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Hospital Fee Proposal Takes Giant Step Forward

Last week, California’s attempt to draw down more than $3 billion in federal funds took a large step forward. Assembly Bill 1383 (Jones) was a bill last year that called for the state to assess a “quality assurance fee” on all California hospitals. The amount collected would then be matched one-to-one by federal dollars. Most of the fee money would eventually be returned to hospitals, but the state would have more five hundred million in new monies to fund needed children’s health priorities.

In order for this plan to work, approval from the federal Centers for Medicare & Medicaid Services (CMS) is required. Over the past 8 months, the state and CMS have been engaged in conversations and negotiations about the plan. Just recently, CMS indicated that it was satisfied with California’s response to their questions.

Dianne Heffron, director of CMS’s Financial Management Group, said CMS believed that “all major issues in connection with the fee and associated reimbursement methodologies have been or are in the process of being addressed to our satisfaction.”

While CMS must still formally approve the program, in order for the state to receive the new federal matching funds as soon as possible, California will begin collecting the fees in anticipation of that approval (expected within the next several weeks).

Therefore, the first fee invoices will go out to all California hospitals October 1. First payments would then be due October 8. Hospitals should receive their first checks back from the fee proposal on October 22.

The amounts hospitals will be assessed will be based on three categories of patient days over a 21-month period, from April 1, 2009, through December 31, 2010. Allocations of funds generated by the fees, including federal matching funds, will then be made based on a given hospital’s Medi-Cal patient days over that same period.

Ultimately, hospitals will pay fees totaling $3.08 billion in four installments over the remainder of 2010. The state will receive $3.2 billion in net new federal funds, of which hospitals will receive $2.65 billion, and the state $560 million for children’s health care coverage.

The legislation runs through the end of 2010. However, both the state and hospital industry would like to extend the fee program into 2011 in order to take advantage of the six-month extension by Congress and the Obama administration earlier this year of the federal medical assistance percentage (FMAP) program. However, that would require new state legislation and almost certainly a new model for the hospital fee formula.

More on the hospital fee soon…