STAFF ANALYSIS of ASSEMBLY BILL 1066 (John A. Pérez)Page 1

STAFF ANALYSIS OF ASSEMBLY BILL 1066 (John A. Pérez)Page 1

SENATE HEALTH

COMMITTEE ANALYSIS

Senator Ed Hernandez, O.D., Chair

BILL NO: AB 1066A

AUTHOR: John A. PérezB

AMENDED: June 15, 2011

HEARING DATE: June 22, 20111

CONSULTANT:0

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SUBJECT

Public health care: Medi-Cal: demonstration project waivers

SUMMARY

Makes statutory changes to implement the Section 1115 Medi-Cal Demonstration Project Waiver approved on November 2, 2010, for funding designated public hospitals (DPHs). Continues under the new waiver the fee-for-service cost-based reimbursement for DPHs, with those hospitals providing the required federal match using their own funds through certified public expenditures. Establishes under the waiver a new distribution methodology for disproportionate share hospital (DSH) and Safety Net Care Pool(SNCP) funds to DPHs, as specified.

CHANGES TO EXISTING LAW

Existing law:

Existing law provides for the Medi-Cal program, which isadministered by the Department of Health Care Services (DHCS), underwhich qualified, low-income individuals receive health care services.

Existing law, as enacted through SB 1100 (Perata), Chapter 560, Statutes of 2005 (2005 Waiver Legislation),establishes the Medi-CalHospital/Uninsured Care Demonstration Project Act, which reviseshospital supplemental payment methodologies under Medi-Cal. This demonstration project provides for fundingto various hospitals,including designated public hospitals (DPHs), nondesignated publichospitals (NDPHs), and private hospitals, as defined, with certain provisions relating to DSH hospitals.

Existing law, as enacted by SB 208 (Steinberg), Chapter 714, Statutes of 2010, (2010 Waiver Legislation) requires DHCS to seek another demonstrationproject or federal Medicaid waiver to implement specifiedobjectives, which may include better carecoordination for seniors,persons with disabilities, and children with special health careneeds. Thefederal Special Terms and Conditions (STCs) approving the federal waiver (the federal waiver is entitled the “California Bridge to Reform Demonstration Project”) govern the five-year period from November 1, 2011 through October 31, 2015 when this waiver is in effect. SB 208 requiresthe provisions of the 2005 Waiver Legislation, enacted by SB 1100, to still apply to the extent these provisions do notconflict with the provisions ofthe federal STCs approving the 2010 Waiver Legislation

This bill:

This bill provides for reimbursement to DPHs during the term of the 2010 Federal Waiver, with some of these provisions codifying the federal STCs governing the 2010 Waiver Legislation, as follows:

Disproportionate Share Hospital (DSH) funding

DSH is a federal designation and funding mechanism that requires states to make Medicaid payment adjustments forhospitals that serve a disproportionate share of low-income patients with special needs. In 2011, nearly $1.1 billionin federal DSH funding is available to California. Under federal law, the DSH allocation amount is changed each year by taking the previous year’s amount and adjusting it by the percentage change in the consumer price index for urban consumers for the previous year.

The 2005 Waiver Legislation, through SB 1100, changed how DSH funds are distributed to hospitals. Under SB 1100, all federal DSH funds go exclusively to DPHs (county and University of California hospitals) and NDPHs(NDPHs are hospitals owned by health care districts). Private hospitals no longer receive federal DSH funds, and instead receive DSH “replacement payments” funded by federal funds and the state General Fund (GF). To draw down federal DSH funds, DPHs use their own funds (instead of funds from the state General Fund) by making “certified public expenditures”(CPEs), and through intergovernmental transfers as the state match. For NDPHs, state GF dollars are used to draw down federal matching funds. DSH funding can cover hospitals’uncompensated Medi-Cal and uninsured costs. The 2005 Waiver Legislation also suspended during the 2005 Waiver the transfer of $85 million in DSH funds to the state Health Care Deposit Fund (referred to as the “DSH rake off”).

This bill continues to limit federal DSH funding to DPHs and NDPHs, but provides for a different distribution formula for DPHs than under the 2005 Waiver Legislation.

Under current law, DHCS determines which hospitals are eligible for DSH funds based on each hospital’s low-income and Medi-Cal utilization rate. Under this bill, DHCS would also, in determining which hospitals are DSH-eligible, include services provided under the Health Care Coverage Initiative (HCCI) and the Low Income Health Program (LIHP) established by SB 208 of 2010.

Second, this bill makes an initial allocation of DSH funds to Kern Medical Center (a DPH) in the amount of $8 million in the first year of the 2010 Federal Waiver, $12 million in years two through four, $12 million for July 1, 2014 through June 30, 2015, and $4 million for the period of July 1, 2015 through October 31, 2015.

Third, this bill allocates to DPHs an amount per hospital discharge, as follows:

• $1,100 per hospital discharge for an uninsured individual;
• $900 per hospital discharge for an individual enrolled in the LIHP; and,
• $750 per hospital discharge for a Medi-Cal beneficiary, excluding discharges for which Medicare payments were received.

For remaining DSH funding, DHCS is required to calculate, for each DPH, an initial DSH claiming amount based on the sum of the hospital’s uncompensated Medi-Cal, LIHP and uninsured costs of hospital services reported as CPE-eligible, multiplied by 175 percent. The remaining funds would then be allocated pro rata among the DPHs based on each hospital’s initial DSH claiming amount. DSH payments can be paid to a DPH independent of the amount of uncompensated Medi-Cal and uninsured costs certified as CPEs. Finally, this bill would continue to suspend during the duration of the 2010 Waiver the transfer of $85 million in DSH funds to the state Health Care Deposit Fund (referred to as the “DSH rake off”).

Safety Net Care Pool

The 2005 Waiver Legislation created the SNCP and made DPHs eligible to receive SNCP payments from the Health Care Support Fund created by that bill.

This bill would continue to make DPHs eligible to receive these SNCP payments for uncompensated care provided to the uninsured from the Health Care Support Fund, but with a different funding allocation. DHCS would be required to determine the maximum amount of SNCP payments for uncompensated care that is available to DPHs for each year of the 2010 Federal Waiver. Each DPH would have an initial SNCP claiming ability amount based on the sum of the hospital’s uncompensated Medi-Cal, LIHP, and uninsured cost of services incurred by the DPH, governmental entity or nonhospital clinics, or other provider types with which it is affiliated. Available SNCP dollars would then be allocated pro rata among the DPHs based upon each hospital’s SNCP claiming ability. SNCP payments can be paid to a DPH or the governmental entity with which it is affiliated independent of the amount of uncompensated Medi-Cal and uninsured costs.

Delivery System Reform Incentive Pool (DSRIP)

The 2010 Waiver Legislation enacted by SB 208 requires DHCS, to the extent authorized under a federal waiver ordemonstration project that is approved bythe federal Centers for Medicare and Medicaid Services (CMS), to establish a program of investment, improvement, andincentive payments for DPHs to encourage andincentivize delivery system transformation and innovation inpreparation for the implementation of federal health care reform. To implement this provision, SB 208 creates thecontinuously appropriated Public Hospital Investment, Improvement, and IncentiveFund, consisting of any moneys that a county, otherpolitical subdivision of the state, or other governmental entity inthe state voluntarily elects to transfer to DHCS for depositinto the fund. Moneys in that fund must be used as the source for thenonfederal share of investment, improvement, and incentive paymentstoparticipating DPHs and the governmental entities with which they areaffiliated, that provide the IGTs for depositinto the fund. DHCS is required to obtain federal financial participation (FFP)for moneys in the fund to the full extent permitted by law. Moneys disbursed from the fund,and all associated FFP are required to bedistributed solely to the DPHs and thegovernmental entities with which they are affiliated. Under the federal STCs of the waiver, total demonstration funding for DSRIP cannot exceed total computable expenditures of $6.5 billion over five years.

This bill specifies funding from DSRIP. Initial payments from DSRIP that are made available to each DPH are based on the delivery system reformproposals that are submitted by DPHs to DHCS for review and submission to CMS for final approval. The initialpercentages of DSRIP funding amongthe DPHs for each successordemonstration year is required to be based on the annual componentscontained in the approved proposals. This bill makes the actual receipt of funds conditioned on the DPH system's progress toward, and achievement of, the specifiedmilestones and other metrics established in its DSRIP proposal. A DPH system can carry forward available incentive pool funding associatedwith milestones and metrics from one year to a subsequent period asauthorized by the STCs and the final DSRIP protocol. This bill also permits DHCS to reallocate DSRIP funding, as authorized by the STC, makes each DPH individually responsible for achievement of milestones and metrics, and requires DPHs to file semiannual reports and requests for payment to DHCS, and establishes timeframes for DPHs or its affiliated governmental entity to make IGTs and timeframes for DHCS to make payments.

This bill authorizes the state,in consultation with the DHPs, and to the extentit does not impede the ability of the DPHs tomeet the requirements and conditions for DSRIP payments, to provide for milestone incentive payments to private DSH hospitals and nondesignated public DSH hospitals to create incentives for improvementactivities towards, and achievement of, delivery systemtransformation. This provision was also contained in the STCs. The milestone incentive payments to private DSH hospitals and nondesignated public DSH hospitals must be structured in accordancewith the requirements and conditions for DSRIP set forth in the STC and as approved by CMS. Incentive payments may be funded by voluntary IGTs made by the DPHs and NDPHs. All DSRIP funding,including any potential private and nondesignated public hospitalsubpools, is limited to the total amount of incentive poolfunding allowed for DSRIP payments, as setforth in the STCs.

Fee-for-Service Medi-Cal

SB 1100 requires fee-for-service (FFS) payments to DPHs for inpatient services provided to Medi-Cal beneficiaries to be based on the hospital’s allowable costs, rather than negotiated through the California Medical Association Commission (CMAC) through the Selective Provider Contracting Program (SPCP). Instead of the state GF providing the required matching funds to draw down federal Medicaid funds, DPHs, using their own funds, make CPEs to draw down federal Medicaid matching funds. DPHs also receive supplemental reimbursement for the costs incurred by physician and nonphysician practitioner services provided to Medi-Cal beneficiaries to the extent those costs are not claimed as inpatient hospital services, reduced by any Medi-Cal reimbursement provided for those services.

This bill continues these Medi-Cal FFS reimbursement provisions during the term of the 2010 Federal Waiver.

Baseline Funding and Stabilization Funding

SB 1100 required DHCS to determine a baseline funding amount for each DPH that is an amount equal to the total amount paid to the hospital for inpatient hospital services provided to Medi-Cal beneficiaries during the 2004-05 fiscal year. In addition, DHCS was required to allocate specific amounts to DPH as stabilization funding, paid as direct grants to DPHs and not as Medi-Cal payments.

The requirements for baseline funding and stabilization funding do not apply in the 2010 Federal Waiver or the 2010 Federal Waiver Legislation.

Claims for the first $500 million under the 2010Federal Waiver

The 2010 Waiver Legislation requires the state to have priority to claim against and retain thefirst $500 million in federal fundsusing expenditures incurred under state-only programs or otherprograms for which the state is authorized to claim under the STCs of the 2010 Waiver Legislation.

This bill would also allow the state to claim, in addition to what can be claimed under the STCs, for expenditures that are allowed under federalMedicaid law, including state-only programs that serve specialpopulations (such as prisoners), such as those for which state savings were recognized inthe Budget Act for the 2010-11 fiscal year. This bill would also allow, if the state is unable to claim the full amount of the $500 million,any portion of the amount that remains unclaimed to be reallocatedto be claimed based on the CPEs of the DPHs.

Other hospital financing provisions

This bill continues the requirement in the 2005 Waiver Legislation that the director of DHCS maximize available payment of FFP in the 2010 Waiver Legislation, establishes a fund claiming order of priority for DPHs and a payment order of priority for DHCS and DPHs, continues and expands DPH data reporting requirements, and continues provisions from the 2005 Waiver Legislation regarding recoupments of hospital overpayments and when the 2010 Waiver Legislation terminates.

State entity contracting with managed care plans under the waiver

SB 208 authorizes DHCS, in furtherance of the waiver or demonstration project, to require seniors andpersons with disabilities who do not have other health coverage to be assigned as mandatory enrollees into new or existing managed care health plans. Existing law authorizes DHCS or CMAC to contract with existing managed care plans.

This bill eliminates the authority of CMAC to contract with existing managed care plans.

Local Initiative risk-sharing mechanism

Existing law allows DHCS to incorporate, on a one-time basis for a three-year period, a risk-sharing mechanism in a contract with the local initiative health plan (LI) in the county with the highest normalized FFS risk score over the normalized managed care risk score.

This bill allows this provision to be implemented only if the LI pays the nonfederal share of all costs associated with the development, implementation and monitoring of the risk-sharing mechanism by means of IGTs, and only if FFP is not jeopardized.

Health Care Coverage Initiative

Existing law provides for the Health Care Coverage Initiative (HCCI),which was enacted by SB 1448 (Kuehl), Chapter 76, Statutes of 2006, to implement a provision of the 2005 STCs to expand health care coverage to low-income, uninsured individuals who are notcurrently eligible for the Medi-Cal program, the Healthy FamiliesProgram, or the Access for Infants and Mothers program. The HCCI is succeeded by the LIHP under the 2010 Waiver Legislation.

This bill modifies the sunset date of the HCCI waiver. Under current law, the HCCI becomes inoperative when the director of DHCS executes a declaration stating that the federal demonstration project has been terminated. This bill instead terminates the HCCI when the director executes a declaration stating that the LIHP has been implemented and that each HCCI that has sought approval has been transitioned to a LIHP, if authorized under the demonstration project and the LIHP statute.

Low Income Health Program

Existing law establishes the local Coverage Expansion and Enrollment Demonstration Project or “CEED Project.”

This bill renames the CEED Project as the LIHP, comprised of two population groups, defined as follows:

• The Medicaid Coverage Expansion (MCE) population, which meanslow-income individuals ages 19 to 64, inclusive, who are notpregnant, with family incomes at or below 133 percent of the federalpoverty level (FPL), are not eligible for the Medi-Cal program or theChildren's Health Insurance Program (CHIP), are United States (US) citizens,nationals, or have satisfactory immigration status, and meet thecounty of residence requirements. This bill also allows individuals who meet the aforementioned requirements, who are eligible for Medicare, to be considered part of the MCE population, a requirement of the STCs. Current state law makes individuals enrolled in Medicare ineligible.

• The Health Care Coverage Initiative (HCCI) population, whichmeans low-income individuals 19 to 64 years of age, inclusive, whoare not pregnant, with family incomes between 133 percent and 200percent of the FPL, are not eligible for theMedicare Program, the Medi-Cal program, CHIP, or other third-party coverage, are US citizens, nationals, orhave satisfactory immigration status, and meet the county ofresidence requirements.

This bill also conforms the LIHP enrollment dates in existing law to the enrollment dates in the federal STCs. This bill also deletes a reference to LIHPs serving “uninsured adults” to instead have LIHPs serve “low-income individuals” as individuals with partial coverage are eligible for LIHPs. This bill requires a LIHP to establish an income limit at a level that minimizes the need for imposing a limit on enrollment for the MCE population, and would require a LIHP’s retroactive coverage to include coverage for out-of-network emergency services, as required under the STCs. This bill also requires LIHPs to perform annual eligibility redeterminations for persons participating in the LIHP to assess if they remain eligible for the LIHP or are eligible for Medi-Cal or the Healthy Families Program.
This bill allows a LIHP participating entity to elect to include, in collaboration with DHCS, as the nonfederal share of LIHP expenditures, voluntary IGTs or CPEs of another governmental entity, as long as the IGT or CPE is consistent with federal law, and requires participating entities to pay DHCS administrative costs related to CPEs and IGTs.