Bill Would Bring State Billions in Extra Federal Funds

The Legislature has sent a bill to Gov. Brown that would save hospitals from a major cut in reimbursements for treating disabled people under the Medi-Cal program. In exchange the hospitals have agreed implement a fee program that will bring the state $2.4 billion a year in federal healthcare funding.

SB 239, by Sen. Ed Hernandez, D-W Covina, creates a hospital quality assurance fee program imposed by hospitals upon themselves. That fee will go to the state, which will use the money to receive matching Medicaid fundins from the federal government, according to Jan Emerson-Shea, Vice President of External Affairs for the California Hospital Association.

“Because the state has never been able to claim all of the federal matching Medicaid dollars that California is eligible for, we’ve been leaving roughly $2 billion a year on the table in Washington, D.C.,” said Emerson-Shea.

In 2009, the state implemented a version of the fee program in order to access those funds that California was leaving with the federal government.

“It was a win for the state and a win for hospitals, so we have agreed to continue doing that, and under this agreement this three-year program will bring the state General Fund $2.4 billion that it will be able to use to help pay for children’s healthcare coverage,” Emerson-Shea explained. “The money will actually go into the state general fund, and the state will make the decision of how it’s used.”

The bill is a crucial agreement not only for the state’s healthcare system in general but additionally for California hospitals that have been fighting a ten percent Medi-Cal reimbursement rate cut. In exchange for the self-imposed hospital provider fee, an amendment to the bill would have exempted all hospitals from that 2011 rate cut to programs known as Distinct Part Skilled Nursing Facilities.

According to Cyndi Hillery, a legislative advocate for the Regional Council of Rural Counties (RCRC), these facilities provide care in hospitals for those patients who may need both the around the clock care a nursing home would provide in addition to more intensive medical intervention.

“In rural areas, a hospital rarely has enough of a population base to support the activities of an acute care hospital all the time, so what they do is open a (skilled nursing) wing,” she said. “That gives them a financial base with which they’re able to then operate an acute care hospital for those more urgent needs that the community needs.”

In those hospitals, she said, a big cut to skilled nursing reimbursements would be a major blow.

“You’re really cutting major baseline funding for the entire acute care hospital,” Hillery said.

Providers fought these cuts not only through litigation but additionally attempted to preserve the funds through legislation. AB 900 by Sen. Luis Alejo, would have restored the reimbursement rates for all providers, but it failed to get out of the Senate Appropriations committee.

Meanwhile the Department of Health Care Services addressed the more daunting threat to rural healthcare access head on. According to Sen. Ed Hernandez’ office, the department announced an exemption from the cuts for skilled nursing facilities in hospitals classified as rural or frontier. Hillery said that due to the exemption, the amendment to SB 239 was therefore more significant for suburban and urban facilities.

If the bill does not get signed into law, not only will suburban and urban hospitals suffer those cuts, but the entire state will lose out on the Medicaid funding it would receive through the hospitals’ implementation of the quality assurance fee.

“If this bill does not pass then the current hospital fee will expire at the end of December and that will be it,” Emerson-Shea said. “The state will not be getting all these additional federal funds.”

However, some oppose the bill on principle.

Board of Equalization Member Michelle Steel formally opposed the bill on the grounds that it is a tax increase she believes the cost of which will eventually be passed on to patients.

“This bill adds more taxes to healthcare costs which only continues the vicious cycle of rising rates and premiums,” she wrote in a letter of opposition to Assembly Health Committee Chair Richard Pan, M.D. (D-Sacramento). “To add insult to injury, this bill opens the door to insolvency of the fund for which it is intended by allowing the State Controller to divert money away to the general fund, making it more likely that some other tax or fee will be instituted to make up for the deficiency.”

Meanwhile, proponents like Emerson-Shea point out that over the three years the program is in place the state will receive more than $10 billion in federal funds that would not come to the state without this legislation.

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