BILL ANALYSIS �
SB 90
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Date of Hearing: April 6, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 90 (Steinberg) - As Amended: March 31, 2011
Policy Committee: HealthVote:14-1
Urgency: Yes State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill extends and slightly modifies a hospital quality
assurance fee (QAF) program that ended December 31, 2010 for an
additional six months (until June 30, 2011). It also grants
hospitals the ability to apply for an extension to seismic
compliance deadlines, changes various other hospital financing
provisions, and results in net savings to the General Fund in
2010-11 and 2011-12. Specifically, this bill:
1)Describes the framework for collection of fees from hospitals
and distribution of nearly $2 billion in supplemental Medi-Cal
payments to hospitals.
2)Requires that $105 million per quarter ($210 total for the
6-month program) in fee revenues be provided to the state for
children's health care coverage.
3)Grants individual hospitals the ability to apply for an
extension of deadlines for seismic compliance of up to seven
years, and authorizes the Office of State Health Planning and
Development (OSHPD) to evaluate a hospital's application and
grant an extension provided the hospital meets certain
milestones, as specified.
4)Specifies the factors that OSHPD shall consider when reviewing
a hospital's application.
5)Stipulates that the provisions related to seismic compliance
are contingent on federal approval of a hospital QAF program
for 2011-12 and the state receiving $320 million in fee
revenue from this program for children's health care coverage.
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6)Reduces supplemental payments made to certain private
hospitals that serve a disproportionate share of Medi-Cal
patients by $30 million state General Fund (GF) and matching
federal financial participation (FFP) in the current year, and
$75 million GF and matching FFP in 2011-12 in order to achieve
budgetary savings.
7)Makes inoperative various rate reductions and rate freezes
enacted by recent health budget trailer bills as follows:
a) Makes inoperative, from the effective date of this bill,
the 10% reduction in Medi-Cal fee for service (FFS) interim
payments to non-contract hospitals for inpatient services
as of July 1, 2008 that was enacted by AB X3 5 (Budget
Committee), Chapter 3, Statutes of 2008.
b) Makes inoperative the reduction to non-contract
hospitals based on the average CMAC rate minus 5% that was
enacted by AB 1183 (Budget Committee), Chapter 758, Statues
of 2008 and never implemented.
c) Makes inoperative the rate freeze on contract and
non-contract inpatient hospital care that was enacted by SB
853 (Budget and Fiscal Review Committee), Chapter 717,
Statutes of 2010 and restores the rate retroactively.
d) Exempts hospital inpatient reimbursement rates to
non-contract hospitals from the 10% provider reimbursement
rate reduction enacted in AB 97 (Budget Committee), Chapter
3, Statutes of 2011.
1)Specifies that the QAF revenues will reimburse the state for
any costs resulting from a contract hospital no longer
contracting with the state.
2)Specifies that its provisions are operative only if AB 113 of
the 2011-12 Regular Session of the Legislature is enacted and
becomes effective. AB 113 establishes a separate program to
allow non-designated public hospitals who do not participate
in the QAF program to leverage FFP, as explained below.
FISCAL EFFECT
1)A one-time increase of $1.9 billion (43% hospital QAF/57% FFP)
paid to hospitals through June 2011 in the form of increased
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Medi-Cal payments for inpatient and outpatient services. This
estimate assumes hospitals subject to the QAF will contribute
$1.0 billion to be matched with FFP at the enhanced rate of
57%, for a total Medi-Cal payment increase of $1.9 billion.
Some of the hospitals will receive payments directly from the
state, while others will receive the payments from the state
through Medi-Cal managed care plans.
2)As compared to the 2010-11 Budget Act, this bill would provide
a net additional $53 million in savings in 2010-11. The
components of the net $53 million are as follows:
a) Additional GF savings of $50 million from additional QAF
revenue to the state for children's health care coverage.
In total, the package provides $210 million in QAF revenue
to the state for children's health care coverage, but $160
million is already assumed in the 2010-11 budget.
b) Additional GF savings of $30 million associated with
reductions in payments to certain private hospitals of
approximately $30 million GF and matching FFP in the
current year.
c) Estimated net loss of GF savings of approximately $22
million associated with the repeal of the rate freeze, and
approximately $5 million associated with the repeal of the
rate reductions.
d) The actual impact of this bill on the state budget is a
net $75 million in additional savings instead of a net $53
million, as it is unlikely that the state would have
achieved the $22 million in savings assumed in the budget.
1)As compared to the 2011-12 budget as passed by the
Legislature, a net loss of savings of $18 million. The
components of the net $18 million are as follows:
a) Additional GF savings of $75 million due to a decrease
in payments of $75 million GF and matching FFP to private
hospitals.
b) Additional GF savings of $41 million associated with
estimates of slower growth in hospital rates as a result of
provisions in this bill that provide the state greater
leverage in rate negotiations.
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c) Estimated net loss of GF savings of approximately $107
million associated with the repeal of the rate freeze, and
approximately $27 million associated with the repeal of the
rate reductions.
d) The actual impact of this bill on the state budget is a
net $89 million in additional savings instead of a loss of
$18 million, as it is unlikely that the state would have
achieved the $107 million in savings assumed in the budget.
Additionally, the bill earmarks $320 million in additional
GF savings in 2011-12 associated with the future enactment
of a QAF program in 2011-12.
1)Estimated one-time administrative costs in the Department of
Health Care Services (DHCS) of approximately $800,000 (57%
QAF, 43% FFP) in the current year.
2)Estimated one-time costs administrative costs at OSHPD of
$56,000 for equipmentin 2011-12, and ongoing costs of $1
million annually beginning in 2011-12, to be funded through
increased fees on hospitals submitting applications.
3)Upon the expiration of this program, General Fund cost
pressure is created to maintain the higher level of payments
to hospitals and the children's health care coverage programs
funded by the QAF.
COMMENTS
1) Rationale . This bill and a companion bill, AB 113
(Monning), represent a package crafted by the governor and
the California Hospital Association (CHA) consisting of
multiple components, including the QAF program and a
separate program for non-designated public hospitals,
reductions in other supplemental payments to hospitals,
revenue to the state for children's health care coverage,
increased flexibility of seismic deadlines, and repeal of
recent hospital rate freezes and reductions, with
corresponding resolution of lawsuits related to the rate
freezes and reductions. According to CHA, this package will
provide the financial stability and certainty that is
needed for their future.
2) Reason for Urgency . The hospital quality assurance fee
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program created by AB 1383 (Jones), Chapter 627, Statutes
of 2009 was intended to align with the period for which an
enhanced matching rate, called Federal Medical Assistance
Percentage (FMAP) was provided through the federal American
Recovery and Reinvestment Act (ARRA). ARRA provided a 62%
FMAP to California, 12 percentage points higher than the
state's usual rate of 50%, through December 31, 2010.
Subsequent federal legislation extended the enhanced FMAP
for an additional six months, albeit at a reduced rate of
59% for January 1 through March 31, and 57% for April 1
through June 30, 2011. The QAF program created in this
bill is intended to leverage FFP for the additional
six-month period that enhanced FFP is still available. In
order to take advantage of the enhanced FFP, QAF revenues
must be collected and most supplemental payments must be
paid out to hospitals by June 30, 2011, which poses
administrative and cash flow challenges. Since the program
would be implemented between April 1 and June 30, 2011, QAF
revenues for the 6-month program would be matched at the
57% rate. SB 90 is being amended to contain an urgency
clause that would allow this program to be implemented
immediately upon enactment.
3) Changes From Prior QAF Program. The QAF program created
in this bill is substantially similar to the QAF program
that expired on January 1, 2011, with some changes.
Specifically, as compared to the prior program, this
program: (1) eliminates supplemental payments to
non-designated public hospitals and grants to public
hospitals; (2) expands the ability of public hospitals that
are reimbursed through managed care contracts to use
intergovernmental transfers (IGTs) to leverage federal
funds; (3) provides $105 million per quarter to the state
instead of $80 million; and (4) makes several technical
changes to the component of the program that describes
managed care payments.
4) IGT Program for Non-Designated Public Hospitals . AB
113, the companion to this bill, creates an ongoing program
through which certain public hospitals that are reimbursed
on a fee-for-service basis and do not participate in the
QAF program can use intergovernmental transfers (IGTs) to
leverage federal funds. This program would result in IGTs
totaling approximately $30 million, which would be matched
with FFP, and payments of approximately $65 million to
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non-designated public hospitals. It stipulates that the
state will receive 9% of the IGT amount (estimated at $3
million for the current year and $3 million in 2011-12) for
administrative costs and for children's health care
coverage. Administrative costs are estimated at $300,000
annually (43% GF/57% FFP in 2010-11 and 50% GF/50% FFP
thereafter). AB 113 also appropriates $1.5 billion from
the Hospital Quality Assurance Revenue Fund and $1.5
billion from the Federal Trust Fund to DHCS in order to
implement the QAF program.
5) Medi-Cal Quality Assurance Fees . Federal law authorizes
states to fund a portion of Medicaid through provider fees
that meet federal requirements and are matched with FFP to
pay providers without state funds. State QAF must be
broad-based, uniform, and cannot hold a group of providers
harmless with respect to fees paid and payments received.
California currently has several QAF established via budget
committee action and legislation. These QAF generate
revenues for Medi-Cal managed care plans, skilled nursing
facilities (SNF, nursing homes), and intermediate care
facilities for the developmentally disabled (ICF-DD).
6) Hospital Rate Reductions . Several rate reductions and a
freeze on hospital inpatient rates have been enacted by
budget action in recent years. These reductions have been
the subject of lawsuits, and some have been enjoined and
thus have not achieved planned budgetary savings. As noted
in the summary, this bill repeals several rate reductions,
which would resolve a number of pending lawsuits related to
the reductions
7) Hospital Finance Landscape . Medi-Cal payment to
hospitals depends on whether a hospital contracts with DHCS
through the California Medical Assistance Commission
(CMAC), if they qualify as a disproportionate share
hospital (DSH), and whether they are a private hospital, a
designated public hospital, or a non-designated public
hospital. Designated public hospitals use Certified Public
Expenditures (local funds), rather than GF, to draw down
FFP for hospital services.
Fee-for-service Medi-Cal outpatient hospital rates are
established in a DHCS fee schedule. The CMAC selectively
contracts on a competitive basis with hospitals for
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inpatient services provided to beneficiaries in the
fee-for-service Medi-Cal program via the Selective Provider
Contracting Program (SPCP). CMAC contracts with about 200
general acute care hospitals. Those hospitals that do not
contract with CMAC are non-contract hospitals, and Medi-Cal
recipients are generally restricted from receiving routine
hospital inpatient services from a non-contract hospital
when a contract hospital is available.
8) Hospital Earthquake Risk . Structural Performance
Category-1 (SPC-1) hospital buildings pose a significant
risk of collapse and a danger to the public after a strong
earthquake. Under current law, SPC-1 buildings must have
been retrofitted, replaced, or removed from acute-care
service by January 1, 2008, unless a hospital has been
granted an extension to 2013. According to estimates, about
half of the 2,000 hospital buildings statewide are
classified in the SPC-1 category and about half of SPC-1
buildings have not met or are unable meet 2008/2013
statutory deadlines due to financial constraints.
9) OSHPD and Seismic Compliance Deadlines . This bill
allows a hospital categorized as SPC-1 that has not yet
complied with the state's seismic safety standards to apply
for a deadline extension of up to seven years. The bill
stipulates that OSHPD examine a variety of
hospital-specific factors on a case-by-case basis,
including structural integrity, community access to
hospital services, and the hospital's financial capacity
when considering whether to grant an extension and for how
long. According to OSHPD, this will provide a flexible and
balanced approach that will assist hospitals in working
towards compliance with the seismic safety standards. OSHPD
will work with the Hospital Building Safety Board to issue
regulations that establish standards for the application of
the three criteria. Once established, it is intended that
the guidelines will clarify how OSHPD can use the authority
to grant, deny or modify extensions.
10) Related Legislation. AB 1383 (Jones), Chapter 627,
Statutes of 2009 established the QAF and provided funding
to the state for children's health care coverage.
AB 188 (Jones), Chapter 645, Statutes of 2009 appropriated
funds to DHCS to implement the QAF.
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AB 1653 (Jones), Chapter 218, Statutes of 2010 made
necessary changes to the methodology, timing, and frequency
of the supplemental payments made with QAF revenue in order
to gain federal approval of the QAF.
11) The author has proposed an amendment to add an urgency
clause.
.
Analysis Prepared by : Lisa Murawski / APPR. / (916) 319-2081