California’s Unique Funding Picture1

This article first appeared in the August 25, 2011 edition of Payers and Providers.

As President Obama’s Patient Protection and Affordable Care Act (PPACA) continues to evolve, the structure of health care in the United States grows ever more complicated, and California is no exception to the rule. One of the nation’s most expensive states when it comes to treating an average hospital patient, California makes up more than 10% of what the U.S. spends on health care annually.  Therefore, it is not surprising that state legislation has designated certain opportunities for its hospitals to benefit from special programs designed to fortify their financial stability in the short term.

However, with these conditional programs come additional regulations, making an already complex system even more difficult to navigate.  Leapfrogging over the myriad requirements relating to authorizations, categorization of in- and out-of-network providers, and the other combinations of factors that exist as a condition precedent to accessing non-emergency care, many of California’s hospital administrators have recently found themselves in the eye of health care’s hurricane, temporarily lulled into submission by the peace of mind granted by such programs and their promised funding, even as the chaos surrounding the nation’s health care reform is presented daily in the press.  Following are a few examples:

Medi-Cal Disproportionate Share Program

In just under 31,000 words, California’s Welfare and Institutions Code codifies the Medi-Cal disproportionate share program (DSH). It ensures that hospitals serving a large number of Medi-Cal patients, as well as low-income patients, receive additional support as a means to balance out Medi-Cal’s low reimbursement rates. In 2009 alone, this figure weighed in at more than $2.2 billion. With its origins in the Omnibus Budget Reconciliation Act of 1981 (P.L. 97-35), DSH funds have over the years provided a lifeline for struggling hospitals that may have otherwise shut their doors long ago.

California Medical Assistance Commission

The California Medical Assistance Commission (CMAC) oversees the Private Hospital Supplemental Fund for hospitals meeting certain criteria relating to emergency services, teaching hospitals, children’s hospital medical education, and small and rural hospital programs. For fiscal year 2010, hospitals received close to $242 million under this fund.

CMAC is also responsible for administering a state program to compensate a handful of hospitals with “distressed hospital funds” based upon criteria relating to their commitment to the Medi-Cal population in the state (although not tied to DSH payments) and the degree to which each hospital has experienced financial hardship. CMAC continues to work with the California Department of Health Care Services to coordinate the Construction and Renovation Reimbursement Program, having paid an estimated $90 million during fiscal year 2010-2011 for contracting hospitals that meet certain new construction criteria for plans submitted to California’s Office of Statewide Health Planning and Development (OSHPD) between 1988 and 1994.

The Hospital Fee Program

Signed into law last year, California’s Hospital Fee Program has already brought an infusion of $2.6 billion in Quality Assurance Fee monies to the state’s medical facilities, as well as providing Stabilization Act supplemental payments to eligible hospitals. With the help of matching federal funds, the program was initially designed to help offset the estimated $4.6 billion in Medi-Cal losses suffered by these same hospitals the previous year.  Considered a boon by many, the Hospital Fee Program has been extended through 2012, with its second round already nearing completion. Successful in large part due to the Herculean efforts of the California Hospital Association, the Hospital Fee Program has accomplished the unimaginable: it has forced hospitals to work together for a greater good.

California’s Medicaid Waiver

Last year the federal government approved California’s $10 billion Medicaid waiver.  This allowed the state Medicaid program to customize coverage under Medi-Cal and deviate from certain federal requirements. The inherent flexibility in this waiver was designed to improve the Medi-Cal program and reduce expenses between now and 2014, when the state health insurance exchanges under the Patient Protection and Affordable Care Act are scheduled to begin.

While by no means an exhaustive list, the programs referred to above provide an important glimpse into the complex nature of health care funding in California. Without these programs, it is hard to imagine what the state’s health care system would resemble today. Unfortunately, immediate improvements in our nation’s health care system do not appear to be forthcoming, and more specifically, ordinary reimbursements are expected to decline. California’s efforts to keep its health care system alive are both admirable and necessary in the short term.  What remains to be seen is how well its hospitals will be able to navigate the impending health care storm without such help.

Today’s headlines contend that our system is failing, and health care’s inability to sustain itself may ultimately prove its demise. This is in part due to the fact that the industry must straddle an unenviable fence, protecting its rights as both a public service and a sustainable business. It is remiss for those in authority to focus primarily on impermanent programs at the expense of rectifying flaws inherent in the current system, for they then run the risk of viewing such programs as commonplace crutches to assist them on a regular basis. A one-time infusion of unexpected yet substantial capital may top the list of “good days” for any hospital administrator, and should this occur a second time, so much the better.  But how many times will it take for an isolated event to become an annual expectation? And when the expected becomes necessary, what will be the impact on the state of our health care if or when such programs disappear?

1 Comment

  1. Roya Cole

    Thank you very interesting point of view. Perhaps this will bring the focus back to
    ” Prevention”. Preventive measures as well as education can also help in the long run.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.