May 2012 Recap of DHLF Activities

Following is a summary of the issues the DHLF has been focusing on in May.  Your feedback on all communications is welcome and encouraged.

2012-13 State Budget: May Revise

The Governor released the 2012-13 state budget “May Revise” on May 14.  The “May Revise” revises the January budget proposal based on more recent state revenue estimates.  As you’ve heard, the budget news is dismal as the deficit is now reported to be over $16 billion.  The Governor’s tax proposals, on the November ballot, are estimated to reduce the deficit by approximately $8 billion, which requires cuts beyond those proposed in January.
Hospitals are significantly impacted by the May Revise proposals.  Relative to District hospitals, the May Revise proposes to change Medi-Cal reimbursement for fee-for-service inpatient from the current (per diem or cost-based) to certified public expenditures (similar to the designated public hospitals).  This would result in District hospitals providing the 50 percent non-federal share, matched with federal funds up to cost.  The May Revise does indicate that to minimize the impact on District hospitals, the Department of Health Care Services (DHCS) will seek increased federal funding (funding for uncompensated care and delivery system improvements) to minimize the financial impact of this change on District hospitals.  However, the overall projected reduction is budgeted at $30 million ($75 million due to the change to CPEs offset by uncompensated care and delivery system improvement funding).  This proposal would eliminate the AB 113 and Non-Designated Public Hospital Supplemental Fund (previously known as SB 1255 funds).  There are no proposed changes to District hospitals direct grants received via the provider fee and also no changes are proposed to DSH funding received by District hospitals.
Due to the above change in reimbursement, District hospitals will be exempt from the proposed DRG reimbursement methodology.   More on this proposal is outlined in the next section.
Other hospital-specific items included in the May Revise, include reductions in hospital provider fee supplemental payments to private and designated public hospitals; redirecting waiver funds from designated public hospitals; and imposing a $15 copayment for non-emergency room visits and $1 and $3 copayments for pharmacy.
Items included in the original budget proposal remain as part of the budget proposal (reduction in RHC/FQHC reimbursement; transitioning Medi-Cal and dual eligible beneficiaries to Medi-Cal managed care; redirecting stabilization funding (from the 2005 waiver); and “operational flexibility” as requested by DHCS).  Both houses have rejected the reduction in RHC/FQHC reimbursement to date, but unfortunately rejected proposals can be reconsidered if additional funding becomes necessary to balance the budget.  Legislative budget committees will continue to debate all proposals, but an on-time budget is expected by June 15 with implementation on July 1, 2012.

District Hospitals Transition to CPEs

Current and Ongoing Activities
Since the release of the May Revise, DHLF staff has had several meetings and communications with DHCS.  Most notably, the initial response from the DHCS Director was that the proposal was not a package deal, basically that the transition to CPEs for District hospitals was not contingent upon obtaining new federal funding.  After hearing concerns from DHLF members at our May 17 Board meeting, this position was changed so that the current proposal is that the move to CPEs for District hospitals is contingent upon new federal Waiver funding being made available to these hospitals.  Federal approval for both must occur for either to be implemented.
The amount of the new federal Waiver funding has been a key issue in our advocacy on this issue.  Specifically, the DHLF has been advocating both with the Legislature and the Administration that the amount of new federal funding should completely offset the cuts that are a result of the transition to CPEs.  Ideally, the federal funding should provide an increase to District hospitals, but, based on Board and Executive Committee advice, the DHLF is willing to absorb cuts that are proportionate to the rest of the hospital industry.  We are cautiously optimistic as DHCS (and the Legislature) are at least receptive to increasing the federal funding available.  This is contingent upon statewide calculations being done by the state (which will require federal approval), but staff is working closely with the state to ensure all possible funding opportunities are captured.
DHLF staff is also working with member hospitals (and the state) to model the impact of this proposal.  Unfortunately, the many moving parts (using 2009 claims data and trending it forward; the transition of seniors and persons with disabilities to Medi-Cal managed care; increasing hospital costs due to capital projects (for example); have made this project challenging, but we plan to have another iteration of the impact model to hospitals later this week.  Both DHCS and DHLF staff are refining estimates of the impact of this proposal and DHLF’s concern is that if the state’s estimates in crafting this proposal are too low, the entire proposal wouldn’t work.
Another issue the DHLF is working through with DHCS is how the new federal funding would be claimed.  The Waiver funds will be contained in two funds – one will be accessed using certified public expenditures for care provided to the uninsured.  The other will be accessed using intergovernmental transfers and can only be accessed based on meeting milestones related to delivery system improvements.  DHCS has expressed a willingness to craft the milestones specific to individual District hospitals as these initiatives will differ by hospital.  DHLF staff will work closely with member hospitals and the state on the details of both funds.
The process to implement this proposal is three-pronged.  The Legislature must pass this proposal as part of the budget (as noted above, likely to be passed by June 15) and the governor must sign it.  DHCS will submit an amendment to the 1115 Medi-Cal Waiver which will allow District hospitals to access federal Waiver funding.  And finally, the state will need to submit a state plan amendment (SPA) that will transition District (and other non-designated public) hospitals to CPEs for the non-federal share of Medi-Cal fee-for-service inpatient services.
DHLF staff testified before the Senate and Assembly Budget Subcommittees on May 23 and 24 urging federal funding be available to District hospitals at least in the amount of the reductions due to the CPE transition.  Both Subcommittees kept the item open recognizing the ongoing discussions/details to be determined.
Grassroots Advocacy
We’d like to thank DHLF members that wrote letters to Subcommittee members outlining concerns with the proposal and the impacts on individual facilities.  This communication was key as legislators expressed concern for District hospitals in their districts.  If you have not yet provided a letter, please do so as the Subcommittees and Committees ultimately will have to vote on this issue.
Estimating Impact
DHLF staff has shared some preliminary estimates on the impact.  However, as noted above, these estimates do not necessary correspond to the state’s estimates.  We have raised this issue with DHCS and plan to meet with them later this week in an attempt to finalize some impact numbers.  In addition, we have received helpful input from member hospitals relative to their actual experience versus the assumptions used in determining impact.
We are pleased to note that all non-designated public hospitals will be eligible for the new Waiver funding.  Initially, the California Association of Public Hospital and Health Systems (CAPH) was opposed to this provision (instead advocating that only DSH-eligible hospitals could access Waiver funding), but based on the state’s and DHLF’s position, they have reversed this position.  Secondly, upon initial review of this proposal, it appeared that DSH funding for District hospitals would be impacted beginning in 2015-16 (due to the decline in Medi-Cal revenue).  Again, the DHLF advocacy with the state has resulted in acknowledgement of this issue and a commitment that this supplemental funding stream not be impacted due to moving to CPEs.

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 Senate Floor in May and we hope to have it on the governor’s desk within a few weeks as it will become effective upon his signature (based on the urgency clause in the bill).  It next will be heard in the Assembly Health Committee on June 12.
Other Bills AB 2418 (Gordon) imposed financial requirements on healthcare districts, including those operating hospitals, by requiring a threshold amount of the government funds they receive which must be spent on health care.  While District hospitals can easily meet the requirements included in the bill, it was curious as to why hospitals were included.  The good news, is this bill was held in the Assembly Appropriations Committee on the “suspense” file due to the cost to the state.  The DHLF and ACHD both were opposed.
AB 2018 (Alejo) imposes restrictions on District hospitals relative to officer and employee benefits.  Basically the bill prohibits District hospitals from providing specified benefits to an officer or employee that is not offered to all officers and employees. This bill has passed the Assembly and next will be heard in the Senate Health Committee.  The DHLF and ACHD both are opposed.
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.  All indications are this bill is targeting one for-profit health system, and the DHLF has requested it not apply to any non-designated public hospital.  We are hopeful the bill will be amended to reflect that exception.

May Educational Session/Board Meeting

The DHLF held a successful educational session combined with its May Board meeting in mid-May.   During the educational session, presentations were made by David Panush of the California Health Benefit Exchange; Tim Loechl of Steve Clark and Associates discussing charity care/uncompensated care reporting (for OSHPD, IRS and Medicare cost reports); Becky Carroll of HFS Consultants presenting compliance and claims review issues; and DHLF staff outlining the issues with the May Revise which was released a couple of days prior to the meeting.
During the Board meeting the following day, Toby Douglas, Director of the Department of Health Care Services attended the meeting to hear concerns and answer questions relative to the May Revise proposal discussed above.  Mr. Douglas’ attendance was critical, as noted above, the proposal changed in our favor very soon after the meeting concluded.


Federal Advocacy – Provider Fees
Republican Congressional leadership recently sent a letter to the President with the suggestion that reducing Medicaid provider taxes be used as an offset for the student loan package.  The letter cites the President’s support for these reductions.  As reported last month, the DHLF signed onto a letter to the California Congressional Delegation urging continuation of hospital provider taxes and outlining the importance to Medi-Cal of the California program.  If you have meetings/discussions with California Congressional Delegation staff coming up, it would be a good time to remind them of our letter and to reinforce the message of the importance of the hospital provider fee program.
Attachments: Letter to governor outlining concerns with 2012-13 May Revise