fees have been collected.
15)Requires DHCS to design and implement an IGT program,
relating to MCMC services provided by designated and
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nondesignated public hospitals (DPH and NDPH) in order to
increase capitation payments, as follows:
a) Implementation is to begin on or after June 30, 2011;
b) Participation is voluntary;
c) With regard to NDPH, requires DHCS to follow the
requirements of the IGT program proposed to be established
for NDPH in AB 113 (Monning), the companion bill to this
bill and requires the payments to be in proportion to the
transfer amounts under that program; and,
d) Requires payments to be actuarially sound.
16)Makes enactment contingent on enactment of AB 113 (Monning),
a companion bill that enacts a FFS IGT program for NDPH.
EXISTING LAW :
1)Establishes and grants OSHPD authority and responsibility for
reviewing and approving all plans relating to construction,
additions to, reconstruction, or alteration of, health care
facilities, as defined. Before adopting any such plans,
requires hospitals to submit the plans to OSHPD for approval
and to pay an application filing fee, as determined by OSHPD,
based on the project's estimated construction cost.
2)Establishes the Alfred E. Alquist Hospital Facilities Seismic
Safety Act of 1983 (Alquist Act), and its amendments, with the
following deadlines for seismic safety compliance:
a) After January 1, 2008, requires any hospital building
that is determined to be a potential risk for collapse or
significant loss of life in a major earthquake (i.e.,
designated as SPC-1) to be used only for non-acute care
purposes;
b) Authorizes OSHPD to extend the 2008 deadline by five
years, to January 1, 2013, if:
i) The hospital demonstrates that compliance with the
2008 deadline will result in a loss of health care
capacity that may not be provided by other hospitals
within a reasonable proximity, and other conditions are
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met;
ii) The hospital agrees that by January 1, 2013,
designated services will be provided by moving into an
existing conforming building, relocating to a newly-built
building, or continuing in the retrofitted building, as
specified; or,
iii) The building is either retrofitted to SPC-2 and
non-structural performance category-3 standards, or not
used for inpatient services, by January 1, 2013.
c) Authorizes OSHPD to extend the 2013 deadline by up to
two additional years, up to January 1, 2015, if the
hospital meets specified interim deadlines and is making
reasonable progress toward meeting its timeline to retrofit
or replace an SPC-1 building but is delayed due to factors
beyond its control;
d) Permits a hospital owner, in lieu of retrofitting or
rebuilding SPC-1 buildings by 2013, to instead replace them
by January 1, 2020, if:
i) The hospital meets specified conditions, including
serving Medi-Cal or indigent patients and underserved
areas, and OSHPD certifies that the hospital owner lacks
the financial capacity to meet seismic standards, as
defined; or,
ii) The nonconforming building is owned or operated by a
county, city, or county and city that lacks the ability
to meet the 2013 deadline but commits to replace the
buildings by January 1, 2020.
e) Authorizes OSHPD to extend the 2013 deadline by
two-years for a hospital building owned by a health care
district, but operated by a third party under a lease that
extends at least through December 31, 2009, based on a
declaration that the health care district has lacked, and
continued to lack, unrestricted access to the hospital
building for seismic planning purposes during the time of
the lease;
f) Authorizes OSHPD to extend the 2013 deadline by up to
three years for hospitals that document a local planning
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delay. Authorizes OSHPD to grant an additional extension
of up to two years, beyond the three years, for projects
that do not provide acute care services and meet other
criteria regarding life support systems and structural
risk, as specified; and,
g) Requires, by January 1, 2030, all hospital buildings to
be capable of remaining intact after an earthquake, and
capable of continued operation and provision of acute care
medical services (designated as SPC-5), and requires owners
of all acute care inpatient hospitals to demolish, replace,
or change to non-acute care all hospital buildings not in
substantial compliance.
3)Requires an owner of a hospital building classified as SPC-1,
who has not requested an extension of the 2008 deadline, to
submit a report to OSHPD no later than April 15, 2007,
describing the status of each building in complying with the
deadline, and to identify the following:
a) Each building that is subject to the deadline;
b) The project number or numbers for retrofit or
replacement of each building;
c) The projected construction start date or dates and
projected construction completion date or dates; and,
d) The building or buildings to be removed from acute care
service and the projected date or dates of this action.
4)Requires owners of SPC-1 hospital buildings who have requested
an extension of the 2008 deadline to submit similar reports by
June 30, 2009, and November 1, 2010.
5)Requires OSHPD to make the information reported pursuant to 3)
and 4) above available on its Website within 90 days of
receipt.
6)Establishes the Medi-Cal Program, administered by DHCS, to
provide comprehensive health care services and long-term care
to pregnant women, children, and people who are aged, blind,
and disabled.
7)Provides for the payment of hospital services including FFS
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negotiated by contract with CMAC or by MCMC health plans.
FISCAL EFFECT : This bill, as amended has not been analyzed by a
fiscal committee.
COMMENTS :
1)PURPOSE OF THIS BILL . This bill and the companion bill AB 113
(Monning) represent a negotiated agreement between the
Governor and the California Hospital Association (CHA) as part
of the 2010-12 Budget. The package will result in a net
increase General Fund savings to the State of approximately $
50million for the current year and potentially up to $355
million in budget year 2011-12. This bill includes an
enactment of a new six-month hospital provider fee and
supplemental payments of up to approximately $2 billon to
private hospitals that serve Medi-Cal patients. A portion of
the new funds will be used for children's health coverage.
This bill also provides that when a 2011-12 hospital provider
fee is enacted, the state will receive $320 million for
children's health coverage and contingent on receipt of these
additional funds, establishes a process for hospitals to apply
for an up to seven year extension from deadlines that require
hospital buildings to meet certain seismic safety standards.
The companion bill, AB 113 (Monning) enacts an IGT program
that will allow district hospitals to begin drawing down up to
$30 million in supplemental Medi-Cal payments. This bill
further adds to the General Fund by reducing DSH-type payments
to private hospitals. Finally, this bill resolves a number of
pending law suits regarding hospital rate reductions enacted
in prior budgets. According to CHA, this package will provide
the financial stability and certainty that is needed for their
future. Stabilizing payment rates and the supplemental
payments coupled with some limited extensions of the deadlines
for seismic upgrades will enable hospitals to fund
construction costs necessary to meet the standards and
continue to operate.
2)BACKGOUND . Federal law generally requires Medi-Cal providers
to be paid for reasonable costs up to the amount Medicare pays
for a similar service. Since the first Governor Jerry Brown
administration a variety of creative payment systems,
cost-cutting programs, and rate reductions enacted through the
budget have resulted in an actual rate in California that is
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closer to 50% of Medicare. Most of the rate reductions have
been enjoined due to law suits filed by the sponsors of this
bill. Public hospitals have been able to augment their funds
by utilizing unreimbursed local expenditures to draw down
additional federal funds. For private hospitals, relief has
been provided through supplemental payments, including a
hospital provider fee program for 2009-10. However some of
this gain has been eroded by federal restrictions and
contributions to the general Medi-Cal Program. Furthermore,
according to the sponsors, in the past two years hospitals
have seen a significant increase in uninsured patients and
patients enrolled in Medi-Cal. Hospitals that do not expect
to meet existing seismic safety compliance standards
frequently point to this underfunding as one of the reasons.
In addition, a recent Rand study noted that hospital
construction costs have almost doubled since 2001, driven by a
limited number of qualified contractors, competition for labor
and materials from other types of commercial construction and
inflation.
3)BACKGROUND-SEISMIC . Following the 1971 San Fernando Valley
earthquake, California enacted the Alquist Act, which mandated
that all new hospital construction meet stringent seismic
safety standards. In 1994, after the Northridge earthquake,
the Legislature passed and the Governor signed SB 1953
(Alquist), Chapter 740, Statutes of 1994, which required OSHPD
to establish earthquake performance categories for hospitals,
and established a January 1, 2008 deadline by which general
acute care hospitals must be retrofitted or replaced so that
they do not pose a risk of collapse in the event of an
earthquake, and a January 1, 2030 deadline by which they must
be capable of remaining operational following an earthquake.
SB 1953 also allowed most hospitals to qualify for an
extension of the January 1, 2008 deadline to January 1, 2013.
Hospital buildings that are subject to the seismic deadlines are
buildings that provide acute care services, other than certain
freestanding buildings providing outpatient services. This
includes buildings providing core hospital services (medical,
nursing, surgical, anesthesia, laboratory, radiology,
pharmacy, and dietary services), as well as special or
supplemental services such as burn center, chronic dialysis,
emergency medical, acute psychiatric, and cardiac services.
According to information submitted by OSHPD and reports issued
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by the U.S. Geological Survey, the California Geological
Survey, and the Southern California Earthquake Center,
California has a 99% chance of having a magnitude 6.7 or
greater earthquake within the next 30 years. The probability
of an earthquake with a magnitude of 6.7 or greater occurring
over the next 30 years in the greater Los Angeles area is 67%.
In the San Francisco Bay Area, the probability of such an
earthquake occurring is 63%. For the entire California
region, the fault with the highest probability of generating
at least one magnitude 6.7 earthquake or larger is the
southern San Andreas (59% in the next 30 years).
California has a 23% chance of a magnitude 6.7 or greater
earthquake between 2013 and 2020. California also faces a 94%
probability of a 7.0 earthquake in the next 30 years, a 46%
chance of a 7.5 earthquake, and a 5% chance of an 8.0
earthquake.
4)RECLASSIFICATION OF HOSPITALS BASED ON SEISMIC RISK . SPC
classifications, ranging from SPC-1 to SPC-5, are used to
indicate the structural seismic risk of a hospital building in
the event of a major earthquake, with SPC-1 used to designate
buildings at potential risk of collapse or significant loss of
life in a major earthquake. Because SPC-1 buildings are
considered hazardous and at risk of collapse in the event of
an earthquake they are required under current law to be
retrofitted, replaced, or removed from providing acute care
services by 2013.
HAZUS was developed by FEMA and is a standardized methodology
that estimates potential losses from earthquakes, hurricanes,
winds, and floods. Due to strides in earthquake-risk
engineering that have occurred in the years since SB 1953
passed, the California Building Standards Commission in
November 2007 and again in February 2010 approved the
implementation of HAZUS, to reexamine the collapse risk of
SPC-1 hospital buildings. OSHPD's current regulations, which
it refers to as HAZUS 2010, revise a previously adopted
collapse probability threshold from .75% to 1.2%, and allow
hospitals to apply for reevaluations under HAZUS 2010 by
January 1, 2012. The regulations additionally require
buildings with collapse probabilities of .75% to 1.2% to
mitigate any deficiencies identified by January 1, 2015.
Hospitals that do not meet this deadline may not obtain
building permits for their noncompliant buildings, except for
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purposes of seismic compliance.
5)COST OF SEISMIC COMPLIANCE . A 2002 RAND study estimated that
California hospitals would be required to spend up to $41.7
billion to meet SB 1953 standards. The study found that all
but $3 billion of that total would be of expenditures required
to upgrade and modernize facilities regardless of the state's
seismic requirements. According to RAND, the average age of
the noncompliant buildings will be between 45 and 49 years in
2008, while the approximate lifespan for a California hospital
is 40 to 50 years. A more recent study by RAND in January
2007 found that, based on building permit data, about half of
the existing SPC-1 buildings are not likely to meet the 2008
and 2013 deadlines.
6)MEDI-CAL HOSPITAL PROVIDER FEES. Federal law authorizes
states to levy fees on health care providers if the fees meet
federal requirements. Many states (including California) fund
a portion of their share of Medicaid program costs through a
fee on health care providers. Under these funding methods,
states collect funds (through fees, taxes, or other means)
from providers, which are then matched to allow increased
Medicaid reimbursement to providers. To prevent states from
levying an assessment on only Medicaid providers, federal law
requires provider fees to be "broad based" and uniformly
applied to all providers within specified classes of provider
and states are prohibited from having a provision that would
ensure providers are "held harmless" from the impact of the
fee. Health care related provider fees may only be imposed on
19 particular classes of health care items or services.
Federal approval through CMS is required.
AB 1383 and AB 188 (Jones), Chapter 645, Statutes of 2009,
enacted a Medi-Cal hospital provider fee, a methodology for
making supplemental payments to hospitals, provided funds for
children's health care coverage and grants to public
hospitals. AB 1383 was to become effective upon receipt of
CMS approval and become inoperative on January 1, 2011. This
was timed to take advantage of the increased FMAP available
under the American Recovery and Reinvestment Act of 2009
(ARRA). ARRA provided an increased FMAP from October 1, 2008
thru December 31, 2010. ARRA increased California's FMAP by
11.59% from of a base of 50% to 61.59%. The Education, Jobs,
and Medicaid Assistance Act extended the availability of
increased FMAP but phased it out over the additional six
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months by providing an increased FMAP of 8.77% for January
2011 thru April 2011 and an increased FMAP of 5.66% for April
2011 thru June 2011.
CMS approval . Implementation of AB 1383 was dependent on CMS
approval through a State Plan Amendment (SPA). After
significant discussions between the administration and CMS,
CMS sent DHCS a letter on June 16, 2010 stating that CMS did
not believe the fee and payments proposed in AB 1383 met
federal requirements. CMS made extensive comments, requested
additional information, and suggested modifications to address
the specific concerns raised, as well as suggestions as to how
to develop a fee that met federal law. AB 1653 (Jones),
Chapter 218, Statutes of 2010, reflected the CMS requested
modifications necessary to obtain federal approval. The delay
in obtaining federal approval necessitated a revision of the
collection and payment timeframes. Additional modifications
were enacted in SB 208 (Steinberg), Chapter 714, Statutes of
2010.
7)REENACTMENT OF MEDI-CAL HOSPITAL PROVIDER FEE . This bill
proposes a new fee and supplemental payment program for the
period between January 1, 2011 and July 1, 2011. However the
time has passed to take advantage of the January to April 1,
2011 FMAP increase. This bill is attempting to take advantage
of the April to June increase. In order to do so, it must be
passed, signed, approved by CMS and implemented by July 1,
2011. The federal match on provider fees cannot be provided
until the fee is actually collected.
As a result of the reduced FMAP and therefore reduced amount of
total funds and the experience of implementing AB 1383, there
are a number of changes that have been made to this program.
The most significant are:
a) Elimination of supplemental payments to NDPH and grants
to DPH. This is partially offset by expanding the IGT
program payments for these hospitals. Specifically, this
bill allows NDPHs and DPHs to use IGTs to increase the
capitation rate to managed care plans with which they
contract. The rate must still be within actuarially sound
limits. The increase is then passed on to the public
hospital by contract. AB 113 (Monning) establishes an IGT
program for NDPHs that are reimbursed on a fee for service
basis. AB 113 (Monning) could result in a net benefit to
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this category of hospitals of $33 million.
b) Managed Care payments . The mechanism to provide
payments to hospitals that contract with MCMC plans had to
be substantially revised to meet federal requirements. The
overall payment to the plans must meet federal standards
that require actuarially based rates. Furthermore the plan
contracts must be approved by CMS. Finally, timelines were
revised because the increased FMAP applicable to managed
care payments is dependent on the date of service, whereas
the payments to hospitals for FFS must be made prior to
July 1, 2011 for the increase FMAP to apply.
8)HOSPITAL FINANCING . Medi-Cal hospital financing in California
is a complex combination of mechanisms, funding sources, and
rules.
a) The Selective Provider Contracting Program (SPCP ). This
was established by the Legislature in 1982 under a 1915(b)
waiver and allowed CMAC to selectively contract as long as
there was adequate access to hospital beds to serve the
Medi-Cal population in a Health Facility Planning Area.
Except for emergencies, most FFS Medi-Cal beneficiaries in
a closed area were required to receive in-patient care at a
contract hospital. Selective contracting allowed CMAC to
negotiate a competitive rate in place of the traditional
"cost-based" reimbursement system used by most states.
According to CMAC's Annual Report to the Legislature, 2009,
this has saved the State a total of approximately $10.9
billion in State General Fund savings since 1983.
Hospitals in an open area continued to be reimbursed on a
cost-based system. The SPCP program continued in a
modified fashion under the 2005 Medicaid Section 1115
Hospital Financing/Uninsured Waiver. The 2010 Successor
Section 1115 Demonstration Project, "Bridge to Reform" also
provides for the continuation of the SPCP program for
private hospitals and NDPHs. However, the state is
authorized to discontinue this program at any time through
a SPA.
b) DPH. One of the most significant revisions under the
2005 hospital waiver was to make fundamental changes in
Medi-Cal hospital financing for public hospitals.
Reimbursement for Medi-Cal per diem for 21 University of
California (UC) and county DPHs was based on certified
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public expenditures (CPEs), rather than General Fund. The
inpatient reimbursement rate is no longer negotiated by
CMAC and is determined by DHCS. The waiver also created
the Safety Net Care Pool (SNCP) which provides a fixed
amount of federal funds to cover uncompensated care,
matched by CPEs. The distribution criteria have been
revised in the 2010 waiver and will be based on
unreimbursed expenses.
c) IGT s. The 2005 hospital waiver was also a response to
the increasing federal scrutiny by CMS of IGTs. IGTs are
transfers of public funds from one level of government to
another. California relied on IGTs as the nonfederal share
for various supplemental payment programs such as the SB
1255 Emergency Services and Supplemental Payment Program
and DSH payments and to backfill General Fund in the
Medi-Cal Program. Under the terms of the 2005 hospital
waiver, the use of IGTs as the non-federal share for these
payments was severely restricted. Currently only NDPHs
that contract with CMAC are eligible for supplemental
payments using IGTs. This bill will authorize the use of
IGTs for supplemental payments through MCMC plans for both
NDPH and DPH.
d) DSH Fund . Just over $1 billion in federal funding is
available to public hospitals in the DSH Fund during each
year of the waiver to provide care to Medi-Cal and
uninsured patients. DSH is a federal designation and
funding mechanism available in the Medicaid Program to
provide supplemental funding to hospitals caring for a
significant proportion of indigent patients. The waiver
DSH Fund is at a fixed level in a specific year, but may
change over time and contains no State General Funds.
Hospitals submit CPEs and IGTs to draw down federal funds.
IGTs may only be used to fund the nonfederal share of DSH
payments between 100-175% of the uncompensated costs.
e) DSH Replacement Fund . Approximately $250 million in
federal funding is available annually for private and
district hospitals via the DSH Replacement Fund. These
funds provide support for uncompensated care provided to
Med-Cal and uninsured patients. The Replacement Fund
backfills for DSH funding previously available to private
and district hospitals that is now available exclusively to
public hospitals in the current waiver. The non-federal
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share of this fund is provided by the General Fund and is
fixed each year by an allocation from the federal
government and through the annual budget act.
f) DSH Replacement Fund Reduction . AB 5 X4 reduced these
payments by 10% in the 2009-10 budget year. The negotiated
agreement between the Governor and CHA and codified in this
bill proposes a further reduction of $30 million in General
Fund for the 2010-11 budget year and a $75 million General
Fund reduction for 2011-12. A letter from Toby Douglas,
Director of DHCS has been submitted to clarify that each
reduction applies solely to the applicable budget year and
it is not DHCS's intention to carry over the 10% reduction
from the 2009-10 Budget.
9)SUPPORT . The sponsors, CHA, write in support that this
comprehensive solution was agreed to in light of the ongoing
state budget crisis. CHA argues that the hospital fee program
is crucial to the preservation of California's entire safety
net and that even before the economic down turn, California's
Medi-Cal program under-funded hospital providers. According
to CHA, part of what made the 2009-10 fee program successful
was the enhanced FMAP of 62%. Developing a hospital fee
program that could be successful for the six-month period
covered by this bill was more difficult due to the decrease of
5.3 % FMAP. Given this change in the major program element,
the sponsors explain that it was decided to make modifications
to the fee. Specifically, the NDPH and DPHs would use an IGT
s to fund increased Medi-Cal managed care payments and the
provisions of AB 113 (Monning), a companion bill, allow NDPHs
to access available increased payments for hospital services
that are paid for on a fee for service basis or by contract
with CMAC.
Also in support, the California Children's Hospital Association
(CCHA) writes, that most critical to this comprehensive
solution is the continuation of the hospital fee program as
these funds are critical to children's hospital operations.
CCHA further argues in support that the 2009-10 program
brought $2.6 billion in new Medi-Cal funding to California
hospitals. In addition, it provided the state with $560
million in funding for children's health care coverage. The
six-month fee program included in this bill is expected to
provide a net benefit to hospitals of approximately $858
million. In addition, it will provide $210 million to the
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state to again help pay for children's health care coverage.
The Private Essential Access Community Hospitals (PEACH), in
support of this bill state that it is part of a comprehensive
approach which envisions significant cost savings to the state
through this six-month fee extension and is embedded with
state budget solutions and the commitment for a one-year
hospital provider fee extension to be approved in this
legislative year. PEACH further argues that all three
components further the partnership of the Administration,
Legislature, and hospital community to ensure access to high
quality health care for low-income Californians while bending
the state's cost curve. According to PEACH, the recently
renewed 2010 Medi-Cal Section 1115 waiver failed to provide
any investment or stabilization growth for community safety
net hospitals, leaving hospital fee programs as the only way
for private hospitals to make up for low Medi-Cal payment
rates and prepare for health care reform implementation in
2014.
10)PRIOR LEGISLATION-SEISMIC .
a) SB 608 (Alquist), Chapter 623, Statutes of 2010, permits
OSHPD to grant two separate extensions to a hospital for a
total of five years, under specified circumstances related
to local planning delays, for compliance with existing
state seismic safety requirements.
b) SB 289 (Ducheny) of 2010 would have revised and
extended, under specified conditions, hospital seismic
safety construction and reporting requirements. SB 289 was
vetoed by Governor Arnold Schwarzenegger stating that
hospitals have been granted one extension after another and
that these types of extensions reward the exact behavior
that should not be allowed to continue. The Governor's
veto message further stated that any additional requests
for extensions to seismic deadlines must also include tough
penalties.
c) SB 499 (Ducheny), Chapter 601, Statutes of 2009, allows
hospitals that sought, but did not receive, seismic
reclassifications under HAZUS to qualify for a two year
extension that is available to hospital buildings that have
filed building plans, submitted a construction timeline,
and are under construction. Moves up the deadline for
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reports that hospitals with SPC-1 buildings must file with
OSHPD, and requires hospitals to file annual updates to the
reports, and subjects hospitals that do not submit reports
to fines, as specified. Authorizes OSHPD, until January 1,
2013, to utilize computer modeling, as specified, for
purposes of determining the structural performance category
of general acute care hospital buildings.
d) AB 303 (Beall), Chapter 428, Statutes of 2009, allows
specified county and UC DSH hospitals that serve Medi-Cal
patients to receive supplemental Medi-Cal reimbursement
from the Construction and Renovation Reimbursement Program
for debt service on new capital projects to meet seismic
safety deadlines if plans are submitted to the state after
January 1, 2007 and before December 31, 2011.
e) AB 523 (Huffman), Chapter 243, Statutes of 2009, allows
OSHPD to grant a two-year extension of the 2013 seismic
deadline for a hospital building that is owned by Marin
Healthcare District. Establishes interim deadlines and
requirements the hospital must meet in order to qualify for
the extension, as specified.
f) SB 306 (Ducheny), Chapter 642, Statutes of 2008, amends
the Alquist Act to permit a hospital that has received an
extension of the 2008 seismic retrofit deadline to January
1, 2013, to instead replace a SPC-1 building by January 1,
2020, if the hospital demonstrates it lacks financial
capacity to retrofit by 2013 and meets other specified
conditions.
g) SB 1661 (Cox), Chapter 693, Statutes of 2006, authorizes
up to two additional years for hospitals that have already
received an extension to January 1, 2013 of the 2008
seismic safety compliance deadline if specified criteria
are met, and requires hospitals with SPC-1 buildings to
submit reports with specified information, to be posted on
the Website of OSHPD.
h) SB 167 (Speier), of 2005, would have permitted delays of
the 2008 seismic safety deadline for specified hospitals
that do not exceed maximum allowable seismic risk, as
determined by OSHPD, and expedited the final compliance
deadline to 2020 for hospitals granted the delay. SB 167
failed passage in the Assembly Health Committee.
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i) AB 1978 (Walters), of 2005, would have extended, from
January 1, 2008 to January 1, 2015, the deadline for any
SPC-1 building to only be used for nonacute care purposes,
and permitted hospitals subject to the 2015 deadline to
request additional extensions to 2020, as specified. AB
1978 failed passage in the Assembly Health Committee.
j) AB 1673 (Nation and Richman), of 2005, would have
repealed provisions of the Alquist Act that require
specified hospitals to meet seismic retrofitting
requirements by 2008, revised the final 2030 deadline
requirement to 2020, and made the bill contingent upon the
enactment of AB 1672 (Nation) relating to electronic
medical recordkeeping. AB 1673 failed passage in the
Assembly Health Committee.
aa) SB 1953 (Alquist), Chapter 740, Statutes of 1994,
requires every hospital building to comply with two
deadlines. By January 1, 2008 (or no later than January 1,
2013, if an extension has been granted), every hospital
building must meet specific construction standards
established to keep these structures standing after a major
earthquake. By January 1, 2030, requires all hospital
buildings to comply with standards intended to keep these
buildings operational following a severe quake.
11)PRIOR LEGISLATION: HOSPTIAL FINANCING AND PROVIDER FEES .
a) AB 97 (Committee on Budget), Chapter 3, Statutes of
2011, enacted a freeze on all hospital inpatient rates,
except DPHs, including rate increases previously negotiated
by contract with CMAC.
b) SB 853 (Committee on Budget and Fiscal Review), Chapter
717, Statutes of 2010, enacted a freeze Medi-Cal
reimbursement paid to private hospitals for one-year,
retroactive to January 1, 2010 and established a process
for implementation of a new rate setting methodology which
uses DRGs.
c) AB 1653 (Jones) enacted modifications to the Medi-Cal
hospital provider fee established an alternative mechanism
for funding supplemental grants to public hospitals and
allowed the state to retain the funds that were previously
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allocated to these hospitals.
d) AB 188 (Jones), Chapter 645, Statutes of 2009
appropriated the funds necessary to implement the AB 1383
hospital fee.
e) AB 1383 (Jones), Chapter 627, Statutes of 2009, enacted
a Medi-Cal hospital provider fee, a methodology for making
supplemental payments to hospitals, provided funds for
children's health care coverage and grants to public
hospitals.
f) AB 5 X4 (Evans), Chapter 5, Statutes of 2009, reduced by
10% the payments made to DSH private hospitals under the
state's Hospital Financing Waiver and reduced by 10% the
FFS inpatient rate reimbursement to certain small and rural
hospitals, exempted previously, except for those designated
as "critical access" hospitals and those designated as
"rural referral centers".
g) AB 5 X3 (Committee on Budget) Chapter 3, Statutes of
2008, reduced, for services provided on and after July 1,
2008, Medi-Cal interim payments and cost report settlements
by 10% for amounts paid for inpatient hospital services
provided by hospitals that are not under contract with the
state.
h) AB 1183 (Committee on Budget), Chapter 758, Statutes of
2008, reduced non-contract rates to the lesser of the 10%
reduction enacted by AB 5 X3 or the regional average CMAC
per diem contract rate, reduced by 5% and multiplied by the
number of Medi-Cal covered inpatient days.
REGISTERED SUPPORT / OPPOSITION :
Support
California Hospital Association (sponsor)
Adventist Health
Children's Hospital Association
Citrus Valley Health Partners
City of Hope
College Health Enterprises
College Hospital Costa Mesa
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Community Hospital of San Bernardino
District Hospital Leadership Forum
Garden Grove Hospital & Medical Center
Henry Mayo Newhall Memorial Hospital
Hi-Desert Medical Center
Kaweah Delta Health Care District
Loma Linda University
Private Essential Access Community Hospitals
Opposition
None on file.
Analysis Prepared by : Marjorie Swartz & Tanya Robinson-Taylor /
HEALTH / (916) 319-2097