BILL ANALYSIS �
SB 920
Page 1
Date of Hearing: July 3, 2012
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
SB 920 (Ed Hernandez) - As Amended: June 27, 2012
SENATE VOTE : 34-0
SUBJECT : Medi-Cal: hospitals.
SUMMARY : Revises provisions of the Medi-Cal Hospital Provider
Rate Payment Act (Rate Act) of 2011 and the Private Hospital
Quality Assurance Fee (QAF) Act (Fee Act) of 2011.
Specifically, this bill :
1)Increases direct grants to district owned or operated
hospitals known as nondesignated public hospitals (NPDHs) from
the funds generated by the fee and provides that NDPHs would
no longer be eligible for payments from the Low Income Health
Plan (LIHP) out-of-network supplemental fund. Limits LIHP
supplemental payments solely to private hospitals.
2)Extends the sunset date and inoperative date of the Rate Act
of 2011 to align it with the sunset and inoperative dates of
the Fee Act of 2011.
3)Requires the Director of Department of Health Care Services
(DHCS) to state the basis for a determination that the Rate
Act or the Fee Act is made inoperative.
4)Adjusts the payment amounts to hospitals to address the
recently revised federal upper payment limit (UPL).
5)Requires the Director of DHCS to allocate the Private Hospital
Supplemental Fund among eligible private entities pursuant to
a methodology developed in consultation with specified
hospital entities, and requires the methodology to, to the
extent possible, ensure that the hospitals are allocated
funding at the level of payment received for the 2011-12
fiscal year (FY), taking into consideration applicable
eligibility criteria.
6)Makes clarifying and technical drafting corrections to the
Rate Act and the Fee Act.
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EXISTING LAW :
1)Establishes, under federal law, the Medicaid Program (Medi-Cal
in California), administered by DHCS, to provide comprehensive
health care services and long-term care to low income
populations such as pregnant women, children, and seniors and
people with disabilities.
2)Establishes a schedule of benefits under the Medi-Cal Program,
which includes hospital inpatient and outpatient services,
subject to utilization controls, and establishes Medi-Cal
hospital reimbursement requirements.
3)Establishes, for the period from July 1, 2011 through December
31, 2013, a Medi-Cal hospital provider QAF, provides
supplemental payments to private hospitals in the Medi-Cal
Program, provides for grants to public hospitals, funds for
children's health care coverage and for supplemental payments
to hospitals for services provided through the LIHP Medicaid
Expansion (MCE) and through Medi-Cal managed care (MCMC)
plans.
4)Authorizes local entities to establish, pursuant to a 2010
Section 1115(a) Medicaid waiver, entitled "A Bridge to Reform"
the LIHP MCE to provide health care services to low-income
childless adults as a voluntary program funded with local
governmental expenditures and matched with federal funds.
5)Defines, under federal law, the UPL for hospital reimbursement
as the reasonable estimate of what Medicare would pay to all
hospitals within a class.
6)Establishes the Private Hospital Supplemental Fund, provides
for continuous appropriation from the Fund, and establishes
the possible sources of money for the Fund.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, this bill is
necessary to address a concern regarding the potential unequal
distribution of payments through the LIHP out-of network
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supplemental payments established by SB 335 (Ed Hernandez),
Chapter 286, Statues of 2011. The author states that NDPHs
have argued that not all of the NDPHs are in areas where LIHP
supplemental payments could be accessed, and that this may
result in an unequal distribution of those funds. Instead,
this bill proposes that NDPHs be provided an increase in
direct grants as a more equitable way to provide increased
funding for them from the provisions of SB 335. This bill
would use a portion of the hospital fees that would have been
used for LIHP supplemental payments to fund increased direct
grants to NDPHs. In return, the NDPHs would no longer be
eligible for payments from the LIHP out-of-network
supplemental fund. Under this bill, LIHP supplemental payments
would be available solely for private hospitals.
According to the author, this bill is also needed to make a
number of noncontroversial, technical, or clean-up changes to
the Rate Act of 2011 and the Fee Act of 2011 enacted by SB
335. In addition, this bill adjusts the payment amounts to
hospitals to address the recently revised UPL. Lastly, this
bill requires the Director of DHCS to allocate the Private
Hospital Supplemental Fund (PHSF) among eligible private
entities pursuant to a methodology developed in consultation
with specified hospital entities, and requires the
methodology, to the extent possible, to ensure that the
hospitals are allocated funding at the level of payment
received for FY 2011-12, taking into consideration applicable
eligibility criteria.
2)BACKGROUND . AB 1383 (Jones), Chapter 627, Statutes of 2009,
and AB 188 (Jones), Chapter 645, Statutes of 2009, enacted the
first Medi-Cal hospital QAF. These bills established a
framework for a Medi-Cal hospital provider fee; a methodology
for calculating and paying supplemental payments to private
and district hospitals; supplemental payments to MCMC plans
for hospital services; allocated funds for children's health
care coverage; for DHCS administrative costs; and, grants to
public hospitals from the funds collected by the fee. AB 1383
was to become effective upon receipt of the Centers for
Medicare and Medicaid Services (CMS) approval and become
inoperative on January 1, 2011. This was timed to take
advantage of the increase in federal matching funds available
under the American Recovery and Reinvestment Act of 2009
(ARRA). ARRA increased California's Federal Medicare
Assistance Percentages (FMAP) by 11.59% from of a base of 50%
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to 61.59% from October 1, 2008 thru December 31, 2010. In
other words, the revenue derived from a hospital provider fee
could be matched by federal funds at a two to one ratio for
this limited period of time. These measures generated $3.1
billion in revenue from hospitals paying the QAF. The QAF
drew down an additional $3.2 billion in federal funds, and
provided an overall benefit to the hospital industry of $2.6
billion. In addition, over the 21 month period in which AB
1383 and AB 188 applied, the QAF provided $560 million for
children's health coverage, and $513 million in unmatched
direct grants to designated public hospitals (DPHs).
The Federal Education, Jobs, and Medicaid Assistance Act
extended the availability of increased FMAP but phased it out
over the additional six 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. In order to
benefit from this increase in federal matching funds, payments
had to actually be made during the specified period,
regardless of when the services were provided. The hospital
industry was not able to agree on a fee mechanism in time to
take advantage of the January to April 2011 increase.
However, an agreement was reached within the industry and with
DHCS in time to enact legislation to benefit from the increase
for the April to June 2011 period �SB 90 (Steinberg), Chapter
19, Statutes of 2011, and AB 113 (Monning), Chapter 20,
Statutes of 2011]. AB 113 was a companion bill that enacted
an Intergovernmental Transfer (IGT) program for NDPHs. SB 90
established a new QAF and hospital supplemental payment
program for the period between January 1, 2011 and June 30,
2011 that was similar to the previous fee and supplemental
payment program. The most significant changes made to the
funding distribution in SB 90 as compared to the funding
distribution in previous legislation was the elimination of
supplemental payments to the 48 NDPHs and grants to the 21
DPHs, and an increase in the per quarter amount for children's
coverage (from $80 million per quarter to $110 million per
quarter). In addition, SB 90 established an IGT program that
allows the 48 NDPHs and 21 DPHs to use IGTs to increase the
Medi-Cal capitation rate to MCMC plans with which they
contract.
According to the California Hospital Association (CHA), of the
357 licensed general acute care hospitals in the state, under
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the SB 90 fee, 237 paid the QAF. Of the 237 hospitals paying
the QAF, 15 independent hospitals and four hospital systems
paid more in QAF than they received in supplemental payments.
Across all private hospitals, SB 90 was estimated to provide
$858 million in payments to private hospitals above the
amounts paid in QAF by these hospitals. SB 90 also authorized
the Office of Statewide Health Planning and Development to
grant specified extensions of hospital seismic safety
requirements, contingent on passage of legislation and federal
approval of a future QAF allocating $320 million for
children's coverage in FY 2011-12.
SB 335 enacted a 30-month extension of the Medi-Cal hospital
provider fee or QAF and allowed for a continuation of the
ability to draw down federal funds to match fee revenue and
provide increased payments to private hospitals in the
Medi-Cal Program, provided $ 930 million to pay for children's
health care coverage, provided grants to DPHs and NDPHs,
increased payments to MCMC plans for hospital services and
limited rate reductions for hospitals that participate in the
Medi-Cal Program. SB 335 also included a new element that
allowed the use of the hospital QAF funds to provide $75
million a year for the non-federal share of supplemental
payments to hospitals that provide out-of-network emergency
services to enrollees in LIHPs.
On June 22, 2012 DHCS received federal approval of the SB 335
hospital fee and the associated inpatient and outpatient
Medi-Cal fee-for-service (FFS) supplemental payments effective
retroactively to July 1, 2011 and to continue through December
31, 2013. According to DHCS, the approval of the fee of the
supplemental FFS payments allows DHCS to begin assessing the
fee and paying the supplemental FFS payments. DHCS is
continuing to work with CMS to receive the federal approval of
the increased Medi-Cal managed care capitation rates.
3)SECTION 1115(a) MEDICAID WAIVER . In November 2010, California
received federal approval for a new five year Section 1115(a)
Medi-Cal Demonstration/Pilot Project Waiver, entitled "A
Bridge to Reform." Section 1115(a) of the Social Security Act
authorizes the federal Secretary of Health and Human Services
to allow states to receive federal Medicaid matching funds
without complying with all of the federal Medicaid rules.
Traditionally designed as research and demonstration programs
to test innovative program improvements and to facilitate
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coverage expansions to populations not otherwise eligible,
they are also used to modify benefits structures and financing
mechanisms. This waiver is a renewal of the Hospital
Financing /Uninsured Waiver that was approved in 2005 and
includes a continuation of the hospital financing provisions
from the 2005 waiver but with modifications to the allocation
of Disproportionate Share funds and Safety Net Care Pool
funds. The 2010 waiver also included a new Delivery System
Reform Incentive Pool fund that is tied to achievement of
specific milestones.
This 2010 Replacement Waiver is intended as a bridge to
implementation of the Patient Protection and Affordable Care
Act which requires states to include childless adults, under
age 65, who are not otherwise eligible for Medi-Cal or
Medicare with incomes up to 133% of the federal poverty level
in its Medicaid program. Building on the Health Care Coverage
Initiative model from the 2005 waiver, the 2010 waiver
establishes the LIHP for this population and expands it
statewide at the option of a county option or other local
entity. A local entity that chooses to participate will use
certified public expenditures (CPEs) as the matching funds.
The Special Terms and Conditions (STCs) that accompanied the
waiver approval provided that this locally-based coverage is a
bridge to the more significant coverage that is effective in
2014 and CMS considers this transition an MCE. As such, CMS
imposed a number of Medicaid requirements in the STCs but
allowed for flexibility within the parameters of a Medicaid
demonstration project.
The STCs treat the LIHP as a managed care organization and
therefore allow a closed network of providers. Because the
source of the nonfederal matching funds is CPEs, most of the
network providers are expected to be DPHs. However, the STCs
also require the LIHP to reimburse a hospital that is not in
the network for emergency care or approved post-stabilization
services provided to a LIHP enrollee. The reimbursement rate
however is limited to 30% of the rate that a MCMC plan would
ordinarily be required to pay for similar out-of-network
services (so-called "Rogers Amendment Rate"). SB 335
established a fund to supplement these payments. The total
over the duration of the bill is $475 million. The first $20
million is composed of IGTs provided by DPHs plus $20 million
in federal matching funds. Private hospitals will contribute
$75 million in fee revenue which will also be matched by an
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equal amount of federal funds. Over the 30 month period, the
pool will total $475 million. SB 335 provided that NDPHs
would also be eligible to receive supplemental payments.
4)SUPPORT . CHA, in support of this bill, writes that the
creation and implementation of the hospital fee program in
California had been extremely successful. CHA further states
that the program has been critical for hospitals to bolster
their ability to preserve health care services for the states
most vulnerable patients. CHA explains that this bill is
needed to make minor technical corrections as well as changes
to the 30-month fee program required by CMS. According to
CHA, CMS decreased the amount of the FFS supplemental payments
to hospitals because the upper payment limit was exceeded as
originally proposed. CHA states that in addition, this bill
makes a change to the 30-month fee to increase the grants to
NDPHs in lieu of access to payments from the LIHP MCE
Out-of-Network Emergency Care Supplemental Payment Fund for
services provided through the LIHP/MCE.
CHA and other supporters also write in support of provisions
relating to the PHSF. Specifically, they point out that the
California Medical Assistance Commission has traditionally
negotiated and made payments from this fund. However, with
the duties being transferred to DHCS on July 1, 2012,
supporters believe it is important to work with DHCS on the
PHSF funding process so that participating hospitals can plan
for the future. Supporters state that this bill requires DHCS
to develop a methodology of how the funds will be allocated in
consultation with the statewide associations representing the
participating hospitals and that the method should reflect, to
the extent possible, that hospitals are allocated funding
proportionally the same as hospitals received in FY 2011-12.
Private Essential Access Community Hospitals, also in support,
states that this bill would make appropriate statutory changes
to reflect how the PHSF would be administered by DHCS upon
implementation of the new Medi-Cal Diagnosis Related Groups
payment methodology which is scheduled to begin on July 1,
2013. The language would give community safety net hospitals
and children's hospitals the assurance of predictability in
the allocation of these critical funds.
5)Policy COMMENT. SB 853 (Committee on Budget and Fiscal
Review), Chapter 717, Statutes of 2010, the 2010 health budget
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trailer bill required DHCS to implement a new payment
methodology for inpatient hospital care in the Medi-Cal
program based on diagnosis-related groups. DHCS is in the
process of developing and implementing this new rate
methodology. As a result, the California Medical Assistance
Commission (CMAC) which previously negotiated hospital
contract rates is being eliminated. The health budget trailer
bill of this year, AB 1467 (Committee on Budget), Chapter 23,
Statutes of 2012 authorized the Director of DHCS to exercise
the duties of CMAC to negotiate and make payments to hospitals
from the PHSF and the NDPH Supplemental Fund. A provision of
this bill also relates to how the director should allocate the
PHSF among eligible private hospitals. This provision may be
in conflict with AB 1467. DHCS has stated that discussions
are in process to resolve the differences.
REGISTERED SUPPORT / OPPOSITION :
Support
California Children's Hospital Association
California Hospital Association
Children's Hospital Los Angeles
Community Hospital Long Beach
District Hospital Leadership Forum
Earl & Loraine Miller Children's Hospital
Long Beach Memorial Medical Center
Lucile Packard Children's Hospital
Private Essential Access Community Hospitals
Rady Children's Hospital - San Diego
Opposition
None on file.
Analysis Prepared by : Marjorie Swartz / HEALTH / (916)
319-2097