Existing federal law provides for the federal Medicare Program, which is a public health insurance program for persons 65 years of age and older and specified persons with disabilities who are under 65 years of age.

Existing law authorizes a county sheriff, police chief, or other public agency that contracts for health care services, to contract with providers of health care services for care to local law enforcement patients. Existing law requires hospitals that do not contract with the county sheriff, police chief, or other public agency that contracts for health care services to provide health care services to local law enforcement patients at a rate equal to 110% of the hospitals actual costs according to the most recent Hospital Annual Financial Data report issued by the Office of Statewide Health Planning and Development, as calculated using a cost-to-charge ratio.

This bill would authorize, for claims that have not previously been paid or otherwise determined by local law enforcement, those costs to be calculated according to the most recent approved cost-to-charge ratio from the Medicare Program. The bill would authorize the hospital, with the approval of the county sheriff, police chief, or other public agency responsible for providing health care services to local law enforcement patients, to choose which cost-to-charge ratio is most appropriate, and would require the hospital to give notice of any change. If the hospital chooses to use the cost-to-charge ratio from the Medicare Program, the bill would require the hospital to attach supporting Medicare documentation and an expected payment calculation to the claim. If a claim does not contain that documentation and payment calculation, or if, within 60 days of the hospitals request for approval to use the cost-to-charge ratio from the Medicare Program, approval is not granted by the county sheriff, police chief, or other public agency responsible for providing health care services to local law enforcement patients, the bill would require the Office of Statewide Health Planning and Development cost-to-charge ratio to be used to calculate the payment. The bill would also make technical, nonsubstantive changes.

Existing federal law provides for the federal Medicare Program, which is a public health insurance program for persons 65 years of age and older and specified persons with disabilities who are under 65 years of age.

Existing law authorizes a county sheriff, police chief, or other public agency that contracts for health care services, to contract with providers of health care services for care to local law enforcement patients. Existing law requires hospitals that do not contract with the county sheriff, police chief, or other public agency that contracts for health care services to provide health care services to local law enforcement patients at a rate equal to 110% of the hospitals actual costs according to the most recent Hospital Annual Financial Data report issued by the Office of Statewide Health Planning and Development, as calculated using a cost-to-charge ratio.

This bill would authorize, for claims that have not previously been paid or otherwise determined by local law enforcement, those costs to be calculated according to the most recent approved cost-to-charge ratio from the Medicare Program. The bill would authorize the hospital, with the approval of the county sheriff, police chief, or other public agency responsible for providing health care services to local law enforcement patients, to choose which cost-to-charge ratio is most appropriate, and would require the hospital to give notice of any change. If the hospital chooses to use the cost-to-charge ratio from the Medicare Program, the bill would require the hospital to attach supporting Medicare documentation and an expected payment calculation to the claim. If a claim does not contain that documentation and payment calculation, or if, within 60 days of the hospitals request for approval to use the cost-to-charge ratio from the Medicare Program, approval is not granted by the county sheriff, police chief, or other public agency responsible for providing health care services to local law enforcement patients, the bill would require the Office of Statewide Health Planning and Development cost-to-charge ratio to be used to calculate the payment. The bill would also make technical, nonsubstantive changes.

Existing federal law provides for the federal Medicare Program, which is a public health insurance program for persons 65 years of age and older and specified persons with disabilities who are under 65 years of age.

Existing law authorizes a county sheriff, police chief, or other public agency that contracts for health care services, to contract with providers of health care services for care to local law enforcement patients. Existing law requires hospitals that do not contract with the county sheriff, police chief, or other public agency that contracts for health care services to provide health care services to local law enforcement patients at a rate equal to 110% of the hospitals actual costs according to the most recent Hospital Annual Financial Data report issued by the Office of Statewide Health Planning and Development, as calculated using a cost-to-charge ratio.

This bill would authorize, for claims that have not previously been paid or adjudicated otherwise determined by local law enforcement, those costs to be calculated according to the most recent approved cost-to-charge ratio from the Medicare Program. The bill would authorize the hospital, with the approval of the county sheriff, police chief, or other public agency that contracts or is responsible for providing health care services to local law enforcement patients, to choose which cost-to-charge ratio is most appropriate, and would require the hospital to give notice of any change. If the hospital chooses to use the cost-to-charge ratio from the Medicare Program, the bill would require the hospital to attach supporting Medicare documentation and an expected payment calculation to the claim. If a claim does not contain that documentation and payment calculation, or if, within 60 days of the hospitals request for approval to use the cost-to-charge ratio from the Medicare Program, approval is not granted by the county sheriff, police chief, or other public agency that contracts or is responsible for providing health care services to local law enforcement patients, the bill would require the Office of Statewide Health Planning and Development cost-to-charge ratio to be used to calculate the payment. The bill would also make technical, nonsubstantive changes.

Existing federal law provides for the federal Medicare Program, which is a public health insurance program for persons 65 years of age and older and specified persons with disabilities who are under 65 years of age.

Existing law authorizes a county sheriff, police chief, or other public agency that contracts for health care services, to contract with providers of health care services for care to local law enforcement patients. Existing law requires hospitals that do not contract with the county sheriff, police chief, or other public agency that contracts for health care services to provide health care services to local law enforcement patients at a rate equal to 110% of the hospitals actual costs according to the most recent Hospital Annual Financial Data report issued by the Office of Statewide Health Planning and Development, as calculated using a cost-to-charge ratio.

This bill would authorize, in the alternative, for claims that have not previously been paid or adjudicated by local law enforcement, those costs to be calculated according to the most recent approved cost-to-charge ratio from the Medicare Program. The bill would authorize the hospital, with the approval of the county sheriff, police chief, or other public agency that contracts or is responsible for providing health care services to local law enforcement patients, to choose which cost-to-charge ratio is most appropriate, and would require the hospital to give notice of any change. If the hospital chooses to use the cost-to-charge ratio from the Medicare Program, the bill would require the hospital to attach supporting Medicare documentation and an expected payment calculation to the claim. If a claim does not contain that documentation and payment calculation, or if, within 60 days of the hospitals request for approval to use the cost-to-charge ratio from the Medicare Program, approval is not granted by the county sheriff, police chief, or other public agency that contracts or is responsible for providing health care services to local law enforcement patients, the bill would require the Office of Statewide Health Planning and Development cost-to-charge ratio to be used to calculate the payment. The bill would also make technical technical, nonsubstantive changes.

Existing federal law provides for the federal Medicare Program, which is a public health insurance program for persons 65 years of age and older and specified persons with disabilities who are under 65 years of age.

Existing law authorizes a county sheriff, police chief, or other public agency that contracts for health care services, to contract with providers of health care services for care to local law enforcement patients. Existing law requires hospitals that do not contract with the county sheriff, police chief, or other public agency that contracts for health care services to provide health care services to local law enforcement patients at a rate equal to 110% of the hospitals actual costs according to the most recent Hospital Annual Financial Data report issued by the Office of Statewide Health Planning and Development, as calculated using a cost-to-charge ratio.

This bill would authorize, in the alternative, those costs to be calculated according to the most recent approved cost-to-charge ratio from the Medicare Program. The bill would also make technical nonsubstantive changes.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 658

Author:(Wilk)

As Amended Ver:June 19, 2015

Majority vote

Original Committee Reference: HEALTH

SUMMARY: Allows providers of health care services to local law enforcement patients to calculate costs for care according to the most recent approved cost-to-charge ratio (CCR) from the Medicare Program, with the approval of the local law enforcement agency responsible for the inmate patient, and makes technical changes, as specified.

The Senate amendments clarify that the provisions of this bill pertain only to contracts related to providing health care services between hospitals and law enforcement, and make other technical, non-substantive changes.

FISCAL EFFECT: None

COMMENTS: According to the author, this bill is necessary to fix a local issue that arose at a hospital in his district, Henry Mayo Newhall Hospital (Henry Mayo) located in Valencia. Henry Mayo treats hundreds of inmates in their emergency department, but they do not have a contract with local law enforcement. Consequently, the payment they receive for these services is a default rate calculated pursuant to current law. The calculation of this payment requires the use of the hospital's CCR as determined by the Office of Statewide Health Planning and Development (OSHPD).

The author states that a few years ago Henry Mayo decided to go through an extensive process of lowering all of their charges, a process which requires approval from the Centers for Medicare and Medicaid Services (CMS). In the fall of 2013, Henry Mayo received approval from CMS to move forward with their proposal, and at that time received an alternative CCR. However, the publically available OSHPD CCR was different than the Medicare CCR, and the payments they were receiving for care provided to local inmates was less than they had received historically. The author states that this bill solves this problem by giving hospitals the option to have the local law enforcement agency use the OSHPD CCR or to provide the agency with a current approved CCR from the Medicare program.

The author concludes that this bill is a technical fix to current law that will allow hospitals to receive adequate payments for services provided to inmates and gives local law enforcement the ability to approve, or not approve, a hospital's request to use the CMS CCR when calculating a payment.

Current law establishes a default rate for non-contracted hospitals equal to 110% of the actual costs, using the most recent CCR from the Hospital Annual Financial Disclosure report as reported to the OSHPD. This rate is to be paid to hospitals for emergency health care services if a contract does not otherwise exist. The cost to charge ratio is determined by OSHPD by dividing the total hospital charges by the total hospital expenses. This is a common approach in the hospital industry for determining or estimating costs for procedures or types of care. The default rate has been in place since 2008.

Cost to Charge Ratios. CCRs are often used to describe a hospital's finances. A low CCR can be caused by excessive charges or lower costs. The lower the CCR, the larger the profit margin on the charges. Similar to the manufacturer's suggested retail price for a car, this information is useful in creating a common baseline of costs and charges for various hospital services and provides information for negotiating the price that a patient will be charged. The charge in the ratio is the list price or asking price. Discounts may be given to patients and insurance companies depending upon the healthcare facility's policy. The CCR may vary to a large degree within the same institution for different services. CCRs are used to examine a variety of topics, including use and cost of hospital services, health care cost inflation, and how the costs of a given hospital or health plan compare with national or state trends.

Support. The California Hospital Association (CHA), the sponsor of this bill, states current statute creates a default payment rate to be paid to hospitals for emergency health care services if a contract does not otherwise exist. This applies to county sheriffs, chiefs of police, and directors or administrators of local detention facilities. The default rate has been in place since 2008. Hospitals often make changes to their charges, including adding new services, lowering charges on items, or removing services or items, which have little impact on the resulting cost to charge ratio. However, from time to time, hospitals make sweeping changes to their charge structure, resulting in a major swing in their CCR, which is based on data provided by OSHPD. The OSHPD report is not up-to-date and it will take over a year for the correct CCR to be published by OSHPD.

CHA further states that this bill solves this problem by giving hospitals the option to have the local law enforcement agency use the OSHPD CCR or to provide the agency with a CMS approved CCR. When hospitals make sweeping changes to their charges, Medicare must approve those major changes and approve a revised cost to charge ratio. The fix as proposed in this bill will be revenue and cost neutral for hospitals and local law enforcement.

Opposition. There is no known opposition to this bill.

Analysis Prepared by: Paula Villescaz / HEALTH / (916) 319-2097 FN: 0001087

 CONSENT  

Bill No: AB 658

Author: Wilk (R)

Amended: 6/19/15 in Senate

Vote: 21

SENATE HEALTH COMMITTEE: 9-0, 6/17/15

AYES: Hernandez, Nguyen, Hall, Mitchell, Monning, Nielsen, Pan, Roth, Wolk

ASSEMBLY FLOOR: 74-0, 5/22/15 (Consent) - See last page for vote

SUBJECT: County jails: inmate health care services: rates

SOURCE: California Hospital Association

DIGEST: This bill permits a hospital without a contract with a local law enforcement agency to request the most appropriate cost-to-charge ratio for determining reimbursement of services provided to law enforcement patients.

ANALYSIS:

Existing law:

1. Establishes, under federal law, the Medicare program, to help pay for health care costs for qualified Americans over the age of 65 years of age, and qualified individuals under 65 with disabilities.
   
   

2. Establishes the Office of Statewide Health Planning and Development (OSHPD), and requires hospitals to make specified reports to OSHPD, including quarterly summary financial and utilization data that includes the number of discharges, the number of inpatient days, the number of outpatient visits, total operating expenses, and inpatient and outpatient gross revenue by payer.
   

3. Requires county sheriffs, chiefs of police, and directors or administrators of local detention facilities to pay for the treatment or examination of persons lawfully in their custody.

4. Requires hospitals that do not contract with the county sheriff, police chief, or other public agency to provide health care services to law enforcement patients at a rate equal to 110 percent of the hospital’s actual cost according to the most recent Hospital Annual Financial Data report issued by OSHPD, as calculated using a cost-to-charge ratio.
   
   

This bill:

1. Permits claims to be paid that have not previously been paid or otherwise determined by local law enforcement according to the most recently approved cost-to-charge ratio from the Medicare program.
   
   

2. Permits the hospital, with the approval of the county sheriff, police chief, or other public agency responsible for providing health care services to the local law enforcement patients, to choose the most appropriate cost-to-charge ratio. Requires the hospital to provide notice to the county sheriff, police chief, or other public agency, as applicable, of any change.
   
   

3. Requires the hospital to attach supporting Medicare documentation and an expected calculation to the claim if the hospital uses the cost-to-charge ratio from the Medicare Program.

4. Requires, if the Medicare supporting documentation and expected payment calculation is not included, or if the request is not approved by the county sheriff, policy chief, or other public agency within 60 days of the request, the OSHPD cost-to-charge ratio to be used to calculate the payment.

Comments

1. Author’s statement. According to the author, “Assembly Bill 658 is needed because of an issue that arose at a hospital in my district, Henry Mayo Newhall Hospital, located in Valencia. This is a hospital that treats hundreds of inmates in their emergency department. They do not have a contract with local law enforcement, so the payment they receive for these services is a default rate calculated pursuant to current law. The calculation of this payment requires the use of the hospital’s cost-to-charge ratio as determined by OSHPD. A few years ago this hospital decided to go through an extensive process of lowering all their charges, a process which requires approval from the Centers for Medicare and Medicaid Services. One of the problems the hospital discovered in 2014 was that the publically available OSHPD cost-to-charge ratio was different than their current Medicare cost-to-charge ratio, and that the payments they were receiving for care provided to local inmates was less than they had received historically. This was because the ratio reflected on the OSHPD report was about a year out of date. AB 658 fixes what we consider to be a glitch in the law, so that hospitals, when they choose to go through a process similar to what my local hospital undertook, will receive the same payment for services provided to inmates.”
   
   

2. Medicare Payment Principles. According to federal regulations, in formulating methods for making fair and equitable reimbursement for services rendered to beneficiaries of the Medicare program, payment is to be made on the basis of current costs of the individual provider, rather than costs of a past period or a fixed negotiated rate. All necessary and proper expenses of an institution in the production of services are recognized. Furthermore, the share of the total institutional cost that is borne by Medicare is related to the care furnished to beneficiaries so that no part of their cost would need to be borne by other patients. Conversely, costs attributable to other patients of the institution are not to be borne by the Medicare program. This approach results in meeting actual costs of services to beneficiaries, as such, costs vary from institution to institution. 
   

3. OSHPD data. Within four months of the fiscal year end, California hospitals must submit an annual financial report to OSHPD that includes a detailed income statement, balance sheet, statements of revenue and expense, and supporting schedules. These financial reports are based on a uniform accounting and reporting system developed and maintained by OSHPD and undergoes a thorough desk audit. Several products are created from these audited financial reports, including Annual Financial Disclosure Reports. The most current data available are from the January to December 2013 reporting period. The data were extracted on April 29, 2015. In the 2013 Annual Financial Disclosure Reports for Henry Mayo Newhall Memorial the cost-to-charge ratio is 17.77 percent. This means for $100 in charges, the costs are $17. According to the California Hospital Association (CHA), this hospital’s charges have been reduced by 50 percent from 2013 to 2014 but costs have remained constant. The 2014 cost-to-charge ratio is not publically available until 2015.

4. Hospital mark-ups. A recent Health Affairs article, Extreme Markup: The Fifty US Hospitals With the Highest Charge-to-Cost Ratios, examined the fifty US hospitals with the highest charge-to-cost ratios in 2012, that have mark-ups of approximately 10 times their Medicare-allowable costs compared to a national average of 3.4 (which means for every $100 of Medicare-allowable costs, there are $340 in charges). The article explains that these charges have increased overtime beginning in the late 1980s. The focus of the article is on the implications for uninsured patients, who are more likely to be asked to pay charges, and out-of-network patients and casualty and workers’ compensation insurers who are asked to pay a large portion of the full charges. However, the article points out that most public and private insurers do not use hospital charges to set payment rates. In addition, the article points out that California’s Hospital Fair Pricing Act provides some protections for the uninsured in California. Three of the top 50 hospitals with the highest charge-to-cost ratios are in California. More hospitals, like Henry Mayo, may pursue exercises to reduce their charges in response to attention to hospitals charges relative to costs brought about by articles similar to the one published in Health Affairs.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 6/18/15)

California Hospital Association (source)

OPPOSITION: (Verified 6/18/15)

None received

ARGUMENTS IN SUPPORT: CHA writes that hospitals often make changes to their charges (adding new services, lowering charges on items, removing services or items, etc.) which have little impact on the resulting cost-to-charge ratio. However, from time to time, hospitals make sweeping changes to their charge structure and this can result in a major swing in their cost-to-charge ratio. A problem arises because the OSHPD report is lagged, so the most current cost-to-charge ratio is an old ratio. Current law requires the hospital to charge the new lower revised charge but then multiply by the publicly available cost-to-charge ratio, which will mean the hospital will suffer significant financial losses during the transition period. AB 658 solves this problem by giving hospitals the option to have the local law enforcement agency use the OSHPD cost-to-charge ratio or to provide the agency with a current approved cost-to-charge ratio from the Medicare program. This bill also gives local law enforcement the ability to approve, or not approve, a hospital’s request to use the CMS cost-to-charge ratio when calculating a payment. When hospitals make sweeping changes to their charges, Medicare must approve those major changes and approve a revised cost-to-charge ratio. The updated cost-to-charge ratio can be applied to the current level of charges. This fix will be revenue/cost neutral for hospitals and local law enforcement agencies.

ASSEMBLY FLOOR: 74-0, 5/22/15

AYES: Achadjian, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Wilk, Williams, Wood, Atkins

NO VOTE RECORDED: Alejo, Jones, O'Donnell, Olsen, Waldron, Weber

Prepared by: Teri Boughton / HEALTH /

6/19/15 14:28:49

**** END ****

SENATE COMMITTEE ON HEALTH

Senator Ed Hernandez, O.D., Chair

BILL NO: AB 658

SUBJECT: County jails: inmate health care services: rates

SUMMARY:

Permits a hospital without a contract with a local law enforcement agency to request the most appropriate cost-to-charge ratio for determining reimbursement of services provided to law enforcement patients.

Existing law:

1. Establishes, under federal law, the Medicare program, to help pay for health care costs for qualified Americans over the age of 65 years of age, and qualified individuals under 65 with disabilities.
   
   

2. Establishes the Office of Statewide Health Planning and Development (OSHPD), and requires hospitals to make specified reports to OSHPD, including quarterly summary financial and utilization data that includes the number of discharges, the number of inpatient days, the number of outpatient visits, total operating expenses, and inpatient and outpatient gross revenue by payer.
   

3. Requires county sheriffs, chiefs of police, and directors or administrators of local detention facilities to pay for the treatment or examination of persons lawfully in their custody.

4. Requires hospitals that do not contract with the county sheriff, police chief, or other public agency to provide health care services to law enforcement patients at a rate equal to 110 percent of the hospital’s actual cost according to the most recent Hospital Annual Financial Data report issued by OSHPD, as calculated using a cost-to-charge ratio.
   
   

5. Requires an entity that provides ambulance or any other emergency or non-emergency response service to a sheriff or police chief, and that does not contract with their departments for that service, to be reimbursed for the service at a rate established by Medicare. Limits reimbursement for these non-contracted services to no more than the provider’s reasonable and allowable costs.
   
   

6. Defines “reasonable and allowable costs” as defined in accordance with federal Medicare regulations.

This bill:

1. Permits claims to be paid that have not previously been paid or otherwise determined by local law enforcement according to the most recent approved cost-to-charge ratio from the Medicare program.
   
   

2. Permits the hospital, with the approval of the county sheriff, police chief, or other public agency that contracts or is responsible for providing health care services to the local law enforcement patients, to choose the most appropriate cost-to-charge ratio. Requires the hospital to provide notice to the county sheriff, police chief, or other public agency, as applicable, of any change.
   
   

3. Requires the hospital to attach supporting Medicare documentation and an expected calculation to the claim if the hospital uses the cost-to-charge ratio from the Medicare Program.
   
   

4. Requires, if the Medicare supporting documentation and expected payment calculation is not included, or if the request is not approved by the county sheriff, policy chief or other public agency within 60 days of the request, the OSHPD cost-to-charge ratio to be used to calculate the payment.

FISCAL EFFECT:

This bill is keyed non fiscal.

PRIOR VOTES:

COMMENTS:

1. Author’s statement. According to the author, Assembly Bill 658 is needed because of an issue that arose at a hospital in my district, Henry Mayo Newhall Hospital, located in Valencia.  This is a hospital that treats hundreds of inmates in their emergency department.   They do not have a contract with local law enforcement, so the payment they receive for these services is a default rate calculated pursuant to current law.  The calculation of this payment requires the use of the hospital’s cost-to-charge ratio as determined by OSHPD. A few years ago this hospital decided to go through an extensive process of lowering all their charges, a process which requires Center for Medicare and Medicaid Services approval. One of the problems the hospital discovered in 2014 was that the publically available OSHPD cost-to-charge ratio was different than their current Medicare cost-to-charge ratio, and that the payments they were receiving for care provided to local inmates was less than they had received historically. This was because the ratio reflected on the OSHPD report was about a year out of date. AB 658 fixes what we consider to be a glitch in the law, so that hospitals, when they choose to go through a process similar to what my local hospital undertook, will receive the same payment for services provided to inmates.
   
   

2. Medicare Payment Principles. According to federal regulations, in formulating methods for making fair and equitable reimbursement for services rendered to beneficiaries of the Medicare program, payment is to be made on the basis of current costs of the individual provider, rather than costs of a past period or a fixed negotiated rate. All necessary and proper expenses of an institution in the production of services are recognized. Furthermore, the share of the total institutional cost that is borne by Medicare is related to the care furnished to beneficiaries so that no part of their cost would need to be borne by other patients. Conversely, costs attributable to other patients of the institution are not to be borne by the Medicare program. This approach results in meeting actual costs of services to beneficiaries, as such, costs vary from institution to institution. Medicare defines “customary charges” to means the regular rates that providers charge both beneficiaries and other paying patients for the services furnished to them. “Fair compensation” means the reasonable cost of covered services. “Reasonable cost” means cost actually incurred, to the extent that cost is necessary for the efficient delivery of the service, and subject to certain exclusions such as bad debt and depreciation.

3. OSHPD data. Within four months of the fiscal year end, California hospitals must submit an annual financial report to OSHPD that includes a detailed income statement, balance sheet, statements of revenue and expense, and supporting schedules. These financial reports are based on a uniform accounting and reporting system developed and maintained by OSHPD and undergoes a thorough desk audit. Several products are created from these audited financial reports, including Annual Financial Disclosure Reports. The most current data available are from the January to December 2013 reporting period. The data were extracted on April 29, 2015. In the 2013 Annual Financial Disclosure Reports for Henry Mayo Newhall Memorial the cost-to-charge ratio is 17.77 percent. This means for $100 in charges, the costs are $17. According to the California Hospital Association (CHA), this hospital’s charges have been reduced by 50 percent from 2013 to 2014 but costs have remained constant. The 2014 cost-to-charge ratio is not publically available until 2015.
   
   

4. Hospital mark-ups. A recent Health Affairs article, Extreme Markup: The Fifty US Hospitals With the Highest Charge-to-Cost Ratios, examined the fifty US hospitals with the highest charge-to-cost ratios in 2012, that have mark-ups of approximately ten times their Medicare-allowable costs compared to a national average of 3.4 (which means for every $100 of Medicare-allowable costs, there are $340 in charges). The article explains that these charges have increased overtime beginning in the late 1980’s. The focus of the article is on the implications for uninsured patients, who are more likely to be asked to pay charges, and out-of-network patients and casualty and workers’ compensation insurers who are asked to pay a large portion of the full charges. However, the article points out that most public and private insurers do not use hospital charges to set payment rates. In addition, the article points out that California’s Hospital Fair Pricing Act provides some protections for the uninsured in California. Three of the top fifty hospitals with the highest charge-to-cost ratios are in California. More hospitals, like Henry Mayo, may pursue exercises to reduce their charges in response to attention to hospitals charges relative to costs brought about by articles similar to the one published in Health Affairs.
   

5. Prior legislation. SB 159 (Runner, Chapter 481, Statutes of 2005) permits county sheriffs, chiefs of police, and directors or administrators of local departments of correction to contract with providers of health care services, and establishes reimbursement rates if no contract exists of equal to 110 percent of the hospital’s actual costs according to the most recent Hospital Annual Financial Data report issued by OSHPD, as calculated using a cost‑to‑charge ratio.
   
   SB 896 (Runner, Chapter 303, Statutes of 2006) clarifies that public agencies, as well as local sheriffs and police chiefs, can contract with hospitals for emergency health care for inmates.
   
   SB 1169 (Runner, Chapter 142, Statutes of 2008) extends for five years the current January 1, 2009 sunset on the statute that provides specified mechanisms and requirements concerning the payment of emergency health care services for local law enforcement patients.
   
   AB 117 (Budget, Chapter 39, Statutes of 2011) eliminates the sunset on existing law related to payment of emergency health care services for local law enforcement patients and expands the statute to include non-emergency health care services.

6. Support. CHA writes that hospitals often make changes to their charges (adding new services, lowering charges on items, removing services or items, etc.) which have little impact on the resulting cost-to-charge ratio. However, from time to time, hospitals make sweeping changes to their charge structure and this can result in a major swing in their cost-to-charge ratio. A problem arises because the OSHPD report is lagged, so the most current cost-to-charge ratio is an old ratio. Current law requires the hospital to charge the new lower revised charge but then multiply by the publicly available cost-to-charge ratio, which will mean the hospital will suffer significant financial losses during the transition period. AB 658 solves this problem by giving hospitals the option to have the local law enforcement agency use the OSHPD cost-to-charge ratio or to provide the agency with a current approved cost-to-charge ratio from the Medicare program. The bill also gives local law enforcement the ability to approve, or not approve, a hospital’s request to use the CMS cost-to-charge ratio when calculating a payment. When hospitals make sweeping changes to their charges, Medicare must approve those major changes and approve a revised cost-to-charge ratio. The updated cost-to-charge ratio can be applied to the current level of charges. This fix will be revenue/cost neutral for hospitals and local law enforcement agencies.
   
   

7. Clarifying amendments. Committee staff recommends the following amendments to clarify the provisions of the statute and the bill.
   
   

(b) Notwithstanding any other law, a county sheriff, police chief, or other public agency that contracts for health care services, may contract with providers of health care services for care to local law enforcement patients. Hospitals that do not contract for health care services with the county sheriff, police chief, or other public agency that contracts for health care services shall provide health care services to local law enforcement patients at a rate equal to 110 percent of the hospital’s actual costs according to the most recent Hospital Annual Financial Data report issued by the Office of Statewide Health Planning and Development, as calculated using a cost-to-charge ratio, or, for claims that have not previously been paid or otherwise determined by local law enforcement, according to the most recently approved cost-to-charge ratio from the Medicare Program. The hospital, with the approval of the county sheriff, police chief, or other public agency that contracts or is responsible for providing health care services to local law enforcement patients, may choose the most appropriate cost-to-charge ratio and shall provide notice to the county sheriff, police chief, or other public agency, as applicable, of any change. If the hospital uses the cost-to-charge ratio from the Medicare Program, the hospital shall attach supporting Medicare documentation and an expected payment calculation to the claim. If a claim does not contain the supporting Medicare documentation and expected payment calculation, or if, within 60 days of the hospital’s request for approval to use the cost-to-charge ratio from the Medicare Program, approval is not granted by the county sheriff, police chief, or other public agency that contracts or is responsible for providing health care services to local law enforcement patients, the Office of Statewide Health Planning and Development cost-to-charge ratio shall be used to calculate the payment.

SUPPORT AND OPPOSITION:

Support: California Hospital Association (sponsor)

Oppose: None received

-- END --

Date of Hearing: May 12, 2015

ASSEMBLY COMMITTEE ON HEALTH

Rob Bonta, Chair

ABPCA Bill Id:AB 658

Author:(Wilk) – As Amended Ver:May 5, 2015

SUBJECT: County jails: inmate health care services: rates.

SUMMARY: Allows providers of health care services to local law enforcement patients to calculate costs for care according to the most recent approved cost-to-charge ratio (CCR) from the Medicare Program, with the approval of the local law enforcement agency responsible for the inmate patient, and makes technical changes, as specified.

EXISTING LAW:

1. Permits a county sheriff, police chief, or other public agency that contracts for health care services, to contract with providers of health care services for care to local law enforcement patients.

2. Requires hospitals that do not contract with the county sheriff, police chief, or other public agency that contracts for health care services to provide health care services to local law enforcement patients at a rate equal to 110% of the hospital’s actual costs according to the most recent Hospital Annual Financial Data report issued by the Office of Statewide Health Planning and Development (OSHPD), as calculated using a cost-to-charge ratio. 

3. Prohibits a county sheriff or police chief from requesting the release of an inmate from custody for the purpose of allowing the inmate to seek medical care at a hospital, and then immediately rearrests the same individual upon discharge from the hospital, unless the hospital determines this action would enable it to bill and collect from a third-party payment source.

4. Requires the California Hospital Association, the University of California, the California State Sheriffs’ Association and the California Police Chiefs’ Association to convene the Inmate Health Care and Medical Provider Fair Pricing Working Group to identify and resolve industry issues that create fiscal barriers to timely and affordable inmate health care.

5. Specifies that nothing require or encourage a hospital or public agency to replace any existing arrangements that any city police chief, county sheriff, or other public agency maintains for health care services.

6. Requires an entity that provides ambulance or any other emergency or nonemergency response service to a sheriff or police chief that does not contract with their departments for that service, to be reimbursed for the service at the rate established by Medicare.

7. Specifies that in those counties in which the sheriff does not administer a jail facility, a director or administrator of a local department of corrections is the person who may contract for services provided to jail inmates in the facilities he or she administers in those counties.

FISCAL EFFECT: None.

COMMENTS:

1. PURPOSE OF THIS BILL. According to the author, this bill is necessary to fix a local issue that arose at a hospital in his district, Henry Mayo Newhall Hospital (Henry Mayo) located in Valencia. Henry Mayo treats hundreds of inmates in their emergency department, but they do not have a contract with local law enforcement. Consequently, the payment they receive for these services is a default rate calculated pursuant to current law. The calculation of this payment requires the use of the hospital's CCR as determined by OSHPD.

The author states that a few years ago Henry Mayo decided to go through an extensive process of lowering all of their charges, a process which requires approval from the Centers for Medicare and Medicaid Services (CMS). In the fall of 2013, Henry Mayo received approval from CMS to move forward with their proposal, and at that time received an alternative CCR. However, the publically available OSHPD CCR was different than the Medicare CCR, and the payments they were receiving for care provided to local inmates was less than they had received historically. The author states that this bill solves this problem by giving hospitals the option to have the local law enforcement agency use the OSHPD CCR or to provide the agency with a current approved CCR from the Medicare program.

The author concludes that this bill is a technical fix to current law that will allow hospitals to receive adequate payments for services provided to inmates and gives local law enforcement the ability to approve, or not approve, a hospital's request to use the CMS CCR when calculating a payment.

2. BACKGROUND. Current law establishes a default rate for non-contracted hospitals equal to 110% of the actual costs, using the most recent CCR from the Hospital Annual Financial Disclosure report as reported to the OSHPD. This rate is to be paid to hospitals for emergency health care services if a contract does not otherwise exist. The cost to charge ratio is determined by OSHPD by dividing the total hospital charges by the total hospital expenses. This is a common approach in the hospital industry for determining or estimating costs for procedures or types of care. The default rate has been in place since 2008.

1. Cost to Charge Ratios. CCRs are often used to describe a hospital's finances. A low CCR can be caused by excessive charges or lower costs. The lower the CCR, the larger the profit margin on the charges. Similar to the manufacturer's suggested retail price for a car, this information is useful in creating a common baseline of costs and charges for various hospital services and provides information for negotiating the price that a patient will be charged. The charge in the ratio is the list price or asking price. Discounts may be given to patients and insurance companies depending upon the healthcare facility's policy. The CCR may vary to a large degree within the same institution for different services. CCRs are used to examine a variety of topics, including use and cost of hospital services, health care cost inflation, and how the costs of a given hospital or health plan compare with national or state trends.

2. Medicare review of CCRs. In 2000, CMS established the outpatient prospective payment system (OPPS), where hospitals are paid a set amount of money to provide certain outpatient services to people with Medicare. When the OPPS was implemented, hospital-specific CCRs for hospitals and community mental health centers were calculated. Since that time, a provider could request a recalculation of its CCR only under limited circumstances. CCRs are subject to review by Medicare when hospitals submit their annual financial cost care reports.

3. OSHPD Data. OSHPD is not statutorily required to publish a CCR, but it is offered as a data extract when hospitals submit financial information. This data is typically updated once a year, primarily with information submitted by the hospitals as well as updated information from OSHPD audits. Once OSHPD receives the annual financial reports from the hospitals they are audited over the next three years. OSHPD posts the unaudited hospitals’ annual financial reports (with revisions) on February 1 each year. The most recent CCR can be derived from these reports.

4. Cost Calculation Example. If a hospital was charging $3,000 and their costs were $1,000, the hospital had a cost to charge ratio of 33.3%. If the charge to the jail was $3,000, the default payment rate would be $3,000 x 110% (per statute) x 33.3% totaling $1,100 that the local law enforcement agency would pay the hospital. But if that same hospital completely redesigned their charge structure so that they were now charging $1,500 and their costs were still $1,000, the hospital would have a revised cost to charge ratio of 67%. So if that hospital now charged the jail $1,500 for services, the default payment rate would be $1,500 x 110% x 67% totaling the same $1,100.

OSHPD has not updated their CCRs since 2008, so in this example the most current CCR available for the calculation would be the 33.3%. Therefore, the hospital would charge the jail (the new lower revised charges) $1,500 x 110% x 33.3% (the most recent publicly available CCR) for a total payment to the hospital of $550.

3. SUPPORT. The California Hospital Association (CHA), the sponsor of the bill, states current statute creates a default payment rate to be paid to hospitals for emergency health care services if a contract does not otherwise exist. This applies to county sheriffs, chiefs of police, and directors or administrators of local detention facilities. The default rate has been in place since 2008. Hospitals often make changes to their charges, including adding new services, lowering charges on items, or removing services or items, which have little impact on the resulting cost to charge ratio.  However, from time to time, hospitals make sweeping changes to their charge structure, resulting in a major swing in their CCR, which is based on data provided by OSHPD. The OSHPD report is not up-to-date and it will take over a year for the correct CCR to be published by OSHPD.

CHA further states that this bill solves this problem by giving hospitals the option to have the local law enforcement agency use the OSHPD CCR or to provide the agency with a CMS approved CCR. When hospitals make sweeping changes to their charges, Medicare must approve those major changes and approve a revised cost to charge ratio. The fix as proposed in this bill will be revenue and cost neutral for hospitals and local law enforcement.

4. PREVIOUS LEGISLATION.

1. AB 117 (Committee on Budget), Chapter 39, Statutes of 2011, made statutory changes necessary to implement the Public Safety Realignment portions of the 2011-12 budget by making additional substantive and technical changes relevant to AB 109 (Budget Committee), Chapter 15, Statutes of 2011, pertaining to the realignment of certain low level felony offenders, and adult parolees from state to local jurisdiction.

2. SB 1169 (George Runner), Chapter 142, Statutes of 2008, extended for five years the January 1, 2009 sunset on the statute that provides specified mechanisms and requirements concerning the payment of emergency health care services for local law enforcement patients.

REGISTERED SUPPORT / OPPOSITION:

Support

California Hospital Association (sponsor)

Opposition

None on file.

Analysis Prepared by: Paula Villescaz / HEALTH / (916) 319-2097