AB 113
Page 2
SENATE RULES COMMITTEEOffice of Senate Floor Analyses
1020 N Street, Suite 524
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THIRD READING
Bill No: AB 113
Author: Manning (D) et al
Amended: 3/31/11 in Senate
Vote: 27- Urgency
WITHOUT REFERENCE TO FILE
SENATE HEALTH COMMITTEE: 9-0, 04/06/11
AYES: Hernandez, Strickland, Alquist, Anderson, Blakeslee, De León, DeSaulnier, Rubio, Wolk
SENATE APPROPRIATIONS COMMITTEE: Not available
ASSEMBLY FLOOR: Not relevant
SUBJECT: Medi-Cal intergovernmental transfer program for non-
designated public hospitals.
SOURCE: California Hospital Association
DIGEST: This bill establishes the Non-Designated Public Hospital Inter-governmental Transfer Program, administered by the Department of Health Care Services (DHCS), for non-designated public hospitals (hospitals owned by health care districts), under which public entities would voluntarily elect to transfer funds to the state for the purpose of drawing down federal Medicaid funds to make supplemental payments to these hospitals, and establishes an allocation formula for the provision of the supplemental payments made available by this bill to these hospitals.
This bill becomes operative only if SB 90 (Steinberg) is enacted, which 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, and makes other changes necessary to implement savings related to the 2010-11 Budget and the 2011-12 Budget Act.
ANALYSIS: Existing law:
1. Establishes the Medi-Cal program, administered by DHCS, under which health care services are provided to qualified low-income persons. Inpatient and outpatient hospital services are a covered benefit under the Medi-Cal program, subject to utilization controls.
2. Provides for Medi-Cal payments to hospitals, including non-designated public hospitals (NDPHs). The method of payment in fee-for-service Medi-Cal NDPHs depends upon whether the hospital contracts with the state through the California Medical Assistance Commission (CMAC) or receives reimbursement as a non-contract hospital. CMAC rates are negotiated between the hospital and CMAC, while non-contract hospitals are reimbursed, through regulation, at the lessor of the following:
A. Customary charges.
B. Allowable costs determined by DHCS, in accordance with applicable Medicare standards and principles of cost based reimbursement, as specified in federal regulations and publication.
C. All-inclusive rate per discharge limitation.
D. The peer grouping rate per discharge limitation.
3. Contains various Medi-Cal rate hospital reductions and rates freezes enacted through health budget trailer bills from 2011, 2010 and 2008.
4. Establishes the continuously appropriated Medi-Cal Inpatient Payment Adjustment Fund in the State Treasury. Funds in the account are IGTs from public entities, which are the nonfederal share of payments which are used to match federal funds to make payments to disproportionate share hospitals.
5. Permits any county, other political subdivision of the state, or governmental entity in the state to elect to transfer funds to DHCS in support of the Medi-Cal program. DHSC has discretion to accept or not accept any elective transfer from a county, political subdivision, or other governmental entity, as well as the discretion of whether to deposit the transfer in the Medi-Cal Inpatient Payment Adjustment Fund, but if DHCS accepts a transfer, it must obtain federal matching funds to the full extent permitted by federal law.
This bill:
1. Enacts the “Non-Designated Public Hospital Medi-Cal Rate Stabilization Act” to provide supplemental federal Medicaid payments for hospital inpatient services provided in fee-for-service Medi-Cal to NDPHs in a manner that maximizes federal financial participation through IGTs from public entities (city, county, special purpose district, or other governmental unit in the state) to the state through a newly-created Non-designated Public Hospital Inter-governmental Transfer Program (NPHIGT). The NPHIGT will be administered by DHCS. Upon federal approval, DHCS is required to implement the IGT program in the 2010-11 fiscal year.
2. Makes participation in the IGT program voluntary for public entities. The state will retain nine percent of each IGT amount to reimburse DHCS for its administrative costs, and for the benefit of Medi-Cal children’s health care programs.
3. Establishes an allocation formula for making the supplemental Medicaid payments to NDPHs. DHCS determines the maximum amount these hospitals could be paid under federal Medicaid law (known as the Upper Payment Limit or UPL). From this total UPL amount, DHCS will then determine the funds these hospitals will be allocated based upon the ratio of Medi-Cal fee-for-service acute patient days provided by hospitals that contract (contract hospitals) with the state through CMAC as compared to hospitals that do not contract with CMAC (non-contract hospitals). The allocation for each group (contract hospitals versus non-contract hospitals) will be determined by the ratio of the total Medi-Cal fee-for-service acute patient days provided by all NDPHs. For example, if the contract NDPH as a group provided 70 percent of the Medi-Cal inpatient care days, 70 percent of the allocation in this bill would be set aside for these hospitals.
After the dollar allocation for contract and non-contract hospitals is established, this bill establishes a point scoring method for determining funding for each individual NDPH in the contract and non-contract hospital groups. The scoring method is based on the location of the NDPH (such as whether it is located in a designated medically underserved area or population, or health professional shortage area) and type of hospital (such as whether the hospital is a critical access hospital or a sole community provider), the NDPH’s charity care charges, the NDPH’s bad debt charges, and the NDPH’s Medi-Cal charges. Each NDPH receives a score of one to nine under the scoring system, and is grouped in one of three groups based on their contract and non-contract status: hospitals with one to three points, hospitals with four to six points and hospitals with seven to nine points. NDPHs with seven to nine points will receive three times the amount of funding as NDPHs in the one to three group, and NDPHs in the four to six group will receive an allocation two times the amount of a NDPH in the one to three group.
After the point system establishes a preliminary funding allocation for each hospital within each group (e.g., contract NDPHs with one to three points, four to six points, and seven to nine points and non-contract NDPHs with one to three points, four to six points, and seven to nine points), funding is reallocated among the NDPHs within each point group based on the ratio of each NDPH’s staffed acute care beds to the total staffed acute beds of all NDPHs in that particular group.
DHCS will be required to provide notice to NDPHs by September 1st of each year of its estimated IGT allocation, with the calculations and data source used by DHCS. NDPH will have 30 days of the IGT allocation notice to notify DHCS of any data or calculation errors. By December 1st of each year, DHCS will be required to provide each NDPH of its estimated allocation, and the NDPH will have twenty business days to determine to either accept or decline the offer. IGTs must be transferred to the state by February 5th of each fiscal year, and funds received from entities transferring to DHCS for purposes of the IGT must be placed in the existing Medi-Cal Inpatient Payment Adjustment Fund, which is continuously appropriated. DHCS must make supplemental payments to NDPHs by March 31st of each fiscal year.
4. Requires DHCS to report annually for four years to the Legislature on the NPHIGT.
5. Appropriate $1.5 billion from the Hospital Quality Assurance Revenue Fund and $1.5 billion from the Federal Trust Fund to DHCS to make supplemental payments to private hospitals under SB 90 (Steinberg).
6. Makes this bill operative only if SB 90 (Steinberg) is enacted and becomes operative.
Background
NDPHs are hospitals owned by hospital districts. NDPHs are reimbursed differently by Medi-Cal than designated public hospitals (county and University of California hospitals), which are paid cost-based reimbursement with federal funds and their own funds (instead of state General Fund) as the required match. NDPHs are paid by Medi-Cal with federal funds and state GF, and the amounts vary by hospital. NDPHs choosing to contract with the state through CMAC are paid by Medi-Cal a per diem rate (a daily rate) for each day a Medi-Cal beneficiary is in the hospital that is negotiated between CMAC and the hospital. Under the state’s Medicaid 1115 waiver (called “California Bridge to Reform Implementation”), CMAC payments can include supplemental payments using GF and federal funds, provided these payments do not exceed the federal upper payment limit (UPL) under federal regulations.
NDPHs that do not contract with the state in the fee-for-service Medi-Cal program are known as non-contract hospitals, and they are initially paid an interim rate. Noncontract hospitals are then required to submit a cost report before the close of their fiscal period. DHCS reviews each hospital’s cost report and prepares a tentative settlement, which is a determination of the Medi-Cal allowable reimbursable reported costs for the noncontract hospital’s fiscal period. DHCS compares what a noncontract hospital was paid in interim payments for the hospital’s fiscal period, to the hospital’s allowable reimbursable reported costs for that fiscal period.
In addition, NDPHs are eligible for Medicaid disproportionate share (DSH) payments if they meet the criteria to be a DSH hospital. Under the state’s Medicaid 1115 waiver, the nonfederal share of DSH payments to NDPHs is the state General Fund.
There are 48 NDPHs in California. Federal law establishes a maximum payment that categories of hospitals can receive under Medicaid, known as the UPL. NDPHs are estimated to have “room” under their UPL under Medicaid law that will allow them to receive $64 million in supplemental Medi-Cal payments in 2010-11. Under this bill, public entities would transfer (through an IGT) $30.7 million to the state, which would then be matched by $33.2 million in federal funds. The resulting $64 million in total revenue will be returned to these facilities under the allocation formula contained in this measure. The IGT program established under this bill will be an on-going program.
Under the hospital Quality Assurance Fee (HQAF) enacted by legislation last session, NDPHs were exempt from paying the HQAF, but received supplemental payments resulting from revenue generated by the HQAF. Under the six-month extension of the HQAF contained in SB 90 (Steinberg), NDPHs do not receive supplemental payments from the new HQAF. Instead, this bill establishes an IGT program for these NDPHs whereby public entities would transfer funds to the state, and these funds would be matched by federal funds to provide additional funds up to the federal UPL. The advantage of an IGT program is that, unlike the fee program, all transferring hospitals benefit from additional federal funds above amounts they contribute.
Comments
This bill is joined to SB 90 (Steinberg), which repeals specified Medi-Cal hospital rate freezes and rate reductions enacted in the just enacted and previous year health budget trailer bills. SB 90 imposes a HQAF on specified hospitals for six months (January 1, 2011 until June 30, 2011), and use the resulting revenue to do several things: to draw down federal funds to provide supplemental payments to private hospitals in fee-for-service Medi-Cal, Medi-Cal managed care, and for acute psychiatric days; to provide $210 million in funding for children’s health coverage in the current year; and to reduce by $30 million in the current year and $75 million in the budget year (BY) funds used to pay private hospitals.
SB 90 also requires DHCS to design and implement an IGT program for Medi-Cal managed care services provided by designated and non-designated public hospitals in order to increase capitation payments for the purpose of increasing reimbursement to these hospitals.
In addition, SB 90 also allows hospitals that have received extensions to 2013 of the seismic deadlines for their SPC-1 buildings to request an additional extension of up to seven years, and would allow the Office of Statewide Health Planning and Development (OSHPD) to grant the extension if the hospital meets several interim deadlines. In deciding whether to grant the extension, as well as the length of the extension, OSHPD would be required to consider several criteria, including the structural integrity of the building(s), community access to the hospital services, and the hospital owner’s financial capacity. The length of any extension could not exceed the amount of time that the owner reasonably needs to complete construction; however, a hospital will be able to adjust the length of the extension by up to six months under certain circumstances. OSHPD is authorized to revoke an extension if a hospital falsifies information, fails to meet any interim deadlines, or if construction is abandoned or suspended, as specified. Hospital owners who apply for extensions under this bill will be required to pay additional fees to cover OSHPD’s costs of reviewing the requests for extensions. OSHPD will be allowed to use emergency regulations to implement the bill’s seismic extension provisions. The bill provides that the seismic extension provisions will become operative on the date that DHCS receives federal approvals for a 2011-12 hospital quality assurance fee program that includes $320 million in fee revenue to pay for health coverage for children, as specified.
FISCAL EFFECT: Appropriation: Yes Fiscal Com.: Yes Local: No
The General Fund (GF) savings from all of the provisions of SB 90 are estimated to be $50 million in the current year and $305 million in the BY. If the state is assumed to continue to be unable to fully implement a Medi-Cal rate freeze due to a court injunction, the savings resulting from this bill are estimated to be greater, resulting in a net gain to the state of $88 million in the current year and $412 million in the BY, for a total of $500 million.
According to the Senate Appropriations Committee analysis:
Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
IGT Program local revenue ($30,700 in FY 2010-11) Local*
to state for federal matching (ongoing unknown)
IGT Program $36,300 in FY 2010-11 Federal/*
state payments $27,700 in FY 2010-11; Local
to NDPHs ongoing unknown
9 percent IGT fee $3,000 in FY 2010-11; Local/
expenditures for ongoing unknown General
state programs and administration