June 2012 Recap of DHLF Activities

Following is a summary of the issues the DHLF has been focusing on in June.  As outlined below, most activities have been (and will continue to be) focused on the state budget proposal recently enacted which changes Medi-Cal inpatient fee-for-service reimbursement for District and Municipal hospitals.

2012-13 State Budget: May Revise

Governor Brown signed the 2012-13 state budget on June 27.  The 2012-13 budget is reliant upon a package of ballot measures increasing various taxes passing in November.  Even considering the proposed future tax increases, the state was facing a significant deficit and the reductions discussed below are examples of the reductions necessary to balance the budget.
The budget, as signed, will change Medi-Cal reimbursement for fee-for-service inpatient from the current system (per diem or cost-based) to certified public expenditures (similar to the designated public hospitals) for non-designated public hospitals (NDPHs).  This will result in District/Municipal hospitals providing the 50 percent non-federal share, matched with federal funds up to cost for these services.  To minimize the impact on District hospitals, the Department of Health Care Services (DHCS) currently is seeking increased federal funding (funding for uncompensated care and delivery system improvements) to minimize the financial impact of this change on District hospitals.  The initial proposal would have resulted in a $30 million reduction to District/Municipal hospitals but due to technical efforts and advocacy, the DHLF was successful in increasing the amount of federal funding that is part of the proposal resulting in approximately a $14 million reduction to all NDPHs in year 1, and (based on current cost/utilization assumptions) will provide new funding above the 2011-12 baseline.
Below is a summary of the aggregate impact of the proposal.  Please continue reading for other items (notably the hospital provider fee and the Medi-Cal managed care intergovernmental transfers) that will affect your reimbursement.  This impact analysis merely addresses the provisions that change reimbursement to CPEs coupled with newly available federal Waiver funding.

2012-13 2013-14 2014-15
Initial proposal included in May Revise of state budget

($88 million)

($88 million)

Revised proposal after initial advocacy with Legislature and DHCS **

($28 million)

$5.5 million

Current proposal:  Impact (reduction to Medi-Cal FFS inpatient + new federal funding) **

($14. 4 million)

$13.1 million

$18.1 million

** Above analysis is contingent upon receipt of federal funding.  Initial starting point estimates have since been refined.

Previously discussed proposals included in the state budget May Revise, affecting designated public and private hospitals were unchanged resulting in reductions to all hospitals in the current budget year.
Other budget items of note include the transition of all children in the Healthy Families program to Medi-Cal beginning January 1, 2013. The transition will occur in four phases over 12 months.  The budget also implements dual eligible demonstration projects in eight counties (previously the demonstrations were authorized in four counties).  The Centers for Medicare and Medicaid Services (CMS) will need to approve these projects before they can begin and they are expected to achieve significant savings to the state over the next several years.
The Forum, other hospital and clinic advocates were successful in stopping the proposal to reduce Medi-Cal reimbursement to rural health clinics and federally qualified health clinics.

Activities Related to District Hospitals Transition to CPEs/Obtaining New Federal Waiver Funding

Current and Ongoing Activities
The state has submitted a Waiver amendment to CMS that will allow NDPHs to access federal funding for uncompensated care and delivery system improvement incentive payments (both discussed below).  Without federal approval to the Waiver amendment, the proposal to transition District/Municipal hospitals to CPEs will not move forward.  At some point within the current quarter, DHCS will submit a state plan amendment (SPA) to CMS for approval of the transition to CPEs for District/Municipal hospitals.  The timeline for CMS approval could be lengthy, however, DHCS is optimistic this will occur quickly based on work already done with the designated public hospitals.
Each hospital will be required to complete and submit a “Paragraph 14” report.  This is information that will be obtained from Medi-Cal cost reports and hospital accounting records and will be the basis of the CPEs for both Medi-Cal and uncompensated care.  Forum staff currently is working with DHCS staff on revisions to the existing form currently used by designated public hospitals and will have additional information as well as the actual form to distribute to members within a couple of weeks.
Uncompensated Care
In year 1, $45 million in federal funds is available to District/Municipal hospitals in recognition of the care provided to the uninsured ($50 million will be available in year 2 and $55 million in year 3).  These funds will be accessed utilizing hospital certified public expenditures and the actual process/timing is a topic of ongoing discussion with DHCS.  Both the Forum and DHCS recognize the significant impact to a hospital’s cash flow due to the change to CPEs and all stakeholders are committed to mitigating the impact using all available options.
As noted above, information used for claiming funds for care to the uninsured will be taken from hospitals’ “Paragraph 14” reports.  Therefore, it will become even more important that all costs associated with care to these patients is correctly captured so all federal funds can be claimed.
Delivery System Reform Incentive Payments (DSRIP)
In year 1, $40 million is available to District/Municipal hospitals as incentive payments ($62.5 million will be available in years 2 and 3) for making delivery system improvements.  The Waiver amendment submitted to CMS currently has this component marked “to be determined” and staff from the Departments of Public Health and Health Care Services are working with Forum staff and members to finalize the plan submitted to CMS.  All hospitals will be required to submit a plan and incentive payments will be made based on meeting the milestones identified by each hospitals (with approval by DHCS and CMS).  The non-federal share for DSRIP payments will be intergovernmental transfers provided by public District/Municipal hospitals.  Funding to individual hospitals will be reduced if milestones are not met.
There are 4 areas for which federal funding is available under the DSRIP to improve population health and clinical quality, including the patient care experience.  The categories and possible examples are included below, but it must be noted that the state recognizes the differences among District hospitals, so a plan for a Critical Access Hospital will be very different from a plan for a large tertiary District hospital.
Infrastructure Development – Investments in technology, tools and human resources that will strengthen the organization’s ability to serve its population and continuously improve its services.  Examples:

  • Improving Population Health and Prevention Capacity
  • Increasing Primary Care Capacity
  • Enhancing Clinical Quality Improvement Staffing and Capacity
  • Using Telemedicine
  • Implementing Electronic Health Record Functionality

Innovation and Redesign – Investments in innovative models of care delivery (e.g., Medical Homes) that have the potential to make significant improvements in health, clinical outcomes, and patient experience. Examples:

  • Effective Use of Medical Homes
  • Development or Enhancement of Chronic Care Management
  • Enhancement of Chronic Disease Management Systems
  • Primary Care Redesign
  • System Redesign for Quality Improvement
  • Use of Electronic Health Records to Improve Clinical Quality and Population Health.

Population-focused Improvements – Investments in enhancing care delivery for high-burden (mortality, morbidity, cost, prevalence, etc.) conditions in non-designated public hospital systems. Examples:

  • Improved Health Care-Acquired Conditions Management and Outcomes
  • Improved Chronic Care Management and Outcomes
  • Reduction of Readmissions
  • Improved Quality with Particular Attention to High-Burden Conditions.

 Patient Safety – Implementation of evidence-based intervention to improve patient safety (e.g., Institute for Healthcare Improvement bundles).  Interventions will be selected from a list and will address the specific needs of the hospital and the population it serves.
Timing/Cash Flow Concerns
Non-designated public hospitals will continue to receive current Medi-Cal reimbursement until all federal approvals on the above components are obtained.  The actual timing will be addressed with DHCS, but after the state receives the necessary federal approvals, an interim rate will be calculated for affected hospitals based on 50 percent of costs utilizing the most recent Medi-Cal cost report.  Medi-Cal payments (albeit reduced payments) will continue on a weekly or bi-weekly basis.
At some point after federal approvals are obtained, DHCS will implement recoupments for funding received for services provided after July 1 above the hospitals’ 50 percent of costs.  DHCS has committed to working with hospitals to mitigate the impact.  Options under discussion include providing loans to hospitals, doing Medi-Cal recoupments on paper until other (federal) funding begins, adjusting the disproportionate share hospital (DSH) payment schedule, etc.  DHCS also is open to the timing of payments under the uncompensated care and DSRIP components of this proposal.  Unfortunately, the DSRIP payments cannot be made unless and until hospitals have met the milestones identified in each DSRIP plan.
The DHLF Executive Committee and Board will be considering various distribution methodologies (some flexibility will be allowed in distributing the uncompensated care federal funds) over coming weeks relative to this coming transition.

Hospital Provider Fee

One funding source available to offset the reductions of the budget action described above is the direct grants to all NDPHs contained in the 30-month hospital provider fee (the term of the fee is July 1, 2011 through December 31, 2013).  The current direct grants are $10 million annually and a subsequent NDPH direct grant (currently in the Legislature) is $8.6 million annually for a total of $18.6 million/annually until December 31, 2013.
Hospitals have been advised that the payments under the first direct grant should be distributed by early Fall of this year and the second direct grant should be soon thereafter.  These distributions will occur in ten installments each year and therefore, will include “catch-up” payments in the first year.
It is worth noting, that both the hospital provider fee (primarily benefitting private hospitals) and the direct grants to designated public hospitals were reduced in the state budget action, but NDPH direct grants remained intact in recognition of the reductions District/Municipal hospitals will experience with the transition to CPEs.

Medi-Cal Managed Care Intergovernmental Transfer (IGT)

As DHCS outlined at a DHLF Board meeting last year, opportunities exist to improve rates paid to public hospitals (including District/Municipal hospitals) via the use of intergovernmental transfers.  Basically, Medi-Cal managed care rates are determined with a low- and high-range and the state currently pays the plans the low range.  Public hospitals can use intergovernmental transfers as the non-federal share to improve the rates to the high-range.
Unfortunately, the state has cited resource challenges as to why this program has not been more widely implemented but the DHLF is continuing its advocacy to ensure all District hospitals participating in Medi-Cal managed care are given the opportunity to improve rates.  We are cautiously optimistic that the state may be motivated to implement this program in light of the upcoming reductions enacted as part of the state budget.

State Legislative Update

Low-Income Health Program (LIHP) –SB 1081 (Fuller, R-Bakersfield), the DHLF-sponsored bill will modify the waiver terms/conditions to allow a public District hospital to become an MCE-LIHP contractor in counties that are both without a county hospital or are not interested in becoming a LIHP contractor.  The bill successfully passed the Assembly Health Committee and is awaiting hearing in Assembly Appropriations.  We hope to have it on the governor’s desk very soon as  it will become effective upon his signature (based on the urgency clause in the bill).
Other Bills AB 2018 (Alejo) imposed restrictions on District hospitals relative to officer and employee benefits.  Basically the bill prohibited District hospitals from providing specified benefits to an officer or employee that is not offered to all officers and employees. The bill was held by the author due to opposition by ACHD, the Forum, CHA, and other organizations.  We are grateful to our colleagues at ACHD for “leading the charge” to stop this onerous legislation.
SB 1285 (Hernandez) requires hospitals with an out-of-network emergency utilization rate of greater than 50 percent to adjust charges for out-of-network emergency care so the expected reimbursement does not exceed the greater of Medicare reimbursement or a reasonable estimate of the actual cost of providing the care.  Based on Forum advocacy efforts, this bill was recently amended to not apply to District (and other public) hospitals.
SB 920 (Hernandez) contains clean-up legislation for the hospital provider fee, including the second round of direct grants for District hospitals.  This bill next will be heard in the Assembly Appropriations Committee.

Upcoming DHLF Board Meeting

The DHLF Board will meet in Sacramento (1215 K Street, 16th Floor) August 7 from 10 a.m. to 2:30 p.m.  The agenda primarily will be devoted to the upcoming changes brought about by the budget proposal.  The medical director and staff at DHCS will attend to discuss the DSRIP and safety net financing staff will attend to discuss the Paragraph 14 reports and other components related to the financing mechanisms of this impending change.
As we did in May, the Forum is inviting non-members to attend.  You will be receiving an email in the near future regarding your attendance.

Value Statement

As a way to track and define advocacy efforts, we offer the following “value statement.”



Budget proposal improvements*

$25 million*

$12.5 million

Hospital Provider Fee Direct Grants

$18.6 million

$9.3 million

Defeat of RHC/FQHC budget proposal

$4 million

Defeat of AB 2018 (w/lead organization ACHD)

$1 million

Defeat of AB 2480 (w/lead organization ACHD


Amendments to SB 1285


*This improvement is after DHCS’ reconsideration that the budget proposal be a “package” deal – the transition to CPEs would not occur unless and until approval is received for NDPHs to access federal Waiver funding.This represents the change in the proposal, not the resulting funds to be distributed to NDPHs.