BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 289 (Hernandez)
Hearing Date: 5/9/2011 Amended: 3/24/2011
Consultant: Katie Johnson Policy Vote: Health 9-0
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BILL SUMMARY: SB 289 would require the Department of Health Care
Services (DHCS), when developing the new diagnosis-related
groups (DRG) hospital inpatient reimbursement model, to take
into consideration whether outlier payments, policy adjusters,
or other special provisions are required to adequately reimburse
specified nationally-designated free-standing cancer centers.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
Increased Medi-Cal potentially in the millions of
dollars,General/*
payments to specified commencing no later than June 30,
2014Federal
cancer centers
*Medi-Cal costs are shared 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 require DHCS to consider whether outlier
payments, policy adjusters, or other special provisions are
required to adequately reimburse National Cancer Institute (NCI)
designated comprehensive cancer centers that are exempt from the
Medicare prospective payment system as the department develops
the new DRG reimbursement system for inpatient hospital stays
for fee-for-service Medi-Cal beneficiaries. In California, there
are only two of these exempt cancer centers: City of Hope
(sponsor of this bill) and University of Southern
California-Norris Comprehensive Cancer Center (USC-Norris).
Any administrative costs to DHCS to consider these factors as
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they develop the DRG system would be minor and absorbable.
Additionally, any ongoing administrative costs to potentially
reimburse these NCI-designated/Medicare PPS-exempt cancer
centers with a different methodology than other general acute
care hospitals would be minor and absorbable.
While administrative costs would be absorbable, the actual rate
methodology that would be developed could result in higher
reimbursement rates for these cancer centers than would
otherwise be developed under existing law. This bill implies
that NCI-designated/Medicare PPS-exempt cancer centers would not
be "adequately reimbursed" by the DRG system and that DHCS
should consider whether or not to devise a more appropriate
payment methodology and higher reimbursement.
Costs to reimburse at a higher level than planned would result
in potentially millions of dollars in additional reimbursements
to these hospitals annually once the new system is in place-on
the date that the replacement Medicaid Management Information
System becomes fully operational, but no later than June 30,
2014. Costs would be shared 50 percent General Fund and 50
percent federal funds.
The DRG system works as follows: inpatient admissions are
divided into categories called diagnosis-related groups (DRGs),
which classify human diseases according to the affected organ
system, the procedure performed on the patient, morbidity, and
sex of the patient. Then, the DRGs "bundle" services (labor and
non-labor resources) that are needed to treat a patient with a
particular disease. Medicare hospitals are paid a flat rate per
case, based on the average cost to deliver care to a patient
with a particular disease. Thus, efficient hospitals are
rewarded for their efficiency, and inefficient hospitals have an
incentive to become more efficient.
Currently, hospitals are reimbursed for fee-for-service Medi-Cal
claims through the Selective Provider Contracting Program run by
the California Medical Assistance Commission (CMAC) on a per
inpatient bed day basis. 182 hospitals, including City of Hope
and USC-Norris, contract with CMAC and provided 86 percent of
the total Medi-Cal inpatient acute care days in FY 2008-09. The
average CMAC per diem rate paid to contract hospitals was $1,369
on December 1, 2008, and $1,414 on December 1, 2009. Hospitals
without CMAC contracts are reimbursed with an interim rate,
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which is later reconciled with actual cost reports.
SB 853-DRG Requirement
SB 853 (Committee on Budget and Fiscal Review), Chapter 717,
Statutes of 2010, the health budget trailer bill of 2010,
requires DHCS to develop and implement a Medi-Cal methodology
based on DRGs for hospital inpatient fee-for-service claims. It
exempted public hospitals, psychiatric hospitals, and
rehabilitation hospitals, and claims for psychiatric inpatient
days, rehabilitation inpatient days, Medi-Cal managed care
inpatient days, and swing bed stays for long-term care services.
SB 853 also required DHCS to evaluate alternative DRG
methodologies and to consider various factors in its evaluation.
This bill would add that DHCS would be required to consider
whether outlier payments, policy adjusters, or other special
provisions are required to adequately reimburse NCI-designated
comprehensive cancer centers that are exempt from the Medicare
prospective payment system. SB 853 permits DHCS to exclude or
include claims and services other than those specified as
necessary.
The Governor's FY 2011-12 proposed budget requests 11 two-year
limited positions in DHCS for a total cost of $1.2 million
($480,000 General Fund) to support the development of a DRG
system.
Medicare DRG Background
In 1982, in order to control rising Medicare costs for inpatient
hospitalizations, Congress mandated the creation of a DRG-based
prospective payment system (PPS). It exempted the following 5
types of specialty hospitals and two types of distinct-part
units within hospitals from the PPS methodology: rehabilitation,
psychiatric, long-term, and children's hospitals and cancer
centers and rehabilitation and psychiatric distinct-parts.
According to a 1992 report to Congress from the Prospective
Payment Assessment Commission (PPAC), the DRG system was an
inappropriate payment methodology for patients treated in
specialty facilities because their diagnoses are poor indicators
of resource use. Many of these patients are often chronically
ill, have a number of co-morbidities upon admission, and require
different types and amounts of treatments than patients treated
in an unspecialized general acute care hospital. In addition to
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their diagnosis, resource use for these patients also depends on
the progression of the condition, functional status, and
expected outcomes.